Anil Kumar Jain, Chartered Accountant, New Delhi.

2013-02-27T11:50:00.000+05:30

Expert Observations on Current Economic Affairs by CA A. K. Jain

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GIFT RECEIVED FROM HUF IS NOT TAXABLE(24.02.2012)
By: CA A. K. Jain
Rajkot Bench of ITAT in the case of Vineetkumar Raghavjibhai Bhalodia v. Income tax Officer, Rajkot has discussed the controversial issue of taxability of gifts from HUF to its members. The issues taken up were

1. Whether a gift received from 'relative', irrespective of whether it is from an individual relative or from a group of relatives is exempt from tax under provisions of section 56(2)(vi)?
Answer: Held, yes.

2. Whether HUF is a group of relatives and therefore, gift received from HUF would be exempt from tax under section 56(2)(vi)?
Answer: Held, yes

3. Whether for getting exemption under section 10(2) two conditions are to be satisfied, firstly, a person must be a member of HUF and secondly he should receive sum out of income of such HUF, may it be income of earlier year?
Answer: Held, yes.....Click here to read further

Warren Buffett: Why stocks beat gold and bonds (17.02.2012)
By: Warren Buffett
FORTUNE -- Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire Hathaway (BRKA) we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power -- after taxes have been paid on nominal gains -- in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date

From our definition there flows an important corollary: The riskiness of an investment is not measured by beta (a Wall Street term encompassing volatility and often used in measuring risk) but rather by the probability -- the reasoned probability -- of that investment causing its owner a loss of purchasing power over his contemplated holding period. Assets can fluctuate greatly in price and not be risky as long as they are reasonably certain to deliver increased purchasing power over their holding period. And as we will see, a nonfluctuating asset can be laden with risk......Click here to read further

EXPECTATIONS FROM FINANCE BUDGET, 2012 (10.02.2012)
By: CA A.K.Jain

The Finance Minister may consider following amendments to be incorporated in his budget presentations on 16^th March, 2012.

Direct Taxes –

1) Threshold limit should be raised from Rs. 180,000/- to Rs. 3,00,000/- for all assesses.

2) Agricultural income over Rs. 5,00,000/- should be taxed at flat rate of 15%.

3) Bank, Post Office interest should be exempted upto Rs. 50,000/-.

4) Saving limit should be raised from Rs. 1,00,000/- to Rs. 2,00,000/-.

5) All short term capital gains to be taxed at 15%. All long term capital gains to be taxed at 10%.

6) All interest and rental income of charitable and religious trusts to be taxed. Trust should not be allowed to do business.

7) Exempted income should not have application of rule – 8D u/s 14A.

8) Standard deduction of 30% of salary should be allowed.

9) MAT should be reduced to 12% and income exempt u/s 10(38) should not be considered for MAT calculation.

10) Surcharge and education cess may be abolished..... Click here to read further

Currency Devaluation Hammers India

By: CA A.K.Jain

The year 2012 has begun with catastrophic affect for the rupee. It was Rupees 43.96 against a dollar in the July 2011 and now for $1 it is Rupees 54.3. Rupee hits all time low in January 2012. This kind of decline will have the sweeping impact on the macro economy of the country, as we are heavily dependent on the import of oil, food items and other crucial raw materials.

Devaluation means officially lowering the value of currency in terms of foreign currencies. There could be many motives of the devaluation. It stimulates exports of commodities. It restricts import demand for goods and services. It helps in creating a favourable balance of payments. Almost all the countries of the world have devalued their currencies at one time or the other with a view to achieving certain economic objectives....... Click here to read further

GIFT RECEIVED FROM HUF IS NOT TAXABLE

2012-02-21T16:46:00.002+05:30

By : CA A.K.Jain

Rajkot Bench of ITAT in the case of Vineetkumar Raghavjibhai Bhalodia v. Income tax Officer, Rajkot has discussed the controversial issue of taxability of gifts from HUF to its members. The issues taken up were

1. Whether a gift received from 'relative', irrespective of whether it is from an individual relative or from a group of relatives is exempt from tax under provisions of section 56(2)(vi)?

Answer: Held, yes.

2. Whether HUF is a group of relatives and therefore, gift received from HUF would be exempt from tax under section 56(2)(vi)?

Answer: Held, yes

3. Whether for getting exemption under section 10(2) two conditions are to be satisfied, firstly, a person must be a member of HUF and secondly he should receive sum out of income of such HUF, may it be income of earlier year?

Answer: Held, yes

4. Whether where assessee was a member of HUF and received gift from HUF which was out of income of family and there was no material on record to show that gift amount was part of any assets of HUF, same would be exempt under section 10(2)?

Answer: Held, yes

Fact of the case: During the course of assessment proceedings the Assessing Officer noticed that the assessee had accepted gift of Rs. 60 lakhs from HUF and the Assessing Officer was of the view that HUF is not covered in the definition of 'relative'. Therefore, the gift received from the HUF was held to be taxable. The Commissioner (Appeals) confirmed the view of the Assessing Officer that the sum 'relative' is defined in Explanation to proviso to clause (v) of sub-section (2) of section 56. He further observed that if the legislature wanted that money exceeding Rs. 25,000 is received by the member of the HUF from the HUF is also not chargeable to tax, it would have specifically mentioned so in the definition in 'relatives'. He also considered the alternative submissions of the assessee that the said gift was exempt under section 10(2). He observed that under section 10(2) if the sum is received by any coparcener of HUF on partial or total division is exempt. The case under consideration was not a case that the said amount of Rs. 60 lakhs received by way of total or partial partition of the HUF. The Commissioner (Appeals) further observed that the above section speaks about sum received by a member of HUF if the same is out of income of the estate belonging to the family. If section 10(2) is read with section 64(2) what is to be seen is that sum received by a member of the HUF from the income of the HUF cannot exceed the amount which can be apportioned to his share in the estate or property or asset of the HUF. The Commissioner (Appeals) held that the assessee had failed to make out a case either before the Assessing Officer or before him to prove and to establish that Rs. 60 lakhs received from HUF was equal to or less than the income, which could be apportioned to his share of income in the HUF.

On second appeal :

HELD

Gift received from HUF is a gift receive from relative

A Hindu Undivided Family is a person within the meaning of section 2(31) and is a distinctively assessable unit under the Act. The Income-tax Act does not define expression 'Hindu Undivided Family'. It is well defined area under the Hindu Law which has received recognition throughout. Therefore, the expression 'Hindu Undivided Family' must be construed in the sense in which it is understood under the Hindu Law as has been in the case of Surjit Lal Chhabda v. CIT [1975] 101 ITR 776 (SC). Actually a 'Hindu Undivided Family' constitutes all persons lineally descended from a common ancestor and includes their mothers, wives or widows and unmarried daughters. All these persons fall in the definition of 'relative' as provided in Explanation to clause (vi) of section 56(2). The observation of the Commissioner (Appeals) that HUF was as good as 'a body of individuals' and could not be termed as 'relative' was not acceptable. Rather, an HUF is 'a group of relatives'. Now having found that an HUF is 'a group of relatives', the question now arises as to whether would only the gift given by the individual relative from the HUF be exempt from taxation and would, if a gift collectively given by the 'group of relatives' from the HUF not exempt from taxation. To better appreciate and understand the situation, it would be appropriate to illustrate an example, thus - an employee amongst the staff members of an office retires and in token of their affection and affinity towards him, the secretary of the staff club on behalf of the members of the club presents the retiring employee with a gift could that gift presented by the secretary of the staff club on behalf of the staff club be termed as a gift from the secretary of the staff club alone and not from all the members of the club, as such? Answer to this quoted example would be that the gift presented by the secretary of the club represents the gift given by him on behalf of the members of the staff club and it is the collective gift from all the members of the club and not the secretary in his individual capacity. And if it is held otherwise, it will lead to an absurdity of interpretation which is not acceptable in interpretation of statutes.

Further, from a plain reading of section 56(2)(vi ) along with the Explanation to that section and on understanding the intention of the legislature from the section, it could be seen that a gift received from 'relative', irrespective of whether it is from an individual relative or from a group of relatives is exempt from tax under the provisions of section 56(2)(vi) as a group of relatives also falls within the Explanation to section 56(2)(vi). It is not expressly defined in the Explanation that the word 'relative' represents a single person. And it is not always necessary that singular remains singular. Sometimes a singular can mean more than one, as in the case on hand. In the instant case the assessee received gift from his HUF. The word 'Hindu Undivided Family', though sounds singular unit in its form and assessed as such for income-tax purposes, finally at the end a 'Hindu Undivided Family' is made up of 'a group of relatives'. Thus, a singular words/words could be read as plural also, according to the circumstance/situation. To quote an example, the phrase 'a lot'. Here, the phrase 'a lot' remains as such, i.e., plural, in all circumstances and situations, where in the case of 'one of the friends' or 'one of the relatives', the phrase remains singular only as the phrase states so that one amongst the relatives and at no stretch of imagination it could mean as plural whereas in the phrase 'a lot' the words 'a' and 'lot' are inseparable and if split apart both give distinctive numbers, i.e. 'a' singular and 'lot' plural and whereas when read together, it can only read as plural in number unlike in the case of 'one of the relatives' where 'one' is always singular in number whereas 'relatives' is always plural in number, but when read together it could read as singular in number. Applying this description with the case on hand, it could be said that though for taxation purpose, an HUF is considered as a single unit, rather, an HUF is 'a group of relatives' as it is formed by the relatives. Therefore, the 'relative' explained in Explanation to section 56(2)(vi) includes 'relatives' and as the assessee received gift from his 'HUF', which is 'a group of relatives', the gift received by the assessee from the HUF should be interpreted to mean that the gift was received from the 'relatives' therefore the same was not taxable under section 56(2)(vi ).

Section 10(2) exemption in case of gift from HUF

Section 10(2) provides that tax shall not be payable by an assessee in respect of any sum which he receives from a member of Hindu Undivided Family and as the sum has been paid out of the family income, or in the case of an impartible estate, whose such sum has been paid out of the income of the estate belonging to the family, subject however, to the provisions of section 64(2). The object of the provision is that a Hindu Undivided Family, according to section 2(31) is a 'person' and a unit of assessment. Income earned by a HUF is assessable in its own hands, so as to avoid double taxation of one and same income once in the hands of the HUF which earns it, and again in the hands of the member whom, it is paid. In respect of the family property qua its members it has been held by various authorities and courts that there is an antecedent title of some kind of a Member in the properties of HUF and a family arrangement which merely acknowledges and defines how that title is looked at and it is not an alienation of property at all. But even if it should be regarded as a transfer, the object of avoiding family litigation is consideration in money's worth. The real consideration in a family arrangement is based upon a recognition of a pre-existing right hence, there is no transfer of property at all. The Apex Court in CGT v. N.S. Getti Chettiar [1971] 82 ITR 599based its observation on that ground in a case of unequal family partition and held that it is not transfer, hence no gift tax liability is attracted. Every member of the HUF has a claim as to his maintenance. Receiving anything in consideration of his pre-existing right in a property or income covers by section 10(2).

There are two ways involved in a transaction, i.e., (i) amount given and (ii) the amount received. If one relate the provisions of Income-tax Act to these ways of 'given' and 'received' in case of an HUF it could be said that the case of amount received by an HUF from its member is provided in section 64(2). Section 64(2) was inserted by the Taxation Laws (Amendment) Act, 1970 with effect from 1-4-1971. This section was inserted to avoid creation of multiple HUFs and others. Similar provisions was also inserted in the Gift-tax Act, 1958 and accordingly transfer of assets in such case was termed as deemed gift. The provisions of section 64(2) provides that - where in the case of an individual being a member of a Hindu Undivided Family, any property having been the separate property of the individual has been converted by the individual into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family or throwing it into the common stock of the family or been transferred by the individual, directly or indirectly, to the family otherwise than for adequate consideration then, notwithstanding anything contained in any other provisions of this Act or in any other law for the time being in force, for the purpose of computation of the total income of the individual under this Act. The individual shall be deemed to have transferred the converted property, though the family, to the members of the family for being held by them jointly. The income derived from the concerted property or any part thereof shall be deemed to arise to the individual and not to the family. Where the converted property has been the subject-matter of a partition (whether partial or total) amongst the members of the family, the income derived from such converted property as is received by the spouse on partition shall be deemed to arise to the spouse from assets transferred indirectly by the individual to the spouse and the provisions of sub-section (1) shall, so far as may be, apply accordingly. To cover the transaction between a member of HUF and the HUF the Income-tax Act provides section 10(2) and section 64(2). Section 10(2) is not similar to section 64(2). It deals with the transaction differently which would mean that the legislature in their own wisdom was aware about the circumstances and accordingly provisions are enacted in the Act. Therefore, in our opinion, both the situation of amount received and amount given to HUF by a member is to be dealt with accordingly.

Firstly, there is no provision in the Act to contend that it is applicable only to the extend of income of the year. Secondly, the property or the income of HUF belongs to the members thereof who are either entitled to share in the property on partition or have a right to be maintained. For getting exemption under section 10(2) two conditions are to be satisfied, firstly, a person must be a member of HUF and secondly he should receive the sum out of the income of such HUF may be of earlier year.

The assessee received gift from HUF and had satisfied both the conditions of section 10(2) that the assessee was a member of HUF and received amount out of the income of family. There was no material on record to hold that the gift amount was part of any assets of HUF. It was out of income of family to a member of HUF, therefore, the same was exempt under section 10(2).

:Case Reference:

A.L. GEHLOT, ACCOUNTANT MEMBER AND N.R.S. GANESAN, JUDICIAL MEMBER, IT APPEAL NOS. 583 (RJT.) OF 2007 AND 601 (RJT.) OF 2008,

[ASSESSMENT YEARS 2005-06, MAY 17, 2011]

Warren Buffett: Why stocks beat gold and bonds

2012-02-17T15:05:00.000+05:30

In an adaptation from his upcoming shareholder letter, the Oracle of Omaha explains why equities almost always beat the alternatives over time.

By Warren Buffett

FORTUNE -- Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire Hathaway (BRKA) we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power -- after taxes have been paid on nominal gains -- in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date.

From our definition there flows an important corollary: The riskiness of an investment is not measured by beta (a Wall Street term encompassing volatility and often used in measuring risk) but rather by the probability -- the reasoned probability -- of that investment causing its owner a loss of purchasing power over his contemplated holding period. Assets can fluctuate greatly in price and not be risky as long as they are reasonably certain to deliver increased purchasing power over their holding period. And as we will see, a nonfluctuating asset can be laden with risk.

Investment possibilities are both many and varied. There are three major categories, however, and it's important to understand the characteristics of each. So let's survey the field.

Investments that are denominated in a given currency include money-market funds, bonds, mortgages, bank deposits, and other instruments. Most of these currency-based investments are thought of as "safe." In truth they are among the most dangerous of assets. Their beta may be zero, but their risk is huge.

Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as these holders continued to receive timely payments of interest and principal. This ugly result, moreover, will forever recur. Governments determine the ultimate value of money, and systemic forces will sometimes cause them to gravitate to policies that produce inflation. From time to time such policies spin out of control.

Even in the U.S., where the wish for a stable currency is strong, the dollar has fallen a staggering 86% in value since 1965, when I took over management of Berkshire. It takes no less than $7 today to buy what $1 did at that time. Consequently, a tax-free institution would have needed 4.3% interest annually from bond investments over that period to simply maintain its purchasing power. Its managers would have been kidding themselves if they thought of any portion of that interest as "income."

For taxpaying investors like you and me, the picture has been far worse. During the same 47-year period, continuous rolling of U.S. Treasury bills produced 5.7% annually. That sounds satisfactory. But if an individual investor paid personal income taxes at a rate averaging 25%, this 5.7% return would have yielded nothing in the way of real income. This investor's visible income tax would have stripped him of 1.4 points of the stated yield, and the invisible inflation tax would have devoured the remaining 4.3 points. It's noteworthy that the implicit inflation "tax" was more than triple the explicit income tax that our investor probably thought of as his main burden. "In God We Trust" may be imprinted on our currency, but the hand that activates our government's printing press has been all too human.

High interest rates, of course, can compensate purchasers for the inflation risk they face with currency-based investments -- and indeed, rates in the early 1980s did that job nicely. Current rates, however, do not come close to offsetting the purchasing-power risk that investors assume. Right now bonds should come with a warning label.

Warren Buffett: Your pick for Businessperson of the Year

Under today's conditions, therefore, I do not like currency-based investments. Even so, Berkshire holds significant amounts of them, primarily of the short-term variety. At Berkshire the need for ample liquidity occupies center stage and will never be slighted, however inadequate rates may be. Accommodating this need, we primarily hold U.S. Treasury bills, the only investment that can be counted on for liquidity under the most chaotic of economic conditions. Our working level for liquidity is $20 billion; $10 billion is our absolute minimum.

Beyond the requirements that liquidity and regulators impose on us, we will purchase currency-related securities only if they offer the possibility of unusual gain -- either because a particular credit is mispriced, as can occur in periodic junk-bond debacles, or because rates rise to a level that offers the possibility of realizing substantial capital gains on high-grade bonds when rates fall. Though we've exploited both opportunities in the past -- and may do so again -- we are now 180 degrees removed from such prospects. Today, a wry comment that Wall Streeter Shelby Cullom Davis made long ago seems apt: "Bonds promoted as offering risk-free returns are now priced to deliver return-free risk."

The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer's hope that someone else -- who also knows that the assets will be forever unproductive -- will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.

This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce -- it will remain lifeless forever -- but rather by the belief that others will desire it even more avidly in the future.

The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.

What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As "bandwagon" investors join any party, they create their own truth -- for a while.

Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the "proof " delivered by the market, and the pool of buyers -- for a time -- expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: "What the wise man does in the beginning, the fool does in the end."

Today the world's gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce -- gold's price as I write this -- its value would be about $9.6 trillion. Call this cube pile A.

Let's now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world's most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

Beyond the staggering valuation given the existing stock of gold, current prices make today's annual production of gold command about $160 billion. Buyers -- whether jewelry and industrial users, frightened individuals, or speculators -- must continually absorb this additional supply to merely maintain an equilibrium at present prices.

A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops -- and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil (XOM) will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.

Admittedly, when people a century from now are fearful, it's likely many will still rush to gold. I'm confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B.

Our first two categories enjoy maximum popularity at peaks of fear: Terror over economic collapse drives individuals to currency-based assets, most particularly U.S. obligations, and fear of currency collapse fosters movement to sterile assets such as gold. We heard "cash is king" in late 2008, just when cash should have been deployed rather than held. Similarly, we heard "cash is trash" in the early 1980s just when fixed-dollar investments were at their most attractive level in memory. On those occasions, investors who required a supportive crowd paid dearly for that comfort.

My own preference -- and you knew this was coming -- is our third category: investment in productive assets, whether businesses, farms, or real estate. Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment. Farms, real estate, and many businesses such as Coca-Cola (KO), IBM , and our own See's Candy meet that double-barreled test. Certain other companies -- think of our regulated utilities, for example -- fail it because inflation places heavy capital requirements on them. To earn more, their owners must invest more. Even so, these investments will remain superior to nonproductive or currency-based assets.

Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola or some See's peanut brittle. In the future the U.S. population will move more goods, consume more food, and require more living space than it does now. People will forever exchange what they produce for what others produce.

Our country's businesses will continue to efficiently deliver goods and services wanted by our citizens. Metaphorically, these commercial "cows" will live for centuries and give ever greater quantities of "milk" to boot. Their value will be determined not by the medium of exchange but rather by their capacity to deliver milk. Proceeds from the sale of the milk will compound for the owners of the cows, just as they did during the 20th century when the Dow increased from 66 to 11,497 (and paid loads of dividends as well).

Berkshire's goal will be to increase its ownership of first-class businesses. Our first choice will be to own them in their entirety -- but we will also be owners by way of holding sizable amounts of marketable stocks. I believe that over any extended period of time this category of investing will prove to be the runaway winner among the three we've examined. More important, it will be by farthe safest.

This article is from the February 27, 2012 issue of Fortune.

Source: http://finance.fortune.cnn.com/2012/02/09/warren-buffett-berkshire-shareholder-letter/

EXPECTATIONS FROM FINANCE BUDGET, 2012

2012-02-10T16:59:00.003+05:30

New Page 1

The Finance Minister may considerfollowing amendments to be incorporated in his budget presentations on 16^th March, 2012.

Direct Taxes –

1) Threshold limit should be raised from Rs. 180,000/- toRs. 3,00,000/- for all assesses.

2) Agricultural income over Rs. 5,00,000/- should be taxedat flat rate of 15%.

3) Bank, Post Office interest should be exempted upto Rs.50,000/-.

4) Saving limit should be raised from Rs. 1,00,000/- toRs. 2,00,000/-.

5) All short term capital gains to be taxed at 15%. Alllong term capital gains to be taxed at 10%.

6) All interest and rental income of charitable andreligious trusts to be taxed. Trust should not be allowed to do business.

7) Exempted income should not have application of rule –8D u/s 14A.

8) Standard deduction of 30% of salary should be allowed.

9) MAT should be reduced to 12% and income exempt u/s10(38) should not be considered for MAT calculation.

10) Surchargeand education cess may be abolished.

11) Maximumrate of tax on companies and firms may be reduced to 27%.

12) Foreigncompanies should be taxed at least 35%.

13) AllForeign remittances and deposits in bank accounts from unknown sources shouldbe taxed at 35%.

14) Auditrequirements should be applicable only when turnover exceeds 1 crore or valueof services rendered exceeds 50 lakhs.

15) Booksof accounts should be required only if the turnover exceeds Rs. 25 lakhs.

16) Wealthtax limit should be raised to 2 crores.

Indirect Taxes – Service Tax

1) Basic limit should be raised to Rs. 25 lakhs.

2) All services to be covered, no exemption.

3) Service tax to be charged at 10% flat with MODVATfacility.

4) No classification of different type of services.

Indirect Taxes – Excise Duty

1) Hundreds of classifications should be reduced tofollowing 3 categories:

a. Essentials of life – to be exempted from Excise duty

b. General Items – to be taxed at 10%

c. Items of Luxuries – to be taxed at 30%

2) Excise Duty limit for Small scale industries should beincreased to Rs. 3 crores.

Indirect Taxes – Customs Duty

1) Hundreds of classification should be reduced tofollowing 5 classes:

a. Basic Food / Medicine etc. items – NIL duty

b. Other food items – 40%

c. Industrial items – 15%

d. Other items of common use – 20%

e. Luxury items – 35%

2) Baggage allowance should be increased to Rs.1,00,000/-.

These simpleamendments will make the life of a common person happy and comfortable andprovide protection to home industry. Tax burden will be shifted on richerclass.

Debt funds-An ideal investment among Fixed Income products

2012-01-18T17:12:00.000+05:30

By : Nimesh Shah

(The author is the MD and CEO of ICICI Prudential AMC)

The growth of mutual fund industry in India has been fuelled by equity and debt oriented schemes. These are the only two asset classes where a wide variety of products have been made available. The other asset classes are yet to play their part. Unlike equity products which thrive on the notion of long term, higher risk and commensurate returns; debt mutual fund product appeal to investors based on considerations such as safety, liquidity and reduced volatility of returns.

However, even after several years of introduction and innovation, investing in fixed income mutual fund products largely remains a bastion of institutional investors in India. Retail investor participation in this asset class through mutual funds is negligible given its potential. This is counter intuitive considering the vast amount of savings that the Indian investors have in bank fixed deposits. If one looks at the asset allocation pattern of Indian retail investors, it is evident that Indians are predominantly fixed income investors by nature and convention. This variance is clearly an opportunity for the mutual fund industry.

In terms of diversity of product offerings, the debt mutual fund offer products with different permutations of liquidity/tenors, credit quality and interest rate related volatility to address various investment requirements based on an investor's investment objective, risk appetite, and time horizon. The industry needs to invest in increasing the awareness among the retail investors so that they can take advantage of a wide array of relevant and beneficial products. The product offerings in debt space today are multi-fold and designed for retail as well as institutional investors. Right from avenues such as Gilt funds which typically provide returns in the form of capital appreciation and interest income by investing in to government securities of varying maturities, we have various short-term investment avenues such as Fixed Maturity Plans (FMPs) designed to lock in yields by buying and holding papers of similar maturity, Interval funds, short-term and ultra short-term funds which are more accrual based meant for short-term deployment of funds. At the same time, we have category of funds which seek to provide regular income through dividends in the form of Monthly Income Plans.

While mutual fund as an investment category cannot guarantee returns, the other aspects of investor's reservation can be dealt by creating awareness towards debt as an avenue towards safety, liquidity and returns. In this reference, I would like to draw reader's attention to the second half of 2008 which has been known more for the collapse of the global financial system. If one were to look at the returns generated by some of the debt mutual funds during this period, one would certainly be caught off guard. The point that I am attempting to make here is that at various points of time different asset classes have outperformed and with the ever changing investment environment each asset class will have some uniqueness to offer in an investor's portfolio.

To sum it up, each asset class has its pros and cons and its fitment would be a function of the prevailing market environment as well as investor's specific situation. It is imperative to increase awareness among retail investors on merits of considering debt as an investment proposition. I strongly believe that the onus lies on us and the entire investment fraternity to educate investors on the same.

Currency Devaluation Hammers India

2012-01-13T17:58:00.000+05:30

By : CA A.K.Jain

Valuation History of Indian Rupee:
In early controlled exchange rate regime, the rupee exchange rate hovered around Rs 4.00 in the 1950s, Rs 5.00 in the 60s, Rs 7.00 in the 70s, and Rs 8.00 in the 80s. In the liberalised era of 90s, the rupee moved to Rs 20s and Rs 40 in the next decade of 2000.

During this period, the Government has declared two major devaluations. The rupee was devalued first in 1966 by 57% from Rs 4.76 to Rs 7.50 against the US dollar. In the 90s, the rupee was again devalued by 19.5% from Rs 20.5 to Rs 24.5 against the US dollar.

1966 - Devaluation:
Since 1951, despite government attempts to obtain a positive trade balance, India experienced a severe balance of payments deficits. Inflation caused Indian prices to go sky high. When the exchange rate is fixed and a country experiences high inflation relative to other countries, that country’s goods become more expensive and foreign goods become cheaper. Therefore, inflation tends to increase imports and decrease exports. Since 1950, Indian continuously faced trade deficits. Another reason, which played important role in the 1966 devaluation was war with Pakistan. The US and other countries withdrew their aid, which further necessitated devaluation. To improve fiscal position, Government of India devalued Rupee by whopping 57% against Dollar.

1991 - Devaluation:
In 1991, India still had a fixed exchange rate system, where the rupee was hooked to basket of currencies of major trading partner countries. At the end of 1990, the Government of India found itself in serious economic trouble. The government was close to financial default and its foreign exchange reserves had dried up to the point that India could barely finance three weeks of imports. In July of 1991 the Indian government devalued the rupee by 19.5%. The government also changed its trade policy from its highly restrictive form to a system which allowed exporters to import 30% of the value of their exports.

Chronology of India’s Rupee Valuations
Year	Exchange Rate
1947	£1.00
1952	$5.00
1970	$7.57
1975	$8.40
1980	$7.88
1985	$12.36
1990	$17.50
1995	$32.427
2000	$45.00
2006	$48.33
2007 (October)	$38.48
2008 (June)	$42.51
2008 (October)	$48.88
2009 (October)	$46.37
2010 (January )	$46.21
2011 (April)	$44.17
2011 (September)	$48.24
2011 (November)	$50.97
2011 (November)	$52.11
2011 (December)	$53.65

Impact of Inflation on Currency:
Inflation rates in India have risen about 8.50% amid concerns surrounding the devaluation of the rupee and the erosion of the purchasing power of savings. In spite of Governmental interventions, the rupee is in a free-fall, having slipped by over 20%, making it one of the most awful performing currency globally. RBI made thirteen rate increases attempts to docile the inflation in last one year but hardly achieved any significant result. Inflation rate maintained upwards trend. This is now reflected through the currency depreciation. Inflation directly enhances prices and thereby affects the purchasing power of currency. Currency value and inflation have a direct co- relation and impact each other. The currency re-valuation is also essential with the change in domestic prices affected by inflationary forces. Currency is considered to be over valued if the suitable adjustment is not made with the price index fluctuations.

Impact on Gold:
India currency devaluation has also resulted in surge of import by over 200% of gold and silver. Statistics show that imports of gold and silver to India were $8.96 billion a growth of 222%. The Reserve Bank of India purchased 200 tonnes of gold from the International Monetary Fund in 2009. From the start of 2011, some 30 banks in India have been granted permission to import gold and silver. Further gold purchases are expected in coming months, as the Reserve Bank has issued licenses to seven more banks to import gold and silver. Indian banks are therefore contributing to the massive increase in demand for gold and silver. Chinese banks are also catering to the increased demand of Chinese people for gold bullion for investment and savings purposes. In fact, most of the world’s central banks are now diversifying from major currencies such as the dollar and euro into gold. In addition to India and China, these countries include Russia, Sri Lanka, Bangladesh, Mauritius, Mexico, Iran and Saudi Arabia. Financial experts believe, the increased demand for gold and silver from India and wider Asia is sustainable and that it will keep the precious metal market thriving.

Impact on Stock Market:
As a result of de- valuation, Indian stock markets will face new threats. The operators and participants were earlier concerned about domestic inflation rate and the Reserve Bank of India’s economic policies. But the fall in the value of Indian currency has taken aback all concerned. The investors are bound to suffer as there is always a positive correlation between stock index and corporate results.

Reason for Devaluation:
1. Inflation: Firstly, the descend, in the rupee was assumed to have taken place to adjust for the high inflation. But, as the rupee continued to go down, apprehensions of further increase in the inflation have appeared.

2. Strengthening of Dollars: Increase in global dollar value can also be attributed as one of the prime reason for the fall in the value of rupee. The demand of dollars due to economic crisis in other countries including Europe has also tremendously increased the dollar demand. The Euro-Zone crisis has weakened the Euro significantly against the US Dollar. In other words dollar is getting stronger in the world markets. Obviously the investors are considering US as safe place to invest in. There was also an increased demand for the dollar in the domestic currency markets due to a flight of foreign funds from the domestic stock markets.

3. Dollar Demand from Stock Markets: Foreign institutional investor’s withdrawal from domestic economy is the one big reason for this depreciation. The Greece Crisis and its rescue package made investor to re-think about their investments. Certain political changes and civil movements are also the factors for foreign institutional investors to become net sellers recently.

4. Fiscal Deficit: The growing trade deficit and large fiscal deficit are also contributing to the fall in the rupee valuations.

Political View:
According to the Government, the reason for the current round of rupee depreciation is related more to current grim global economic environment. The currency of every other emerging economy (barring China that managed its currency peg against the US dollar) is falling. The currencies of Russia, Brazil, South Korea, and Indonesia have plunged by between 6% to 16%. So the 10% fall in the value of rupee against the US dollar is hardly out of context. The sovereign debt woes of European Union are shifting foreign investors from euro assets to dollar assets. There seems to be no other alternative to US dollar.

RBI Mechanics:
RBI is concerned and keeping close watch on the situation. Apart from direct intervention in the currency markets, RBI has taken many other measures such as relaxing external commercial borrowing norms by raising the ceiling on interest rates. It has also increased the interest rate cap on foreign currency deposits. The RBI has removed the USD 100 million cap on net foreign exchange supply arising out of rupee swap transactions that banks undertake on behalf of customers. In order to attract more foreign currency deposits, the RBI has raised the interest rate ceiling. The spreads for NRE term deposits were increased from 1.75% to 2.75% while those on FCNR (B) deposits were increased from 1% to 1.25 %.

Market Forecast:
The wide-ranging perception in the financial market is that until the global macroeconomic environment settles, the rupee will continue to be under pressure. "India's external position has become increasingly vulnerable to global risk appetite. Further weakness cannot be ruled out," Royal Bank of Scotland said in a research note. The rupee is down 14.80% on the year, with the closest loser among other Asian units being the Thai baht, which has shed just 3.2%, followed by the Malaysian ringgit that is down 3%.

The rupee's slither may continue due to the decline in foreign exchange inflows and swelling outflows. The Euro zone, the world's largest trading block and India's biggest trading partner, is also in a deep crisis. In times to come, this zone has to stabilise to bring some semblance of order to the global currency markets. Numbers of Indian scams have also distracted government’s concentration away from economy. These scams make the bad image of India in the global market.

At the end of G-20 summit in Seoul recently, world leaders declared (in the backdrop of the US demanding that Chinese currency Yuan should be appreciated to check the Asian giant from taking advantage in international trade) “We will move towards more market determined exchange rate system and enhance exchange rate flexibility to reflect underlying economic fundamentals and refrain from competitive devaluation of currencies. Advanced economies including those with reserve currencies will be vigilant against excess volatility and disorderly movement in exchange rates”.

Attending a meet in Seoul PM, Dr. Manmohan Singh agreed to refrain from "competitive devaluation" and bring in exchange rate flexibility to ensure that no country gets undue advantage.

What Indian Government Can do, to Bring back Positive Vibrations in Indian Economy?
1. Allow free flow of foreign investment for the development of infrastructure and manufacturing sector.
2. Restrain / discourage import of non essential and luxury items e.g. auto sector imports.
3. Interest rates may be increased further on NRE and FCNR accounts.
4. Restrain /discourage export of agricultural produce and basic minerals e.g. iron ore.
5. Promote aggressively exports of manufactured goods like China
6. Promote migration of skilled personnel / work force from India. We have them in plenty.
7. Facilitate the voluntary return of the funds parked outside India.
8. Reduce / cut unnecessarily expenditure of government institutions e.g. Indian Embassies. Ask them to repatriate their surplus fund instead of calling funds from India. Many foreign embassies in India are remitting their surplus to their home countries.
9. Government should observe restraint in offering financial aid to other countries. We are yet not so rich. Our people are still hungry and need night shelters.

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Tapuriah Jain & Associates
Chartered Accountants
21,. Skipper House, 9, Pusa Road, New Delhi - 110 005
Tele : 91-11-28754012 & 13, Mobile : 91-98-100-46108, E-Mail : caindia@hotmail.com

THE REGULATOR ORIGINALLY WANTED TO FINE PWC A PENALTY RUNNING INTO THE TENS OF MILLIONS

2012-01-11T15:38:00.000+05:30

PricewaterhouseCoopers faces a record fine of £1.4 million and has been severely reprimanded for failing to realise that client money had not been properly protected at JPMorgan Securities, a regulator said on Friday.

The regulator reduced the fine from £2 million to £1.4 million for cooperation and other mitigation, but the regulator originally wanted to hit PwC with a penalty running into tens of millions of pounds.

The case brought by the Accountancy and Actuarial Discipline Board (AADB) – part of the UK's governance watchdog the Financial Reporting Council – is viewed as a changing trend for regulators to clamp down harder on failures by auditors, considered by some politicians to have too cosy a relationship with clients, in particular banks, in the wake of the credit crunch.

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The AADB said PwC had accepted that its conduct had "fallen short of the standards reasonably to be expected" of auditors and that the firm "did not carry out its professional work in relation to these reports with due skill, care and diligence".

PwC, the world's largest auditor that checks the books of the majority of the top UK companies, admitted that it "failed to obtain sufficient appropriate evidence" in identifying that the US bank JPMSL "had not at all times held client money separate from the firm's money".

In the seven years in question, JP Morgan carried out daily "sweeps" of balances of segregated client money into consolidated overnight, interest-bearing accounts at the bank, the AADB said.

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This means that PwC's reports to the Financial Services Authority about the ringfencing of client money were "false".

As a result the FSA fined JP Morgan £33.32 million for failing to keep client assets separate at all times from the bank's money over a seven-year period. The fine represented 1 percent of the average amount of the client money allowed to be desegregated, the AADB said.

If the AADB had fined PwC in the same way – 1 percent of its profits – PwC would have faced a penalty of £44.3 million – a similar proportion of PwC's pre-tax profits for the year ended 30 June 2010.

PwC said: "We are pleased that this matter has now been concluded. We regret that one aspect of our work on the private client money report to the FSA fell beneath our usual high standards. When the issue was identified, and before any complaint had arisen, we took action to ensure that staff received additional training in the client monies area.

Source: Ramachandran Mahadevan e mail: ramachandran.mahadevan@gmail.com

Russia underperformed in Indian economy: Moscow professor

2012-01-06T11:26:00.000+05:30

Singapore, Sept 24 (PTI) Economic relations between Russia and India have been slower than expected, given that the two powerhouses have very close diplomatic and military relations, a Russian professor has said.There were advantages for Russia to participate in India''s huge potential of developing business and investment relations, but Moscow''s focus has remained limited due to their investment policy restrictions, Dr Dmitri Trenin, chair of the Moscow''s Centre Foreign and Security Policy Programme said in Singapore today. Except for the joint "BrahMos" missile project, Russia seems to have missed on the opportunities in working in Indian business sectors, he told reporters on the sideline of the inaugural Singapore Global Dialogue. Nevertheless, Russia had favoured India as a preferred partner, providing the Indians with a advanced-technology SU 30s when compared with China, said Dr Trenin who spoke as an independent observer of the India-Russia relations. Touching on Russia and China relationship, he said Moscow value it and would not want to have any problem with the Chinese. "It wants the relationship to be stronger with the Chinese for it has a long border with Chinese. But in more sense, the Russians would want to sell its technology to India than to China," Dr Trenin stressed.

Elaborating on the underperforming Russia-India economic relations, he stressed that India "is a market growing at a fast pace" and Russian companies should had been in India as part of their International businesses development. With the exception of a few sectors, such as telecommunications, Russian businessmen should have been in the vibrant Indian markets, especially where the Indian entrepreneurs have business alliances with foreigners. "I think the Russians were complacent for a period of time, and at one time thinking that the Indian arms market was something forever was theirs. But they did not do well enough and provide the technology and services as the Indians were actually asking for," he stressed. "Though there were limits on what the Russians could do, there was not enough even within ''the possible efforts'' they could have made to participate in Indian market," said Dr Trenin. evertheless, the Russians had a unique situation with India, given that between the two major powers there were no problems, yet there was a shortfall in developing business, he pointed out.

"You cannot have such a strong relationship between the two major nuclear powers and yet they were underperforming economically in what India could have offered to the Russians," he said. Russia is still restucturing its economy .....their main draw have always been their arms exports and defense R&D.....economically there are few areas where any sort of cooperation is possible.....IT in Russia is more based on receiving outsourced project work like software design, microE....etc areas where it is a competitor not a supplier to India and China......basically it is developing on the lines of India and hardly has any expertise in large scale manufacturing , biotech , etc the fields in which India is trying to garner increased investment.......

Study of Medicine though can be a potential area for collaboration....as it is loads of Indian students opt for Medicine as a course in Russian universities....

Source : http://www.defence.pk/forums/world-affairs/73973-russia-underperformed-indian-economy-moscow-professor.html

Finance Environment

2012-01-02T10:27:00.000+05:30

By : Jeyarajan.R

Finance:

When we talk about finance whether it is limited to money or something more than money, to decide we have to consider the following points.

As many activities are associated with finance, like savings, paying, giving or getting credit, these activities can be done without the use of money just like what we done during barter system. Further money just like other goods or services can be bought and sold i.e., when we day a person earn a sum of money, means, he sold his service to buy a sum of money.

Hence finance can be defined as “the study of nature and use of payments not as nature of money”

Objective of Financial System:

when we consider some subject as a system it should contains various parts combined by common objective. For healthy financial system of a capitalistic economy should have the following objectives

1. Maximum employment opportunities

2. Stable price level

3. Maximum sustainable growth

4. Satisfactory balance of international payments

5. Maximum scope for individual freedom and decision making.

Parts of Financial System:

The various parts through which financial system function are as follows

1. The central Bank, which creates reserves for banking system

2. The commercial Banks, which create working money through their loans and investments.

3. The Non-bank intermediaries, which assist in transfer of funds from savers to investors.

4. The money and capital market, which links savers and users of funds through sale and resale of securities.

5. The foreign exchange markets, which exchange and price one nation money against other s.

6. The users of financial system, users and suppliers of funds, who rely on the financial system for their economic activities.

Money:

Even though study of finance is not solely attributable to money, it is inevitable to study the role of money in financial system to understand finance, as money act as an intermediary for all kind off transaction like blood in human body. Money issued as a factor to measure the value of various goods produces and services provided by people with various skills and specialization.

Real Flow and Money Flow:

All economic activities can be represented by two matching flows.

I. Real Flow:

The flow of material, machine and labor service, its final output and the final flow of goods and services from producers to customers are known as Real flow. These flows accounts for the satisfaction of wants and needs, as utilities that use the end purpose of economic effort.

II. Money Flow:

This flow involves innumerable payments and receipts of currency or financial instruments that assist the production, exchange, consumption of real wealth moving.

Almost every economic transaction involves a double movement in parallel, one part in the movement of goods from seller to buyer and other is movement of money from buyer to seller.

Still money is only a facilitating agent as increase in supply of money without increase in real production of goods and services has no value instead it inflate the price of goods and services not matched to money flow. A million rupees in mid of desert can be taken away by a single glass of water.

Supply and Velocity:

How much economic activity money can support depend on both how much money available (supply) and how fast that money turnover (velocity). A small amount of money turning over rapidly can serve on economy as effectively as large amount of money turning over sluggishly.

Most of the new money is created in the banking system and finds its way into circulation by bank loans or investments. The part of the money that the bank lends to spenders will be invested by buying bonds and securities.

Classical Interest Rate Theory:

Classical interest rate theory brings as near the heart of wealth creation when people receive income, they can either spend for immediate enjoyment or differ spending by saving.

To the extent people save or differ spending, they release economic resources from having to produce for current needs. These resources then available for capital formation, investment in goods, which take time to build and which people will use up in future period. Capital goods are thus produced through saving and savings are thus identical to investments.

Fundamentals of interest rate depend upon two factors; they are Time preferences and Productivity. These two factors are interrelated while deciding the interest rate. Time preference represent the period for which the money invested, as people requires money immediately rather than later.

Money saved is money invested, while invested, user of funds (borrower) will earn profit either by way of investing in finished goods as inventory or purchase as raw material, convert into finished goods and selling the same as finished goods. The income earned on above process is the productivity of money.

The share for money lender/saver/investor is based on the productivity of the money saved/invested during a specific period is represented by interest.

Savings, Credit and Investment:

Credit adds much power to the power and flexibility of economic life. It makes possible new cycle of production and consumption, distribution and exchange by doing two things

1. It activates the idle money and by doing so

2. It activates the idle resources men, machine and materials.

The extension of credit by commercial banks plays particularly important part adding to the nation’s money supply and velocity.

The Financial Market:

A market is a set of facilities where goods are exchanged for money as money exchanged for goods. In financial market securities are the goods, exchanged on regular basis. The following are the functions of financial market

1. Shifting funds from suppliers to users

2. Pricing securities

3. Discounting the future

4. Liquefying securities

5. Allocating funds add economic resources.

The first task of financial market is to gather and mobilize perhaps from large number of individuals and separate financial institution to a large part of the vast sum of money needed for each day either in short term or on long term basis for government bodies, business and consumers.

It permits the owners of the money to exchange it for securities and enabling user of money to buy money by selling securities.

Non-bank Intermediaries:

In above points we discussed almost all the parts of financial system such as commercial banks, central bank, financial market, savings, credit and investment and users of financial system briefly except non-bank intermediaries, whose role is to make money available to the needs of the users of money where commercial bank not able to reach.

They act as intermediary between less qualified capitalist (savers) and users of money (borrowers), knowing better than the ordinary public which loans are better and which loans are worse, they borrow from him, and gain a profit by charging to the public more than they pay to him.

All about XBRL

2011-12-31T11:14:00.000+05:30

By: GURVINDER SINGH

INTRODUCTION

XML stands for extensible markup language. Extensible means language that can be extended by anyone who wants to create additional ways to use it. Markup means that XML’s primary task is to give definition to text and symbols. Language means that XML is a method of presenting information in understandable formats.

XBRL was created with a view to develop a consistent method of reporting business event information. The initial goal of XBRL is to provide an XML-based framework that the global business information supply chain will use to create, exchange, and analyze financial reporting information.

HOW DATA DISPLAY IN XML FORMAT

XML-Coded data:

New England
02312000
Wal-Mart

XBRL in INDIA

A separate company, under section 25 has been created, to manage the operations of XBRL India. The main objectives of XBRL India are:

To create awareness about XBRL in India
To develop and maintain Indian Taxonomies
To help companies, adopt and implement XBRL.

XBRL in MCA

Ministry of Corporate Affairs vide its General Circular No. 09/2011 dated 31.03.2011 mandated certain class of Companies who are covered under Phase I. Following class of companies are required to file their Balance Sheet and Profit and Loss Account in XBRL Format:-

Listed Companies and their subsidiaries;
Companies having paid up capital of Rs. 5 Crores and above;
Companies having turnover of Rs. 100 Crores and above.

However, banking, insurance, power Companies and NBFCs are exempt for XBRL Filing in Phase I.

Time Limit :-

To provide adequate time and flexibility to become familiar with the new Format, time limit has been extended to 30^th December, 2011.

All the above entities are allowed to file their balance sheet upto 30/12/2011 or within 60 days of due date of Filling.

Steps for Creation and filling of Instance Documents

Companies covered under First Phase are required to file their Instance Document created according to the xbrl Rules after converting the same in .xml file. MCA has declared Taxonomy for the purpose of XBRL. Taxonomies for Indian companies are developed based on the requirements of:

Schedule VI of Companies Act,
Accounting Standards, issued by ICAI
SEBI Listing requirements.

Taxonomy can be referred as an electronic dictionary of the reporting concepts. Taxonomy consists of all the data definitions, the basic XBRL properties and the interrelationships amongst the concepts. It includes terms such as net income, EPS, cash, etc. Each term has specific attributes that help define it, including label and definition and potentially references. Taxonomies may represent hundreds or even thousands of individual business reporting concepts, mathematical and definitional relationships among them, along with text labels in multiple languages, references to authoritative literature, and information about how to display each concept to a user.

Instance document is a business report in an electronic format created according to the rules of XBRL. It contains facts that are defined by the elements in the taxonomy it refers to, together with their values and an explanation of the context in which they are placed. XBRL Instances contain the reported data with their values and “contexts”. Instance document must be linked to at least one taxonomy, which defines the contexts, labels or references.

Creation of Instance Document is nothing but mapping of company’s data into XBRL Taxonomy. The Process used for mapping the Data into Taxonomy is known as Tagging. Tagging is just a task to convert the language used in Financial Statement into the language used in Taxonomy. Once the tagging of financial statement elements with the published taxonomy elements is done, the next step is to create the instance document.

Separate instance documents need to be created for the following:

Stand Alone Balance sheet of the company
Stand Alone Profit and Loss Account of the company
Consolidated Balance sheet of the company
Consolidated Profit and Loss Account of the company

The instance document should contain the financial information for both the current as well as the previous financial year. Consolidated balance sheet and Profit and Loss instance documents to be created only in case the same is applicable to the company.

VALIDATION OF FILE USING MCA VALIDATION TOOL

After successfully generating .xml file, the next step is to validate the file using MCA Validation Tool provided on MCA website. If errors occur then rectify the same in instance Document and try to validate the same again.

PRESCRUTINY OF FILE

After validating, the File is need to be Prescrutinize with the help of MCA Validation Tool. If no error occurs then Message displayed “No Prescrutiny errors occurred”. The File is ready to be uploaded.

E Forms

The Prescrutinized .XML file can be uploaded to the MCA site as an attachment with the eForm23ACXBRL and eForm23ACAXBRL after filling the same.

Authentication of XBRL Document:-

Earlier it was decided that only Statutory Auditors will certify the XBRL document. However, it was further clarified that CA / CS/ CWA in whole time practice can certify XBRL documents.

Do's and Don'ts in the Stock Market

2011-12-30T14:07:00.000+05:30

By Ramalingam K

Let’s introduce do’s and don’ts of investing:

Most of us have our own perception of investment based on our experiences, but also tend to be confused with the opinions given by others. Knowing the do’s and don’ts of the stock market would help us turn really as a smart investor.

The do’s and don’ts in the stock market are:

Slow, steady, and boring wins the race:

It is best not to panic over information about stocks on the media. Being slow and steady with looking at the activities that your money is to be used for would ensure that you invest in ventures that are good, useful and profitable.

Reading good books on personal finance will help you in taking right financial and investment decision. In addition, finding good financial advisors would help you get advice regarding stocks and mutual funds, along with entrusting the custody and management of your funds to them.

All this may seem too boring and time consuming, but it is better to be cautious than bitten too hard.

Don’t give any weight to market forecasts. All opinion pro and con is already built into the price of equities today:

Market forecasts on the media has got good entertainment value but doesn’t have any investment value. It is just enough for long-term investors to invest in good stocks, and mutual funds that would appreciate in the long run.

It is best to understand that market forecasts only show you the expected direction in which the market is heading based on the available information. This forecast is only a forecast and need not become reality.

In addition, market fluctuations are the very nature of share markets and should mean nothing to long tem investors. Making accurate market forecasts is tough, as they are influenced by various factors like the outcome of political elections, the direction of the economy, interest rates and world events. It is also wise to know that these fluctuations are incorporated in the price of the share, stock or mutual fund.

Do make your own analysis of the stocks, shares and mutual funds:

It is unadvisable to place your full faith on analysis of others regarding stock, shares and mutual funds. No wise man would always tell you all about his market beating strategy. Making ones own analysis keeping your financial goals in view and framing a strategy would help.

This involves studying the performance of top performing stocks and mutual funds over 5 years and existing mutual funds over a period of 3 months to decide on which stock to maintain and which to dispose off. All this would ensure that you are investment smart.

Don’t think you can successfully engage in short-term market timing:

As a long- term investor you should never contemplate taking advantage of short-term market dealings and speculations. Playing with shares and mutual funds in the short-term market may give you a profit in a few transactions but will not give you profits forever. So you can’t have an investment strategy which gives profit inconsistently. We need a strategy which can bring profits consistently so as to be a successful investor in the long run.

It is true that playing in the share market is neither entertainment nor fun. It is also futile to borrow or work on short-term margins to make money.

Don’t assume that if anyone were genius enough to devise a market-beating strategy he would be stupid enough to share it with anyone:

Stock tips are good to learn, but not to act on for speculations. It could prove dangerous to act on speculation tips given by one and all, as they may not be correct. In addition, everyone has his or her own perception of investment, with other not having full knowledge or skills.

You need to take time to think over each tip and analyze if it contributes to your long-term objective of capital appreciation. Similarly it is not advisable to subject your money to risk with investing in investment fads that may or may not earn you huge profits.

The final advice:

You need to make a calculated decision considering the pros and cons whenever you make an investment. In addition abstain from trading often in the stock and mutual funds market. Always think in terms of long term investing.

DTC Not Tabled - Indian Slowdown

2011-12-29T06:21:00.000+05:30

By : Indranil Sen Gupta

The much awaited Direct tax code is being delayed further as the chances of Parliament’s standing committee on finance submitting its report on the Bill in the ongoing Winter Session, which concludes on December 23, are bleak. With barely a couple of days in this week of the winter session of Parliament, the report may not be tabled in the current session and DTC would miss the April 2012 deadline.

This will be one of the biggest sets back in terms of reform of policies in Indian economy is going to witness. We all know that if the DTC comes into play it will not only replace the old primitive Income Tax Act, 1961 but will also bring growth internally for the Indian economy. The new tax slabs will increase the surplus of the consumers of India and this surplus will lead to increase in consumption of products and services finally leading to growth of Indian economy.

With a young population breeding in India followed with a change in cultural of living life we find substantial growth in consumption of products and services which will lead to increase in demand and production. Household consumption expenditure currently stands (3% of GDP which is the largest component of India’s GDP. Households are also the biggest contributors to India’s savings rate; their savings equal 23% of India’s GDP. Hence the new DTC will further increase the consumption and will make a paradigm shift of India’s fiscal growth model from export to domestic consumption. An economic prosperity of a country is left on the hands of its own people and its resources.

With global turmoil’s and drying up of overseas buyers (export) economic growth can only be achieved through proper utilization of ones own resources. India is well poised to exploit such a growth which will strengthen its pillars of economic growth. Further India will able to reduce the gap of poor and rich which has widened after independence. DTC will leave higher percentage of savings resulting increase in domestic demand which will lead to economic growth of Indian economy. This delay will increase the time frame of India’s development. DTC plays a pivotal role in Indian economic growth in coming days. If DTC was placed in this winter session then in the upcoming budget India should have been able to wither out the dark clouds of global slump on Indian economy. DTC will replace and reduce the dependency of export to meet the fiscal targets as well as companies will find growth from internal sources and will not be affected by global slowdown in shipments. Indian companies will be able to produce more as the demand capacity will grow substantially and resulting proper equilibrium of price.

UNITED STATES IRS AMNESTY PROGRAM

2011-12-28T15:36:00.000+05:30

IRS Announces Severe Actions for Undisclosed Foreign Bank and Financial Accounts.
Filing requirements - The filing requirements apply to any “United States person”, which is defined as those who fit into one of the following categories:

A Citizen of the United States / Green Card holders / Foreign persons residing in the US for extended periods of time (ie. H-1B, L-1, TN and other Visa holders)
Domestic Partnerships / Domestic Corporations / Domestic Trusts /Individuals that have signing authority over a non-US account (if such person can control the disposition of money or other property). Filing requirements also apply to those with direct or indirect control over a foreign or domestic entity with foreign financial accounts, even if the taxpayer does not have foreign financial accounts of its own.

Foreign Financial Accounts - Foreign “financial accounts” include a wide variety of items, such as:

Bank accounts (savings, demand, checking, deposit or any other account maintained with a financial institution). / Securities or brokerage accounts.
Mutual funds / Debit and Prepaid Credit Cards maintained with a financial institution / Certain types of Annuities or pension accounts / Retirement Plans.
Interests in partnerships, trusts or other pass-through entities having foreign accounts.

Background. - The IRS is currently conducting a highly-publicized, large-scale audit program targeting taxpayers who have avoided or evaded U.S. income taxes through the use of undisclosed Swiss and other foreign bank and financial accounts. The deadline for submissions under the amnesty program is August 31st 2011.

Foreign Bank and Financial Account Reporting Requirements. - FBAR Reports. Treasury Regulations under the Federal Bank Secrecy Act require any “U.S. person” who has a “financial interest” in, or signature or other comparable authority over, one or more “financial accounts” maintained in a foreign country to file an annual report identifying their foreign accounts if the aggregate account value exceeds $10,000 during the calendar year. Those annual reports, commonly referred to as “FBAR Reports,” must be filed with the Department of Treasury on Form TD F 90-22.1 separate and apart from income tax returns. FBAR Reports for a particular calendar year normally are due on June 30th of the succeeding year.

For purposes of the FBAR reporting rules: A “U.S. person” is a citizen or resident of the U.S. or a domestic partnership, corporation, LLC, estate or trust. The term “financial account” is defined broadly and includes any bank, securities, securities derivatives, or other financial instrument account. Typically, this would include, but is not confined to, offshore savings, deposit or checking accounts at a bank or offshore brokerage accounts. A U.S. person has a “financial interest” in a foreign “financial account” if the account is owned by the U.S. person. A U.S. person also has a “financial interest” in any foreign “financial account” that is owned by: (i) a corporation, partnership, trust or other entity in which the U.S. person has a greater than 50% ownership or beneficial interest; or (ii) a trust established or otherwise controlled by the U.S. person.
Even if a U.S. person does not have a “financial interest” in a foreign “financial account,” FBAR reporting is required if the U.S. person has signature or comparable authority over the account and the $10,000 threshold is exceeded.
Foreign financial accounts aggregating over $10,000 at any time during a year are subject to the FBAR annual reporting requirement even if the accounts are owned by tax-exempt U.S. persons or are non-income-producing.
Foreign financial accounts do not include, however, accounts maintained at a U.S. branch or other U.S. office of a foreign financial institution.
Notice 2009-62 Relief from FBAR Reporting Requirements. In late 2008, the IRS indicated that foreign “financial accounts” subject to FBAR Reporting include interests in commingled funds maintained outside the U.S. (e.g., foreign mutual funds, foreign private equity funds, foreign hedge funds, etc.). The IRS’s expansive interpretation of “financial account” to include foreign commingled funds was roundly criticized as an unwarranted deviation from prior practice. In response to that criticism and to extend the FBAR filing deadline for certain U.S. persons, on August 10, 2009 the IRS issued Notice 2009-62. That Notice extends to June 30, 2010 the deadline for submitting required FBAR Reports for 2008 and earlier years by: (i) persons with mere signature or other comparable authority over, but no ownership or other financial interest in, a foreign financial account; and (ii) persons with an ownership or other financial interest in, or signatory authority over, a foreign financial account in which the assets are held in a commingled fund.

U.S. persons who qualify for the extended FBAR return due date may wish to avail themselves of the extension to catch up on delinquent FBAR filings. The extended FBAR due date is not available, however, for taxpayers who own or otherwise have a financial interest in foreign financial accounts other than foreign commingled funds. Nor does the extended due date for some FBAR filings provide relief from the civil and potential criminal penalties associated with failures to properly report and pay taxes on income earned in foreign financial accounts.

Income Tax Return Reporting of Foreign Accounts. In addition to the FBAR reporting rules, U.S. Federal tax law requires U.S. taxpayers to properly report on their U.S. Federal income tax returns, and timely pay applicable income taxes on, any interest, dividends, gains or other income earned on their offshore bank and financial accounts, whether or not such foreign accounts are subject to FBAR reporting. In connection with that requirement, and as an adjunct to FBAR reporting, U.S. persons must specifically disclose annually on their U.S. Federal income tax returns, under penalty of perjury, whether they own or have other financial interests in, or have signature or other authority over, any foreign bank and other foreign financial accounts during the tax year in question. The requirement to disclose ownership of foreign financial accounts aggregating over $10,000 on income tax returns applies to individuals (Form 1040, Schedule B), corporations (Form 1120, Schedule N), partnerships (Form 1065, Schedule B) and trusts and estates (Form 1041, Schedule G).

Use of foreign financial accounts may also trigger or effect the need to file special IRS information returns reporting transactions with offshore trusts, foreign gifts, and transfers to certain foreign corporations and foreign partnerships.

Penalties for Non-Compliance with Reporting Requirements - Civil penalties for failure to timely file a FBAR Report can be severe - up to $10,000 for each unintentional violation or, in the case of willful violations, the greater of $100,000 or 50% of the account balance at the time of the violation. Under certain conditions, the IRS may abate FBAR failure to file penalties in whole in part for “reasonable cause.” Criminal penalties may also be imposed for willful violations of the FBAR reporting requirements. In addition to the FBAR failure to file penalties, various Federal tax penalties can apply if a taxpayer fails to properly report taxable income on its undisclosed foreign accounts. Those tax-related penalties can include: (i) additional accuracy-related tax penalties of up to 20% of the underpaid tax; (ii) delinquent return penalties of up to 25% of the unpaid tax if no return is filed; (iii) civil fraud penalties of 75% of the tax understatement in the case of fraud; and (iv) in the case of willful violations, prosecution for criminal tax evasion.

IRS Voluntary Disclosure Practice - As part of the IRS crack-down on undisclosed foreign financial accounts, the IRS has announced that it intends to: (i) fully enforce civil penalties for FBAR Report non-compliance as far back as 2003; (ii) impose all applicable civil tax penalties on non-compliant taxpayers who fail to report income on foreign financial accounts for all open years; and (iii) in cases of willful disregard of the applicable reporting requirements, bring criminal prosecutions.

As an adjunct to its audit program, the IRS has also implemented and publicized an internal “Voluntary Disclosure Practice” (i.e., an amnesty policy) under which taxpayers who have failed to comply with the FBAR and related income tax reporting rules and who are not currently under IRS audit may voluntarily come into compliance with those rules with reduced, or in some cases no, penalty exposure. U.S. taxpayers who only recently became aware of the FBAR filing requirements should consider whether they failed to comply with FBAR reporting requirements for prior years and, if so, whether they should participate in the amnesty program. Taxpayers currently subject to any IRS audit may not participate in the amnesty program.

Under the amnesty program, if a U.S. person failed to timely file required FBAR reports for any year between 2003 and 2009, the taxpayer can take advantage of the amnesty program by filing the delinquent FBARs by August 31st 2011, together with copies of the filer’s income tax returns for the years in question and an explanation of the reason for failure to timely file (e.g., the taxpayer was unaware of the FBAR filing requirements). The IRS has stated that otherwise applicable FBAR late filing penalties will not be imposed for late filings of FBAR Reports under the amnesty program so long as the taxpayer properly and timely reported and paid all income taxes due on any income earned on the foreign accounts in question.

If a taxpayer also failed to timely report and pay income taxes due with respect to income earned from its undisclosed foreign accounts, the taxpayer can still participate in the amnesty program, but the taxpayer must pay: (i) all taxes and statutory interest due with respect to the unreported foreign account income; (ii) an accuracy-related penalty of 20% of the tax underpayment or, if no return was filed, a delinquent return penalty up to 25% of the tax underpayment; and (iii) an additional FBAR penalty of 20% of the highest account balance during the year of the FBAR violation in which the account balance was greatest.

Tax Audit - A glance

2011-12-28T10:31:00.000+05:30

By : Karan Teli

These days we all are busy with our tax audits schedules and many of the small firms have their most earnings and survival on tax audits itself.

An attempt is made here in my series “TAX AUDITS” about what exactly is this and what are its importance in today’s world.

To start with basically, what is the guiding section or legislatives which require a person/business to undergo a tax audit?

It’s section 44AB which is the general section and there are few more sections which, by nature and influence, make a business come under tax audit net. It’s the presumptive taxation sections i.e. 44AD, 44AE, 44AF.

Once the audit of such person/business is done then what are its reporting requirements? Form 3CA/3CB and 3CD is given by the person who performs the audit and this are generally called tax audit reports.

Now, how is eligible to do these audits? Unlike the internal audits wherein, the audit can be performed by a CA in practice or a specialised team of management, the tax audits are ONLY to be performed by a practicing Chartered Accountant.

Are there any limits prescribed to the CA's for undertaking the number of tax audits during a year? Yes, a practicing CA can only undertake 45 Tax audits in a year.

It is more evident by ICAI president's statement as "The ceiling on tax audit has been increased from 30 to 45 per chartered accountant/per partner. Each partner can undertake 45 tax audits," Mr Sunil Talati, President of ICAI. (During 2007-08 I believe).

Let’s go deep into provisions now,

First comes the general section on tax audits which are governed by Section 44AB. What do these provisions say all about?

It provides some figures called Rs.6000, 000/- and 1500, 000/-.

This first figure of Rs. 6000,000/- is applicable to a person who has achieved and crossed it as business turnover and second figure of Rs.1500,000/- is applicable to a person who has rendered services for more than the above said figure. Here it should be clearly understood that the turnover needs to exceed to the specified above mentioned limits. For businesses, not only the turnover is counted, but also the total sales and gross receipts and in case of professions it is gross receipts only.

Now, the word turnover has come into picture. What does turnover means? Does it mean Gross turnover or Net turnover? Does it include VAT, CST, Excise Duty?

A summarized meaning of turnover after considering the guidance note of ICAI says that, the aggregate value for which the sales are effected or services are rendered is to be taken. It includes all the types of taxes applicable on such goods.

But, doesn’t the above two figures sound funny? A newly set up iron trading business would easily achieve this turnover in a year or two. Then what is the intention behind these figures? The governing authorities want almost all the business to come under this tax audit net to avoid all such violations of other taxes and diverting of income.

Are there any time limits to comply with these provisions i.e. to get the books audited and submit and audit report? 30^th September, of every year (unless this date is not officially changed) a golden day.

How RBI Hike In Repo Rates Affects Common People?

2011-12-27T11:04:00.000+05:30

By Anup Mishra

Keep an eye on RBI, says investors, experts and traders. Should we be prepared to pay more every month on your home, auto and other loans? Since RBI has increased the repo rates 12 times in the last 18 months. Before discussion on this, I would like to be very clear on some basics.

What is a basis point?

A basis point is nothing but one-hundredth of a percentage point.

People who took home loans and car loans in the last 18 months would have been impacted much. The reason is Commercial banks Indusind Bank, Hdfc Bank, ICICI Bank, Axis Bank & Kotak Mahindra Bank will have to pay more if they want to borrow from RBI, but individual borrowers as well as corporations may not feel the impact of the rate hike immediately as banks are not in a hurry to raise their loan and deposit rates.

Over the last one and a half year, the RBI has raised the Cash Reserve Ratio (CRR) by over 100 basis points and the Policy rate by over 275 basis points. This in effect means that banks have to face a net effect pressure of around 425 basis points.

Take a scenario, a person took a home loan for 25 lakhs in EMI with commercial banks like Indusind Bank, Hdfc Bank, ICICI Bank, Axis Bank & Kotak Mahindra Bank on May 2011. The rate of interest when he took a loan is 10.25%. If RBI continues to increase the repo rates by 12 times in the next 18 months it will highly impact the person who took the loan. Same case would reflect, if a person buys a car worth Rs 5.2 Lakhs before a month.

Over 95% percentage of home loans is floating interest rate. The RBI appointed bankingombudsman has been receiving a number of complaints from borrowers on the mounting credit risks as a result of increasing interest rates.

Home loans are 2-3% are fixed rate loans today. Even though interest risk is managed by banks, the risk is ultimately forced on the customer in a rising interest rate scenario.

Floating rate loans pass on the interest rate risk from banks which are much better placed to manage it to borrowers and thus banks only substitute interest rate risk with potential credit risk.

If a decision on this comes through it will be for both own source funds and borrowed source funds of banks.

I took few surveys related to RBI Actions. Here Kannan (Manager- Accounts) in a Pvt Ltd Concern shared his views.

Continuous increase in inflation forced the RBI to continuously increase the lending rate/the repo rate as one of the anti-inflationary actions to be taken.

Consequently, the commercial banks and other money lenders will increase their rate of interest for the various types of common man loans.

At the end of the day the long tenure loan enjoyers particularly the people who taken housing will be affected.

Due to the inconsistent and soaring rate of interest the fixed income people will be the most affected.

The indirect decrease in their monthly income will result in their standard of living down-fall.

Taking effective measures to control the inflation and success of the same may result in decreased interest rates in future.

The RBI rate hike comes despite increasing criticism of RBI's hawkish policy. Analysts and experts have started questioning if this hike will have any bearing on inflation because of the upward revision in petrol prices. Many have also started questioning the efficacy of the series of the rate hikes for 12^th time in 18 months.

Why is the rupee falling

2011-12-24T12:52:00.000+05:30

By : Subhanshu Gupta

The roller coaster ride of rupee was witnessed in the last month when it touched an all time low of Rs 46.07. All the while Reserve Bank of India kept assuring us that the fundamentals of the economy are intact. It was only a few days back when it pushed the panic button and asked all corporate sector borrowers in the markets abroad (external commercial borrowings), exporters and holders of American Depository Receipts to repatriate their dollars. RBI hopes to garner $2 billion in this way.

But the falling rupee has to be seen against a broader perspective, against the news of a fall in business confidence index, fall in industrial growth, a rise in trade deficit and a rise in inflation. The volatile political climate and its repercussions on the stock market, which has been on the decline since February, should not be forgotten either. There is news of millions of dollars being withdrawn ($545.7 million in June and July alone) from the market by the Foreign Financial Institutional Investors (FIIs). With America being India’s biggest trading partner, the rupee fall against the dollar is serious even if the rupee does not fall as much against other currencies. The average person on the street may not be directly affected by it (unless he is planning foreign travel or sending a child abroad to study), but because the fall in the value of rupee is going to result in inflation, everyone, sooner or later will feel the impact, specially the elderly and the poor. The fear of inflation usually triggers central banks into action and it did so in India also recently when the rupee’s value breached the psychological barrier of Rs. 46.

However, the fall in rupee may be a blessing for some sections of the society. They are the exporters. They have been able to sell their products cheaper in markets abroad. They are happy because a lower rupee value for dollar will enable them to compete with China and South East Asia. In fact, ever since the rupee started to slide, the export performance started to improve dramatically. A low rupee will also prevent “dumping” of goods by neighboring countries, which has been creating problems for some major domestic industries. Others who will be happy with the rupee’s fall are those receiving money from relatives abroad. Each dollar will give them more rupees.

The question that haunts our mind is that why is the rupee depreciating against the dollar? Well...like any other price, the price of the dollar is determined by its demand and supply. If the demand goes up, then the price of the dollar also goes up. Recently, the demand for the dollar went up mainly because of the government’s own demand on account of its heavy oil and defense import bill. The corporate sector’s demand also went up because it wanted dollars for imports already in the pipeline. The supply of dollars at the same time, dwindled as the FIIs started withdrawing money from the Indian stock market. Many returned to America since the interest rate hike by the Federal Reserve recently. Foreign direct investment inflows too have been meager and a mismatch between the demand and supply occurred and consequently the rupee fell.

The RBI intervened promptly in its usual manner by raising the bank rate and the cash reserve ratio of banks. It also raised the rates of bank refinance. It believed that people were borrowing rupees in order to speculate in the Forex market. The RBI, however, did not intervene in a big way by selling dollars from its reserves though most central banks would have done so.

The rise in the bank rate, meanwhile prompted commercial banks to hike their own lending rates, sending adverse signals to the corporate sector, namely a higher borrowing cost. Surprisingly, despite RBI’s recent intervention, the rupee kept falling and it reached Rs. 46 on August 11.

Earlier, the RBI stopped its attempts to arrest the fall realizing its futility and instead issued a long explanatory note. It declared that there was to be no more targeting of the rupee to any specific value and the market was going to decide where the rupee would stabilize though monitoring was promised. Seeing it cross Rs. 46 however made it panic.

The rupee will pick up in value once the market has calmed down and more dollars come into the market. While this drama was being enacted, exporters who had been doing brisk business on account of the rupee’s depreciation, stopped bringing back their dollars earned abroad and further exacerbated the shortage of dollars. Once exporters start bringing back the dollars especially after the RBI’s edict, the market would come back to normal. For the rupee to stabilize, inflation has to be brought under control.

RBI is reviewing the Export Earner Foreign Currency (EEFC) scheme to ensure more dollar remittances from abroad. The current reserves of $2 bn in the EEFC account is sizable, which will help it to stand off a further fall in the rupee.

As per the scheme, exporters are allowed to park 50%-70% of their foreign exchange earnings abroad for a period of 180 days under the Foreign Exchange Regulation Act. This is to help them in meeting their day-to-day overseas expenditure. However some exporters are parking their funds beyond this limit. RBI is expected to ask for repatriation of the proceeds of ADRs and ECBs from abroad if they have been parked there for a long time.

Since several corporates have raised over a billion dollars through the ADR route, repatriation of the proceeds could help stabilize the rupee, which has lost over 5% during the current financial year.

The other positive news for the rupee is that during the month of August, Foreign Institutional Investors have turned to net buyers with their current net purchases of Rs 1.4 bn. They were net sellers in the equity market to the tune of Rs 14.1 bn in the month of July. Further the RBI has cleared foreign direct investment (FDI) worth Rs 9.5 bn. With the increasing FII investment, although at a slower pace, clearance of FDI and repatriation of proceeds of ADRs will lead to an increase in the supply of dollars and one can expect it to bring some relief to the falling rupee.

A lower rupee will enable exporters to rake in more dollars in the future. But as oil imports and other essential inputs used in export production will cost more, there will be an escalation of costs for exporters too. Unless they raise their efficiency and productivity, they may wish that the rupee would depreciate further. But what a way to go! From Rs 4.765 to a dollar, the rate before 1966 to Rs. 46 today, all in a matter of a few decades. Yet we are lucky as there were worse cases in South East Asia, when the same amount of depreciation took place within a few weeks.

Rupee's Next Destination

2011-12-24T12:33:00.000+05:30

By : K Venu Babu

Volatility continues in the currency market with the rupee losing heavily or gaining handsomely every day for the past few days. This fluctuation has sparked a debate on the government’s intentions, the RBI’s role and the likely impact on the economy at large. After dipping close to Rs 47 to a dollar, the Indian currency recovered smartly for the past few weeks. The recent escalation in international crude prices leading to a heavy pressure on Balance of Payments had battered the Indian currency. Meanwhile, a study conducted recently by Institute of Economic Growth (IEG) has revealed that the rupee-dollar exchange rate is expected to break yet another psychological level of Rs 47 in four months' time. And the Indian government has predicted the rupee to cross 50 level by 2002. What are the various factors that affect the rupee movement?

After crossing the barrier of 40 mark against a dollar during the nuclear tests in 1998, the rupee gradually depreciated to 45 level in 2000 and had touched a low of around 47 in the same year, though recovered later. However, RBI did not enter the market, and it had asked nationalised banks to sell more than $500 million this financial year to steady the rupee which plunged by over 1.5 per cent. This year it has shed more than 5 per cent of its value in terms of the dollar.

The recent international crude price has crossed $32 per barrel resulting in the increase in the oil pool deficit at Rs.85 billion ($1.88 billion). Other economic indicators, barring agriculture, look bleak and the country might be in for difficult times in future. Had the same prices continued, the deficit would have stood at Rs.120 billions ($2.66 billion) by March 2001. The subsidy bill on kerosene, diesel and LPG had been rising. A fall in the rupee against the dollar has made the entire fiscal calculation awry.

Is the fall of a rupee good for anyone? Economists are a divided lot. Some favour a cheaper rupee to spur exports and to make imports costly and thus discourage the flow of consumer goods under the WTO rules. That and higher import duty should partly shield small scale industries from fierce competition from Chinese and South Korean manufacturers. Others fret that costly imports will add to the inflationary pressure and make nonsense of industrial growth revival and lower interest regime.

The debate of rupee depreciation and appreciation continues as it is not easy to determine the equilibrium real exchange rate of the rupee. Ideally this is defined as the value that equates the current account and the capital account of the balance of payment, over the time. That is, current account deficits must be financed by sustainable capital account deficits. Since future periods are involved, market expectations enter the fray. Before the eighties the determination of the exchange rate was simpler. It was dominated largely by trade flows. But now capital transactions dominate. The exchange rate behaves more like an asset price; expectations of market traders and bandwagon effects, as they learn from each other, can lead to large price movements.

Sustaining the nominal exchange rate above the value expected by the market requires high interest rates to prevent capital from flowing out of the country. Over the time this harms domestic investment, output and productivity and therefore causes a depreciation in the equilibrium real exchange rate. To maintain the level of the nominal exchange rate will then require even higher interest rates; it is not a sustainable strategy. South East Asian countries made this mistake: nominal exchange rates were fixed in the nineties and did not vary sufficiently while their interest rates exceeded world interest rates.

A rupee on a roller-coaster dampens inflow of capital; this year foreign exchange reserve has come down by 7 per cent — from $38.34 billion to $ 35.67 billion. NRIs have deposited over $10 billion and could take it out any time. Foreign funds dealing in the stock market brought in another $10 billion. Then there is trade deficit. A wary RBI has asked exporters to bring back half of the balance in foreign banks. This meant an addition of $1 billion to the reserve. But its psychological effect in market nervousness would be strong. It is plain that the usual lag and lead factors are behind the value swings and not speculative activities. Once this works itself out, the rupee is expected to remain stable around the present level.

Highlights of the New Company Bill tabled in Lok Sabha

2011-12-19T13:59:00.000+05:30

By: CA Dhiraj Satnalika

Corporate Social Responsibility

2% of average profit of last three years.
Only disclosure mandatory.
Mandatory CSR committee.

Auditors

Rotation in four years.

Independent Directors

Five-year fixed term.
No stock options.
Board to have one woman director.

Serious Fraud Investigations Office

To get power to arrest.
No suo moto powers.

Investor protection

Mandatory “Unpaid Dividend” account to be opened by companies in scheduled banks.

Unpaid/Unclaimed

30 days dividends to get transferred under Investor Education Protector Fund.

Benefit to Minority Shareholders

Majority Shareholders shall deposit equal value of shares obtained from minority in a separate bank account.

Others Observations of the new Bill:

1. The Bill enhances the accountability for those incorporating a company, and directors on the board, by framing additional disclosure norms.

2. At the time of incorporation, it is now mandatory to file the consent of directors associating with the company. The director will also have to give particulars of other firms which they are associated with. This will make promoters and directors more accountable. It will also address the problem of bogus directors on company boards.

3. In case of fraud, the defaulter can get an imprisonment of anywhere between six months to 10 years along with a fine.

4. The new Bill also proposes that persons signing the memorandum of association—document that regulates a company’s activities—will have to state upfront that they have not been associated with any fraud or mismanagement or breach of duty under the companies law.

5. With scams such as companies vanishing after raising public monies as also opting for liquidation, the new Bill was designed with the aim of sensing frauds early and, therefore, these provisions have been incorporated. These will ensure that maximum responsibility is put on the companies when they register.

6. The Bill also proposes to strengthen the Serious Fraud Investigation Office, a multi disciplinary body constituted by chartered accountants, company secretaries, revenue and corporate law officials.

7. It will also introduce concepts that are new to India, including the one-person company and class-action suits. The proposed regulation will also make it easier to start and shut companies.

8. The new regulations, if cleared by both houses of parliament, will apply to more than 800,000 companies registered in India.

9. The structure of the Bill is contemporary, sound and visionary rather than just an attempt to address shortcomings.

Family Partition of Hindu Undivided Family

2011-12-17T15:19:00.000+05:30

By CA A. K. Jain

Family partition of Hindu Undivided Family which is as per amended provisions of Hindu Succession Act, 1989 is recognised u/s 171 of I-T Act - Revenue cannot deny recognition : ITAT.

CHENNAI, JULY 01, 2007 : BRIEFLY stated facts of the case are that the Assessee is a Hindu Undivided Family consisting of Shri P.C. Ramakrishna, his wife and his two daughters. There was an oral total partition of H.U.F. on 16.9.1994 between Sri P.C. Ramakrishna, his wife and two daughters. Under this oral partition, the two daughters were allotted Rs.12,50,000/- each and these amounts were adjusted against a sum of Rs. 12,50,000/- advanced to each of them earlier as loan by H.U.F. In the said partition, all other properties of H.U.F. were allotted to Sri P.C. Ramakrishna. This oral partition took place on 16.9.1994 which was subsequently confirmed by a Deed of Declaration confirming the partition.

This partition was filed before the AO under sec. 171 of the Act seeking recognition of the partition as provided under the Act. The petition was proceeded by the AO who vide his order dated 17.3.1998 held that partition is a sham one and the mere contrivance to divest the family funds to reduce the incidence of tax and accordingly he declined to grant recognition to the partition in exercise of his powers u/s. 171 of the Act.

Aggrieved, the Assessee preferred an appeal before the C.I.T(Appeals). The C.I.T.(Appeals) held that the provisions of sec.171 of the Act cannot confer any right to a partition which is not available to any person under the Hindu Law; that according under the Hindu Law, there should be a partition between two or more coparceners and therefore, it cannot be a partition where the H.U.F. consists of only one coparcener. Finally, he held that even after introduction of amendment in Tamil Nadu in 1989, the daughters cannot claim partition in the joint family property of the HUF and accordingly, he confirmed the action of the AO. Aggrieved, the assessee moved Tribunal in second appeal.

The Tribunal summarized its detailed observations as follows :-

Considering the provisions of Hindu Succession Act, 1956 as amended by Hindu Succession (A.P.Amendment) Act, 1986, introduction of sec.29A which was confirmed by the Hon'ble Apex Court in the case of S. Sai Reddy ([1991] 3 SCC 647) and also the amendment of Hindu Succession 1956 by the Hindu Succession (T.N.Amendment) Act 1989, which are the provisions similar to the Hindu Succession ( A.P.Amendment) Act, we are of the considered opinion that the difference between daughter and son of the Mitakshara Hindu Family is removed and the daughter is conferred the coparcenary rights in the joint family property by birth in the same manner and to the same extent as the son.

Daughter is entitled to claim partition and her share in the joint family property i.e. H.U.F. property, is without dispute. In the present case, Sri P.C. Ramakrishna, H.U.F. apart from P.C. Ramakrishna, Karta, two daughters along with his wife are the members of H.U.F. After the amendment of Hindu Succession (T.N.Amendment) Act, 1989 vide clause (i) and (ii), the daughter in H.U.F. shall by birth become a coparcener in her own right in the same manners as the son and have the same rights in the coparcenary property as she would have had if she had been a son, inclusive of the right to claim by survivorship and shall be subject to liabilities and disabilities in respect thereto as the son. She is entitled to partition of a Joint Hindu Family coparcenary property and in such partition, Hindu Family coparcenary property shall be so divided to a daughter so as to allot the same share as is allottable to a son.
The amendment brought out w.e.f. 25th March, 1989 has removed the distinction as regards to a son or a daughter in respect thereto coparcenary property of Joint Hindu family as governed by Mitakshara law and daughters are clearly treated as coparceners. In the present case, there are two daughters to the Karta. Hence, there are three coparceners in the Joint Hindu Family and the daughters have been allotted a sum of Rs. 12,50,000/- each.
Hence, we find no infirmity in the partition of the Joint Hindu Family which is in accordance with the Hindu Succession (T.N.Amendment) Act, 1989. In view of this, we hold that the partition is as per the amended provisions of Hindu Succession ( T.N.Amendment) Act, 1989. Hence, there is no reason to refuse Registration to family partition of Joint Hindu Family property.
Accordingly, the partition of H.U.F. is recognized under sec.171 of the Act and the AO is directed to pass a consequential order recognizing the partition of the H.U.F.

And the final word : The assessee's appeal was allowed.

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Anomalies & Solutions - Indian Tax System

2011-12-17T15:16:00.000+05:30

By CA A. K. Jain

Summary
Since 1947, nearly one dozen expert committees, including the Kelkar Task Force, have persisted in giving totally wrong advice to the government due to their neglect of the most basic and fundamental problem of the system, namely massive tax evasion.

Tax evasion continues to cause immense damage not only to the finances of the government but also to the economy of the country, because a major part of the tax evaded money goes abroad.

Tax evasion can be stopped almost totally and income-tax revenue doubled from its fixed level of 3% to 6% of GDP, by following what President Putin has done in Russia.

India's Revenue Stagnant at 3 % of GDP Against 8% in many other Developing Countries
Since 1947 the main object behind the appointment of nearly one dozen expert committees, including the Kelkar Task Force (KTF), was to advise the government on how to collect more revenue. Till the 1950's, almost all the developing countries of the world, including India, were collecting income-tax (IT) revenue between 2 to 3 % of GDP. While those countries which adopted sensible tax systems have succeeded in pushing up their IT revenue to around 8 %, in India it still remains at 3 % of GDP only. The government goes on appointing one expert committee after another in quick succession, in the vain hope of getting the right advice.

Failure To Make Systematic Study
However all these committees have been giving totally wrong advice because none of them conducted a systematic study of the subject. They should have raised and answered the following three questions in order to arrive at sound conclusions.

1. How Much Revenue Other Countries Are Collecting
They should have started their study by finding out how much revenue similarly placed countries, which have started growing industrially after the second world war, are collecting.

If they had done so they would have found a wide gap between the quantum of India's and those countries IT revenues. The following table shows the amount of revenue collected in five countries during 1996-97.

2. How Other Countries Have Succeeded ?
Huge gap between the amount collected by India and other countries should have set these committees thinking and forced them to find out the reason behind it. If they had pursued the subject seriously they would have discovered that the reason behind the vast difference in figures of revenue was the massive tax evasion in India. Although it is difficult to measure the quantum of tax evasion there exist some indicators which give a broad idea.

Quantum Of Tax Evasion In India
A rough idea about the quantum of tax evasion in India could have been formed on the basis of the following three major indicators:

(i) the number of individual tax returns with income above Rs 2 lakh ( in terms of rupees of 2003 ) has hardly doubled in the course of last six decades. In 1939 there were 2.7 lakh such returns and currently their number is around 7 lakh only. Actually the number of persons with income over Rs 2 lakh must have gone up 30 times or 50 times. This one fact alone shows how widespread tax evasion in the country is.

(ii) the quantum of income taxed in the hands of companies in many developing countries exceeds 15 % of GDP, while in India it is hardly 5 %.

(iii) huge quantity of black money that changes hands in property transactions, or sent abroad or spent lavishly within the country.

Even a quick survey of other countries would have shown the extremely low level of tax evasion in them. Actually the very fact that they are collecting large amount of revenue shows that evasion must be negligible.

3.Why Tax Evasion So Large In India ?
The most important question that these committees should have considered is the reason behind so much tax evasion in India. They were not unaware of the existence of substantial tax evasion. But they always disposed of the subject casually by blaming it either on low morality of India's taxpayers or loopholes in law or laxity in administration. They kept making meaningless suggestions such as 'change the mindset of the taxpayers'

Other Countries Rates
If any of these committees had looked at the rates of successful developing countries it would have at once discovered why their tax evasion is negligible and the revenue collected by them is two to three times more than India's. A few countries main rates are mentioned here.

The city of Hong Kong has the most ideal tax system in the world. Without taxing interest, dividend, capital gains and international trading income, it has been collecting more IT revenue than the whole of India, even in absolute terms. For individuals its exemption limit is about Rs 14 lakh, starting rate is 2% and maximum rate is 20%. Companies are taxed at 15%. The city is also almost totally free of the evils like litigation, bribery and accumulation of tax arrears. Because of massive voluntary compliance, it does not need an army of law enforcers. It employs one Commissioner (counterpart of CBDT), two deputy commissioners and five assistant commissioners.

Singapore has exemption limit of Rs 5 lakh, starting rate of 4% and applies its maximum rate of 22% to income above the equivalent of Rs one crore. Rates of mainland China are far from the ideal, but unlike India it has the good sense to apply the rate of 30% to income above the equivalent of Rs 30 lakh.

Russia taxes entire individual income at the single rate of 13%.

India's Rates
A comparison with India's rates would have shown that the rate structure is the main culprit responsible for forcing most of the taxpayers to evade tax on a major part of their income. Just like the other countries mentioned above, even India had a fairly reasonable rate structure till 1939 ( although the top rate was 59.4%, applicable to income above Rs 5 crore ). Income upto Rs 2 lakh (in rupees of 2003) was exempt and the starting rate was 4.7%. Thereafter under the misconception that higher rates will lead to higher revenue, India went on raising the rates. The rates were increased in two ways. One was to push up the top rate, applicable to high income earners, which reached nearly 98%. This has, however, been brought down to 31.5%. But the much more damaging method was to go on shifting the super heavy rates to absurdly low levels of income. History of one such rate, that is the 30% rate, will show how the government recklessly went on making the burden of tax intolerable and forcing major part of the income to flow outside the tax system. The rate of 30% was applicable to income above Rs 60 lakh in 1939, 6 lakh in 1959 (in rupees of 2003) and now it applies just above the petty amount of Rs 1.5 lakh. By the 1960's rates had become intolerable for higher income groups, but two-third of the individual taxpayers were still paying tax at 3% and 6% only. Subsequent increases in rates have forced most of them also to become tax evaders. In 1960 income above Rs one lakh ( in rupees of 2003 ) was taxed at 3% and it is now taxed at 20%. Pushing up the rate nearly 7 times at certain levels of income is the root cause of massive tax evasion.

Merciless Taxation of Partnership Firms
India is not only taxing the individuals at atrocious rates but also the business entities. Partnership firms are the most mercilessly taxed class of taxpayers and consequently evade tax on the bulk of their income. In most of the countries their income is taxed only once, and that is in the hands of partners, as was being done in India also till 1956. Thereafter India started the most oppressive system of taxing firms and partners both. And since 1993 it has switched over to the equally obnoxious system of taxing even the pettiest of firms at the rate applicable to companies.

Look at the absurdity of the current system. If one individual earns income of Rs 10 lakh he pays tax of Rs 2,87,700 but if two or ten individuals share the same income through a firm they pay tax of Rs 3,67,500. Such patently unfair provisions have driven firms largely outside the tax system. Currently they appear to be the biggest tax evaders in the country. The KTF also finds nothing wrong with this and wants the present system of taxing partnership firms to continue.

Heavy Burden on Corporate Income
Currently the tax burden on distributed corporate income works out to 56.67%, if shares are held directly by individuals and 60.08% if they are held through an intermediary investment company. The rate of 30% recommended by the KTF is alright for large companies. But small companies will never be prepared to pay tax at 30%. Currently they evade tax on the bulk of their income. To persuade smaller companies to pay tax, and to induce the larger partnership firms to become companies, the KTF could have recommended the UK pattern of taxing companies at three rates of 10%, 20% and 30%.

The secret of success of many developing countries in pushing up their IT revenue lies in inducing the larger partnerships to become companies, paying tax at 10% or 15%, without subjecting their distributed income to multiple taxation.

Extremely Naive Ideas About Appropriate Rates
None of the expert committees tried to find out the type of rates necessary to improve compliance and bring down tax evasion. They had extremely naïve ideas about rates. For instance, in 1992 Chelliah Committee recommended the rate of 27.5% on income above Rs 50,000 (equal to Rs one lakh of to-day). Such recommendations were based on massive ignorance. It never occurred to the learned members of this committee that by proposing a rate 9 times higher, compared to its level in the 1960's, they would be promoting tax evasion and not revenue.

Two years back, Shome committee recommended that the rate of 30% should be applied on income above Rs 2 lakh. And the KTF wants it to be applied above Rs 4 lakh. Instead of treating the subject of rates as the most crucial part of their task, all the one dozen or so expert committees dealt with it in a most casual manner. That is why they failed to make appropriate recommendations and the IT system continues to go from bad to worse.

What Misled The Committees
It seems what has been misleading all the expert committees, comprising highly learned people, is the drastic reduction in the top rate from its peak point of nearly 98%. What further keeps misleading them is that India's maximum rate is very close to the top rate of many of the developed countries. All these committees have failed to realize that it is not the maximum rate alone which matters. What governs acceptability by the taxpayers is the rate applicable at each level of individual income, and the rates applicable to different business entities.

Principle Governing The Rates
Countries like Russia and Hong Kong have discovered the most appropriate principle that should govern the fixation of rates, i.e they should be acceptable to the vast majority of the taxpayers so that evasion is kept at the lowest possible level. And they have also found that even the richest of the rich cannot be persuaded to pay tax at a rate higher than 15, or at the most 20 percent. Unacceptable rates cannot be enforced by any type of penal or coercive measures, except in the case of taxpayers like salary earners. That is why currently the developed countries are able to enforce their atrocious rates mainly against salary earners, who cannot easily escape.

Folly And Futility Of Widening The Tax Base
The only way to increase revenue is to bring down sharply the quantum of tax evasion by a few lakh large income earners. But some of the committees have planted in the minds of policy makers the extremely naïve idea that revenue can be increased by widening the tax base. Consequently the government continues to pursue the thoroughly wasteful and harassing activity of imposing the tortuous burden of filing returns on petty income earners, through schemes like one-in-six. Bringing more than two crores of them into the tax net has hardly led to any increase in revenue, because they either disclose no taxable income or only token amounts.

Attack on Exemptions Entirely Due to Ignorance
All the committees have failed to realize that revenue remains at an extremely low level primarily due to massive tax evasion and pushing out of medium and small scale business entities largely outside the tax system. Consequently they keep blaming other things like exemptions. The most glaring example currently in the news is the attack of KTF on individual exemptions. It believes that as the rates have come down almost all individual exemptions should be withdrawn.

If KTF had looked at the past history it would have discovered that till 1960's there were hardly any exemptions. And the reason for that was that individual income above Rs one lakh (in rupees of 2003) was till then taxed at only 3 percent. Thereafter reliefs and exemptions had to be brought in because the government went on raising the rates and income above Rs one lakh started getting taxed at 20%. KTF wants that the rate of tax at this level of income should continue at 20 percent but exemptions must go. Most of the expert committees have been making this type of recommendations because of their failure to study the basic facts.

Agricultural Income Rightly Not Taxed
Another example of a recommendation based on total ignorance is that taxing agricultural income will reduce tax evasion and increase revenue. If KTF had looked at the data of other countries it would have discovered that probably none of them is actually able to collect tax in respect of agricultural income. In countries like the US, farmers always show more agricultural losses than income, and thereby reduce tax even on non-agricultural income. Imposition of this tax in India will mean harassment of illiterate farmers and benefit only the inspectors and tax practitioners. It cannot yield any revenue.

President Putin Shows The Right Way
Till 1999 Russia's IT rates were as atrocious and tax evasion as massive as India's. Then came President Putin, who had no financial or tax background but through sheer commonsense he discovered within a few months that rates were the main culprit in the IT system . Broadly following the Hong Kong pattern, he immediately switched over to the single rate of 13% for taxing individuals. Later he got approved legislation prescribing rates ranging between 20 to 24% for companies and 6% for taxing dividend income. Consequently distributed corporate income can suffer tax of at the most 28.5%. These changes in rates brought down tax evasion to such an extent that Russia's deficit budget got converted into surplus the very next year.

Recently he has got approved the most remarkable system for taxing businesses owned by small companies, partnership firms and sole proprietorships. Those having turnover equivalent to about Rs 2 crore can pay tax at 15% of net income or 6% of turnover. After paying IT, they will not be liable to pay even sales tax and value added tax.

This is the way to bring down tax evasion to its normal level and increase the revenue. For his act of wisdom in reforming the IT system President Putin has received compliments from all over the world, and particularly from President Bush, who is now trying to follow him in the US.

Immense Damage Caused By Wrong Advice
Failure of all the expert committees to deal with the problem of massive tax evasion seriously has caused immense damage not only to the fiscal health of the government but also to the economy of the country. Large chunks of tax evaded income cannot be kept safely within the country and are sent to tax havens. Consequently, ever since the years of the second world war, India's economy continues to be deprived of large quantity of investable resources and lags behind countries which are largely free from tax evasion.

All Evils Arise from Tax Evasion
IT system stands thoroughly damaged. It is afflicted with many other evils like complexity of law, huge litigation and widespread corruption. All these evils are also ultimately traceable to massive tax evasion. But these expert committees, instead of dealing with the root cause of the problems, have been submitting voluminous reports fiddling with trivial issues.

Revenue Can Be Doubled from 3% To 6% of GDP
Tax evasion can be stopped almost totally, the whole system cleaned up and revenue doubled to around 6% of GDP by adopting sensible rates, as is being done by President Putin in Russia.

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21,. Skipper House, 9, Pusa Road, New Delhi - 110 005
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How “The Lok Pal” Can Fit in Indian Constitutional System

2011-10-18T03:45:00.000+05:30

By CA A. K. Jain

Mr. Anna Hazare is trying to fix Lok Pal in an already crowded space shared by investigative agencies like CBI, RAW, IG, Police, CAG & multi layer judicial system consisting of Supreme Court, High Court and Lower Courts etc. The entire law enforcing system is already choked with multiple authorities & there does not appear any space for the most advertised position of the Lok Pal. Any attempt to bring constitutional amendments on the line suggested by senior congress leaders will further complicate the subject.

The Lok Pal theory centers on the devil of corruption. Anna Hazare feels that his Lok Pal will significantly change the centuries old Indian culture and tradition. He must recollect the history of this country right from Ramayana, Mahabharata to entry of Mughals and then British. During each of this period one can read innumerable instances, where the people of this land behaved questionably. Their moral fiber was often exposed. People invaded us from different parts of the world. Muslims & British did not bring large army. They only found Indians accessible and corruptible. In fact Muslims & British only desired business opportunities on this golden land but their adventurous spirit was rewarded immeasurably due to materialism & greed in the minds of the people.

In spite of all the reasons to feel cynical about the past, we must appreciate the initiative of Anna Hazare and sanguinely look for improved moral environment. Coming back to the core issue of Lok Pal, we have to find an appropriate space to park this authority.

The utility of Lok Pal has been comprehensively and exhaustively debated at length both in paper and electronic media. Many intellectuals and philosophers are of the opinion that, there is no need for this Lok Pal as trouble lies with the application & performance of the deterrent system. If investigating agencies and courts can function vigorously and resourcefully the various issues can be addressed without the Lok Pal also.

Lok Pal will only be supplementary drain of the nation’s scarce financial resources. New offices, staff, statutary administration expenses running into billions will make it another Nandan Nilekani’s UID office, which is milking the government with both hand. No body can understand what he is really doing? Where is the application of technology in his job? Why our Election Commission (issuer of E. C. voter cards) could not do this job?

In view of various ground level realities and opinions expressed through media, Mr. A. H. may recast his Lok Pal giving it somewhat different shape. Lok Pal should not be a scary villain. This authority should be better projected as a guide to the people. The office of the Lok Pal can be used to bridge the gap of the trust between the people and the governance. Mr. Anna Hazare and the Government may format the “Lok Pal Authority “on the following lines.

Organisational Structure “The Lok Pal Authority”

1. President of India and State Governors enjoy surplus financial budgets, administrative infrastructure and office premises. The job responsibilities of the President and Governors is also kept bare minimum under the constitution. To make better utilization of surpluses with these high places, Lok Pal office can be set up in their citadel. Chief Lok Pal should operate from the Presidential facilities, while State Lok Pal’s can perform from the Governor’s setup.

2. All State Lok Pal’s should be accountable to Chief Lok Pal and Chief Lok Pal should be accountable to the President of India.

3. Retired Supreme Court and High Court judges with clean image should be appointed as Chief Lok Pal / Lok Pal by the last retired Chief Justice and sitting Chief Justice of the Supreme Court by unanimous consent.

4. The tenure of each Lok Pal should be maximum three years non extendable. The compensation should be the same as last drawn in regular service. It should not be change during the entire tenure of his office.

5. Lok Pal should take up public complaints and also suo-motto cases as per his discretion. Suo- motto cases can be based on information from media reports or any other source. He should then proceed to seek clarification from the concerned government officer, institution or any other person / organization. No one should be out of his jurisdiction. Clarification sought by Lok Pal should be delivered within maximum thirty days. Thereafter, the Lok Pal can recommend further investigation, monitor investigation and recommend suitable action to courts against the any person. The Lok Pal reports must considered (can not be ignored) by all concerned. Any default should be deemed to be a failure in performance of official duties.

6. In view of amazing web technology and on line visual software programming, Lok Pal office can easily work with 100% transparency. Their daily activities can be placed on websites in proper formats. All action like complaints, follow up , status of complaints , recommendations etc. should be instantly placed on the web network. Any one should be in position to access information and status of their complaints from home computers. Lok Pal can really function as paper less office.

7. Courts must look into Lok Pal website / e- mails while delivering their judgments.

Proven integrity of retired judges and their high professional competence, matured age and disciplined approach coupled with transparency tool through application of web technology can give astonishing results in achieving Anna Hazare objectives. Lok Pal office can be a strong deterrent against tyrannical attitude under the current governing system. The Lok Pal office will also facilitate in timely fishing of delinquents in the system irrespective of the fact that, they represent business, bureaucracy, defense or politics. All will be indistinguishable in the office of Lok Pal.

Finally, If , the office of the Lok Pal is founded on above lines it will save good amount of tax payers money and boost the morale of common person of the country. My earnest request to Mr. Anna Hazare, Prime Minister Mr. Man Mohan Singh and Congress party leader to give a serious thought to the most simple solution of the most complex issue faced by the country.

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Baba Ramdev Needs Instant Government Attention ……… Solution is inbuilt………

2011-06-04T15:19:00.000+05:30

By CA A. K. Jain

The most hyped and high profile hunger strike of Baba Ramdev has shaken the country's veteran politicians. In fact it forced the administration to initiate police action (in the middle of the night on 4th June, 2011) to tamper the entire movement and send Baba to his home in Haridwar.

For last two years, the government linked financial scandals have become a regular news feature. The media is making the best use of each of the story to increase their net worth. International agencies are rating India as the best and most corrupt business destination in the whole world. India is now better recognised as land of financial scandals, bribery, scams etc. Probably, this is one of the most defining reason for foreign companies to do business in India. The rampant corruption is supplementary incentive to every foreign company doing business in India.

Since independence, the country has seen unparallel inflation, growing unemployment, shortages of essentials, falling real income, deteriorating law and order situations, mismanagement at International frontiers etc. Unfortunately, these negativities generate wealth for handful persons at the cost of the masses.

People like Anna Hazare and Baba Ramdev think that the, situation can be improved in the interest of common person. They get emotionally attached to the cause and the country. They feel they can be the instrument of change. They dream to improve the plight of the common person. They take their mission to the people. Unfortunately, they don't know the system, they don't understand the politics, they don't have the organisation, they don't have the professional experience. They live in the world of dreams.

The problem of Indian money parked in foreign bank accounts is nothing new. As it appears, the government is already working on this issue. But bilateral relations, international treaties and customs are restraining the executives to increase the pace of their efforts. We hope, after Baba Ramdev's episode, the government will augment its efforts in this direction. The other issues raised by Baba Ramdev regarding corruption, education etc. are extremely relevant and we again hope the government will show sincerity and honesty to tackle these issues under time bound programme.

In any case, the police action of the government at Ramleela Ground, New Delhi can not be accepted in any civilized world. A strong number of about 5,000 police men entered the campus little after midnight, where more than 60,000 devotees including women and children were sleeping. Police used tear gas shells to create panic in the small place. The light were switched off. Who so ever tried to intervene or argue was physically thrashed. Confirmed injury figures are not available. Many are still untraceable. We can not find any other example of this event in the history of India. We deeply condemn the approach of the administration in handling this issue.

We wish good for Baba's mission and also wish him good health and long life. Since, the Supreme Court is now dealing with the subject, we hope appropriate relief will be granted to all who have suffered. We also hope the government will henceforth become more transparent and affective in handling various issues raised by Baba Ramdev and Anna Hazare.

We have a suggestion for both Government of India and Baba Ramdev about the problem of Indian Black Money, stored in Swiss Banks etc. If the Scheme suggested herein below can be applied through the Government Ordinance, the problem can be resolved in the best interest of India..

The scheme can be named, “INFRASTRUCTURE FUNDING THROUGH FOREIGN REMITTANCES SCHEME- 2011”.

This scheme may be based on the following guidelines. The scheme primarily offers foreign account holders to repatriate funds back to India with immunity from prosecution. All the incoming remittances under the scheme can be taxed reasonably (say 15%). Besides, the Government can also put certain conditions to route these remittances for the development of Indian infrastructure sector e.g. education, health, transport, energy, communication, road development etc. The scheme should be kept open for at least three years so that, effective results can be achieved. It takes time to understand the scheme and generate the required confidence in the law.

The adoption of this scheme can bring unprecedented success in bringing Indian precious foreign exchange back to country. This is the sole objective of Baba Ramdev. If we want practical solutions, the issue of handling corruption should be addressed separately. For this purpose the government is already in agreement with Baba Ramdev. Special Courts in adequate number can be setup both at central and state level to enforce discipline in the administration of the country. We hope the government will act in the right direction and Baba Ramdev will also accept practical solutions in the overall national interest.

INFRASTRUCTURE FUNDING THROUGH FOREIGN REMITTANCES SCHEME- 2011

Salient Features

1. All individuals and companies will be permitted to receive foreign remittances through recognized banking channels without declaring the source of funds. Cash deposits can also be accepted.

2. The remittance receiver will only be required to provide a declaration that, receipts do not relate to drug, terrorism and arms dealings.

3. All remittances under this scheme will be termed “Foreign Receipts” herein after referred as “FRs”.

4. The scheme should remain open for thirty six months after notification.

5. All FRs should be deposited first in a bank account opened for this specific purpose only ( like FCRA Scheme). Only one bank should be entrusted to provide banking facilities under this scheme. This will help the Government in monitoring the inflow and collecting taxes etc. State Bank of India is ideally suited for this purpose as they have country wide network.

6. All FRs should be invested with in nine months in the Central Government approved infrastructure projects. i.e. projects in the field of education, health services, transport, communication, energy etc. All infrastructure projects should be located in a town / village having population of less than 10 lakhs. Highway projects may be exempted from this requirement.

7. Receipts can also be invested in infrastructure development through the subscription of Infrastructure Bonds issue by Government. The bonds to be issued should have a lock in period of 5 years. The bonds may carry interest of 3.5% p.a. payable half yearly.

8. All FRs under this scheme should be taxed at the flat rate of 12.5%. This tax should be collected by the receiving bank same as TDS.

9. Recipients of FRs should be provided total immunity from prosecution and penalties for the amount received by them under this scheme.

10. All FRs under this scheme should be received in convertible / acceptable foreign currency.

Effects of this Scheme on Indian Economy

1. Under this simple scheme, we can expect an inflow of massive amount of foreign remittances.

2. Since, the inflow of foreign exchange will be on non repatriation basis, Government can use it to repay its expensive foreign loans and make the country debt free for the first time since independence. We will save crores of rupees which are presently paid as interest on foreign loans.

3. Indian currency will instantly get stronger and may even beat the lead currencies of developed nations.

4. Foreign exchange reserves will increase substantially.

5. RBI can become a net lender instead of habitual borrower.

6. All kinds of unemployment will vanish as physical development will take place in small towns and villages across the country.

7. Consumption of steel, cement, labour and other inputs in developmental projects will multiply national income. Both direct and indirect revenue will increase many many folds.

8. The scheme will completely transform the country with in thirty six months unless blocked by vested interests in and outside the country.

9. Average literacy rate in the country may go as high as 95% to 98% due to additional educational institution promoted under this scheme.

10. Health services will become much more economical and accessible by common person.

Precautions and Measures Required for the Success of the Scheme

1. The scheme will need wide publicity around the world.

2. Indian embassies should be involved to project the scheme.

3. Help centers and guidance centers should be set up to explain the scheme.

4. Immunity from prosecution to all recipients and their associates should be given in unambiguous terms.

5. Question regarding sources of funds should not be requested. This will defeat the basic objective of the scheme.

6. The use of terms like black money etc. should be avoided as that will be counter productive. The amount parked outside India for various reasons can be referred as “Foreign Investments”. This will generate tremendous goodwill.

7. The scheme should be managed / administered by independent committee reporting directly to Planning Commission. All ministerial interferences should be curtailed.

8. Infrastructure projects should be identified by planning commission, keeping in mind five year plans. These projects should be auctioned in open house on regular intervals to the individuals and companies participating in this scheme.

9. All surplus funds should be invested through Reserve Bank of India on commercial terms so as earn at least 8% to 10% returns p.a.

10. Religious donations should be kept out of this scheme. Scheme should not encourage flow of religion base funds.

11. Government should have the law to reward handsomely and quickly the informers about storage of illegal money.

12. The foreign account holders who fail to close their unauthorised accounts with in thirty six months (during the period of scheme) should be severely penalized and punished. Scheme can provide for minimum imprisonment of ten years for holding unauthorized accounts along with fine equal to amount deposited. No exceptions and no exemptions from the penalties should be provided. Informers of unauthorized accounts should be generously rewarded by cash incentives.

Conclusion

This scheme, if implemented with supporting awareness programme may change the face of the country in short span of three years. Issues relating to corruption etc. can be resolved discreetly. Government Treasury will start over flowing. Indian Economy can achieve 0% unemployment and net lender certificate from the World Bank and IMF. What else we can expect in a short span of time ……………………As a author of this scheme, I can say with confidence that, this will bring both economic and social revolution in the country.

Request to all the Readers of this Mail

In case you approve and appreciate the ideas placed herein above please help the nation by circulating this mail to all your friends, associates and all others, so that the issues raised by Baba Ramdev can be resolved in positive atmosphere.

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Penalties Under Indian Companies Act

2011-05-26T03:15:00.000+05:30

By CA A. K. Jain

Indian Companies Act 1956 provides a range of obligations to be discharged by every company registered under this act and also on the part of its Directors / Managers / Secretaries, etc. The law relating to penalties arising from non-compliance of various legalities is provided in tabulated format here in below. The basic knowledge of the Company Law is essential for every company director to avoid superfluous annoyance arising from lack of knowledge of the law.

Sr. No	Section	Nature of Default	Penalty	Persons to be held responsible for offence
1	168	Failing to hold AGM in accordance with section 166	50,000/- +2,500 per day.	The company and every officer of the company who is in default.
2	220(3)	Failure to file Annual Accounts with MCA	Rs.500/- per day	The company and every officer of the company who is in default.
3	210(5) (6)	Default in laying Accounts at the AGM	Imprisonment up to 6 months or fine up to 10,000 or both.	Any person, not being a director of the company.
4	218	Improper issue, circulation or publication of Balance sheet or Profit and Loss Account	Fine up to Rs 5,000/-	The company and every officer of the company who is in default.
5	219(3)	Failure to sent members Annual Accounts / Auditors Report 21 days before meeting.	Fine up to Rs.5,000/-	The company and every officer of the company who is in default.
6	219(4)	Default in complying with certain demands for copies of Annual Accounts within 7 days	Fine up to Rs.5,000/-	The company and every officer of the company who is in default.
7	162(1)	Non compliance with the provisions of section 150, 160 or 161 wrt Annual Return.	Fine up to Rs.500/- Per day.	The company and every officer of the company who is in default.
8		Failure to file with MCA certain Resolutions or Agreements entered in accordance with section 192 (1)	Fine up to Rs.200/- Per day.
9	217(5) (6)	Default in complying with the provisions of subsection (1) to (3) regarding Boards report.	Imprisonment up to 6 months or fine up to Rs.20,000/-or with both
10	171(1) (2)	Contents & manner of service of notice in contravention of the provisions of the Act.	Fine up to 5,000/-& further 500 for each day or default.
11	193(6)	Noncompliance with provisions of 193 regarding minutes of proceedings of General Meeting.	Fine up to Rs.500/-	The company and every officer of the company who is in default.
12	176(2)	Omitting to state in notice that a member is entitled Appoint a proxy and that the proxy need not be a member.	Fine up to Rs.5,000/-	Every officer of the company who is in default.
13	211(7) (8)	Failure to prepare Annual Accounts in he form & contents specified in the section.	Imprisonment up to 6 months or Rs.10, 000 or both.
14	142	Non-Filing of registration of any charge created by the company, the payment or satisfaction of a debt in respect of which a charge has been registered under this part, or of the issue of debentures of a series.	Fine upto Rs. 5,000/- for every day during which the default continues.	The company and every officer of the company who is in default.
15	143	Wilfully omission of any entry in the Registrer of charges.	Fine upto Rs. 5,000/-	Any officer of the company
16	144	Refusal for inspection of Register of Charge.	Fine upto Rs. 500 which amy extend to Rs. 200 for every day during which the refusal continues.	The company and every officer of the company who is in default.
17	146	Failure to intimate Registrar about change of Registered Office.	Fine upto Rs. 500/- for every day during which the default continues.	The company and every officer of the company who is in default.
18	147(1) (a)	Failure to paint or affix the name and the address of the company or to keep the same painted or affixed outside the office	Fine upto Rs. 500/- for every day during which its name not so kept painted or affixed.	The company and every officer of the company who is in default.
19	147(1) (b)&(c)	Failure to print its name on the seal or on letter heads, notices, hundies, promissory notes, cheques etc.	Fine upto Rs. 5,000/-	The company
20	148	Failure to publish Authorised, Subscribed and Paid – up Capital simultaneously.	Fine upto Rs. 10,000/-	The company and every officer of the company who is in default.
21	150	Failure to maintain Register of members	Fine upto Rs. 500/- for every day during which the default continues	The company and every officer of the company who is in default.
22	151	Failure to maintain Index of members.	Fine upto Rs. 500/-	The company and every officer of the company who is in default.
23	152	Failure to maintain Index of Debenture holders.	Fine upto Rs. 500/-	The company and every officer of the company who is in default.
24	25	Failure to renew the license of maintaining the words “Chambers of Commerce” in its name.	Fine upto Rs. 5000/- for every day during which the default continues.
25	44(3)	Failure to intimate the Registrar about any alteration in Article	Fine upto Rs. 5000/- for every day during which the default continues.	The company and every officer of the company who is in default.
26	44(4)	Untrue statement filed in any prospectus or statement in lieu of prospectus filed	Fine upto Rs. 50,000/- and imprisonment upto 2 years.	Any person who authorized the filing of such prospectus.
27	40	Default in alteration is made in memorandum or articles in each copy after the alteration in MOA and AOA	Rs. 100/- for each copy so issued.	The company and every officer of the company who is in default.
28	49	Investments of company to be held in its own name.	Fine upto Rs. 50,000/-
29	153B(3)(a)	Non-declaration by trustee of shares and debentures held in trust.	Fine upto Rs. 5,000/- which may extend to a further fine of Rs. 100 for every day during which the default continues.	Trustee
30	153B(3)(b)	False declaration by trustee.	Imprisonment for a term which may extend to two years and also with fine.	Trustee
31	154	If the register of members and debenture holders is closed without giving notice or giving a notice of less than 7 days.	Fine upto Rs. 5,000/- for every day during which the register is so closed.	The company and every officer of the company who is in default.
32	162(1)	Failure in complying with the provisions of section – 159, 160 and 161 (regarding filing of Annual Return)	Fine upto Rs. 500/- for every day during which the default continues.	Every officer of the company who is in default.
33	163	If any inspection, or the making of any extract u/s 163 is not sent.	Fine upto Rs. 500/- for every day during which the refusal or default continues.	The company and every officer of the company who is in default.
34	165	If default is made in complying with section 165 (holding of Statutory Meeting and preparation of Statutory Report)	Fine upto Rs. 5,000/-	Every Director or other officer of the Company who is in default.
35	168	If default is made in holding an AGM (Sec 166) or in complying with any directions of the CG (Sec 167).	Fine upto Rs. 50,000/- + Rs. 2,500 for every day after the first during which such default continues.	The company and every officer of the company who is in default.
36	176(2)	Default in giving the Proxy Form at the end of Notice for meeting.	Fine upto Rs. 5,000/-	Every officer of the company who is in default.
37	188	Default in complying with section 188 (regarding circulation of member’s resolution)	Fine upto Rs. 50,000/-	Every officer of the company who is in default.
38	192A(5)	If a shareholder sends his assent or dissent under Sec-192A(2) in writing on a postal ballot and thereafter any person fraudulently defaces or destroys the ballot paper or declaration of identity of the shareholder.	Imprisonment for a term which may extend to six months or with fine or both.
39	192A(6)	Default in complying with sec- 192A(1) to 192A(4) (Regarding passing of resolutions by postal ballot)	Fine upto Rs. 50,000/- in respect of each such default.	The company and every officer of the company who is in default.
40	193(6)	Default in complying with the provisions of sec-193 in respect of any meeting (Minutes of proceedings of General Meeting and of Board and other meetings).	Fine upto Rs. 5,000/-	The Company and every officer of the company who is in default.
41	196(4)	If inspection of minute books is refused or any copy of minutes, if demanded, is not furnished.	Fine upto Rs. 5,000/- in respect of each offence.	The Company and every officer of the company who is in default.
42	202	If an undischarged insolvent discharges any of the functions of a Director.	Imprisonment for a term which may extend to two years or with fine of upto Rs. 50,000/- or with both.
43	203(7)	If any person acts in contravention of an order made under sec-203.	Imprisonment for a term which may extend to 2 years or with fine upto Rs. 50,000/- or with both.
44	58A(5)	Default in repayment of amount of deposit.	Fine not less than twice the amount in relation to which the repayment of deposit has not been made and imprisonment for a term which may extend to 5 years.	The company and every officer of the company who is in default.
45	58A(6) (a)(i)	If a company accepts any deposit in excess of the limits prescribed.	Fine which shall not be less than an amount equal to the amount of deposit so accepted and imprisonment for a term which may extend to 5 years.	The company and every officer of the company who is in default.
46	58A(6) (a)(ii)	If a company invites any deposit in excess of the limits prescribed.	Fine which may extend to Rs. 10,00,000/- but shall not be less than Rs. 50,000/- and imprisonment for a term which may extend to 5 years.	The company and every officer of the company who is in default.
47	58A(10)	Failure in compliance with the order of Company Law Board passed under Sec-58A(9) regarding repayment of deposit.	Imprisonment which may extend to 3 years and fine of not less than Rs. 500 for every day during which such non-compliance continues.	Whoever fails to comply with the order.
48	58AA (9)	Failure in compliance with the order of Company Law Board passed under Sec-58AA(9).	Imprisonment which may extend to 3 years and fine of not less than Rs. 500 for every day during which such non-compliance continues.	Whoever fails to comply with the order.
49	59	If any prospectus is issued in contravention of sec- 57 & 58.	Fine which may extend to Rs. 50,000	Any person who is knowingly a party of the issue.
50	60(5)	If a prospectus is issued without a copy being delivered to the Registrar or without the copy so delivered having endorsed thereon and attached thereto the required consent or documents.	Fine which may extend to Rs. 50,000/-	The company and every person who is knowingly the party of the issue.
51	63	Mis-statement or untrue statement in prospectus.	Imprisonment for a term which may extend to 2 years or wit fine which may extend to Rs. 50,000/- or with both.	Every person who authorized the issue of prospectus.
52	68	Any person who knowingly or recklessly makes any statement, promise or forecast which is false, deceptive or misleading.	Imprisonment for a term which may extend to 5 years or with fine which may extend to Rs. 1,00,000/-or with both.	Any person.
53	68A	Any person who makes application in a fictitious name for acquiring shares, etc.	Imprisonment for a term which may extend to 5 years.	Any person.
54	69(4)	Contravention of the provisions of sec-69(4) regarding deposit and refund of application money received.	Fine which may extend to Rs. 50,000/-	Every Promoter, Director or other person who knowingly responsible for such contravention.
55	70(5)	Where a statement in lieu of prospectus delivered to the Registrar includes any untrue statement.	Imprisonment for a term which may extend to 2 years or with fine which may extend to Rs. 50,000/- or with both.	Every person who authorized the delivery of statement in lieu of prospectus for registration.
56	73(2B)	If default is made in complying with the provisions of Sec -73(2A) which states that where permission has been granted by the Recognised Stock Exchange for dealing in shares or debentures in such stock exchange and the moneys received from the applicants for shares or debentures are in excess of the aggregate of the application moneys relating to the shares or debentures in respect of which allotments have been made, the company shall repay the moneys to the extent of such excess forthwith without interest, and if such money is not repaid within eight days, from the days company liable to pay it.	Fine which may extend to Rs. 50,000 and where repayment is not made within 6 months from the expiry of eighth day, also with imprisonment which may extend to one year.	The company and every officer of the company who is in default.
57	73(3)	Failure in keeping the money received in a separate bank account maintained with a schedule bank.	Fine which may extend to Rs. 50,000/-	The company and every officer of the company who is in default.
58	79(4)	Every prospectus relating to the issue of the shares shall contain particulars of the discount allowed on the issue of the shares or of so much of that discount as has not been written off at the date of the issue of the prospectus.	Fine which may extend to Rs. 500/-.	The company and every officer of the company who is in default.
59	207	Failure to distribute dividends within thirty days.	Simple imprisonment for a term which may extend to three years and shall also be liable to fine of Rs. 1000/- for every day during which the default continues and the company shall also be liable to pay simple interest at the rate of 18% p.a. during the period for which such default continues.	Every Director of the Company, if he is knowingly a party to the default.
60	218	Improper issue, circulation or publication of Balance Sheet or Profit and Loss A/c.	Fine which may extend to Rs. 5000/-	The Company and every officer of the company, who is in default.
61	232	Default in complying with the provisions of Sec-225 to 231.	Fine which may extend to Rs. 5000/-	The company and every officer of the company who is in default.
62	233	Non-compliance by auditors with the provisions of Sec 227 and 229	Fine which may extend to Rs. 10,000/-	The Auditor concerned, and the person, if any, other than the auditor who signs the report or signs or authenticates the document.
63	272	If, after the expiry of the said period of two months, any person acts as a director of the company when he does not hold the qualification shares ( as referred in sec- 270)	Fine which may extend to Rs. 500 for every day between such expiry and the last day on which he acted as a director.	Any person who acts as a Director.
64	279	If any person who holds office, or acts, as a Director of more than 15 companies in contravention of the provisions.	Fine which may extend to Rs. 50,000/- in respect of each of those companies after the first 20.	Any person who holds office or acts as a Director.
65	302(5)	Failure in disclosing to members of Director’s interest in contract appointing manager, managing director.	Fine which may extend to Rs. 10,000.	The company and every officer of the company who is in default.
66	303(3)	Failure in maintaining the Register of director.	Fine which may extend to Rs. 500/- for every day during which the default continues.	The company and every officer of the company who is in default.
67	304(2)	Refusal for inspection of Register of director.	Fine which may extend to Rs. 500/-	The company and every officer of the company who is in default.
68	308	Duty of directors and persons deemed to be directors to make disclosure of shareholdings.	Imprisonment for a term which may extend to 2 years, or with fine which may extend to Rs. 50,000 or with both.	Any person who fails to comply.
69	322	If any director, manager or proposer makes default in adding a statement that the liability of the person holding the office will be unlimited.	Fine which may extend to Rs. 10,000/- and shall also be liable for any damage which the person so appointed may sustain from the default but the liability of the person appointed shall not be affected by the default.	Any director, manager or proposer.
70	371	Contravention to the provisions of sec – 370 or 370A including in particular any person to whom the loan is made, or in whose interest the guarantee is given or the security is provided.	Fine which may extend to Rs. 50,000/- or with simple imprisonment for a term which may extend to 6 months.	Every person who is a party to any contravention.
71	374	Contravention with the provisions of Sec – 372 or 373.	Fine which may extend to Rs. 50,000/-	Every officer of the company who is in default.
72	383A	Failure in having a whole time secretary.	Fine which may extend to Rs. 500/- for every day during which the default continues.	The company and every officer of the company who is in default.
73	404(4)	Failure in filing copy of every order altering, or giving leave to alter, a company’s memorandum or articles, within 30 days.	Fine which may extend to Rs. 50,000/-.	The company and every officer of the company who is in default.
74	420	Contravention of the provisions of Section – 417, 418 and 419. (Regarding provident fund of employees)	Imprisonment for a term which may extend to 6 months or with fine which may extend to Rs. 10,000/-.	Any officer of the company, or any such trustee of a provident fund
75	423	Non compliance with sections 421 and 422. (Regarding filing of accounts of receivers and Invoices, etc. to refer to receiver where there is one)	Fine which may extend to Rs. 2000/-	The company and every officer of the company who is in default.
76	485	Failure in publication of resolution of winding up in the official gazette and also in newspaper circulating in the district.	Fine which may extend to Rs. 500/- for every day during which the default continues.	The company and every officer of the company who is in default.
77	493	Failure in giving the notice of appointment of liquidator to the registrar.	Fine which may extend to Rs. 1000/- for every day during which the default continues.	The company and every officer of the company who is in default. (including every liquidator or continuing liquidator)
78	496	Duty of liquidator to call general meeting at end of each year, in the event of the winding up continuing for more than 1 year.	Fine which may extend to Rs. 1000/-	Liquidator
79	497	Failure in sending a copy of account and return to the registrar and official liquidator.	Fine which may extend to Rs. 500- for every day during which the default continues.	Liquidator
80	501	Failure in submitting with the registrar copy of resolution passed at a creditor’s meeting.	Fine which may extend to Rs. 500/- for every day during which the default continues.	The company and every officer of the company who is in default.
81	508	Duty of liquidator to call meetings of company and of creditors at the end of each year.	Fine which may extend to Rs. 1000/-	Liquidator
82	513	If a body corporate is appointed as a liquidator.	Fine which may extend to Rs. 10,000/-	Every director or manager
83	514	Corrupt inducement affecting appointment as a liquidator.	Fine which may extend to Rs. 10,000/-	Any person.
84	516	Failure in giving the notice of appointment of liquidator by the liquidator.	Fine which may extend to Rs. 500/- for every day during which the default continues.	Liquidator
85	539	Falsification of books.	Imprisonment for a term which may extend to 7 years and shall also be liable to fine.	Any person, any officer or contributory of a company.
86	541	Default in keeping proper accounts.	Imprisonment for a term which may extend to 1 year.	Every officer of the company who is in default.
87	542	Fraudulent conduct of business with intent to defraud creditors or any person or for any fraudulent purpose.	Imprisonment for a term which may extend to 2 years or with fine which may extend to Rs. 50,000 or with both.	Every person who was knowingly a party to the carrying of the business.
88	551	Failure in filing of information as to pending liquidations.	Imprisonment for a term which may extend to 6 months or with fine which may extend to Rs. 10,000 or with both.	Liquidator
89	598	If any foreign company fails to comply with the provisions of companies act.	Fine which may extend to Rs. 10,000/- and in case of continuing offence, with an additional fine which may extend to Rs. 1000/- for every day during which the default continues.	Any foreign company.
90	606	Any person who is knowingly responsible for the issue, circulation or distribution of a prospectus for the issue of a form of application for shares, debentures or Indian Depository Receipts in contravention with the provisions of Sec-603, 604, 605 and 605A.	Imprisonment for a term which may extend to 6 months or with fine which may extend to Rs. 50,000/- or with both.	Any person.
91	615	Failure in complying with the order of the Central Government to furnish information or statistics or knowingly furnishing any information or statistics which is incorrect or incomplete.	Imprisonment which may extend to 3 months or with fine which may extend to Rs. 10,000/- or with both.	The company and every officer of the company who is in default.
92	621A (6)	Non-compliance with order made by CLB or the RD to file or register with, or deliver or send to, the Registrar any return, account or other document.	Imprisonment for a term which may extend to 6 months or with fine not exceeding Rs. 50,000/- or with both.	Any officer or other employee of the company.
93	628	Making a statement which is false in any material particular or which omits any material fact.	Imprisonment for a term which may extend to 2 years and shall also be liable to fine.	Any person
94	629	Giving false evidence.	Imprisonment for a term which may extend to 7 years, and shall also be liable to fine.	Any person
95	629A	Penalty where no specific penalty is provided elsewhere in the Act.	Fine which may extend to Rs. 5000/- and where the contravention is a continuing one, further fine which may extend to Rs. 500/- for every day after the first day during which the contravention continues.	Every officer of the company who is in default or such other person.
96	630	Penalty for wrongful withholding of property.	Fine which may extend to Rs. 10,000/-	Any officer or employee of the company.
97	631	Improper use of words “Limited” and “Private Limited”	Fine which may extend to Rs. 500/- for every day upon which that name or title has been used.	Any person

Note: The purpose of this article is to provide a brief overview of the penalties under Companies Act. It does not seek to critically examine the various provisions nor is it meant to a complete elaboration of all its provisions. We recommend that advice be sought before taking any action on specific issues.

Queries & Discussions Welcome - I will highly appreciate your views on this article, which can be mailed to me.

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Tapuriah Jain & Associates
Chartered Accountants
21,. Skipper House, 9, Pusa Road, New Delhi - 110 005
Tele : 91-11-28754012 & 13, Mobile : 91-98-100-46108, E-Mail : caindia@hotmail.com

Unauthorized Deposits in Foreign Banks by Indians and its Remedy

2011-04-28T03:09:00.000+05:30

By CA A. K. Jain

From the news paper reports, we have been reading about our financial wealth being stored in Swiss Banks etc. Indian media is actively discussing this subject regularly. Some high profile celebrity individuals are also talking about the issue. This has become an issue of general discussion for everyone, but no one has ever suggested, what can be done to manage the problem so that, these precious financial resources can return back to country.

I feel, before making any attempt to resolve this issue, everyone involved, must understand the reasons for flight of Indian money abroad and background of the account holders, their modes operandi and their organizations etc. As we all know, these account holders are extremely influential, politically powerful and resourceful. We should also accept that, by terrorising these persons through legalities and punishments, nothing can be achieved.

As a Chartered Accountant with understanding of Indian Economy, I strongly recommend that, Government should understand and acknowledge its limitation in handling this complex issue. The law makers should think, in the over all and long term interests of the country. If required, some unpopular ( in short run) decisions should also be taken keeping in mind the general public interest.

Since, handling of this complex issue is highly challenging in the present legal structure, I am proposing a scheme to resolve this complex issue.

The scheme can be named, “INFRASTRUCTURE FUNDING THROUGH FOREIGN REMITTANCES SCHEME- 2011”. The details of the proposed scheme are given herein below. I am sure, if the Government can notify this scheme, without the distraction from the criticism of the opposition parties, the country will come out of this complex issue and prosper beyond imagination.

The scheme primarily offers foreign account holders to repatriate funds back to India with immunity from prosecution. The funds can be taxed reasonably. Besides, the Government can also put some rider to channalise the this money in the development of Indian infrastructure sector e.g. education, health, transport, energy, communication, road development etc. The scheme should be kept open for at least three years so that, effective results can be achieved. It takes time to understand the scheme and generate the required confidence in the law before acting upon it.

Should any one need any clarification on this scheme, I can always be approached for clarification and presentations. Please note, I am not raising a problem but, I am providing a solution to a complex issue effecting every single individual of the country.

INFRASTRUCTURE FUNDING THROUGH FOREIGN REMITTANCES SCHEME- 2011

Salient Features

1. All individuals and companies will be permitted to receive foreign remittances through recognized banking channels without declaring the source of funds. Cash deposits can also be accepted.

2. The remittance receiver will only be required to provide a declaration that, receipts do not relate to drug, terrorism and arms dealings.

3. All remittances under this scheme will be termed “Foreign Receipts” herein after referred as “FRs”.

4. The scheme should remain open for thirty six months after notification.

8. All FRs under this scheme should be taxed at the flat rate of 12.5%. This tax should be collected by the receiving bank same as TDS.

9. Recipients of FRs should be provided total immunity from prosecution and penalties for the amount received by them under this scheme.

10. All FRs under this scheme should be received in convertible / acceptable foreign currency.

Effects of this Scheme on Indian Economy

1. Under this simple scheme, we can expect an inflow of massive amount of foreign remittances.

3. Indian currency will instantly get stronger and may even beat the lead currencies of developed nations.

4. Foreign exchange reserves will increase substantially.

5. RBI can become a net lender instead of habitual borrower.

6. All kinds of unemployment will vanish as physical development will take place in small towns and villages across the country.

7. Consumption of steel, cement, labour and other inputs in developmental projects will multiply national income. Both direct and indirect revenue will increase many many folds.

8. The scheme will completely transform the country with in thirty six months unless blocked by vested interests in and outside the country.

9. Average literacy rate in the country may go as high as 95% to 98% due to additional educational institution promoted under this scheme.

10. Health services will become much more economical and accessible by common person.

Precautions and Measures Required for the Success of the Scheme

1. The scheme will need wide publicity around the world.

2. Indian embassies should be involved to project the scheme.

3. Help centers and guidance centers should be set up to explain the scheme.

4. Immunity from prosecution to all recipients and their associates should be given in unambiguous terms.

5. Question regarding sources of funds should not be requested. This will defeat the basic objective of the scheme.

7. The scheme should be managed / administered by independent committee reporting directly to Planning Commission. All ministerial interferences should be curtailed.

9. All surplus funds should be invested through Reserve Bank of India on commercial terms so as earn at least 8% to 10% returns p.a.

10. Religious donations should be kept out of this scheme. Scheme should not encourage flow of religion base funds.

11. The foreign account holders who fail to close their unauthorised accounts with in thirty six months (during the period of scheme) should be severely penalized and punished. Scheme can provide for minimum imprisonment of ten years for holding unauthorized accounts along with fine equal to amount deposited. No exceptions and no exemptions from the penalties should be provided. Informers of unauthorized accounts should be generously rewarded by cash incentives.

Conclusion

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Chartered Accountants
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Income Tax Settlement Commission

2011-04-21T02:47:00.000+05:30

By CA A. K. Jain

Introduction – Income-Tax Settlement Commission, a quasi judicial body, was set up under section 245B of Income-tax Act 1961. It has been set up as a result of recommendations made by Direct Taxes Enquiry Committee (Popularly known as Wanchoo Committee). The objective of setting up of this Commission is to settle the tax liabilities in complicated cases avoiding endless and prolonged litigation and consequential strain on investigational resources of Income-tax Department. This commission comprises persons of integrity and outstanding ability, having special knowledge of and experience in, problems relating to direct taxes and business accounts.

Composition of Commission – The Settlement Commission consists of a Chairman, Vice-Chairmen and Members. However, the number of Vice-Chairmen and members in the Settlement Commission is decided by the Central Government. The jurisdiction, powers and authority of the Commission shall vest in the hands of Chairman, in case of Principal Bench, and in the hands of Vice-chairman, in case of Additional Bench. At present, four Benches of the Commission are functioning. The Delhi Bench is known as the Principal Bench and the Benches at Mumbai, Calcutta and Chennai are known as the Additional Benches.

Pre-requisite for Filing Application –

1. An application before the Settlement Commission can be made only if the additional tax payable is at least Rs 3 lakhs.

2. Application can be made only at the stage of the pendency of the original assessment proceedings before the assessing officer (AO).

3. No application can be made when proceedings are initiated for assessment or reassessment under Section 148 of the Income-Tax Act, 1961 or in case of search under Section 153A of the Act.

4. Proceedings for making fresh assessment when original assessment was set aside either by the Commissioner or by the Tribunal will also be outside the purview of the application for settlement.

5. An application can be made by an assessee for settlement before the Commission only once in a lifetime.

Decision - If the Presiding Officer as well as Members of a Bench differs in opinion on any point or case, then that point is decided according to opinion of majority. But if no opinion can be formed from the voting as the members are equally divided, then the case is referred to the Chairman who shall either hear the case himself or further refer the case to the other members of the Settlement Commission. He may also constitute a larger or a Special Bench for this purpose. At last, the case shall be decided according to the opinion of majority of the members of the Settlement Commission who have heard the case, including those who first heard it.

Procedure – The procedure for filing the settlement applications before the Commission as laid down in the rules are briefed as under:-

1. The desired applicant can make an application u/s 245C (1) for settlement of case.

2. However, the application should be duly filled, signed and verified as prescribed therein.

3. The application should be accompanied by a fee of Rs. 500/- and should be provided in quintuplicate. The fee should be paid in an authorised bank.

4. The settlement application can be deposited in person or through post to the Secretary or an authorised officer of the concerned Bench within whose jurisdiction the case falls.

5. In case any defect is noticed in the application it may be returned to the applicant pointing out the defects. The application may be re-submitted after corrections. However, while returning the original application, the commission can retain one copy of application for the future references. Such applications need not be entered in the register maintained for the purpose.

6. However, if the application is complete in all respect, it will be entered in the register and a distinctive file number / registration no. is allotted.

Procedure in case of defective Applications -

A. The application is prima-facie defective and non-maintainable in the following cases:-

1. Whether the applicant has furnished the return of income as required under part (a) of proviso to section 245C (1).

2. Whether the additional amount of tax payable on income disclosed exceeds Rs. 1, 00,000/- as required under part (b) of proviso to section 245C(1).

3. Whether calculation of additional tax payable as shown against column (2) of Annexure to the application is as given in the manner laid down in sub-sections (1B) to (1D) of section 245C.

4. In a case of search u/s 132, whether the application has been filed after expiry of 120 days from the date of seizure.

5. Whether there is a case pending before an Income-tax authority with in the meaning of section 245A (b).

If the application contains any of the above mentioned defects, then the commission will inform the applicant inviting his attention to the requirements laid down in section 245C(1) and asking him to show cause as to why his application be not held to be non-maintainable. If the applicant is unable to offer any coherent explanation and there is suspicion that the application suffers from any of the defects mentioned above, then the application is held to be non-maintainable.

B. Where the application suffers from the following defects:

1. Whether the information against Column 10 of the application (Form No.34B) is provided separately or it is clubbed with the information given in the Annexure to the application. If it is clubbed, it should be called for separately.

2. Whether the information relating to Column 11 of the application is given separately or it is incorporated in the application itself? If incorporated, it should be called for separately.

The applicant is required to remove the defects within a specified time and only after the necessary remedial action, the application is sent to the CIT for his report.

C. In case of other defects mentioned below:

1. Whether the annexure to the application is accompanied by full and true statement of facts regarding the issues to be settled including terms of the Settlement as required in Col. 3 of the Annexure?

2. Whether the manner in which the additional income disclosed has been derived is given as required in Col.4 of the Annexure?

3. Whether computation of total income for the year(s) for which the application is made, is given?

4. Whether copies of relevant accounts as required in Notes (i), (ii) and (iii) to the Annexure, are attached?

5. Whether full particulars of proceedings pending before income-tax authorities are given?

The application is sent to the CIT for his report under section 245D (1) and at the same time the applicant is also required to remove the defects by a specified date.

If application is found to be prima facie maintainable, a copy thereof is forwarded to the concerned CIT to furnish his report within 45 days. In this report, apart from other factual information, the CIT is required to comment on the complexity of investigation involved and the suitability of the case for settlement.

After all defects in an application are removed and CIT's report is received or where CIT's report is not received within the period of 45 days and the Commission decides to proceed without report of the CIT, the Secretary prepares a note regarding prima facie admissibility of the case and puts up the matter before the Commission. The note of Secretary mentions the following–

(a) Whether any proceedings are pending,

(b) Whether the return of income has been furnished,
(c) Whether the additional amount of income-tax payable on the income disclosed exceeds Rs. 1 lakh.
(d) Whether any complexity of investigation is involved,
(e) Whether the disclosure is full and true and
(f) Whether the case is otherwise suitable for admission.

After considering the Secretary's note, report of the CIT and the case records, if Commission thinks fit to pass an order without even hearing the applicant or the CIT, an order to that effect is passed forthwith otherwise the application is directed by the Commission to be fixed for hearing. If the applicant requests for a copy of the CIT's report, the same is supplied on payment of prescribed fee.

Procedure for Hearing - The cases are normally fixed in strict chronological order for the hearing and the Commission is empowered to pass an order after hearing both the applicant and the CIT or their authorized representatives, if there. After hearing the applicant and the CIT, the Commission passes an order either allowing the application to be proceeded with or rejecting the same. Copies of all orders passed are sent to the assessee and the CIT.

Where in an order an application for settlement is rejected, nothing further is required to be done at the Commission's end. The application, the CIT's report and the other case papers are consigned to record. Once an application for settlement is allowed to be proceeded with, a copy of the annexure to the settlement application together with a copy of the statements and other documents accompanying such annexure are sent to the CIT for a further report in quadruplicate within 90 days of receipt of the Commission's letter.

Payment of Additional Amount - In respect of applications filed on or after 1.10.1984, the Commission may direct the applicant, in the order passed by the Commission allowing the application to be proceeded with, to pay the additional amount on the income disclosed in the application within 35 days of receipt of a copy of order and to furnish proof of such payment to the Commission and the A.O. having jurisdiction, within 15 days of such payment. If the applicant is unable to pay the additional amount of Income-tax for good and sufficient reasons, he may apply to the Commission for allowing payment of such income-tax in installments and the Commission may extend the time for payment or grant suitable installments subject to the assessee furnishing adequate security. In any case, if payment of the additional tax is delayed beyond 35 days of the date of receipt by the applicant, the assessee shall be required to pay interest on such delayed payment. In case of default on the part of the applicant, the assessing officer may be directed by the Commission to recover the remaining unpaid amount together with interest payable thereon and with any penalty imposed in accordance with the provisions of the Income-tax Act, 1961.

In a case where the application is partly allowed to be proceeded with, the Commission may direct the applicant to submit a fresh annexure together with the statements and other documents accompanying such annexure, after excluding the information in respect of the assessment years not admitted.

Grant of immunity - The Commission can grant immunity only under the I-T and the Wealth tax Acts. The scope for prosecution under other legislation, such as the Prevention of Corruption Act, the Indian Penal Code and the Narcotics Act, will remain open.

Queries & Discussions Welcome

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Tapuriah Jain & Associates
Chartered Accountants
21,. Skipper House, 9, Pusa Road, New Delhi - 110 005
Tele : 91-11-28754012 & 13, Mobile : 91-98-100-46108, E-Mail : caindia@hotmail.com

Anil Kumar Jain, Chartered Accountant, New Delhi.

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