Resolutions, Notices, letters related with Statutory Auditor

Please find below all the resolutions, notices, letters connected with Statutory Auditor under Section 224, 225, 228, 233A and 233B the Companies Act, 1956 at one place for your reference and record.

SPECIMEN OF LETTER OF INTIMATION TO THE AUDITOR FOR APPOINTMENT

To,

M/s ABC & Associates

Chartered Accountants

Lucknow (UP)

Sub: Appointment as the auditors of the company

Dear Sir,

We are pleased to inform you that the Board of directors of the company at their first Board meeting held on 29th May, 2002 have appointed your firm as the Statutory Auditors of the company and to hold office upto the conclusion of the first annual general meeting of the company on such remuneration as may be decided by the Board.

You are requested to confirm your acceptance for our further needful.

Thanking you,

Yours faithfully,

For, AFA LIMITED

(ACME)

DIRECTOR

Encl.: Certified copy of the Resolution

SPECIMEN OF LETTER FOR ELIGIBILITY U/S 224(1B) OF THE COMPANIES ACT

To

The Board of directors

XYZ Ltd.

Lucknow (UP)

Dear Sir,

In reference to the discussion had with Shri AB, a member of the company, we would like to inform that pursuant to the provisions of section 224(1B) of the Companies Act, 1956, if the appointment made by the members at the annual meeting of the company, it shall be within the ceiling prescribed under the Companies Act, 1956.

Thanking you

Yours faithfully

For ABC & ASSOCIATES

CHARTERED ACCOUNTANTS

Mr. Ramesh

PARTNER

SPECIMEN OF BOARD RESOLUTION FOR APPOINTMENT OF THE FIRST AUDITORS

The Chairman informed that the first auditors of the company are to be appointed in the Board meeting within one month from the date of incorporation of the company. He informed that he had got consent of M/s A Jain & Associates, Chartered Accountants, for their appointment as the first auditors of the company. The Board considered and passed the following resolution unanimously:

“RESOLVED THAT pursuant to the provision of section 224 of the Companies Act, 1956, M/s A Jain & Associates, Chartered Accountants of Meerut from whom certificate pursuant to section 224(1B) of the Companies Act has been received, be and are hereby appointed as the first auditors of the company to hold office until the conclusion of the first annual general meeting of the company at a remuneration to be determined by the Board of directors of the company.

SPECIMEN OF THE RESOLUTIONS PASSED BY THE MEMBERS

I. FOR APPOINTMENT OF AUDITORS AT THE ANNUAL GENERAL MEETING

“RESOLVED THAT M/s ABC & Co. Chartered Accountants, the retiring Auditors be and are hereby reappointed as Auditors of the Company to hold office until the conclusion of the next Annual General Meeting and that they be paid a fee of Rs. 6,500 (Rs. Sixty Five Hundred Only) for Auditing the Accounts of the Company plus out of Pocket Expenses incurred by them.”

II. ORDINARY RESOLUTION PASSED AT THE EGM FOR REMOVING EXISTING AUDITORS SUBJECT TO APPROVAL OF REGIONAL DIRECTOR

“RESOLVED THAT pursuant to the provision of section 224(7) of the Companies Act, 1956 and subject to the approval of the Central Government (Powers delegated to the Regional Director), M/s ABC & Co., Chartered Accountants of Kanpur, who were appointed as the Auditors of the Company at the last Annual General Meeting to hold office up to the conclusion of the next Annual General Meeting of the Company, be and are hereby removed from such office of the Auditors, before the expiry of their term.”

III. ORDINARY RESOLUTION PASSED AT THE EGM FOR APPOINTING NEW AUDITORS SUBJECT TO APPROVAL OF REGIONAL DIRECTOR

“RESOLVED THAT pursuant to the provision of section 224, 224(1B) and 225 of the Companies Act, 1956 and subject to the approval of the Central Government (Powers delegated to the Regional Director) for the removal of the existing Auditors of the Company, M/s Jain & Co., Chartered Accountants of Mysore, M/s Malhotra & Associates, Chartered Accountants of Kanpur, be and are hereby appointed as the Auditors of the Company to hold office from the date of order of removal of the Auditors as approved by the Regional Director up to the conclusion of the next Annual General Meeting of the Company on a remuneration of Rs. 6,500 plus out of pocket expenses.

SPECIMEN OF THE BOARD RESOLUTION FOR AUTHORIZING TO FILE APPLICATION

“RESOLVED THAT an application in the prescribed e-Form 24A for approval for the removal of Auditor u/s 224(7) of the Companies Act, 1956 be made to the Regional Director, Ministry of Company Affairs, Western Region, Mumbai.

RESOLVED FURTHER THAT Mr. Manoj, Director and/or Company Secretary of the Company be and is hereby authorised to sign the application on behalf of the Board and execute an affidavit verifying the contents of the application.

RESOLVED FURTHER THAT Company Secretary be and is hereby authorised to file the above said application with the Regional Director, Western Region, Department of Company Affairs and to appear before the Regional Director on behalf of the Company and to do all such acts, deeds and things as may be required in the matter and to give all details, statements as may be required by the Regional Director.”

SPECIMEN OF THE SPECIAL NOTICE/REQUISITION RECEIVED FROM A MEMBER TO CALL AN EGM

From:

Raj Verma

Member,

Cipla Ltd.

Lane-34, Ist Floor

Meerut (U.P.)

To.

The Board of Directors,

Cipla Ltd.

Z-4, Borivilly,

Mumbai (M.H.)

Sub: Requisition for calling an Extraordinary General Meeting u/s 169

Sir.

I, the under signed member of the Company holding 37.20% of the paid up share capital issued by the Company as set out in the Schedule hereto requires you in terms of section 169 of the Companies Act, 1956 and Article 129 of the Articles of Association of the Company to convene an Extra Ordinary General Meeting of the members of the Company, to transact the following businesses by Ordinary Resolution:

(1) REMOVAL OF AUDITORS

RESOLVED THAT pursuant to the provision of section 224(7) of the Companies Act. 1956 and subject to the approval of the Central Government (Powers delegated to the Regional Director), M/s Jain & Co., Chartered Accountants of Kanpur, who were appointed as the Auditors of the Company at the last Annual General Meeting to hold office up to the conclusion of the next Annual General Meeting of the Company be and are hereby removed from such office of the Auditors, before the expiry of their term.

(2) APPOINTMENT OF NEW AUDITORS:

RESOLVED THAT pursuant to the provision of sections 224, 224(18) and 225 of the Companies Act, 1956 and subject to the approval of the Central Government (Powers delegated to the Regional Director) for the removal of M/s Jain & Co., Chartered Accountants, the existing Auditors of the Company, M/s malhotra & Associates,. Chartered Accountants of Meerut be and are hereby appointed as the Auditors of the Company to hold office from the date of Order of Removal of the Auditors as approved by the Regional Director up to the conclusion of the next Annual General Meeting of the Company on a remuneration of Rs. 6,500 plus of out of pocket expenses.

Name of the requisitionist: Raj Verma

L. F. No.: 253

Shares held: 1,02,800

% Holding: 37.20%

Signature:

PLACE: Meerut

DATED:

SPECIMEN OF ELIGIBILITY CERTIFICATE OF PROPOSED AUDITORS U/S 224(1B)

ABC & Associates,

Chartered Accountants

Lane-5, Bada Chowk,

Meerut (U.P.)

To,

The Board of Directors,

ABC Private Limited,

Meerut.

Reg.: Appointment as Statutory Auditor of your Company "Consent and Eligibility"

Dear Sir,

With reference our discussion and your offer for our appointment as the Statutory Auditors of your Company, we do hereby declare and confirm that we are duly qualified and eligible for this appointment as per the provisions of section 224(1B) and 226(1) of the Companies Act, 1956.

Thanking you

Yours Sincerely

For ABC & ASSOCIATES

CHARTERED ACCOUNTANTS

Mr. Ramesh

PARTNER

SPECIMEN OF GENERAL MEETING RESOLUTION FOR FILING THE CASUAL VACANCY CAUSED BY RESIGNATION OF THE AUDITORS

The Chairman took the matter for appointment of M/s Ram & Shyam, Chartered Accountants, Rampur, in place of M/s Rohit & Mohit, Chartered accountant, the retiring Auditors who have expressed their unwillingness for re-appointment and who has to vacate their office at the conclusion of this Meeting.

The Chairman informed that the Company has obtained an eligibility letter from M/s Ram & Shyam in terms of section 224(1B) of the Companies Act, 1956 and proposed the resolution for approval of the members:

“RESOLVED THAT M/s Ram & Shyam, Chartered Accountants of Rampur, be and are appointed as the Auditors of the Company, in place of M/s Rohit & Mohit, Chartered Accountants, to hold the office of Auditors from the date of this Meeting to the conclusion of the next Annual General Meeting of the Company on such remuneration and out of pocket expenses as may be decided by the Board.

Explanatory Statement

M/s Rohit & Mohit, Chartered Accountants, the existing Auditors of the Company has resigned from the office of Auditor of the Company, therefore creating casual vacancy in the office of Auditors. The Company has received a notice from member alongwith a letter u/s 224 of the Companies Act, 1956 informing the eligibility signifying his intention to appoint M/s Ram & Shyam, Chartered Accountants, to fill the casual vacancy. In terms of the provision of section 225 of the Companies Act, the appointment of Auditors in place of existing Auditors of the Company requires the approval of General Meeting by way of Ordinary resolution.

Therefore, the Board recommend to pass necessary resolution by way of ordinary resolution to appoint M/s Ram & Shyam, Chartered Accountants, as the casual Auditors of the Company in place of M/s Rohit & Mohit, Chartered Accountants to hold office of the Auditors of the Company till the conclusion of the next Annual General Meeting on the remuneration as may be fixed by the Board.

A copy of the resignation tendered by the Auditors and eligibility letter as referred elsewhere are available for inspection of the members till the date of the meeting during business hours.

None of the director of the Company is concerned or interested in the proposed resolution.

SPECIMEN OF SPECIAL NOTICE FOR APPOINTMENT OF AUDITORS OTHER THAN THE RETIRING AUDITORS

From …………. (Member) Dated 17th May, 2008

To

The Board of directors

Cipla Ltd.

Kanpur (UP)

Sub: Notice under section 225(1) of the Companies Act, 1956 for appointment of auditors M/s Subash & Co., Chartered Accountants, in place of M/s Agarwal & Co. Chartered Accountants.

Dear Sir/s

This has in reference to your notice, dated 12^th May, 2008 for the 17th Annual General Meeting of the Company to be held on 9th June, 2008.

I, would like to inform that I have …….. Equity Shares of the company constituting …… % of the

total paid up capital of the company and in reference to the provisions of section 225(1) read with the provisions of section 190 of the Companies Act, 1956, I hereby give a notice that M/s Subash & Co., Chartered Accountants of Kanpur be appointed in place of M/s Agarwal & Co. Chartered Accountants, the retiring auditors of the company.

I hereby submit a draft of the resolution for approval at the annual general meeting to be held on 9th June, 2008.

You are requested to please do the needful as per provisions of the Companies Act, 1956.

Thanking you

Yours faithfully

(……………..)

Member, Folio No……..

Encl.: 1. Draft of the resolution

2. Eligibility letter given by M/s Subash & Co., Chartered Accountants.

SPECIMEN OF THE RESOLUTION TO BE SUBMITTED BY MEMBER'S ALONGWITH THE NOTICE

“RESOLVED THAT M/s Subash & Co., Chartered Accountants of Kanpur be and is hereby appointed as the auditors of the company in place of the retiring auditors M/s Agarwal & Co., Chartered Accountants to hold the office of the auditors till the conclusion of the next annual general meeting on such remuneration as may be determined by the Board of directors of the company.”

SPECIMEN OF LETTER FOR NOTICE TO THE RETIRING AUDITOR BY THE COMPANY

20th May, 2008

To,

M/s Agarwal & Co.,

Chartered Accountants

Kanpur (UP)

Sub: Notice under section 225(1) of the Companies Act, 1956 received from a member for appointment of auditors M/s Subash & Co., Chartered Accountants, Kanpur in place of retiring auditors.

Dear Sir/s

Kindly find enclosed a copy of the notice received from ………. a member of the company under

section 225(1) read with the provisions of section 190 of the Companies Act, 1956 regarding notice for appointment of M/s Subash & Co., Chartered Accountants of Kanpur in place of retiring auditors.

In terms of the provisions of section 225(2) of the Companies Act, 1956, we hereby submit a copy of the notice for your kind information.

Kindly acknowledge the receipt of letter for our reference and record.

Thanking you,

Yours faithfully

For, Cipla Ltd.

DIRECTOR

Encl.: a/a

SPECIMEN OF INTIMATION LETTER BY THE NEW AUDITORS TO THE EXISTING AUDITORS FOR APPOINTMENT AND SEEKING THEIR NO OBJECTION LETTER

14th June, 2008

To,

M/s Agarwal & Co.,

Chartered Accountants

Kanpur (UP)

Sub: Appointment as the auditors of M/s Cipla Limited

Dear Sir,

We would like to inform that we have received a letter from Cipla Limited informing that the company at their annual general meeting held on 9th June, 2008 has appointed our firm as the Statutory Auditors of the company.

Being the retiring auditors, kindly give us your no objection letter to accept the assignment by us. In case if you have any observation or reservation, please inform us accordingly.

Thanking you,

Yours faithfully

M/s Subash & Co.

CHARTERED ACCOUNTANTS

PROPRIETOR

SPECIMEN OF RESOLUTION FOR FIXING REMUNERATION OF AUDITOR OF GOVERNMENT COMPANY

“RESOLVED THAT pursuant to the requirement of sub-section 8(aa) to section 224 of the Companies Act, 1956, the Board of Directors of the Company be and are hereby authorized to fix the remuneration and other terms and conditions, including reimbursement of out of pocket expenses in connection with the audit work, to the Statutory Auditors as appointed by the Comptroller and Auditor-General of India for the year 2001-2002.”

Explanatory Statement to the above Resolution

As per section 619 of the Companies Act, 1956, the Statutory Auditors of a Government Company are appointed by the Comptroller and Auditor General of India (C&AG). The sub-section 8(aa) to section 224 of the Companies Act, 1956 requires that the remuneration of an auditor appointed under section 619 of the Companies Act, 1956 shall be fixed by the Company in general meeting or in such manner as the Company in general meeting may determine.

The Statutory Auditors for the Company for the financial year 2001-2002 is yet to be appointed by the C&AG.

Necessary resolution has been placed before the members for authorizing the Board of Directors to fix up the remuneration and reimbursement of other out of pocket expenses to the Statutory Auditors of the Company for the financial year 2001-2002, as and when the appointment is made by the C&AG. None of the Directors is interested in the resolution. Directors recommend the resolution as proposed in the Notice for Member's approval.

SPECIMEN OF GENERAL MEETING RESOLUTION FOR APPOINTMENT OF COMPANY'S AUDITOR OR ANY OTHER QUALIFIED PERSON AS BRANCH AUDITOR

“RESOLVED THAT the Board of Directors be and is hereby authorized to appoint the Company's

Auditors and/or in consultation with Company's Auditors any person or persons qualified for appointment as auditor or auditors of the Company under section 226 of the Companies Act, 1956, so far as branch offices of the Company situated in countries outside India, in accordance with the law of the country in which the branch offices of the Company are situated, to audit the accounts for the year ending of such Company's Branch offices in India and abroad respectively and to fix the remuneration (which in the case of the Company's Auditors shall be in addition to their remuneration as the Company's Auditor) and the terms and conditions on which they shall carry out the audits.

Explanatory Statement

The Company has branch (sales) offices at different places in India, namely, Kanpur, Ratlam, Mumbai, Delhi, Kolkata and it is proposed to authorize the Board of Directors to appoint the Company's Auditor and/or, in consultation with the Company's Auditors, persons other than the Company's Auditors qualified for appointment as Auditors of the Company under section 226 of the Companies Act, 1956, to audit the accounts of all branch (sales) offices in India at such remuneration and upon such terms and conditions as the Board of Directors deem fit, pursuant to the provisions contained in sub-section (3) of section 228 of the Act.

The Company has a branch office in Canada and depending upon the development of business the Company may open branches in some other countries. For the branches of the Company situated outside India, it is proposed to authorize the Board of Directors to appoint persons qualified for appointment as auditors or duly qualified accountants as envisaged under the provisions of section 228 of the Act to audit the accounts of such branches upon such terms and conditions as the Board of Directors may deem fit.

The resolution is proposed to give the necessary authority to the Board of Directors in this behalf. No director is interested or concerned in the resolution.

SPECIMEN OF BOARD RESOLUTION FOR TAKING ON RECORD THE APPOINTMENT OF SPECIAL AUDITOR

“RESOLVED THAT appointment of special auditor and fixation of his remuneration by the Central Government vide its Order No. ________dated _________ in accordance with the provisions of section 233A, a copy of which has been placed before the meeting and initialed by the Chairman for the purpose of identification, be and is hereby noted.

RESOLVED FURTHER THAT all expenses of special audit pursuant to the order of the Central

Government be borne by the Company.”

SPECIMEN OF BOARD RESOLUTIONS

For appointment of Cost Auditor

“RESOLVED THAT pursuant to the provisions of section 233B of the Companies Act 1956 and the Central Government's order, directing the audit of Company's Cost accounts relating to _______ for the year ended _______, M/s Mittal & Co, Cost Accountants be and are hereby appointed the cost auditors of the Company at a remuneration of Rs. 3,500.

RESOLVED FURTHER THAT an application be made in Form 23C to the Central Government and

that Company Secretary be and is hereby authorised to submit the application to Central Government, obtain the certificate under section 233B from the proposed appointee and to comply with all other formalities in this regard.”

II. For submission of cost audit report to the Central Government

“RESOLVED THAT the report of the Cost Auditors for the financial year 2001-02, placed before the meeting and initialed by the Chairman for the purpose of identification, be and is hereby recorded.

RESOLVED FURTHER THAT the report together with detailed reply of the Company, be forwarded to the Central Government and that Company Secretary be and is hereby authorised to forward the report to Central Government and comply with all other formalities in this regard.”

NSDL Return Preparation Utility (RPU) version 2.7 released

Key features of NSDL Return Preparation Utility (RPU) version 2.7

• Correction Statements: Mandatory to import consolidated file for validating the Correction statements.
• Incorporated FVU: FVU version 3.3 and FVU version 2.131 are incorporated.
• Higher deduction deductee record: For deductee records with valid deductee PAN where tax has been deducted, update is allowed on all fields of the deductee record, except for the column “Remarks (Reason for lower deduction/ no deduction/ higher deduction/ threshold)”.

Download e-TDS/TCS RPU (version 2.7) for statement from FY 2005-06 onwards

 

Source: TIN.NSDL.COM

S. 14A: Business expenditure – Disallowance - Exempt income- Real expenditure - Disallowance

The High Court had to consider two issues: (a) whether interest paid on funds borrowed to acquire
“trading shares” is hit by s. 14A given that the profits there from are assessable to tax as “business profits”
and the dividend is incidental and (b) whether Rule 8D has retrospective operation. HELD by the Court:
(i) The argument that if the dominant and main objective of the expenditure was not the earning of
‘exempt’ income then, the expenditure cannot be disallowed u/s 14A is not acceptable. The expression “in
relation to” cannot be given a narrow meaning and simply means “in connection with” or “pertaining to”.
If the expenditure has a relation or connection with or pertains to exempt income, it cannot be allowed as
a deduction even if it otherwise qualifies under the other provisions of the Act;
(ii) The expression “expenditure incurred” in s. 14A refers to actual expenditure and not to some imagined
expenditure. If no expenditure is incurred in relation to the exempt income, no disallowance can be made
u/s 14A (Hero Cycles Ltd 323 ITR 518 referred).
(iii) The AO cannot proceed to determine the amount of expenditure incurred in relation to exempt
income without recording a finding that he is not satisfied with the correctness of the claim of the assessee.
This is a condition precedent. While rejecting the claim of the assessee with regard to the expenditure or no
expenditure in relation to exempt income, the AO will have to indicate cogent reasons for the same;
(iv) Rule 8D comes into play only when the AO records a finding that he is not satisfied with the assessee’s
method. Though s. 14A(2) & (3) were inserted w.e.f. 1.4.1962, Rule 8D was inserted on 24.03.2008.
Accordingly, Rule 8D would operate prospectively. (Godrej and Boyce Mfg. Co. Ltd 328 ITR 81 (Bom)
followed);
(v) For periods prior to Rule 8D, the AO will have to adopt a reasonable method on the basis of objective
criteria to determine the expenditure. However, here also, he will have to show why he is not satisfied with
the correctness of the assessee’s claim (argument that Rule 8D exceeds the mandate of s. 14A left open).
Maxopp Investment Ltd. v CIT (Delhi) ( High Court).

S. 194H: Tests to determine “Principal-Agent” Relationship Explained

SRL Ranbaxy Ltd vs. ACIT (ITAT Delhi)

The assessee entered into agreements with hospitals etc (“collection centres“) in accordance with which the centres collected samples from patients seeking laboratory tests and forwarded it to the assessee. The centres raised a bill on the patient, retained their “discount” and paid the balance to the assessee. The assessee claimed that it had rendered “professional services” & that the centres had rightly deducted TDS u/s 194J. The AO held that in collecting the sample and forwarding it to the assessee, the centres acted as an “agent” of the assessee and that the “discount” retained by it was “commission” and that the assessee ought to have deducted TDS u/s 194H. He consequently disallowed the “discount” u/s 40(a)(

WHETHER OBTAINING NO OBJECTION CERTIFICATE UNDER XX-C OF INCOME TAX ACT IS A CONDITION PRECEDENT TO SANCTIONING THE AMALGAMATION SCHEME?

WHETHER OBTAINING NO OBJECTION CERTIFICATE UNDER XX-C OF INCOME TAX ACT IS A CONDITION PRECEDENT TO SANCTIONING THE AMALGAMATION SCHEME?

Chapter XX-C of the Income Tax deals with the purchase by the Central Government of immoveable properties in certain cases of transfer. Section 269 UC places restriction on transfer of immoveable property. No transfer of any immoveable property in such area and such value exceeding five lakh rupees, as may be prescribed, shall be effect except after an agreement for transfer is entered into between the person who intends transferring the immoveable property and the person to whom it is proposed to be transferred at least four months before the date of transfer. The agreement shall be in writing and in the prescribed form. The agreement shall set forth such particulars as may be prescribed and shall be verified in the prescribed manner and shall be furnished to the appropriate authority of Income Tax Department in such manner and within such time as may be prescribed by each of the parties to such transaction or by any of the parties to such transaction acting on behalf of himself and on behalf of the other parties. The appropriate authority may make an order for purchase by the Central Government of such immoveable property at an amount equal to the amount of apparent consideration and specifying the grounds on which it is made. Sec. 390 to Sec. 396A of the Companies Act, 1956 deals with the arbitration, compromises, arrangement and reconstructions. Sec. 391 of the Companies Act deals with the power to compromise or make arrangements with creditors and members. It provides that where a compromise or arrangement is proposed- §         Between a company and its creditors or any class of them; or §         Between a company and its members or any class of them The Court may, on the application of the company or of any creditor or member of the company, or, in the case of a company which is being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the Court directs.  If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members, as the case may be, present and voting either in person, or, where proxies are allowed under the rule made under Sec. 643, by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Court, be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or in the case of a company which is being wound up, on the liquidator and contributories of the company.  Thus except the creditors and shareholders of the company the consent of other person is not required in the case of compromise or arrangement or reconstruction.  In 'ICICI Ltd., V. Financial & Management Service Ltd.,' - (1998) 29 CLA 372 (Bom) held that it is clear under the provisions of the Companies Act, as they stand, the persons who are interveners who are neither shareholders members nor creditors of the company which is before the court, have no locus to be heard in relation to the scheme under Section 391 of the Act. In amalgamation process the properties of the transferor company are transferred to the transferee company.   If the value of such properties exceed the limit as prescribed under Chapter XX-C of Income Tax Act whether permission from the appropriate authority is required under amalgamation process.  In 'Sadanand S. Varde V. State of Maharastra' - (2001) 247 ITR 609 the issue taken is whether it was imperative to seek prior permission as was required in terms of provisions of Chapter XX-C of the Income Tax Act, 1961.   In that, on account within the meaning of Sec. 269UA clause (f) of the Income Tax Act, 1961 which would require prior permission of the appropriate authority. In the absence of such permission, the transfer effected by the scheme of amalgamation would be invalid.  The Division Court analyzed the provisions of Chapter XX-C of the Income Tax Act.  A scrutiny of the definitions of 'apparent consideration' given by clause (b) of Sec. 269UA and 'transfer given in clause (f) would unmistakably indicate that the transfers to which the provisions of Chapter XX-C are intended to apply, are only transfers under agreements or contractual transfers and not statutory transfers or transfers effected by orders of the court or by operation of law.   In a situation of amalgamation, the transfer is not by way of sale, exchange, else or rent so as to fall within Section 269 UA.   Further the process by which the land in question stood vested in the transferee-company by virtue of amalgamation order, would not answer the description of 'immoveable property' within the meaning of clause (d) (ii), nor does it answer the description of 'transfer' as defined in clause (f) (ii) of section 269UA of the Income tax Act. It was urged by the petitioners as well as the fifth respondent, that a no objection certificate under Chapter XX-C is a condition precedent to the company court considering the scheme for amalgamation.   The court held that this contention does not appear to be tenable for several reasons: §         Whenever the Legislature wanted a sanction order subject to some condition precedent, the Legislature has so provided expressly; §         While interpreting a statute, the court has to consider the legislative habit which indicates that where the Legislature intended a sanction to the amalgamation scheme was subject to consent by another authority, it expressly provided so; §         There is no such provision either in Chapter XX-C or in any other provision of the Income Tax Act, 1961 which is a clear indicator of the negative intention; The Court rejected the other contention on the ground that whether the scheme of amalgamation in fact and in law results in an unlawful assignment, is a question which can only be determined after amalgamation before the appropriate forum in proper proceedings and does not arise for consideration by the company court at the stage of giving sanction to the scheme of amalgamation. In a situation of amalgamation even if it can be said that there was a transfer of asset, the transfer was not by way of an assignment but by the order of the court backed up by the force of a statutory provision and by operation of law.  The amalgamation has its origin in a statute and is statutory in character, the transfer and vesting is by operation of law and not an act of the transferor-company, or an assignment by it, but is the result of a statutory instrument. Once the scheme is scrutinized by the company court and sanctioned by an order made by it under Section 391 of the Companies Act, it ceases to retain the character of contract and operates by force of the statute. Such a scheme sanctioned by the Court is statutorily binding on the company, the creditors and the shareholders and has statutory operation by virtue of the provisions of section 391 of the Act. Such a scheme sanctioned by the Court is statutorily binding even on the creditors and shareholders who might have dissented from it or who might have opposed its being sanctioned. It, therefore, has the statutory sanction in that sense. Therefore the contention that Chapter XX-C is not attracted to such a transfer by operation of law has substance and needs to be upheld.  The Supreme Court in 'General Radio & Appliances Co. Ltd., V. M.A. Khader' - (1986) 60 Comp Cas 1013 held that a no objection certificate by the appropriate authority under Chapter XX-C is not a prescribed condition precedent under section 291 of the Act and, therefore, is a factory wholly irrelevant, immaterial and non-germane for consideration at the time of sanctioning of the amalgamation scheme.

Whether Rental Income or Business Income ?

The question whether income from property should invariably be taxed under the head “income from house property” is to be decided after taking into consideration the cumulative effect of all factors prevailing in a given case. The Courts have formulated different tests to determine the head under which such income can be taxed. Merely because income is attached to immovable property, it cannot be the sole factor for assessment of such income as “income from house property”. The primary object of the assessee while exploiting the property has to be seen. If it is found that the main intention is for let out of property or any portion thereof, the same must be considered as rental income or income assessable under the head “income from’ house property”. In case, it is found that the main intention is to exploit the .immovable property by way of commercial activities^, in that event it must be held as “business income”. It is, therefore, clearly born out that the main test to determine the head under which the income from immovable property be taxed is the purpose for which the property was exploited. If it is exploited commercially in the course of carrying on in business activity, then the income arising therefrom would be assessable under the head “business income”. No abstract or straight jacket formula can be devised to determine conclusively as to under which head “income from property” would fall. All the relevant facts and circumstances are necessarily to be looked into to decide the character of income. If the facts of a given case are that the assessee was doing a complex commercial activity by exploiting the immovable property, then the income would be assessable under the head “business”. If, on the other hand, the property or space is simply let out by the assessee and the rental income is earned, it would be assessed under the head “income from house property”. Thus, the decisive test is. the true nature of activity carried out: by the assessee while letting out the property.

 Decided by: ITAT, DELHI BENCHES `F’: NEW DELHI , In The case of: Bigg Investments & Finance Pvt. Ltd. v.DCIT, Appeal No.: ITA Nos. 5367 & 5368/Del/04, Decided on: April 30, 2009 .

Subject: Taxability in respect of International Private Leased Circuit (IPLC) charges and amendment in the definition of Telegraph Authority u/s 65 (111) of the Finance Act, 1994

PFA herewith of service Tax Circular against Taxability in respect of international private Leased Circular

F. No. 137/21/2011 – Service Tax

Government of India
Ministry of Finance
Department of Revenue
(Central Board of Excise & Customs)
New Delhi,

Dated: December 19, 2011

Subject: Taxability in respect of International Private Leased Circuit (IPLC) charges and amendment in the definition of Telegraph Authority u/s 65 (111) of the Finance Act, 1994 – reg.
Please refer to the clarifications issued vide Board's letter of even number dated 15.07.2011 on the subject mentioned above.
2. The matter has been re-examined and it is seen that the IPLC is specifically covered by the definition of the telecommunication service given in clause 65 [109a(iv)] of the Finance Act, 1994. As per the said section these services are taxable only when provided by a person who has been granted a licence under the first proviso to sub-section (1) of section 4 of the Indian Telegraph Act, 1985. It is only because the foreign telecom service provider cannot constitute a telegraph authority under an Indian law that they remain outside the taxability clause of the telecommunication service.
3. Therefore, the view taken in the said letter that what otherwise constitutes a “telecommunication service” would amount to “business support service” is erroneous.
4. The clarification issued vide the above mentioned letter stands corrected accordingly.

Deepankar Aron
Director (Service Tax)
CBEC, New Delh

Qualified Foreign Investors (“QFIs”) allowed to directly invest in Indian Equity Market

Government of India (“GOI”) has permitted QFIs to invest directly into Indian equity market, under the Portfolio Investment Scheme (“PIS”), in addition to Foreign Institutional Investors (“FIIs”)/ sub-accounts and Non Resident Investors (“NRIs”). Till now, QFIs (as defined by SEBI and RBI circular dated 9 August 2011 on QFIs) were permitted to directly invest only in Indian Mutual Fund schemes on repatriation basis.
QFIs will include individuals, groups or associations, resident in a foreign country which is compliant with The Financial Action Task Force (“FATF”) and that is a signatory to the International Organization of Securities Commissions (IOSCO) multilateral MoU. FIIs / sub- account of FII are to be excluded from QFIs.
Salient features
The salient features of the above announcement by GOI are as follows:
 RBI will grant general permission to QFIs for investment under the PIS route with an individual investment limit of 5% and an aggregate investment limit of 10% of the paid up capital of the Indian Company. These limits shall be over and above the FIIs and NRIs investment ceilings prescribed under the PIS route for foreign investment in India.
 QFIs will be allowed to invest only through SEBI registered Qualified Depository Participant (“DP”) and will be permitted to open only one demat account and a trading account with any of the qualified DP. QFIs shall make purchase and sale of equities only through that DP.
 QFIs will need to meet all KYC and other regulatory requirements as prescribed in the relevant regulations issued by SEBI from time to time and shall remit money through normal banking channels.
 DP shall be responsible for deduction of applicable tax at source out of the redemption proceeds before making redemption payments to QFIs.
 Risk management, margins and taxation on such trades by QFIs may be similar to the facility available to the other investors.
SEBI and RBI have been directed by GOI to issue relevant circulars such that the above announcement is operationalized by 15 January 2012.
Conclusion
The scheme is expected to widen the class of investors, attract more foreign funds, reduce market volatility and would help in increasing the depth of the Indian capital market. One would have to examine the detailed circulars to be issued by RBI and SEBI to operationalize the proposal.

S. 37(1): Distinction between capital & revenue expenditure explained

Airport Authority of India vs. CIT (Delhi High Court – Full Bench)

The assessee incurred expenditure on removal of encroachments and claimed the same as a revenue deduction on the ground that the expenditure was incurred in the normal course of the business. The AO, CIT (A) & Tribunal rejected the claim on the basis that the assessee had acquired an advantage of an enduring nature. The High Court (for an earlier year, Airport Authority of India vs. CIT 303 ITR 433) upheld the view of the authorities that the expenditure was capital in nature. For the present year, the issue was referred to the Full Bench. HELD by the Full Bench reversing the lower authorities:

AO’s self-determination of ALP without referring to TPO is “erroneous & prejudicial to interests of revenue”

Ranbaxy Laboratories Ltd vs. CIT (Delhi High Court)

The assessee entered into international transactions with its AEs, the value of which exceeded Rs. 5 crores. The AO passed an order u/s 143(3) in which he recorded the finding that he had examined the transactions and found them to be at arms’ length and no transfer pricing adjustment was required to be made. The CIT thereafter passed an order u/s 263 on the ground that in view of Instruction No. 3 of 2003 dated 20.5.2003, the AO ought to have referred the issue to the TPO instead of himself determining the arms’ length price of the transactions and that the assessment order was consequently “erroneous and prejudicial to the interests of the revenue”. On appeal, the Tribunal upheld the revision order. On further appeal by the assessee, HELD dismissing the appeal: