Professional Documents
Culture Documents
(Fortnightly inputs for professionals and executives) Volume I Part 3 November 25, 2012
Business Advisor
Contents
Bring in inheritance tax - T. N. Pandey Video links: T. N. Pandey Story of Warana Bazar - Dr B. Yerram Raju Service tax on directors services - Dr Sanjiv Agarwal Popularity of commerce course - Dr P. R. Ramakrishnan (Video) Minimum 25% public shareholding investors are scapegoats Dr S. Chandrasekaran Rehabilitation of sick SMEs - R. Venkatakrishnan Chennai, an international healthcare destination - Dr Mukesh Hariawala Corporate Social Responsibility (CSR): Business leaders views R. Mukundan, Managing Director, Tata Chemicals Ltd Ashok Ranka, MD, Ranka Steels Radha Goenka, Akshar, RPG Foundation Case laws update - V. K. Subramani Information Service tax, Income-tax
(Cover photos location: Nageswara Rao Park, Chennai)
part in running the stores. Most of the employees are children of the members of the stores. This store was the first that started with the motto of self-help. This self-help effort made the store sell the goods at a price that the consumers find attractive. There are no CCTV cameras in the stores. The members keep the vigil when required. They introduced computer billing a decade ago. Here are a few quick facts: Women shareholders 7909 Women-associated shareholders 11333 Women on the Board 11 Chairperson Mrs Shobhatai V. Kore (MA) Out of 610 staff, women number 190 (60 women are from economically weaker sections) Dependant women % on Warana Bazar is 35%
Bar chart indicates that their sales grew from Rs 20 mn in 1979 to Rs1320 mn in 2011-12 with a net income of Rs 90 mn after distributing dividend to its members. The secret of loyalty is the loyalty bonus of 28% they distribute annually to the members and associate members every year. They give value for the buy to every consumer. The story of Warana Bazar tells everyone that success of cooperatives holds a great future for India if the cooperatives embrace member-participation, member-governance, members sharing the gains of their hardship and above all transparency, accountability and good leadership. (A partial list of directors has been sourced from website.) (Dr B. Yerram Raju is Regional Director, PRMIA-Hyderabad www.prmia.org)
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Whole-time directors are neither covered under negative list nor are included in mega exemption notification. Their services are not covered in the scope of service itself by virtue of specific exclusion in the definition of service u/s 65B(44) of the Finance Act, 1994 (service provided by employee to employer). Services provided by directors / governing body members / members of non-corporate entities may also be liable to levy of Service Tax (To read the complete article subscribe on http://bit.ly/ShriMagz)
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Promoters 79.68 78.58 88.76 76.00 76.42 81.24 80.34 81.03 86.49
Public 20.32 21.42 11.24 24.00 23.58 18.76 19.66 18.97 13.51
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holding in % holding in %
from the high of Rs 309 in October and put on downside circuit filter continuously and the last traded price on 21.11.2012 was Rs 72.80 and the real losers are the poor investors. Chairman of SEBI, on different occasions, made clear the stand of SEBI and said that strict action would be taken if the companies fail to meet the target by the deadline. Some of the best names of companies which are to comply with the minimum 25% public shareholding are given in the table. MMTC in the government sector is one such company. Non-compliance in bringing the minimum to 25% public holding would result in delisting of shares or shift to trade for trade segment which are again detrimental to investors without their fault. Share of Honeywell Automation India, on 21.11.2012, was hammered and brought down by 20%; and had the circuit limit not been available, further fall in the share price would have happened. Media reports said that the company is planning to delist the shares and has already decided on a bank to run the process but subsequently the company has Non-compliance in filed with National Stock Exchange that the bringing the promoters Honeywell Asia Pacific intends to minimum to 25% reduce in due course its shareholding through public holding offer for sale. Reacting to the development, shares of the company fell as much as 20% to touch its lower circuit limit. Once again the investors burnt their fingers on such development. Blue Dart Express also informed Stock Exchange that its promoters plan to dilute 14, 31,937 shares which is 6.03% through offer for sale by 23.11.2012. Liquidity of stock also plays active role and increases volatility. Promoters of such companies did not act all these years and waited for best valuation and cited poor market sentiments. With the deadline fast approaching, it would be prudent for all such companies which are to comply with the said requirement to make open statement about their plans well in advance so that investors could take concrete decision and plan their course of action. SEBI should also through stock exchanges seek the plan of action of all such companies and make public all the information so that investors are protected from huge losses. (Dr S. Chandrasekaran is Senior Partner, Chandrasekaran Associates, Company Secretaries, Delhi www.cacsindia.com)
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Since it is sufficient if any one of the two conditions are fulfilled, it enhances the potential for the identification of the sickness closer to the time of incidence, thereby significantly increasing the chances of the recovery. This is akin to the golden hour in the case of medical emergencies in human beings. But then, there has to be transparency and integrity all round. Having said that there is one concern; the first condition stipulates the need to be an NPA for three months or more. It has been my professional experience that invariably the accounts fly under the radar by ensuring that they do not become an NPA by flying under the radar! It would have been better if the account was classified as sick if it was monitored as potentially sick in any of the four of the preceding six months. That would have ensured that the golden hour was addressed better (To read the complete article subscribe on http://bit.ly/ShriMagz)
Volume I Part 3 November 25, 2012 9 Business Advisor
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Another hospital that caught my positive attention is Chettinad Health City on the outskirts of Chennai with its campus-based approach, plenty of greenery and ample parking. The intensive care unit attached to state-of-the-art operating rooms is comparable to many of the esteemed Harvard hospitals in Boston. The recently-inducted robotic surgery program by the US-trained heart surgeon Dr Ravi Kumar will be a major attraction for overseas patients seeking minimally-invasive procedures at a fraction of the cost with results comparable to most western countries. Deloitte, a renowned accounting firm, has projected that the global medical tourism market will exceed $100 billion by 2015. India is well positioned to pick a good chunk of the pie if its services are well marketed to withstand competition form Dubai, Singapore, Philippines and Korea in the region. (Dr Mukesh Hariawala is Cardiac Surgeon & Healthcare Economist, Harvard Medical School Affiliated Hospitals, Boston, USA)
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Under our community development programmes, we have followed an integrated approach focusing on inclusive growth and partnerships with all stakeholders, especially with community-based organisations. We have in place programmes that target water management, rural energy, bio-diversity conservation, agriculture and animal husbandry growth, rural enterprise, skill/ vocation development and health care, education and infrastructure support. Going forward, our effort would be to touch a million lives both directly and through partnerships. As we integrate all these aspects as a part of
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business strategy, providing the necessary resources and skills, we hope to be a leading knowledge partner and participant in corporate sustainability through environmental and social stewardship. ** Ramakrishnan Mukundan, the managing director of Tata Chemicals Limited (TCL), was the executive director of the company. Prior to that, he was the executive vice president (chemicals) and was responsible for the chemicals business and consumer products business of TCL and its subsidiaries. He joined TCL in 2001 and led various functions like strategy and business development, corporate quality, corporate planning, and manufacturing before taking over as the chief operating officer of the chemicals business of the company. He played an active role in the TCL transformation efforts in 2002, and also in the growth of domestic business as well as acquisition of new facilities in Brunner Mond (UK), Magadi Soda (Kenya) and General Chemicals (US). Mukundan has been a member playing decisive role in several industry forums like Indian Chemical Council, past executive member of Automotive Components Manufacturers Association, past president of Alkali Manufacturers Association of India, CII Chemical Industry forum. An engineer from IIT Roorkee, Mukundan, 42, joined the Tata Administrative Service (TAS) in 1990 after completing MBA from Faculty of Management Studies (FMS), New Delhi and worked with Tata AutoComp Systems and Indian Hotels Company Limited (IHCL). He is an alumnus of Harvard Business Schools advanced management programme. Mukundan lives in Mumbai with his wife Sheila, a doctor, and son Siddharth who goes to school. He is an avid reader, traveller, and a fitness enthusiast. Ranka Steels With success comes this innate desire to give something back to society. You will find Ranka Steels with their hand of support, albeit in the background, making a huge difference in the lives of many. We have an ongoing tie-up with Jayadeva Cardiac Hospital. Every year anywhere between 50-100 cardiac surgeries are carried out. They also facilitate 100 to 150 kidney dialysis
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procedures in a month at numerous hospitals. The company has a tie-up with Project Dhristi and conducts around 500-600 eye surgeries. In each of these cases, every detail from preliminary check-ups, to the surgeries, preand post-op care and transportation back home, all are taken care of. Ranka Steels provided scholarships to around 500 students ranging from middle school to college. Education is funded for the entire academic year. We also work for the cause of animals and fund go-shaalas in Bangalore, Mysore, Gujarat and Maharastra. These are funded every quarter for fodder and food supplies. Over the years, Ranka Steels has also worked with several old age homes such as the Missionaries of Charity in Yelahanka and FAME in Jayanagar. The company is also well aware that there are several smaller old age homes and childrens shelters that need help and so funds around 60 such institutions. These funds are used for the purchase of staple food supplies. There are several good causes that we are keen on taking on. When it comes to giving back to the society, there is almost nothing that can ever be enough. (Ashok Ranka, Managing Director) RPG Enterprises Radha Goenka, Trustee RPG Foundation, RPG Enterprises More than 6000 students are now enrolled in the RPG Akshar Program. RPG Akshar Program works with children studying in public schools to enhance their spoken and reading English skills. It is a six-year program in which children undergoing the program would be 100% proficient in functional English. The uniqueness of the Akshar program lies in its Fun & Learn pedagogy. Every Akshar session consists of three vital elements, i.e. showing flashcard words, reading of a story and an activity. The Program ensures that the Akshar Classroom is a fun, nopressure-learning environment that children look forward to. Started as a pilot in 2009 in 5 schools in Mumbai, the program now has 6,647 students in 57 schools across India. The program is operating in cities such as Mumbai including Navi Mumbai, Pune, Nagpur, Vasai,
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Ankleshwar, Jabalpur, Jaipur and Halol. Going forward, RPG Akshar program aims to enrol up to 15,000 children across 10 cities by 2015. It is through education that the foundation of a child gets built. Even though 96% of Indians are enrolled in schools, a very small percentage of them can actually read or write by the tenth grade. Improving the quality and spread of educational institutes remains a key challenge for the Government; the RPG Group believes the corporate sector too needs to step in to help make a difference in its own way. Hence we have introduced the Akshar program to promote high quality education in Municipal Schools through a unique pedagogy which not only raises childrens inclination towards reading and learning but also boosts their self-confidence to aspire and achieve greater things in life. RPG Foundation is a Trust established by RPG Enterprises in June 2009. The Foundation is a non-profit organisation registered under the Societies Registration Act 1860 to function as a centralised body for the CSR activities of the various group companies. Another objective of the Foundation is to adopt and directly manage CSR activities at the group level and also to oversee and create cross-company synergies to encourage exchange of CSR ideas, adoption of best practices and learnings. RPG Enterprises, established in 1979, is one of Indias fastest growing business groups with turnover touching Rs 15,000 crore. The group has more than fifteen companies managing diverse business interests in the areas of tyre, infrastructure, IT and specialty. ** Radha Goenka, Trustee, RPG Foundation, after completing her junior college from St. Xaviers, Mumbai, went to Annenberg School of Communication, University of Pennsylvania to complete her graduate school. Although her majors were communication and business marketing Goenkas persisting inclination towards social service and the passion to work in the development sector since her high school days motivated her to become the founder and one of the trustee member of RPG Foundation since 2009. Goenka firmly believes that CSR is the space which is a blend of the two sectors and towards which she can actively contribute. Since then, RPG Foundation initiated a flagship project called Akshar.
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Confiscation of stock by revenue authorities and receipt of CEGAT order validates the claim of deduction as business loss Rajmal Lakhichand v. Asst. CIT (2012) 78 DTR (Pune)(Trib) 365: The assessee was a dealer in gold and silver items and the DRI entered the premises and confiscated stocks of silver. The order of CEGAT upheld the confiscation by Customs authorities dated 19th March, 1996, which was received by the assessee in April, 1996. The assessee claimed the loss of silver confiscated as business loss in the financial year 1996-97 to the extent of Rs 92.30 lakh. The tribunal held that the assessees line of business being trade in gold and silver which are stock in trade, the confiscation of stock in trade is a business loss eligible for deduction under section 37. The amount written off was hence allowed as business loss. Higher education to trainee in foreign soil is not deductible when the education is not related to the business Standipack (P) Ltd v. CIT (2012)78 DTR (Cal) 252: Expenditure incurred for sending a trainee abroad for higher education and the nexus of the higher education vis--vis the business activity of the assessee was unconnected. Since the purpose did not have any nexus or provided definite advantage to the business of the assessee, the expenditure claim was held as not allowable. Deduction under section 10A is before set off of current losses and brought forward losses of other units CIT v. Tei Technologies (P) Ltd (2012) 78 DTR (Del) 225: It was held that deduction under section 10A being more like an exemption provision, is to be allowed before offsetting business losses of current year and preceding years of other units. The court held that section 10A falling in Chapter III of the Income-tax Act is meant for incomes which are exempt from tax. Section 80A(4) (which was held as meant for preventing double benefit of deduction for the same income) does not militate against the deduction / exemption conferred under sections 10A / 10B and hence current losses and brought forward losses of other units are not to be deducted or reduced for computing the deduction under section 10A. (V. K. Subramani, Chartered Accountant, Erode)
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Information
Service tax Circular No.165/16/2012 -ST Subject: Restoration of service-specific accounting codes for payment of service tax - regarding 1. Negative List based comprehensive approach to taxation of services came into effect from the first day of July, 2012. Accounting code for the purpose of payment of service tax under the Negative List approach [All Taxable Services 00441089] was prescribed vide Circular 161/12/2012 dated 6th July, 2012. 2. Subsequent to the issuance of the Circular, suggestions were received from the field formations that the service specific old accounting codes should be restored, for the purpose of statistical analysis; also it was suggested that list of descriptions of services should be provided to the taxpayers for obtaining registration. These suggestions were examined and a decision has been taken to restore the service specific accounting codes. Accordingly, a list of 120 descriptions of services for the purpose of registration and accounting codes corresponding to each description of service for payment of tax is provided in the annexure to this Circular. 3. Descriptions of taxable services given in the annexure are solely for the purpose of statistical analysis. On the advice of the office of the C&AG, a specific sub-head has been created for payment of penalty under various descriptions of services. Henceforth, the sub-head other receipts is meant only for payment of interest payable on delayed payment of service tax. Accounting Codes under the sub-head deduct refunds is not to be used by the taxpayers, as it is meant for use by the field formations while allowing refund of tax. 4. Registrations obtained under the positive list approach continue to be valid. New taxpayers can obtain registrations by selecting the relevant description/s from among the list of 120 descriptions of services given in the Annexure. Where registrations have been obtained under the description All Taxable Services, the taxpayer should file amendment application online in ACES and opt for relevant description/s from the list of 120 descriptions of services given in the Annexure. If any applications for amendment of ST-1 are pending with field formations, seeking the description all taxable services, such amendment may not be necessary and the officers in the field formations may provide necessary guidance to the taxpayers in this
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regard. Directorate General of Systems will be making necessary arrangements for display of the list of 120 descriptions of services and their corresponding Accounting Codes in Form ST-1 and Form ST-2 as may be necessary. 5. Officers in the field formations are instructed to extend necessary guidance to the tax payers regarding the selection of appropriate description of taxable service and facilitate the payment of service tax/cess due under the appropriate accounting code. Trade Notice/Public Notice may be issued to the field formations and tax payers. Income-tax Press Release, dated 9-10-2012 Vide notification dated July 17, 2012, an Expert Committee was constituted on General Anti-Avoidance Rules (GAAR) to undertake stakeholder consultations and finalise the guidelines. Subsequently vide notification dated September 1,2012 the Government modified the Terms of Reference of the Committee to include an additional item "to examine the applicability of the amendment on taxation of nonresident transfer of assets where the underlying asset is in India, in the context of all non-resident taxpayers".
Additional item "to examine the applicability of the amendment on taxation of non-resident transfer of assets where the underlying asset is in India, in the context of all non-resident taxpayers."
The Committee has submitted its draft report on indirect transfer, which reflects consultations and written representations from a number of stakeholders including tax advisory firms comprising accountants and lawyers, chambers of commerce and industry, foreign investor associations and individual industry representatives. The views expressed in Report of the Committee are that of an independent Committee and it should not be construed in any manner whatsoever as the views of the Government. The report of the Committee has been uploaded on the Finance Ministry website (www.finmin.nic.in) and Income-tax Department website (www.incometaxindia.gov.in) for comments from stakeholders and the general public.
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On finance, accounting, controls, risk management, taxation, and more
Published by: Shrinikethan, Chennai http://bit.ly/ShriMap Edited by: D. Murali http://bit.ly/dMurali http://bit.ly/TopTalk November 25, 2012 Volume I Part 3 November 25, 2012 21 Business Advisor