vasai branch of wirc newsletter for the month of... · 2016-10-06 · ca. s venkataramani ca....

www.vasai-icai.org

NEWSLETTER

VASAI BRANCH OF WIRC

The Institute of Chartered Accountants of India

` 25/- For Members Only

October 2016

2 The Institute of Chartered Accountants of India – Vasai Branch of WIRC Newsletter

CREATIVITY WITH COMMITMENT

Photo – GalleryCA Students Festival held on 20th August 2016 at New Zaika, Bhayander (West)

3The Institute of Chartered Accountants of India – Vasai Branch of WIRC Newsletter


Dear Professional Colleagues,

As Benjamin Franklin once said, “An investment in knowledge pays the best interest.” However, merely making the right investment is not enough. It needs to be nurtured and tended to constantly in order to reap rich dividends. In essence this is the driving force behind our Institute and perhaps our Vasai branch.

We live in trying times. There is plenty of opportunity to expand one’s knowledge base and also make a mark in this world. We

endeavor to provide those opportunities to our students and members and empower them to continue the Institute’s vision.

Branch conducted Seminar on Amnesty Scheme for VAT and Allied Acts where Joint Commissioner of Sales Tax, Shri. Shubhash Yengde and Deputy Commissioner of Sales Tax, Shri. Rajesaheb Mane attended as our invited guests. This month we guided the current and prospective students through our CA Students Youth Festival and conducted Mock Tests for Nov 2016 exam takers. The CA Students Youth Festival was an extravaganza where we witnessed 100% attendance from the students of our region.

Forthcoming Events

The training for ‘Certificate course on Forensic Accounting and Fraud Prevention’ will be held from 8th Oct, 2016 to 13th Nov, 2016. The training for ‘Certificate Course on Concurrent Audit of Banks’ will be held from 19th Nov, 2016 to 4th Dec, 2016 at GCC Club, Mira Road.

Post Training Course on Information System Audit (ISA) which will be held from 3rd Dec, 2016 to 8th Jan, 2017. We have also organized “A Two Day Mega Member Conference on GST’ jointly with Indirect Taxes Committee of ICAI to be held on 15th and 16th of Oct, 2016 at GCC International School Auditorium, Mira Road (East).

I am glad that the past quarter has witnessed couple of historic developments. These developments inspire our spirits to better every day, and we believe achieving excellence is a continuous and challenging endeavor.

It is also time for me to extend my heartiest warm wishes to all of you on the occasion of Dussehra, Deepawali and Govardhan Puja. We also have Muharram, one of the four sacred months and first month of the Islamic year, which is observed due to the sacrifice of Prophet Mohammed’s grandson Hussain.

If today is confined, tomorrow can be well-defined.

Let us together script another glorious chapter in the history of Institute of Chartered Accountants of India.

CHAIRMAN’S COMMUNICATIONMANAGING COMMITTEE

CA. Vimal Agrawal Chairman 9320617447

CA. Nitesh Kothari Vice Chairman 9833860870

CA. Bhanwar Borana Secretary 8291454999

CA. Mukesh Sharma Treasurer 9321160020

CA. Ankit Rathi WICASA Chairman 9029059911

CA. Sumeet Doshi Committee Member 9869525956

CA. Xavier Rajan Committee Member 9371720027

CA. Hemant Shah Committee Member 9022405230

CA. Lalit Bajaj Branch Nominee 9867692321

EDITORIAL BOARD

CA. Vimal Agrawal Chairman 9320617447

CA. Bhanwar Borana Secretary 8291454999

CA. Xavier Rajan Committee Member 7755950027

With Warm Regards

CA. Vimal Agrawal Chairman



Forthcoming – Programmes

Venue GCC Club, Mira Bhayander Road, Mira Road (E)

Day & Date 19th Nov. to 4th Dec. 2016 (Every Saturday & Sunday)Timing 9.30 am to 5.00 pmCPE 30 hrs.Fees Delegate fee ` 12,500 per delegate payable by cheque/DD in favor of “Secretary,

ICAI” payable at Delhi and should be sent to Vasai Branch at “Amruta Building, Indralok Phase-II, New Golden Nest Road, Bhayander (East), Dist- Thane. Bhayander-401105” along with duly filled registration form available on link: http://resource.cdn.icai.org/29878iasbform19476.pdf.

Course Chairman CA. Mukesh Singh Kushwah, (Chairman, Internal Audit Standards Board)Course Directors i. CA. Anil Satyanarayan Bhandari (CCM, ICAI & Vice-Chairman, IASB)

ii. CA. Tarun Jamnadas Ghia (CCM, ICAI & Member, IASB)Course Co-ordi-nator

CA. Vimal Agrawal (Chairman, Vasai branch of WIRC of ICAI)

For Registrations please contact

Mr. Khushmat Jain (Branch Incharge, Vasai Branch of WIRC of ICAI)Contact No. : 07208099778, (022) 65568900/01/02.Email : [email protected]

Two Hundred Thirty Ninth Batch of the Certificate Course on Concurrent Audit of Banks

Organized by : Internal Audit Standards Board of the ICAIHosted By : Vasai Branch of WIRC of ICAI

Programme Details

Certificate Course on Concurrent Audit of Banks

Date Topics

November 19, 2016

Loans and Advances

Book Debts and Stock Audit

Prudential norms on Income Recognition, Assets Classification and Provisioning pertaining to Advances

November 20, 2016

Concurrent Audit Procedures

Treasury and Investment Function Part I

Treasury and Investment Function Part II

Implementation of Basel Capital Regulatory Requirements in India.Disclosure RequirementsBankers’ Panel Discussion (GMs of Banks to Address)

November 27, 2016

Legal and Regulatory FrameworkKYC norms & Obligation of banks under Prevention of Money Laundering Act (PMLA 2002)Effective Concurrent AuditDiligence Reports of Banks

December 3, 2016FOREX & TRADEFraud Detection, Classification and Reporting Discussion on Case Studies on Frauds Occurred in Banking Industries

December 4, 2016Audit in CBS EnvironmentSoftware Usage in Banks – CBS DemonstrationObjective Assessment

Programme Schedule

FORTHCOMING PROGRAMMES FOR STUDENTSDate Seminar on Timings Venue Speakers Co-ordinators Fees CPE20th to 28th September 2016

IPCC & Final Mock Test for Nov 2016 Exam attempt

11.00 am to 2.00 pm

Mira Road (East) - CA. Ankit Rathi 9029059911 ` 200 _

Venue Green Court Club (GCC), Mira Bhayander Road, Mira Road (East)

Day & Date 8th, 9th, 15th, 16th, 22nd, 23rd Oct and 5th, Nov 2016 (Every Sat & Sun) (Except 30th & 31st Oct due to Diwali vacation)

Timing 9.30 am to 5.00 pmCPE 20 hrs.For Registration please find below link :http://online.icai.org/ccm.html?progid=1287

Organized by : Committee on Information Technology, Hosted By : Vasai Branch of WIRC of ICAI

Certificate Course on Forensic Accounting and Fraud Prevention

Course Chairman CA. Atul Kumar Gupta Chairman, Committee on Information Technology Mobile: 9810103611 E-mail : [email protected]

Course Co-ordinator CA. Vimal Agarwal Chairman, Vasai branch of WIRC of ICAIContact No : 9320617447E-mail : [email protected]

For Details, Please contact :

Mr. Khushmat JainBranch Incharge, Vasai Branch of WIRC of ICAI Contact No. : 07208099778, (022) 65568900/01/02Email : [email protected]

Note : Limited Seats 40 only

FORTHCOMING PROGRAMMES FOR MEMBERSDate Seminar on Timings Venue Date Co-ordinators Fees CPE

8th Oct to 5th Nov 2016 (Every Sat & Sun)

Certificate Course on Forensic Accounting and Fraud Prevention

9.30 am to 5.30 pm

Green Court Club (GCC), Mira Bhayander Road, Mira Road (East)

Eminent CA. Nitesh Kothari 9833860870 ` 20,000 20 Hrs

15th & 16th Oct 2016

Two Days Mega Members Conference on GST

9.30 am to 5.30 pm

Green Court Club(GCC), GCC International School Auditorium, Mira Road(East)

CA. Madhukar N. Hiregange CA. Sagar Shah CA. A. R. Krishnan CA. Rajiv Luthia CA. S Venkataramani CA. Bharat Kedia CA. Naresh Sheth CA. S S Gupta CA. Ashish Chaudhary"

CA. Nitesh Kothari 9833860870 CA. Bhanwar Borana 8291454999 CA. Mukesh Sharma 9321160020 CA. Ankit Rathi 9029059911 CA. Xavier Rajan 9371720027 CA. Hemant Shah 9022405230 CA. Sumeet Doshi 9869525956

` 2,500 12 Hrs

6th Nov 2016 Seminar on How to Fund Startup

9.30 am to 5.30 pm

New Zaika, Near East- West Flyover, Bhayander (West) Eminent CA. Hemant Shah 9022405230 CA. Sumeet Doshi 9869525956

` 750 6 Hrs

19th Nov to 4th Dec 2016 (Every Sat & Sun)

Certificate Course on Concurrent Audit of Banks

9.30 am to 5.30 pm

Green Court Club (GCC), Mira Bhayander Road, Mira Road (East)

Eminent CA. Mukesh Sharma 9321160020 CA. Xavier Rajan 9371720027 CA. Hemant Shah 9022405230

Young Member- ` 10,000 & Others ` 12,500

30 Hrs

26th & 27th Nov 2016

Mega Members Conference 2016

9.30 am to 5.30 pm

Green Court Club(GCC), GCC International School Auditorium, Mira Road(East)

Eminent CA. Nitesh Kothari 9833860870 CA. Bhanwar Borana 8291454999 CA. Mukesh Sharma 9321160020 CA. Ankit Rathi 9029059911 CA. Xavier Rajan 9371720027 CA. Hemant Shah 9022405230 CA. Sumeet Doshi 9869525956

` 2,500 12 Hrs

3rd Dec to 8th Jan 2016 (Every Sat & Sun)

Professional Training on Information System Audit course

9.30 am to 5.30 pm

Zaika Restaurant & Party Hall, 1st Floor, Giriraj BRIJ Bhoomi, Govind Mall, Near Maxus Mall Flyover, Above Shamrao Vithal Bank, 150 Feet Road, Bhayandar (West)

Eminent CA. Nitesh Kothari 9833860870 ` 20,000 _



Two Days Mega Members Conference on GSTOrganised By : Indirect Taxes Committee - ICAI Hosted By : Vasai Branch of WIRC of ICAI

Day & Dates : Saturday, 15th & Sunday, 16th Odober 2016 Time : 9.00 am to 6.00 pm

Venue : Green Court Club (GCC), GCC International School Auditorium, Mira Road (East)

“GST- It’s Time for Change”

CA. Ankit Rathi (Chairman, Vasai Br. of WICASA) CA. Xavier Rajan (Committee Member, Vasai Br.) CA. Sumeet Doshi (Committee Member, Vasai Br.) CA. Hemant Shah (Committee Member, Vasai Br.) CA. Lalit Bajaj (Branch Nominee & RCM)

Conference Team : • CA. Unmesh Narvekar • CA. Rajesh Kotak • CA. Sandip Jain • CA. Amit Agarwal • CA. Nitesh Shah • CA. Ravi Gupta • CA. Preeti Agrawal • CA. Ritu Agarwal

Registration Fees ` 2,500/- (Inclusive of Breakfast, Lunch, Materials & Kit)Payment Mode Cash/Demand Draft/Cheque to be drawn in favour of “Vasai Branch of WIRC of ICAI, sent to Vasai

Branch Office, lndralok Phase-II, Bhayander (East)

For Online Registration click here : http://utility.vasai-icai.org/register-for-event.aspx?id=27&CompanyID=887&serverIP=1

Programme ScheduleSaturday, 15 October, 2016

Time Topics Speakers9.00 am to 9.10 am Registration & Breakfast9.10 am to 9.45 am Welcome & Introductory Remarks Chief Guest CA. Nilesh Vikamsey, Vice-President, ICAI9.45 am to 11.15 am Brief Concept of Model GST Law including Concept of CCST, SCST & ICST including

SupplyCA. Madhukar N. Hiregange (CCM & Chairman, Indirect Tax Committee)

(including related case law)CA. A. R. Krishnan

3.00 pm to 4.30 pm Leuy & Composition, Exemption from Tax and Place of Supply CA. Rajiu Luthia4.30 pm to 4.45 pm Tea Breab & Networbing4.45 pm to 5.45 pm Input Tax Credit (Capital Goods, Services & Input) including Matching Concept CA. S Venbataramani

Sunday 16 October, 2016

For Details Please Contact:- Vasai Branch of WIRC, Branch premises, lndralok Phase-II, New Golden Nest Road, Bhayander (East), Thane- 401105.Tel:- 022-65568900/01/02 or 07208099778

E-mail id- uasaibranch@gmail. com Website:- www.vasai-icai.org

Conference Chairman : CA. Madhuhar N. Hiregange, CCM & Chairman, Indirect Tax Committee

Conference Director : CA. Vimal Agrawal, Chairman, Vasai Branch of WIRC-9320617447

Conference Chief Co-ordinator : CA. Nitesh Kothari, Vice Chairman & Member Committee Chairman-Vasai Branch-9833860870

Conference Co-ordinator : CA. Bhanwar Borana (Secretary, Vasai Br.) CA. Mukesh Sharma (Treasurer, Vasai Br.)

11.15 am to 11.10 am Tea Break & Networking11.10 am to 1.00 pm Time & Place of Supply of Goods & Services CA. Sagar Shah1.00 pm to 2.00 pm Lunch Break

2.00 pm to 3.00 pm Valuation of Taxable Supply & Valuation Rules

Time Topics Speakers 9.15 am to 10.00 am Breakfast10.00 am to 11.10 am Role & Opportunities for CA in GST CA. Bharat Kedia11.30 am to 11.45 am Tea Break & Networking —11.45 am to 1.00 pm Job Work, E-Commerce Transaction Under GST CA. Naresh Sheth1.00 pm to 2.00 pm Lunch Break —2.00 pm to 3.30 pm Important Transitional Provision CA. S. S. Gupta3.30 pm to 3.45 pm Tea Break & Networking —3.45 pm to 3.15 pm Registrations: Law & Business Processes & Filing of Return & Refund CA. Ashish Chaudhary5.15 pm to 5.30 pm Vote of Thanks —



Will India Lose Interest In Gold?CA. Nidhi KothariMobile No. : 9773283951Email : [email protected]

Background

Gold is one of the most trusted assets in the minds of consumers when it comes to wealth accumulation. It is perceived as money, as an investment, as an efficient store and source of value. It is an asset that has attracted people for thousands of years because it is highly malleable, non-

destructive, easily transportable, universally acceptable and the most beautiful of metals. These unique characteristics have made it a coveted object amongst humans and have led to trading in gold for over 6,000 years.

Gold Market

Gold has been uniquely important to Indians fora variety of religious, social, cultural, ritualistic and behavioural reasons. It is viewed as a liquid asset and hence widely recognized for intergenerational succession of wealth as it is considered to be the most efficient store of value.

Across the world, gold is traded on seven markets. These are –

q London OTC market

q COMEX (New York)

q Three Shanghai Exchanges – Shanghai Gold Exchange (SGE), China Gold Association (CGA) & Shanghai Future Exchange (SFE)

q TOCOM (Tokyo)

q MCX (India)

q Dubai and Istanbul Gold Exchange (ISE).

The London OTC market and COMEX (New York) are the biggest gold markets in terms of quantum activity. China is currently the largest producer of gold. However, India is the second largest consumer of gold in the world, preceded by China and followed by Japan. Factually, India consumes nearly 800 tonne of gold that accounts for 20 percent of world gold consumption, of which nearly 600 tonne of gold goes into making jewellery as per a 2014 World Gold Council (WGC) report.

Since India’s domestic production is very limited, the rising demand has to be sourced through imports. In the last few years, gold imports in India have risen significantly. India accounts for more than a quarter of global gold imports despite contributing less than 2 percent in the global trade. Gold import has been identified as a major contributor to the widening Current Account Deficit (CAD) and therefore Government of India (GOI) is trying to regulate gold imports.

Economic Trends

According to estimates prepared by WGC (2010), India accounts for 10 percent of total gold stocks in the world and rural India accounts for nearly 65 percent of those stocks.

As per the WGC report (2014), combined demand volumes in India and China have grown by 71% over the last 10 years. The two markets accounted for 54% of consumer gold demand in 2014 up from 33% in 20051.

Note: Chart shows consumer demand in tonnes, which comprises jewellery and total bar and coin demand.

Source: GFMS, Thomson Reuters, World Gold Council

Data compiled by the WGC shows that in 2015 China was the world’s largest consumer of gold accounting for about 29% of the global demand. India was next, with about a quarter of the global demand. Together, these two countries thus constituted more than half of the global demand. In light of India’s increasing appetite for gold, government constantly tries to regulate consumer demand through interventions like restrictions. Despite restrictions by government to slowdown imports of gold, jewellery demand in India hit a record 662.1t in 2014.

Economics of Gold

Particulars GDP Growth2

Fiscal Deficit3 CAD

2008-09 2009-10 2010-11 2011-12 2012-136.72% 8.59% 8.91% 6.69% 4.47%5.99% 6.46% 4.79% 5.75% 4.82%-1.27% -2.80% -2.81% -4.29% -4.82%

Source: Trading economics

Story behind the numbers

• Till year 1991, gold imports were banned as per Government of India (GOI) regulations. Since then gold imports have been rising but was not a matter of concern.

Nidhi Kothari

The London OTC market and COMEX (New York) are the biggest gold markets in terms of quantum activity. China is currently the largest producer of gold. However, India is the second largest consumer of gold in the world, preceded by China and followed by Japan. Factually, India consumes nearly 800 tonne of gold that accounts for 20 percent of world gold consumption, of which nearly 600 tonne of gold goes into making jewellery as per a 2014 World Gold Council (WGC) report.

Since India’s domestic production is very limited, the rising demand has to be sourced through imports. In the last few years, gold imports in India have risen significantly. India accounts for more than a quarter of global gold imports despite contributing less than 2 percent in the global trade. Gold import has been identified as a major contributor to the widening Current Account Deficit (CAD) and therefore Government of India (GOI) is trying to regulate gold imports.

Economic Trends

According to estimates prepared by WGC (2010), India accounts for 10 percent of total gold stocks in the world and rural India accounts for nearly 65 percent of those stocks.

As per the WGC report (2014), combined demand volumes in India and China have grown by 71% over the last 10 years. The two markets accounted for 54% of consumer gold demand in 2014 up from 33% in 20051. Note: Chart shows consumer demand in tonnes, which comprises jewellery and total bar and coin demand. Source: GFMS, Thomson Reuters, World Gold Council Data compiled by the WGC shows that in 2015 China was the world’s largest consumer of gold accounting for about 29% of the global demand. India was next, with about a quarter of the global demand. Together, these two countries thus constituted more than half of the global demand. In light of India’s increasing appetite for gold, government constantly tries to regulate consumer demand through interventions like restrictions. Despite restrictions by government to slowdown imports of gold, jewellery demand in India hit a record 662.1t in 2014. Economics of Gold

1 World Gold Council, 2014

1 World Gold Council, 20142 Statistic Times3 International Journal for Innovative Research in

Multidisciplinary Field



• In 2008, global recession took a toll on Indian economy and growth significantly slowed to 6.8% in 2008-09, but subsequently recovered to 8.6% in 2009-10, while fiscal deficit rose from 5.9% to a high 6.5% during the same period.

• India’s CAD surged to 4.29% of GDP during FY13 against 2.82% in FY11 due to the increase in gold and oil imports.

A high CAD meant a threat to sovereign rating of India and hence a possible situation of capital flight out of the Indian economy. Starting in 2012, India entered a period of more anaemic growth, with growth slowing down to 4.4%. Other economic problems also became apparent: a plunging Indian rupee, a persistent high CAD and slow industrial growth.

Hit by the U.S. Federal Reserve’s decision to quantitative easing, foreign investors had been rapidly pulling out money from India which led to unprecedented depreciation of Indian currency which went close to 70 per dollar in 2013. A depreciated rupee put enormous pressure on the CAD and GOI had to take measures to solve the problem of CAD immediately.

Since gold was key contributor to the import bill and the highest value luxury-item imported, a clampdown on gold imports seemed the best way out to bring down the import bill. Consequently, GOI raised the import duty on gold to an all-time high of 10 percent in August 2013 and later, went ahead to ban imports of gold coins and bar which made up to 36 percent of Indian demand. Thus, India’s CAD declined sharply in the quarter ended September 2013 as the effects of government’s measures to curb imports of non-essential items, especially gold started showing results.

Role of Government

According to RBI, the demand for gold in India cannot be compared with other parts of the world. With 1.3 billion population and cultural significance, the demand for gold will be ever increasing from both investors and gold jewellery consumers. The convenience of cash based transactions and absence of documentation (no paper trail, no obligations, etc.) pre-2016 made it a preferred channel for money laundering. Hence, RBI believed that any attempt to curb gold demand in India would be a difficult and complex task.

Its efforts to curb demand came this year (2016)in the form of introduction of an additional 1% excise duty (which prompted the jewellers’ strike in Q1 FY16) and the requirement that purchases above `200,000 need a Permanent Account Number (PAN) card have acted as headwinds to the industry, impacting demand in the organised sector most notably4.

It is also worth noting that RBI sees the gold demand as inelastic. In the long-run, gold savings are attractive as it provides insurance against instability, protection against market risk and high liquidity and has no substitutes with a similar risk-return profile. Thus, gold demand is relatively unresponsive to rising prices, and import bans would simply cause the consumers to take recourse to unauthorized channels to buy gold. I believe this is the reason why India will not

lose interest in Gold in the long-run irrespective of the current ups and downs.

Conclusion

Based on the above correlations, in India, rising gold prices have not adversely impacted the demand for gold. While higher income groups can diversify their investment portfolio in accordance with the risk-return trade off, the weaker sections of the society depend more on gold to hedge against inflation. The jewellery bought from savings is generally used during emergencies. The segment of population facing borrowing constraints have incentives to purchase more gold jewellery during their prosperity (hence rising gold imports) to use as collateral during distress.

There is a need for a gold policy independent of CAD, to be in place. The regulator landscape has been quite reactive in nature of the CAD problem. The sudden change from a relaxed intake, however, is unhealthy for the industry owing to the fact that imports are getting routed illegally and the industry still suffers from lack of transparency. There is an imperative need for a medium-term (next 2-3 years) roadmap of regulations post deliberation and consultation from all stakeholders in the value chain.

A necessary pre-condition for reducing the excessive gold is to ensure low inflationary environment and macroeconomic stability. Absence of any close substitute to gold as an investment asset and high liquidity that gold can offer are two major reasons why gold will be a much preferred asset for the Indian consumer in the coming times.

References:

• World Gold Council (2014), “China’s Gold Market: Progress and Prospects”, China Report, April.

• World Gold Council (2016), “Global Demand Trends: Second Quarter 2016”, August.

• International Journal for Innovative Research in Multidisciplinary Field Article, An analysis of fiscal deficit in India (1991-92 to 2015-16) by Nandini Sud.

4 World Gold Council 2016 Report



31/08/2016 In Case of Assessees In State of Jammu and Kashmir.

Order [F.NO.225/195/2016/ITA.II], Dated 29/07/2016.

On consideration of reports of dislocation of general life in certain areas of the State of Jammu & Kashmir, the CBDT, in exercise of powers conferred under section 119 of the Income Tax Act, 1961 (‘Act’) hereby extends the due date for filling returns of income from 31st July, 2016 to 31st August, 2016, in case of Income Tax assessees in the State of Jammu & Kashmir who are required to file their return under section 139(1) of the Act by the said due date.

q INTEREST OTHER THAN INTEREST ON SECURITY –Section 194A-Deduction of Tax at Source - Notified Agency for Purposes of Section 194A (3) [241 Taxman (st.) 5]

The Central Government vide notification no. SO2616 (E) (No.65/2016-(F No.275/28/2015 – IT (B))) dated 05/08/2016, in exercise of the powers conferred by section 194A (3) (iii) (f) of Income Tax Act, hereby notifies the Micro Units Development & Refinance Agency Limited (MUDRA) for the purpose of section 194A (3).

q INCOME DECLARATION SCHEME, 2016 – Clarifications Issued to Further Queries Received From Public Relating to Said Scheme [241 Taxman (st.) 7]

Circular No.29 dated 18/08/2016 have been issued to clarify on various issues on income declaration scheme.

q TAX COLLECTION AT SOURCE – Insertion of Rules 37CB[241 Taxman (st.) 19]

The CBDT vide notification no. 2747(E) (No.75/2016-F No.370142/19/2016-TPL) dated 19/08/2016, in exercise of the power conferred by section 206C (1E) read with section 295 of the Income Tax Act hereby further amends the rule called The Income Tax (21st Amendment) Rules, 2016. It insert new rule 37CB It prescribed class or classes of buyers to whom provisions of section 206C (1D) of Income Tax Act does not apply. One may refer to above citation for further details.

q SECTION 119 OF THE INCOME TAX ACT,1961 – Income Tax Authorities – Instructions to Subordinate Authorities – Extension of Time for Issuance of Acknowledgment In Form-2 From 15 Days to 30 Days In Respect of Declaration Filed Under Income Declaration Scheme Rules, 2016 In Month of July, 2016.

Order F. NO.142/8/2016-TPL, Dated 12/08/2016.

Sub-rule (3) of rule 4 of Income Declaration Scheme Rules, 2016 (the rules) provides that the acknowledgment in form-2 is to be issued by the principal commissioner / commissioner to the declarant within 15 days from the end of the month in which the declaration has been furnished. Hence, the acknowledgment in form-2 for the declaration filed in the month of July, 2016 is required to be issued by 15th August, 2016.

Time schedule for payment of tax, surcharge and penalty payable under the income declaration scheme, 2016 has been extended vide notification No.SO2476 (E), dated 20/07/2016 in the manner specified therein. Accordingly, necessary amendments to form-2 as prescribed in the rules are in the process of being made.

In view of the above, in exercise of the powers conferred by section 195 of the Finance Act, 2016 read with section 119 of the Income Tax Act, 1961 the CBDT hereby extends the time for issuance of acknowledgment in form-2 as prescribed in sub-rule (3) of rule 4 of the rules from 15 days to 30 days in respect of the declarations filed under scheme in the month of July, 2016.

Direct Taxes - Law Update CA. Haresh P. KeniaMobile No. : 9821351838E-mail : [email protected]

q TRANSFER PRICING – Notified Tolerance Limit U/s 92C(2) of Income Tax Act [240 Taxman (st.) 58]

The Central Government vide Notification no. SO2425(E) (No.57/2016-F.No.500/1/2014-APA-II) dated 14/07/2016 notified that where the variation between the arm’s length price determined under section 92C and the price at which the international transaction

or specified domestic transaction has actually been undertaken does not exceed one per cent of the latter in respect of wholesale trading and three per cent of the latter in all other cases, the price at which the international transaction or specified domestic transaction has actually been undertaken shall be deemed to be the arm’s length price for Assessment Year 2016-17.

Explanation – For the purpose of this notification, “wholesale trading” means as international transaction or specified domestic transaction of trading in goods, which fulfils the following conditions, namely:-

i) Purchase cost of finished goods is eighty per cent or more of the total cost pertaining to such trading activities; and

ii) Average monthly closing inventory of such goods is ten per cent or less of sales pertaining to such trading activities.

q ASSESSMENT U/S 143 – General – Compulsory Manual Selection of Cases for Scrutiny During Financial Year 2016-17 [240 Taxman (st.) 59]

The CBDT vide notification no. 4/2016 (F No.225/176/2016/ITA-II) dated 13/07/2016, hereby lays down the following procedure and criteria for manual selection of returns/cases for compulsory scrutiny during the financial year 2016-17. This instruction is in supersession to the earlier instruction on the above subject. The detailed procedure and criteria are available at the above citation of the magazine.

q INCOME DECLARATION SCHEME (AMENDMENT) RULES, 2016 – Amendment in Form -1 [240 Taxman (st.) 68]

The CBDT vide notification no. 2477(E) (No.60/2016-F No.142/8/2016-TPL) dated 20/07/2016, in exercise of its powers u/s 199(1) and (2) of Finance Act, 2016 makes further amendments to the Income Declaration Scheme Rules, 2016. These rules may be called The Income Declaration Scheme (Amendment) Rules, 2016. It also amended the Form -1, wherein it substitutes serial number 1 and 2 of the form.

q DEPRICIATION ALLOWANCE –Notified Backward Areas U/s 32(1) (iia) and Section 32AD (1) First Proviso of Income Tax Act [240 Taxman (st.) 69]

The Central Government vide notification no. 2478(E) [No.61/2016 (F. No. 142/13/2015-TPL)] dated 20/07/2016, hereby notifies backward areas under the first proviso to clause (iia) of sub-section (1) of section 32 and sub-section (1) of section 32AD of the said Act. The Notified Backward Areas in the States of Telangana, West Bengal and Bihar have been stated in detail in the above citation.

q SECTION 119 OF THE INCOME TAX ACT, 1961 –Income Tax Authorities –Instructions to Subordinate Authorities – Extension of Due Date for Filling Returns of Income From 31/07/2016 to



the Service Tax (Determination of Value) Rules, 2006, service tax is payable on 40% of the value. I.e. rate of 6% in respect of original works.

Here, abatement = 0%

Way Forward by the trade in resolving the issue

Representation before CBEC

In order to resolve the above mentioned controversy in relation to the construction service, a representation was made by the Visakha Apartment Builders Association dated 5 December 2015 before the Central Board of Excise and Customs (CBEC).

Reply by the CBEC

The CBEC replied to the representation received by them through the Circular No. F. No. 332/22/2015 – TRU dated 5 September 2016. The CBEC examined the matter and had the following commentsfor the same:

a. Works contract service as defined in Section 65(105) (zzzza) for the period prior to 1 July 2012 and Section 65B(54) for the period after 1 July 2012 is wide in its scope.

b. Construction service is a sub-specie of the works contract service.

c. Taking cognizance of the fact that construction of a complex, building, civil structure, etc. is a works contract which involves not only transfer of property in goods but also immovable property, a higher abatement from the amount charged for providing such service has been provided under Notification No. 1/2006 for the period 1 July 2010 to 30 June 2012 and under Notification No. 26/2012 for the period with effect from 1 July 2012.

d. Further, the board also clarified that Section 65 (105) (zzzh) i.e. Construction of residential complex service and clause (b) to Section 66E is of more specific description and covers specific items within its ambit, however, Section 65(105) (zzzza) and clause (h) to Section 66E is of general and wider nature.

Conclusion

It appears that CBEC through the reply to the representation received from the Visakha Builder Association has an intention to resolve such controversy and provide an appropriate solution for the same. Accordingly, on a fair view of the TRU circular issued by CBEC, it appears that the activity of construction of residential service is eligible to avail a higher abatement of 70% and hence service tax is to be levied on the balance 30% of the value. In effect, the rate of service tax that would be applicable would be 4.5% and not 6%

Disclaimer

While the above clarification has been provided by CBEC, it has been provided only to the Chief Commissioner of Visakhapatnam and not to all the Chief Commissioners of India. Accordingly, one should consult their professional consultants before taking the decision of levying service tax at the rate of 4.5% in respect of the Construction of residential complex service.

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A sigh of relief – Construction SectorCA. Harshal D FifadraMobile No. : 9702943003E-mail : [email protected]

Introduction:

Works contract has always been a matter of curiosity, controversies, complications, litigations, amendments, reversal of ratios decided by the supreme courts/high courts, etc. It can be said that without learning one of the many intricacies associated with the concept of works contract, a professional or

a person related and associated with the taxation field is incomplete in its tax knowledge.

Works contract by its nature is the involvement of both material and labor and hence it seeks the attention of the both the central and the state tax authorities. Under the state VAT law, the concept of works contract got expanded when the Article 366 of the Constitution was amended by the introduction of the concept of deemed sales.

While there are numerous examples for works contract, one of the celebrated example is the construction activity related to the complexes, structures and roads, airports, complexes, transport terminals, etc. The transaction of works contract is chargeable to state VAT as well as to service tax. Under the domain of service tax, there is a controversy which is prevalent in respect of the rate of tax applicable for provision of construction of residential complex service.

The present article is a sincere attempt by the author to give an insight to the reader in relation to the recent controversy which appears to have been resolved by the CBEC as far the domain of service tax is concerned.

Background of the Controversy:

During the pre-negative list regime, a particular service was chargeable to service tax if it qualified within the definition of a taxable service as provided in various clauses of Section 65 (105). In respect of the activity related to construction of the complexes, there has always been a dilemma as to whether such activity is a:

• Construction of residential complex service as provided in Section 65(105) (zzzh) of the Finance Act, 1994 or

• Works contract service as provided in Section 65(105) (zzzza) of the Finance Act, 1994.

While the above controversy continued for the period up to 30 June 2012, it continued in the post negative list regimethrough clauses (b) and clause (h) of Section 66E of the Finance Act, 1994. The controversy is in existence because CBEC has provided two different rates of service tax in respect of the service which is more or less of the same nature:

• Sr. No. 12 (a) of the Notification No. 26/2012 i.e. Abatement Notification provides the levy of tax at the rate of 30% of the value in respect of construction of residential complex services. I.e. rate of 4.5% (15% service tax * 30%).

Here, abatement = 70%

• Further, the construction of residential complex service involves transfer of property in goods. It is basically a works contract transaction and accordingly as per Rule 2A (ii) (A) of



under the franchise agreement and any breach of the same would also result in termination of the franchise agreement.

• The HC also accepted the submission that if situs of intangible goods was to be examined, it would be Delhi based on the principle that “the owner of an intangible asset would be the closest approximation of the situs of his intangible asset”.

• However, the HC specifically stated that every franchise agreement need not necessarily fall outside the purview of MVAT Act and facts of each agreement have to be examined to determine whether it constitutes “transfer of right to use” or merely a “permissive use” of intangible rights. In essence, the HC unequivocally held that a franchise agreement which grants permissive use of intangible rights to its franchisees will qualify as service and will not attract VAT.

Analysing the Verdict

The Hon’ble High Court held that the agreement between Subway and its franchisee is limited to the precise period of time stipulated in the agreement and at the end of the period of the agreement, or before in case there was any breach of its terms, the right of the franchisee to display the mark ‘Subway’ and its trade dress, and all other permissions would also end. The Hon’ble High Court has clarified that it is not to be suggested that every franchise agreement will necessarily fall outside the purview of the amended MVAT Act. There is conceivably a class of franchise agreements that would have all the incidents of a ‘sale’ or a ‘deemed sale’ i.e., a transfer of the right to use.

The Court further held that there is no exclusivity in the Subway agreement, which is necessary for the transaction to fall into sale category. As per agreement the franchisee cannot unilaterally sub-franchise, if it could do without Subway’s prior permission or leave, then the consideration might be wholly different and it may then be possible to say that there is a transfer of the right to use. The Court found that the right of transferability is extremely restricted and is impossible without Subway control throughout.

But in the light of this judgment it cannot be said that every franchise is outside the purview of the MVAT because the Court has clarified that the judgment is limited to the Subway franchise agreements, which was in question in that case and Court has not expressed any opinion on any other form of franchise agreement or on any broader question of whether all franchise agreements falls outside the MVAT despite the amendment. They only said that Subway franchise agreement which was before Court did not constitute a sale to bring it within the purview of that MVAT.

The Hon’ble High Court further held that mere inclusion of the term ‘franchises’ under the MVAT Act would not automatically make all franchise agreements liable to sales tax. What must be looked at is the real nature of the transaction and the actual intention of the parties. The agreement must be considered holistically, and effect must be given to the contracting parties’ intentions. The label or description of the document is irrelevant. An agreement styled as a franchise might, on a proper examination, turn out to be nothing more than a mere license as it became in Subway’s case. On the other hand, an agreement that calls itself a license might actually be a franchise.

Conclusion

If, in a given case, a franchise agreement is effectively nothing more than a mere permissive use, it cannot be made liable to VAT. It would be a service, and hence liable to service tax. Since this judgment is well reasoned, it provides significant business opportunity to review existing arrangements involving use of intangible rights for avoiding double taxation. This judgment can be a significance to the franchise industry in India especially to those who wishing to delve into it.

Granting Permissive Use of Intangible Rights Is Not A Sale But A Service - Bombay High Court

CA Neelam GuptaMobile No. : 9870404482E-mail : neelam.gupta179 @gmail.com

Granting Permissive Use of Intangible Rights Is Not A Sale But A Service - Bombay High Court

India is now home to globally recognized companies .The franchise business in India is becoming increasingly popular among domestic and international players across many sectors. There has been an increase in the number of cross-border transactions in

which foreign franchisors have sought to establish their brands in India. Though, India still has no specific franchise laws, but still franchising in India has to undergo through various legal propositions which affects the franchisor-franchisee relationship like intellectual property, taxation, labour, property and exchange control regulations.

But the recent judgment of Bombay High Court which was delivered on 11 August, 2016 in the case of Subway Systems India Private is a step ahead to enable franchising industry to take out economic gains from growth in franchising sectors, if they are into similar agreements as the case of Subway. Since, in India, franchise arrangement is mostly contractual in nature, thereby nature of the franchise agreement is extremely essential.

In the case of Subway Systems India Private the issue was whether in respect of the transactions in the light of agreement, Subway is liable to a levy of service tax or sales tax?

The Agreement

Generally, Subway India enters into franchise agreements with third party restaurants (ie, franchisees), permitting them to operate sandwich shops by displaying the trademark ‘Subway’. In return, Subway India receives a one-time franchise fee paid on signing of the agreement and weekly royalty payments linked with the restaurant’s turnover.

Key arguments of the Petitioner

• The franchise agreement was a composite contract for providing various services and the permissive use of ‘Subway’ service mark was one element of such service; agreement was not a sale transaction but a package of various services including mere permission to use intangible rights in a restrictive manner; further , Subway’s composite agreement could not be split in light of Constitutional provisions under clause 366(29A)(d), when there was no intention of contracting parties for separate agreements neither was there any distinctly discernible sale element;

• The contracts could not be artificially split to enable the sale element, neither could the whole agreement be taxed as sale since it is well settled law that service tax and sales tax are mutually exclusive and States cannot entrench upon powers exclusively available to the Centre under the Union List; and Alternatively, even if the transaction amounted to sale, the situs of such deemed sale would be Delhi and not Maharashtra since Subway is based in Delhi and has no place of business in Maharashtra.

HC’s Ruling

• Basis the aforesaid, the HC observed that the Subway franchise agreement was a classic example of permissive use of goods since the franchisee has limited rights to display ‘Subway’ marks and its trade dress and such rights and permissions ceased to exist at the end of stipulated time. The franchisees were bound by set terms



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Seminar on Amnesty Scheme for VAT and Allied Acts held on 19th August, 2016 at Branch Premises, Bhayander (East)

(l-R):- Mr. R.N. Mane (Dy. Commissioner), Captain-Vinod Sharma (President- MBSSI), CA. Vimal Agarwal (Chairman-Vasai Branch of WIRC), Shri. Shubhash Yengde (Joint Commissioner of Sales Tax Dept), Shri Vinod Patil (Speaker) & CA. Unmesh Narvekar (Past Chairman- Vasai Br.) at the dais

CA. Mukesh Sharma (Treasurer-Vasai Br.) presenting bouquet to Mr. R. N. Mane (Dy. Commissioner)

Participants Shri Vinod Patil (Speaker)

CA. KiranSingh Purohit (Member) presenting Memento to

Shri Vinod Patil (Speaker)

CA. Vimal Agarwal (Chairman-Vasai Branch of WIRC) presenting bouquet to Shri. Shubhash Yengde (Joint Commissioner of Sales Tax Dept)

vasai branch of wirc newsletter for the month of... · 2016-10-06 · ca. s venkataramani ca....

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