| Important Judgement of Hon'ble Bombay High Court with respect to Companies Act, 2013 |
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15 May 2014
Bombay HC on CA 2013
Concurrent Audit P & bank
FYI - APPLICATION FOR ASSIGNMENT OF CONCURRENT AUDIT FOR CHARTERED ACCOUNTANT FIRM IN PUNJAB & SIND BANK
for online application
https://www.psbindia.com/OnLine_Application_CCA.php
opening date : 12-05-2014
last date :26-05-2014
14 May 2014
Supreme Court on Sale and WC
Important principles on distinction between "contract for sale of goods" and "works contract" explained
A Constitutional Bench of 5 Judges of the Supreme Court had to consider whether the law laid down by a three-Judge Bench in State of A.P. v. Kone Elevators (India) Ltd (2005) 3 SCC 389 that a contract for manufacture, supply and installation of lifts in a building is a "contract for sale of goods" and not a "works contract" is correct or not. HELD by the Constitution Bench over-ruling the three-Judge Bench judgement:
(i) In the case of a "contract for sale of goods", the entire sale consideration is taxable under the sales tax or value added tax enactments of the State legislatures. In the case of a "works contract", the consideration paid for the labour and service element has to be excluded from the total consideration received and only the balance is chargeable to sales tax or value added tax;
(ii) Four concepts have clearly emerged from the numerous judgements of the Supreme Court on the point. They are (a) the works contract is an indivisible contract but, by legal fiction, is divided into two parts, one for sale of goods, and the other for supply of labour and services; (b) the concept of "dominant nature test" or, for that matter, the "degree of intention test" or "overwhelming component test" for treating a contract as a works contract is not applicable; (c) the term "works contract" as used in Clause (29A) of Article 366 of the Constitution takes in its sweep all genre of works contract and is not to be narrowly construed to cover one species of contract to provide for labour and service alone; and (d) once the characteristics of works contract are met with in a contract entered into between the parties, any additional obligation incorporated in the contract would not change the nature of the contract;
(iii) The "dominant nature test" or "overwhelming component test" or "the degree of labour and service test" are really not applicable. If the contract is a composite one which falls under the definition of works contracts as engrafted under clause (29A)(b) of Article 366 of the Constitution, the incidental part as regards labour and service pales into total insignificance for the purpose of determining the nature of the contract;
(iv) On facts, the three-Bench judgement erred in taking the view that the major component was the equipment and that the skill and labour employed for converting the main components into the end product were only incidental. The principal logic applied, i.e., the incidental facet of labour and service is not correct because in all the cases, there is a composite contract for the purchase and installation of the lift. The price quoted is a composite one for both. Various technical aspects go into the installation of the lift. There has to be a safety device. In certain States, it is controlled by the legislative enactment and the rules. In certain States, it is not, but the fact remains that a lift is installed on certain norms and parameters keeping in view numerous factors. The installation requires considerable skill and experience. The labour and service element is obvious. The preparatory work has to be done taking into consideration as to how the lift is going to be attached to the building. The nature of the contracts clearly exposit that they are contracts for supply and installation of the lift where labour and service element is involved. Individually manufactured goods such as lift car, motors, ropes, rails, etc. are the components of the lift which are eventually installed at the site for the lift to operate in the building. In constitutional terms, it is transfer either in goods or some other form. In fact, after the goods are assembled and installed with skill and labour at the site, it becomes a permanent fixture of the building. However, if there are two contracts, namely, purchase of the components of the lift from a dealer, it would be a contract for sale and similarly, if separate contract is entered into for installation, that would be a contract for labour and service. But, a pregnant one, which is a composite contract for supply and installation, has to be treated as a works contract, for it is not a sale of goods/chattel simpliciter. It is not chattel sold as chattel or, for that matter, a chattel being attached to another chattel.
13 May 2014
Court-Convened Meetings and Postal Ballot
Court-Convened Meetings and Postal Ballot
-Dhananjay Trivedi
Background
In one of the first few cases interpreting the provisions of the Companies Act, 2013 (the 2013 Act), the Bombay High Court last week issued its judgment on the use of postal ballot facility at a court-convened meeting to consider a scheme of arrangement. In re Godrej Industries Limited, the court was concerned with a scheme of amalgamation of Wadala Commodities Limited into Godrej Industries Limited under sections 391 to 394 of the Companies Act, 1956 (the 1956 Act).[1] The narrow question at the initial stage for summons for direction to convene the meetings was “whether in view of the provisions of Section 110 of the [the 2013 Act] and SEBI Circular dated 21st May 2013, a resolution for approval of a Scheme of Amalgamation can be passed by a majority of the equity shareholders casting their votes by postal ballot, which includes voting by electronic means, in complete substitution of an actual meeting. In other words, whether the 2013 Act, read with various circulars and notifications, has the effect of altogether eliminating the need for an actual meeting being convened.”
The court answered this question in the negative to effectively find that while the mechanism of postal ballot (which includes electronic voting) ought to be offered as an additional facility for voting by shareholders, that cannot do away with the need for conducting a meeting. In arriving at this conclusion, the court considered various aspects of the purpose and conduct of shareholders’ meetings, issues of corporate law and governance contained in the 2013 Act as well as various SEBI
circulars.
Reasoning
Even though the issue at hand was quite focused, the opinion of the court rendered by Justice G.S. Patel is elaborate and insightful on various legal and practical matters involving shareholder rights and corporate democracy (and hence I have taken the liberty of extracting some of the important observations). Some of the key issues considered are as follows:
Purpose and Importance of a Meeting
One consideration before the court was whether the purpose of corporate democracy is to simply permit shareholders to cast their vote or whether it was still important to hold a meeting of shareholders so as to enable them to deliberate on the issues and express their opinions. If deliberation is a crucial aspect of corporate democracy, then even where a postal ballot is provided for it is not possible to avoid a meeting altogether. The court expressed its views in the following manner:
We must remember that at the heart of corporate governance lies transparency and a well-established principle of indoor democracy that gives shareholders qualified, yet definite and vital rights in matters relating to the functioning of the company in which they hold equity. Principal among these, to my mind, is not merely a right to vote on any particular item of business, so much as the right to use the vote as an expression of an informed decision. That necessarily means that the shareholder has an inalienable right to ask questions, seek clarifications and receive responses before he decides which way he will vote. It may often happen that a shareholder is undecided on any particular item of business. At a meeting of shareholders, he may, on hearing a fellow shareholder who raises a question, or on hearing an explanation from a director, finally make up his mind. In other cases, he may hold strong views and may desire to convince others of his convictions. This may be in relation to matters that are not immediately obvious to the shareholder merely on receipt of written information or a notice. The right to persuade and the right to be persuaded are, as I see it, of vital importance. In an effort for greater inclusiveness, these rights cannot be altogether defenestrated. To say, therefore, that no meeting is required and that the shareholder must cast his vote only on the basis of the information that has been send to him by post or email seems to me to be completely contrary to the legislative intent and spirit to the express terms of the SEBI circular and amended Listing Agreement’s Clauses 35B and 49.
Hence, the purpose of shareholder democracy is not simply to exercise franchise but to meet, deliberate, persuade and be persuaded as a collective, which is possible only when the facility of a meeting is provided, and not simply when each shareholder casts a ballot in isolation without interaction.
Possibility of Amendments
An important aspect of shareholder right is the ability to propose amendments to resolutions put forth at a meeting. The court found that if the only facility provided is postal ballot without a shareholders’ meeting, then it would take away the power of directors or shareholders to propose amendments, as a result of which the resolution can only be put to vote as originally proposed. This is not desirable. The schemes of both the 1956 Act as well as the 2013 Act provide that schemes are “subject not only to approval by voting but also, possibly, to an amendment at the meeting itself”. The ability to decide upon the scheme along with amendments is important for achieving a meeting of minds, especially on crucial matters such as the share exchange ratio.
Broader Corporate Governance Concerns
The court also expressed its views on the broader governance impact that necessitates greater shareholder participation in companies, especially on crucial matters such as amalgamations.
Nothing could be more detrimental to shareholders’ rights than stripping them of the right to question, the right to debate, the right to seek clarification; and, above all, the right to choose, and to choose wisely. A vote is an expression of an opinion. That vote must reflect an informed decision. Dialogue and discourse are fundamental to the making of every such informed decision. [Counsel’s] submission seems to me to relegate shareholders, in the guise of greater inclusiveness, to a very distant second place in the scheme of corporate governance, seeing them merely as a necessary evil. Nothing could be further from the mandate of corporate law and governance. We strive today to greater transparency; that means that more should be given the opportunity to speak and to exercise their rights as shareholders. But that cannot come at the price of their right to speak, to be heard, to persuade, even to cajole. What corporate governance demands is the government of the tongue, not the tyranny of a finger pressing a button.
Electronic Voting at the Meeting
The court held that the facility of electronic voting must be made available at the meeting itself for those who wish to attend and vote at the meeting. In other words, electronic voting is not limited only to those who are unable or unwilling to attend the meeting. The objective behind this situation is that “[g]reater inclusiveness demands the provision of greater facilities, not less; and certainly not the apparent giving of one ‘facility’ while taking away a right.” Based on the court’s reasoning, the voting options available to shareholders are as follows:
1. Shareholders may exercise their votes through postal ballot or electronic votes in advance and not attend the physical meeting;
2. Shareholders may exercise their votes through postal ballot or electronic votes in advance and nevertheless attend and speak at the physical meeting so as to be able to persuade the other shareholders as to their point of view on matters discussed at the meeting (but they cannot vote again at the meeting);
3. Shareholders may attend and speak at the meetings, and then vote electronically at the meeting itself.
This way, there could be a “single integrated system of voting” for all shareholders who exercise their votes, whether or not they attend the meeting.
Notification of Rules under the 2013 Act
Finally, the court was confronted with some procedural issues relating to the notification of various provisions of the 2013 Act as well as the Rules thereunder. It observed:
A final word about the manner in which these rules and sections are purportedly being brought into force. The website of the Ministry of Corporate Affairs has, on its front page, a link to a single scanned PDF file entitled “COMPANIES ACT 2013 - STATEMENT OF NOTIFICATION OF RULES”. Some 21 rules are listed. They are all said to be effective 1st April 2014. Several of these are not yet gazetted; at least I have not been able to find any gazette. I do not see how any such rules can be made effective on this basis where a ministry simply puts up some scanned document under the signature of one of its officers but sans any publication in the official gazette. That publication is not an idle formality. It has a well-established legal purpose. That purpose is not and cannot be achieved in this ad-hoc manner. Therefore, till such time as these rules are gazetted, or there is some provision made for the dispensation of official gazette notification, none of the rules in the Ministry of Corporate Affairs PDF document that are not yet gazetted can be said to be in force. [footnotes omitted]
These are significant questions, which will require urgent attention of the Ministry of Corporate Affairs (MCA).
Analysis
The judgment of the Bombay High Court is a significant one as it clarifies the rights of shareholders to attend and vote for (or against) resolutions proposed by the company, especially in the case of court-convened meetings for schemes of arrangement (and amalgamation). The courts grants wide amplitude to shareholder franchise and re-emphasises that the methods of voting are a facility provided to shareholders that cannot be circumscribed. Moreover, it highlights the importance of deliberations at a general meeting and the power of persuasion, both of which cannot be treated as empty formalities. This judgment also provides further impetus to shareholder participation in corporate decision-making, which is an important component of the overall phenomenon of shareholder activism, which is gaining ample momentum in the Indian context.
Furthermore, the judgment also raises questions regarding the implementation of the 2013 Act and highlights some key gaps such as the notification of the Rules. Such matters require urgent regulatory attention.
Although the judgment is only at the initial stage of summons for directors (for convening class meetings in a scheme of amalgamation), it raises significant issues that are pertinent more generally to similar cases. The fact that the court has observed that the matter requires fuller consideration and has sought to hear various interested parties such as the Registrar of Companies, the Central Government (through the Additional Solicitor General) and SEBI suggests that the issues will be subject to still further scrutiny. The wider ramifications of the judgment are evident in the observations of the court that “[o]n a prima-facie view that the elimination of all shareholder participation at an actual meeting is anathema to some of the most vital of shareholders’ rights, it is strongly recommended that till this issue is fully heard and decided, no authority or any company should insist upon such a postal-ballot-only meeting to the exclusion of an actual meeting.”
[1] The scheme was considered under these provisions of the previous 1956 Act as they continue to be in force. The equivalent provisions of sections 230 and 232 of the new 2013 Act are yet to come into force.
08 May 2014
Power to quick inquiry to regional director
FYI - The Ministry of Corporate Affairs Vide its circular dated 07/05/2014 has empowered the Registrar/ Regional Director to conduct quick inquiry against professionals and officers where it is observed that any e-Form/document/information/application certified contains incomplete information, false or misleading information or omission of material information.
The said circular further states that cases shall be referred by the Registrar/ Regional Director to the e governance cell of the MCA which shall also refer the case to the concerned institute for conducting disciplinary proceedings as well as debar the errant professional from filing any document on the MCA Portal.
“National Judicial Reference System” (NJRS).
FYI - The CBDT has announced the setting up of a “National Judicial Reference System” (NJRS).
The NJRS comprises of two components, the “Appeals repository and Management System” and the “Judicial Research and Reference System”.
The Appeals repository is a database of all appeals pending in the ITAT, High Court and Supreme Court.
The Judicial Research and Reference System is a database of all decisions of the ITAT, High Courts & the Supreme Court. The cases will be indexed, searchable and cross-linked. The database will also have the relevant statutory enactments, circulars etc.
It is expected that the NJRS will go-live by November/ December 2014.
06 May 2014
Real Estate heading downfall?
"Mumbai has maximum inventory of unsold homes at 155.27 million sq feet I.e approximately 250000 houses which is equivalent to 40 months of unsold inventory. Unsold inventory denotes the number of months required to clear the stock at the existing absorption rate. An ideal scenario implies inventory should be in a range of 8 to 10 months. But Mumbai will take 4 years to sell these houses despite a slew of discount rates, new launches and back room negotiations. Same is the situation in NCR , Chennai , Kolkata, Banglore and Tier II cities. Builder's face crash crunch after RBI put brakes on 20:80 Ponzi scheme. This crisis will worse post 16 May if there is Hung Parliament. India to expect big real estate crash in next 6 to 10 months.".... Dean Baker ....renowned Economist who predicted 2008 US crisis. His advice to indian consumers ...."Indian consumers should be smart to defer their decision on investing in real estate ....and be greedy to sell their current exposure in real estate"Please forward this message to all your friends and family members.
Misuse of PAN from Tatkal
Don't give PAN number for railway Tatkal booking as proof of ID.
The Railways display the PAN. name, sex and age of passengers on reservation charts pasted on railway compartments.
This is a boon for benami transactions. It is mandatory for traders like jewelers to collect tax (TCS) from customers on purchase of jewelry worth Rs 5 lakh & bullion worth Rs 2 lakh.
While complying with TCS rules for collection, payment and uploading of TCS information (e-filing of TDS returns) jewellers have to furnish PAN of customers. For certain customers it is not convenient to provide PAN.
To accommodate high net worth customers, traders have a easy source of benami PAN numbers, name, sex and age from reserved railway compartments. A traveller recently noticed a chap copying PAN particulars along with name, age and sex pasted on reserved compartments, and when confronted with the help of railway police, he admitted that he gets Rs 10 per PAN particulars from jewellers. These persons are copying PAN information of senior citizens, women etc from sleeper class with the intention that passengers in sleeper class are not serious tax payers and generally salaried class.
This wrong usage of a PAN number is known only to the regular tax payers, who regularly check their tax credit on form 26 AS provided by the Income Tax department on their website.
This form 26AS is updated only on filing of e-TDS returns by the traders. There is almost 6-12 months time delay for the PAN holder to know that a transaction of above nature has taken place on his name and that too only if he goes through form 26 AS.
On noticing the tax credit of above nature while reconciling form 26 AS for tax credits for filing the return during subsequent financial year i.e. July / September, the tax payer has an option to exclude the same and go ahead in filing the return.
In that case the department will first initiate action from the tax payer's side asking him to explain the sources of money for the above transaction done in his name and also to prove that he has not carried on the above transaction.
The onus lies on the genuine tax payer for the fault committed by the traders.
This dispute may even take more than 2 years to be settled.
In conclusion, the only way to protect yourself from these fraudulent transactions, is to avoid quoting PAN details for identity proof at any source except for income tax related matters for which your Government had issued for.
You may quote your driving licence #, Voter ID # etc as your ID Proof but definitely not your PAN.
05 May 2014
NO VAT on 40% of Restaurant Bill
VAT not leviable on 40% of the restaurant bill, which is subject to service tax
In the recent decision of the Uttarakhand High Court, in the case of Valley Hotels & Resorts vs. The Commissioner, Commercial Tax, Dehradun [TS-129-HC2014 (UTT)-VAT].
The High Court allowed the revision application filed by the assessee and held that, where the element of service has been declared and brought to tax vide notification dated 6 June 2012, by which Service tax is levied on 40% of the billed value in restaurant, no VAT can be imposed thereon.
The issue of double taxation seems to have been addressed and it has been held that VAT cannot be imposed on that portion of the restaurant bill, which has already suffered Service tax.
30 April 2014
Sec 234E-Bombay HC Stay Order
S. 234E: High Court grants ad-interim stay against operation of notices levying fee for failure to file TDS statement
S. 234E of the Income-tax Act, 1961 inserted by the Finance Act, 2012 provides for levy of a fee of Rs. 200/- for each day's delay in filing the statement of Tax Deducted at Source (TDS) or Tax Collected at Source (TCS). A Writ Petition to challenge the validity of s. 234E has been filed in the Bombay High Court. The Petition claims that assessees who are deducting tax at source are discharging an administrative function of the department and that they are a "honorary agent" of the department. It is stated that this obligation is onerous in nature and that there are already numerous penalties prescribed for a default. It is stated that the fee now levied by s. 234E is "exponentially harsh and burdensome" and also "deceitful, atrocious and obnoxious". It is also claimed that Parliament does not have the jurisdiction or competence to impose such a levy on tax-payers.
The Bombay High Court has, vide order dated 28.04.2014, granted ad-interim stay in terms of prayer clause (d) i.e. stayed the operation of the impugned notices levying the fee.
See also Narath Mapila LP School vs. UOI (Ker), Adithya Bizorp Solutions India vs. UOI (Kar) & Om Prakash Dhoot vs. UOI (Raj) where similar interim orders of stay have been passed. The CBDT has vide Circular No. 07/2014 dated 04.03.2014 extended the due date of filing of the TDS/TCS statement for Government deductors
Rashmikant Kundalia vs. UOI (Bombay High Court)
29 April 2014
crossed cheque and account payee cheque
FYI - Rajmoti Industries vs. ACIT (Gujarat High Court)
S. 40A(3): There is a difference between “crossed cheque” and “account payee cheque”. Payment by crossed cheque attracts s. 40A(3) disallowance
28 April 2014
FATCA
26 April 2014
Resolutions to be proposed at the ensuing AGM
Friends pl add on to do list immediately after 28th April
Resolutions to be proposed at the ensuing AGM
1) Increase in borrowing limit and creation of charge - S/180 (I) (c) & 180 (I) (a)
2) Accepting Public Deposits - S/73 & 76
3) Change/ Alteration in AOA –Adopt Table F
4) Invt. in other body Corporates - S/186
5) Appointment of Branch Auditors (Dubai Branch)
6) Related Party transactions, if any - S/188
7) Appointment of Auditors – Within 3yrs of notification S/139 (2)
8) Issue of Securities (CPs etc) on Pvt. Placement - S/42
9) Appt of CFO & other KMPs - Board approval as 203
10) Fixing Remuneration of KMPS - Board approval as 203
11) Appt. of independent directors - S/149(10) to (12)
Actions immediately to be taken on notification of the Act
1) Identify related parties – To be notified to a/cs and SAP team
2) Print new Business letters, bills etc with CIN no. – s/12(3) (c)
3) Devise CSR policy & spending – s/135
4) Adopt new Whistle Blower Policy – Vigil mechanism – 177(10)
5) File Return on Public Deposits within 3 months – 74(1)
6) Return on change in Top 10 shareholders – within 15 days - S/93
7) To obtain positive consent for receiving documents by email (S/101)
8) Obtain certificate of Independence from Directors S/149 (7)
10) Terms of reference of Audit committee –Additional items to be placed before audit committee at each meeting - S/177 (4)
11) Nomination & Remuneration policy to be approved by Board – S/178 (3) & (2)
12) Terms of reference of Stakeholder committee – Additional items to be placed before the Committee - S/178 (6)
13) Devise Code for independent Directors – Schedule IV
14) Observe Secretarial standards for Board & General meetings S/118 (10)
15) Reconstitute Board (within 1year)– for (i) appl. of ID’s for 5yrs (ii) not liable to retire by rotation –S/149 (10) to (13)
16) Maintain Register of KMPs - S/170
17) Can pay sitting fees upto Rs. 1lakh S/197 (5)
18) Check the compliance required by unlisted Public companies (if paid-up/networth exceed prescribed limits)- refer Annexure (will be circulated separately)
Additional compliances
1) To attend at least 1 Board Meeting in 12 months or vacate office S/167 (1) (b)
2) Change in top 10 shareholders S/93
3) File Board Resolutions passed U/S 179
4) File Report on AGM – S/121
5) Postal Ballot Applicable to Pvt. Cos – S/110
6) Directors Responsibility Statement – Clause (e) & (f) of S/134 (5) have laid down adequate “internal financial controls” (defined in the Act) – To devise policy on internal financial controls.
7) Auditors – Appoint for 5yrs – Existing limit to be considered S/139 (2) – Ratification every year
8) To inform auditor & ROC about appointment within 15 days – S/139
9) Relative of auditor not to hold shares in excess of Rs. 1lakh S/141
SEBI INTRODUCED amendments to clause 35B (E-voting facility) and clause 49 (Corporate Governance)
SEBI has pursuant to a master circular issued today, introduced amendments to clause 35B (E-voting facility) and clause 49 (Corporate Governance) of the equity listing agreement. The master circular will supersede all other earlier circulars issued by SEBI on Clauses 35B and 49 of the Equity Listing Agreement. The revised Clause 35B would be applicable to all listed companies and the modalities would be governed by the provisions of Companies (Management and Administration) Rules, 2014.
Following are some of the highlights of the revised Clause 49:
1. Applicability
a) To all listed companies with effect from 1 October 2014.
b) The provisions of Clause 49(VI)(C) [constitution of risk management committee] will be applicable to top 100 listed companies by market capitalisation as at the end of the immediate previous financial year.
2. Related Party Transactions i.e. a transfer of resources, services or obligations between a company and a related party, regardless of whether a price is charged:
a) Applicable to all prospective transactions.
b) A “related party” is a person or entity that is related to the company. Parties are considered to be related, if one party has the ability to control the other party or exercise significant influence over the other party, directly or indirectly, in making financial and/or operating decisions and includes certain specified entities.
c) Company is obliged to formulate a policy on materiality of related party transactions and also on dealing with Related Party Transactions.
d) A transaction with a related party will be considered material, if the transaction / transactions to be entered into individually or taken together with previous transactions during a financial year, exceeds five percent (5%) of the annual turnover or twenty percent (20%) of the net worth of the company as per the last audited financial statements of the company, whichever is higher.
e) All Related Party Transactions will require prior approval of the Audit Committee.
f) All material Related Party Transactions will require approval of the shareholders through special resolution and the related parties will have to abstain from voting on such resolutions.
g) Details of all material transactions with related parties will have to be disclosed quarterly along with the compliance report on corporate governance.
h) All existing material related party contracts or arrangements as on the date of this circular which are likely to continue beyond March 31, 2015 will have to be placed for approval of the shareholders in the first General Meeting subsequent to 1 October 2014. A company may choose to get such contracts approved by the shareholders even before 1 October 2014.
Equal treatment of all shareholders
3. Companies are obliged to provide equal treatment to all shareholders including minority and foreign shareholders.
Whistle blower mechanism
4. Companies will have to establish a whistle blower mechanism.
Accounting standards
5. Implement the prescribed accounting standards in letter and spirit in the preparation of financial statements taking into consideration the interest of all stakeholders.
Disclosure of interest by board and key executives
6. Members of the Board and key executives are obliged to disclose to the board whether they, directly, indirectly or on behalf of third parties, have a material interest in any transaction or matter directly affecting the company.
Woman director and Independent director
7. Mandatory appointment of a woman director and independent directors.
8. An independent director cannot act as such in more than seven listed companies.
9. Any person who is serving as a whole time director in any listed company cannot serve as an independent director in more than three listed companies.
10. An independent director can hold office for a term up to five consecutive years
24 April 2014
CBDT on Roads-BOT
Important CBDT Circular On Depreciation/ Amortisation Of Intangible Assets
21 April 2014
SEBI's New Corporate Governance Norms
SEBI's New Corporate Governance Norms: A more transparent roadmap for Listed Entities
In a step towards ensuring lucidity in the regime, the Capital Market Regulator, SEBI, has floated new Corporate Governance Norms and revised Clause 35B with the basic premise of promoting interest of varied stakeholders on one hand and aligning the provisions of extant Clause 49 of the Listing Agreement with the Companies Act, 2013 on the other.
The new norms aim to intensify the corporate governance framework for listed companies in India and are considered as a step forward to increment harmonisation in SEBI & MCA laws.
The main highlights are outlined as follows:
- Amendment in Clause 35B in line with the Section 108 of the Act read with Rule 20 of Companies (Management and Administration) Rules, 2014, thereby casting a mandate on all the listed Companies for the mandatory electronic voting facility to all the members of the Company to exercise their right to vote on the resolutions which the company intends to pass, at the general meetings through electronic means. As per the extant SEBI Circular, only top 500 Listed Companies are mandatorily required to give e-voting facility to the members.
- In line with Section 149 (6) of the Act, now the Nominee Directors have been excluded from the definition of Independent Directors.
- In line with the provisions of vigil mechanism as specified in section 177 (9) of the Act, SEBI has mandated whistle blower mechanism in every listed company. Under the extant Cl 49, its a non mandatory requirement.
- Role of audit committee has been extended and its roots are made widespread. This is very categorically reflected in the provisions of the new Clause, which has expanded the role of audit committee.
- Stock options have been prohibited for independent director to protect their independence in real sense, in alignment with section 197 of the Act.
- Broadened the ambit of Independent Directors as compared with the extant arena of Independent Directors
- Board has also mandated for separate meeting for independent directors. This is also in line with the provisions of the Act. The Act also provides for atleast one separate meeting of independent director without attendance of non-independent director and members of management in a year. The intent is to provide the independent directors an opportunity to formulate the action plans to guide and drive themselves and to establish a better coordination between them because the Act poses enhanced responsibility on the independent directors.
- A listed company is a type of corporate entity which deals with public at large in a wider way than the others do, so it is the need of the hour to have a committee to maintain relations with stakeholders, hence the requirement of Stakeholders Relationship Committee has been provided by SEBI. SEBI has also mandated for mandatory Nomination Committee, with the Chairman being Independent, which under the extant Clause is a non mandatory requirement.
- The Act has posed the requirement of performance evaluation of Directors on nomination and remuneration committee. In lines with the said provision, SEBI has also mandated for evaluation of performance of independent directors and board of directors in a listed company.
- As per the amendment, in all listed companies, any RPT is to be priorly approved by the audit committee. In addition, all material RPTs are to be approved by the shareholders, by way of special resolution, with the related parties being abstained from voting. In this regard, SEBI has clearly defined what will tantamount to RPTs and material RPTs.
- In addition, the four walls of RPTs have also been widened to include the elements of Accounting Standards and Companies Act 2013 as well.
- All listed companies to have at least one woman director on their Boards.
- SEBI by taking stricter view has specified the maximum number of boards an independent director can serve on listed companies, which is restricted to 7. This number has further been reduced to 3, in case the person is serving as a whole time director in a listed company.
- SEBI has prescribed the maximum tenure of five consecutive years for the Independent Directors that can be further extended to another term of upto five consecutive years subject to shareholders' approval by way of special resolution. Further, after the expiration of the term or extended term, such independent director shall be eligible for being appointed as an independent director only after expiration of 3 years of ceasing to be an independent director.
- Bodies Corporate which are subject to regulations under other statutes (e.g. banks, financial institutions, insurance companies, etc.) are required to comply with the new norms to the extent that it does not violate the provisions of their respective statutes. However, the Mutual Funds are exempt from the applicability of such new norms.
- In addition to the above mentioned mandates, the Board has also included the specific provisions related to the following:
- Policy on dealing with RPTs
- Enhanced Disclosure requirements related to remuneration of directors
- Divestment of material subsidiaries
- Disclosure of letter of appointment of independent directors along with their detailed profile
- Policy on Risk management
- Mandatory requirement to formulate Risk management Committee is only on top 100 listed entities by market capitalisation.
- Providing training to independent directors
- Boards of Companies have to satisfy themselves that plans are in place for orderly succession for appointments to the board and senior management.
All the above said requirements as amended by the SEBI shall be made applicable to the listed companies' with effect from October 01, 2014 and accordingly, all existing material related party contracts or arrangements as on the date of this circular which are likely to continue beyond March 31, 2015 shall be placed for approval of the shareholders in the first General Meeting subsequent to October 01, 2014 or even before the said date.
Comments:
Undoubtedly, the new norms will ensure more transparency in the day to today workings of listed entities but the roadmap ahead for the listed companies as well as for the Independent Directors is not simple as the new Corporate Governance Norms prescribes a stringent regime.
ICAI expresses its concern on the proposed definition of “Accountant” in DTC, 2013 - (17-04-2014)
ICAI expresses its concern on the proposed definition of “Accountant” in DTC, 2013 - (17-04-2014)
As the members are aware, the Direct Taxes Code, 2013 has proposed to widen the scope of the definition “Accountant” to include other professionals as well. It is a fact that various provisions in the Income-tax Act, 1961 under which chartered accountants have been given the responsibilities to undertake audit and certification of accounts of various entities have the emphasis on “audit” of the relevant accounts which is the exclusive domain of Chartered Accountants.
The Council of ICAI is aware that the proposed change is a cause of major concern to the entire profession. In this regard, ICAI has through a representation to Ministry of Finance, placed on record its concern not only for the profession, but for the country as a whole since issuance of audit certificates by persons having limited knowledge of audit of accounts will not only be professionally incorrect and but will raise many concerns including causing huge revenue leakages.
A meeting in this regard was held with Mr. Rajiv Takru, Revenue Secretary and Mr. R.K.Tewari, Chairman, CBDT on 16.4.2014, wherein CA. K. Raghu, President, ICAI and CA. Manoj Fadnis, Vice President, ICAI emphasized on the fact that there is a very significant difference in the area of expertise of other professionals vis-a-vis Chartered Accountants.
Members be assured that the Council of ICAI is equally concerned and will not leave any stone unturned to save the profession and the nation.
Standard Operating Procedure instructions for IT
FYI- Detailed instructions have been issued by the CBDT to all the assessing officers laying down a Standard Operating Procedure (SOP) for verification and correction of demand by the AOs. As per this SOP, the taxpayers can get their outstanding tax demand reduced/deleted by applying for rectification along with the requisite documentary evidence of tax/demand already paid. The SOP also makes special provisions for dealing with the tax demand upto Rs. 1,00,000/- in the case of Individuals and HUFs in order to accommodate certain extra ordinary situations. The SOP is expected to mitigate the long standing grievances of taxpayers by way of reduction/deletion of tax demands. The CBDT has further noted that many taxpayers are committing mistakes while furnishing their tax credit claims in the return of income. Such mistakes include quoting of invalid/incorrect TAN; quoting of only one TAN against more than one TAN tax credit; furnishing information in wrong TDS Schedules in the Return Form; furnishing wrong challan particulars in respect of Advance tax, Self-assessment tax payments etc. As a result of these mistakes, the tax credit cannot be allowed to the taxpayers while processing returns despite the tax credit being there in 26 AS statement. The CBDT, therefore, desires the taxpayers to verify if the demand in their case is due to tax credit mismatch on account of such incorrect particulars and submit rectification requests with correct particulars of TDS/tax claims for correction of these demands. The rectification requests have to be submitted to the jurisdictional assessing officer in case the return was processed by such officer, or the taxpayer is informed by CPC, Bangalore that such rectification is to be carried out by Jurisdictional assessing officer. In all other cases of processing by CPC, Bangalore, an online rectification request can be made by logging in to e- filing website http://incometaxindiaefiling.gov.in as per the procedure given in detail in its Help Menu.
20 April 2014
Amendments to clause 35B (E-voting facility) and clause 49 (Corporate Governance) of the equity listing agreement.
SEBI has pursuant to a master circular issued today, introduced amendments to clause 35B (E-voting facility) and clause 49 (Corporate Governance) of the equity listing agreement. The master circular will supersede all other earlier circulars issued by SEBI on Clauses 35B and 49 of the Equity Listing Agreement. The revised Clause 35B would be applicable to all listed companies and the modalities would be governed by the provisions of Companies (Management and Administration) Rules, 2014.
Following are some of the highlights of the revised Clause 49:
1. Applicability
a) To all listed companies with effect from 1 October 2014.
b) The provisions of Clause 49(VI)(C) [constitution of risk management committee] will be applicable to top 100 listed companies by market capitalisation as at the end of the immediate previous financial year.
2. Related Party Transactions i.e. a transfer of resources, services or obligations between a company and a related party, regardless of whether a price is charged:
a) Applicable to all prospective transactions.
b) A “related party” is a person or entity that is related to the company. Parties are considered to be related, if one party has the ability to control the other party or exercise significant influence over the other party, directly or indirectly, in making financial and/or operating decisions and includes certain specified entities.
c) Company is obliged to formulate a policy on materiality of related party transactions and also on dealing with Related Party Transactions.
d) A transaction with a related party will be considered material, if the transaction / transactions to be entered into individually or taken together with previous transactions during a financial year, exceeds five percent (5%) of the annual turnover or twenty percent (20%) of the net worth of the company as per the last audited financial statements of the company, whichever is higher.
e) All Related Party Transactions will require prior approval of the Audit Committee.
f) All material Related Party Transactions will require approval of the shareholders through special resolution and the related parties will have to abstain from voting on such resolutions.
g) Details of all material transactions with related parties will have to be disclosed quarterly along with the compliance report on corporate governance.
h) All existing material related party contracts or arrangements as on the date of this circular which are likely to continue beyond March 31, 2015 will have to be placed for approval of the shareholders in the first General Meeting subsequent to 1 October 2014. A company may choose to get such contracts approved by the shareholders even before 1 October 2014.
Equal treatment of all shareholders
3. Companies are obliged to provide equal treatment to all shareholders including minority and foreign shareholders.
Whistle blower mechanism
4. Companies will have to establish a whistle blower mechanism.
Accounting standards
5. Implement the prescribed accounting standards in letter and spirit in the preparation of financial statements taking into consideration the interest of all stakeholders.
Disclosure of interest by board and key executives
6. Members of the Board and key executives are obliged to disclose to the board whether they, directly, indirectly or on behalf of third parties, have a material interest in any transaction or matter directly affecting the company.
Woman director and Independent director
7. Mandatory appointment of a woman director and independent directors.
8. An independent director cannot act as such in more than seven listed companies.
9. Any person who is serving as a whole time director in any listed company cannot serve as an independent director in more than three listed companies.
10. An independent director can hold office for a term up to five consecutive year
19 April 2014
Press Note on Tax Credit
CBDT optimist on Standard Operating Procedure; Urges taxpayers to file rectification request for TDS mismatches
April 18, 2014
SECTION 139D OF THE INCOME-TAX ACT, 1961 - FILING OF RETURN IN ELECTRONIC FORM - EXTENSION OF FACILITY TO TAXPAYERS TO VERIFY IF DEMAND IN THEIR CASE IS DUE TO TAX CREDIT MISMATCH ON ACCOUNT OF INCORRECT FURNISHING OF SPECIFIED PARTICULARS AND SUBMIT RECTIFICATION REQUESTS WITH CORRECT PARTICULARS OF TDS/TAX CLAIMS FOR CORRECTION OF THESE DEMANDS
PRESS NOTE NO.402/92/2006-MC, DATED 17-4-2014
Detailed instructions have been issued by the CBDT to all the assessing officers laying down a Standard Operating Procedure (SOP) for verification and correction of demand by the AOs. As per this SOP, the taxpayers can get their outstanding tax demand reduced/deleted by applying for rectification along with the requisite documentary evidence of tax/demand already paid. The SOP also makes special provisions for dealing with the tax demand upto Rs. 1,00,000/- in the case of Individuals and HUFs in order to accommodate certain extraordinary situations. The SOP is expected to mitigate the long standing grievances of taxpayers by way of reduction/deletion of tax demands.
The CBDT has further noted that many taxpayers are committing mistakes while furnishing their tax credit claims in the return of income. Such mistakes include quoting of invalid/incorrect TAN; quoting of only one TAN against more than one TAN tax credit; furnishing information in wrong TDS Schedules in the Return Form; furnishing wrong challan particulars in respect of Advance tax, Self-assessment tax payments etc. As a result of these mistakes, the tax credit cannot be allowed to the taxpayers while processing returns despite the tax credit being there in 26AS statement. The CBDT, therefore, desires the taxpayers to verify if the demand in their case is due to tax credit mismatch on account of such incorrect particulars and submit rectification requests with correct particulars of TDS/tax claims for correction of these demands. The rectification requests have to be submitted to the jurisdictional assessing officer in case the return was processed by such officer, or the taxpayer is informed by CPC, Bangalore that such rectification is to be carried out by Jurisdictional assessing officer. In all other cases of processing by CPC, Bangalore, an online rectification request can be made by logging into e-filing website http://incometaxindiaefiling.gov.in as per the procedure given in detail in its Help Menu
16 April 2014
Unpaid taxes if a Pvt Ltd company
Unpaid taxes of Private limited Company could not be recovered from its director if he was not grossly negligent in his affairs -GUJ HC- Jashvant lal Vs.ITO
15 April 2014
Parliament competent to impose Service Tax on Restaurants and hotels: Bombay HC
Bombay HC upholds service tax levy on AC restaurants; Differs from Kerala HC ratio
Bombay HC dismisses writ filed by Indian Hotels and Restaurant Association, upholds validity of service tax levy on air-conditioned restaurants serving liquor u/s 65(105)(zzzzv) of Finance Act; Rejects assessee's challenge to Parliament's competence to tax sale / purchase of goods by way of / as part of any service, covered under "State List" read with Article 366(29A)(f) of Indian Constitution; Tax on sale / purchase of goods and tax on services two distinct concepts; To say that Parliament is denuded of its competence to tax restaurant services entails violence to plain language of Constitutional provisions; Service tax does not tax sale of goods, but services provided in such sale; Entry 54 in List II does not envisage service tax on services rendered by restaurant to any person, as referred u/s 65(105)(zzzzv); Rejects Kerala HC's single Judge ruling in Kerala Classified Hotels and Resorts Association for want of categorical finding that tax in question covered by State List; HC accepts Revenue's reliance on SC ruling in Tamil Nadu Kalyana Mandapam pertaining to catering services : Bombay HC
Section 40(a)(ia),
IT: In view of retrospective amendment in section 40(a)(ia), deduction made in last month of financial year would be allowable, if same was deposited before filing of return under section 139(1)
[2014] 42 taxmann.com 547 (Rajasthan)
HIGH COURT OF RAJASTHAN
Commissioner of Income-tax, Udaipur
v.
Choudhary Construction Company
14 April 2014
Sum received by retiring partner
Sum received by retiring partner towards his share capital wasn’t liable to capital gain tax
April 14, 2014[2014] 43 taxmann.com 253 (Hyderabad - Trib.)
13 April 2014
New e forms
FYI - The ministry of Corporate Affairs vide public notice dated 11th April 2014 stated that all the new e forms under the Companies Act 2013 would be available for uploading from the 28th day of April 2014 (instead of staggered roll out of new e forms from the 14th of April, 2014)
04 April 2014
CIN Mandatory
In the latest from the Ministry of Corporate Affairs, 183 new Sections of the Companies Act 2013 have been notified to take effect from April 1, 2014.
As per Section 12 of the Act notified from 1st April, 2014, every company is mandatorily required to mention its Corporate Identification Number (CIN) along with the name and address of registered office on letterheads, invoices, notices and on all official correspondence and publications. Additionally, contact details, email and website address, if any, must be incorporated in such documents mentioned from April 1, 2014.
In case of any failure to quote the CIN number, penalty of Rs 1,000 per day shall be imposed on the defaulting company and on every officer in default for every day during which the default continues. However, maximum penalty imposable shall not exceed Rs 100,000.
Direct Taxes Code
ITR- AY 2014-15
| (a) | in sub-rule (1), for the figures "2013", the figures "2014" shall be substituted; | |
| (b) | in sub-rule(2), in the proviso after the words and figures "section 115JB" the words "or to give a notice under clause (a) of sub-section (2) of section 11" shall be inserted; | |
| (c) | in sub-rule (3), in the first proviso,— |
| (A) | after clause (aab), the following clause shall be inserted, namely:— |
| "(aac) | a person required to furnish the return in Form ITR-5, other than a firm to which clause (aaa) is applicable, shall furnish the return for the assessment year 2014-15 and subsequent assessment years in the manner specified in clause (ii) or clause (iii);"; |
| (B) | for clause (b), the following clause shall be substituted, namely:— |
| "(b) | a person required to furnish the return in Form ITR-7 shall furnish the return for assessment year 2014-15 and subsequent assessment years,— |
| (A) | in case it is furnished under sub-section (4B) of section 139, in the manner specified in clause (ii); | |
| (B) | in other cases, in the manner specified in clause (i) or clause (ii) or clause (iii):"; |
| (d) | in sub-rule (4), after the words, "report of audit", the words "or notice" shall be inserted; | |
| (e) | in sub-rule (5), for the figures "2012", the figures "2013" shall be substituted. |
| FORM SAHAJ (ITR-1) |
| FORM ITR-2 |
| FORM SUGAM (ITR-4S) |
| FORM ITR-V |
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