E newsletter july 2011

The LearningP rofessionals
Newsletter
July 2011 / Volume 1

[Type text] Page 1

Learning Professionals e-Newsletter Visit: www.lpguide.wordpress.com

Editor’s MEssagE -
I feel extremely gratified in communicating with
the readers through the medium of “The Learning
Professionals Newsletter”. The LP Guide Blog i.e. Editors:-
lpguide.wordpress.com was started on 1st of June
this year and in the month with the support of its Rohit Muchhal
members issued its first eNewsletter in the same
Jay Raithatha
month.
At the outset, I would first felicitate and convey
Ankit Agarwal
my greetings to the CA Fraternity associated with
the blog or the readers on the auspicious occasion Hari Krishan
of CA Day, which is observed every year on 1st of
July. I would also like to convey my best wishes to CS Hena Srivastava
the examinees who just appeared for their
respective examinations. May all shimmer with Avinash Jha
resounding success.

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INDEX

1. Article Section :- Page 04
2. SEBI Updates :- Page 10
3. MCA Updates :- Page 12
4. RBI Updates:- Page 14
5. Indirect Tax Updates :- Page 16
6. Service Tax Updates:- Page 18
7. Direct Tax Updates:- Page 20
8. IFRS Updates:- Page 21
9. Post in our blog this month :- Page 22

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ARTICLE – THIS MONTH
AN INSIGHT TO IFRS:
WHY WE NEED IT AND IF WE NEED WHY IT IS DELAYED
By Rohit Muchhal, CA Final

In the field of Accounting, we are expected to start a new reporting procedure coined as IFRS. It was to be
applicable from 1st April 2011 but current status is not known but of course not from April 2011 which was
decided earlier by the Ministry. I do not pretend to be an expert in the field of IFRS. I however, being a Chartered
Accountant Student, love this subject and it is my attempt to have glimpses of the journey of IFRS and pros and
cons and why it’s yet a bane to implement.

HISTORY AND DEVELOPMENT
All of us have studied, in the 11th standard only, the golden rules of bookkeeping, leading us to various types of
accounts. Through the medium of real, personal and nominal accounts, we have also learnt the basis of
preparation of ledger account, periodical trial balance, profit & loss account and a balance sheet.
The earliest evidence of present-day bookkeeping was traced back some 800 years, to an Italian Banker. The
Italian monk Luca Paciolo is said to have time documented these bookkeeping principles. He did not claim to be an
originator or an author of the system, but only a describer of a practice to write the books of accounts. Even the
book (i.e. ‘Summa’) that documents this ‘Bookkeeping’ is a book on mathematics, containing some 36 chapters on
bookkeeping and accounts. Since it is a part of a book on mathematics, the present golden rules of bookkeeping
have been expressed in the said book in the form of algebraic equations and not in descriptive narration. Since
every business transaction has a two-way effect, it was easy to put it in the form of an algebraic equation. It is
rightly said, mathematics is the mother of all sciences.
The brief history of origin of bookkeeping emphasises that:
(a) Certain principles are fundamental and are not subject to the normal notion of ‘Change’.
(b) IFRS is making a sincere attempt to make the figures of P & L A/c and Balance Sheet more
mathematics-based and avoiding hypothetical figures based on assumptions. It involves a lot
of valuation, but again the valuation is based on mathematical modules.
Primary object of the book keeping of as early as 800 years are not changed however what has changed
over the year is the trade or commerce in the following aspects:
(a) The nature of trade and commerce
(b) The volume and value of trade
(c) The geographical spread
(d) Entities carrying on the business.
(e) Number and groups of persons who need to know the results of operations.
In early days transactions were important for the businessmen and tax computation was not there instead
ad-hoc duties were there. No specific laws, no stakeholders’ activism, no geographical spread, no enterprises
structure existed. Individuals existed only might be through a group for business in a mission to earn
livelihood and not to acquire businesses, competition at large, mergers or acquisitions, etc.
Radically business and book keeping i.e. just a recording of transactions changed to complex accounting
system with the advent of machine in machine age, concern of shareholders’ money by shareholders and
geographical spread. Stakeholders (the broader sense) became very active and always eager to put an eye
into the business operations. Even the law changed radically to safeguard all in their respective interest and
“true and fair view” word came into light. To help the industries Accounting Standards were formulated so as

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to tackle and guide uniformly on the light of transactions/situations and now with the diversified business
operations similar Accounting Systems are also required.

WHAT ARE ACCOUNTING STANDARDS
Accounting standards are authoritative statement on how transactions are to be recorded and disclosed in the
financial statements. They ensure uniformity amongst the various entities of the readers of financial statements.
The compliance to standards is mandatory as per Section 211 to the Companies Act, 1956 to ensure that the
accounts are true and fair.
This uniformity is now proposed to be spread from local boundaries to across the world with the advent of single
global accounting standard, namely, IFRS.

INTRODUCTION TO IFRS
IFRSs are adopted by the International Accounting Standards Board (IASB), the independent standard-setting body
of the International Accounting Standards Committee Foundation (IASC Foundation).
More than 100 countries now require or permit the use of IFRSs or are converging with the International
Accounting Standards Board’s (IASB) standards. EU recognised IFRS in 2005 and the SEC has in its announcement
on November 2007 permitted IFRS without reconciliation with US GAAP for non-US companies. It is also proposed
that soon U.S. will also adopt IFRS within coming few years.
Many of the accounting standards forming part of the IFRS are known by the earlier name of International
Accounting Standards (IAS), which were issued between 1973 and 2001 by the board of International Accounting
Standards Committee (IASC). In April 2001, IASB adopted all IAS and continued their development calling new
standards as IFRS which consist of:
 IFRS standards issued after 2001 (Total- 9)
 IAS standards issued before 2001(Total- 29)
 Interpretations by International financial Reporting Interpretations Committee (IFRIC) (Total- 16) and,
 Standing Committee Interpretations (SIC) issued before 2001(Total- 21)
Thus, total 38 standards and 27 interpretations.
Financial statements under IFRS:
Under IFRS the financial statements would comprise:
 Statement of financial position as at end of the period and comparatives (Statement of changes in equity
for the period),
 Statement of comprehensive income for the period,
 Statement of cash flow for the period
 Notes, comprising a summary of significant accounting policies and other explanatory information

INDIAN INITIATIVE TOWARDS IFRS
The Institute of Chartered Accountants of India (ICAI) has issued a ‘Concept paper on convergence with IFRS in
India’ in October 2007. The document lays down the convergence strategy. The roadmap of convergence were
issued and was likely to start its implementation from April 2011 but its certainly not possible as still lot of
questions are yet unanswered.
As envisaged, India has finally chosen to converge with IFRS, as opposed to adopting IFRS on the pretext that
Indian regulators and standard-setters will review the existing IFRS standards and their applicability in Indian
context and will issue converged accounting standards called as Ind-AS. Recently MCA had notified the 35 IndAS
(IFRS) though the date of implementation is yet to be notified.
The final journey has just begun and we are already seeing deviations in new standards and we don’t know how
far or near we will be from IFRS though MCA have issued the text of Ind AS.

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KEY DIFFERENCES BETWEEN IFRS AND INDIAN GAAP
 The adoption of IFRS affects more than a company’s accounting policies, processes, and people.
Ultimately, most aspects of a company’s business and operations are affected potentially.
 IFRS is a principle-based approach to standard-setting. It is less reliant on bright lines and detailed rules as
compared to the US GAAP.
 At various places IFRS provides scope of judgment and requires information to be presented on the basis
of substance rather than rule. For example, redeemable preference shares may be treated as liability and
convertible debentures as equity.
 While applying IFRS, usage by an investor is kept in mind and requirement of the law and management
takes a backseat. For example, in case of the business combination the acquirer under IFRS could be
different than the legal acquirer (like in case of reverse merger for tax benefit or other purposes).
 Financial statements under IFRS place more reliance on the management estimate. For example, in case
of depreciation of assets this, under IFRS, would have to be based on estimated useful life as against the
present Indian requirement to follow Schedule XIV of the Companies Act, 1956.
 The fair value concept is embodied in many of the IFRS (like IAS 30 on Financial Instruments, IAS 40
Investment Property, etc.). The concept of fair value poses several issues on valuation, valuation models
and accuracy and reliability of the same for the purpose of accounting and presentation.
 Major overhauling cost for fixed assets which can be capitalised under IFRS (provided it meets certain
criteria) as against the present requirement to expense out the same
 Inventory for service organisation for work which is in progress (already covered by proposed Indian
Accounting Standard)
 Prior period items to be given effect retrospectively in opening equity
 Proposed dividend is not required to be reflected in financial statements under IFRS
 Under IFRS, provision made for dismantling of asset or for site closure can be capitalised
 Under IFRS, EPS to be disclosed separately for continuing and discontinuing operations, etc.

CHALLENGES UNDER IFRS
 Joint ventures : Consolidation proportionate or otherwise may become an issue. Consolidation method
may impact the structure of new arrangements.
 Debt/equity : Possible reclassification of preference shares as liabilities
 Subsidiaries and associates : Different rules may impact the current treatment
 Valuation : Greater use of fair value
 Detailed hedge documentation, and ongoing effectiveness testing is required to achieve hedge
accounting under IFRS
 Embedded derivatives : Possible requirement to fair value components of other instruments, including
long-term contracts
 Contracting : Different rules will present different opportunities, challenges, management and accounting
issues
 Financial communications will have to address changes in presentation of financial information as well as
fundamental change towards fair value accounting and its impacts on traditional ratios and performance
indicators
 Uncertainly about Income-tax Dept. response
 Requires multi-disciplinary participation
 Aiming at a moving target

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o Uncertain timetable for implementation
o Uncertainty about final form of IFRS

CONVERSION/CONVERGENCE TO IFRS
The conversion to IFRS will have to be managed like any other large-scale project. Sufficient time must be
incorporated into project plan, proper resources must be ensured and all key players must be involved in critical
decision-making. IFRS is more than an exercise for the accounting and finance department. Its impact is far
reaching, affecting areas from internal control and sales to research and development.
Typically the following three phases will be involved in convergence to IFRS:

Stages Key focus points

Pre-implementation  Formulation to detailed plan
phase
 Identifying key areas of difference between existing accounting policies and
requirements of the IFRS

 Understanding the implications
 Educating/training the accounting team

Transition phase  Make changes in the controls, process, business documentation/SOP
 Map the existing systems, process, controls with IFRS and identify the impacted areas

Post-implementation  Validation of changes made — this involves testing of high-risk areas for accuracy of
phase systems and procedure

 Continuous monitoring of IFRS regulatory changes

IMPACT AND CONSIDERATIONS OUT OF IFRS
 First-time adoption could be a heavy task and hence it is essential to ensure that proper care and
diligence is exercised so that there are no spill-over impacts in subsequent periods. IFRS 1 deals
exhaustively with the first-time adoption.
 To ensure that the judgment, estimated and fair valuation concepts are not misused by the Management,
lot of reliance would have to be placed on independent valuers.
 Proper planning is required for transition to IFRS and hence to ensure that the company must have a
proper road map/strategy and resources to migrate to IFRS.
 Emphasis on transparent and exhaustive disclosure which would mean that the source of data,
compilation process and methodology are more robust.
 To ensure that the commercial colour of the transaction is correctly reflected in the accounting of the
same.
 More data analysis, narrative accounting and hence more qualitative accountants and more time will be
required to review.
 The taxation team will have to work closely with the accounts teams to examine IFRS impact. Since, there
is no response yet from taxation department then of course Tax laws are to be followed for their
compliance.
 The CFO will need to focus on the underlying commercial nature of transactions and events. Other areas
where more judgment is required include property, leases, revenue recognition, provisions and
consolidation policy.
 Convergence to IFRS will have an impact on the processes which lead to recording of a specific
transaction and necessitate re-engineering of those process and related internal controls.

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IFRS would benefit all the users of financial statements. It would take accounting and financial reporting to a new
level. However, it would in the initial years put too much burden on the preparers and reviewers of financial
statements.
Lot of research and development is still under progress for various items like fair value, etc. and the evolved
version would lead to better and more narrative financial statements.
IFRS in India is an opportunity for Indian enterprises to be in line with the global companies and would in turn help
raise finances globally. It would be a boon to the accounting fraternity as it would expose them to international
arena and would help service the global accounting market even now they are internationally honoured.

The decision to converge and not to adopt IFRS gives the flexibility to carve out and or deviate from the accounting
principles and policies in IFRS. The important question is to what extent we should use this flexibility. If, we make
significant changes in IFRS using the flexibility, the new accounting standards will not be fully convergent with IFRS
and the purpose of convergence will be lost. Our accounting practices will fall short of globally accepted
accounting practices. Inflow of foreign capital may be affected adversely. Indian companies, that are listed in stock
exchanges in USA, Europe and other countries, using accounting standards fully convergent with IFRS, will have to
prepare two sets of financial statements.
Moreover with tax authorities are still silent it appears that the converged accounting standards may not be
acceptable for tax filings for next three to five years and till then the current Indian GAAP would be used for tax
purposes. This will ultimately result into three sets of financial statements being prepared by Indian companies.

CONCLUSION
The first decade of the 21st Century noticed severe expectation gap between the stakeholders and those who
managed the business. Sarbanes-Oxley also played its part. Earlier business failures were also bothering everyone
and a need was felt to have a worldwide common accounting language, along with stringent corporate
governance provisions. Even the US agreed to modify its own earlier tough stand and accepted in principle the
worldwide common accounting language and IFRS has now evolved. Our country has also accepted gradual
introduction of IFRS, to begin with, for listed companies. We the Chartered Accountants, in the interest of our
professional development, are required to accept them, study them and should take part in their proper
presentation. There should be neither an ecstasy nor any agony in the use of a common language.
Bookkeeping captured business transactions some 800 years back(as stated) through mathematical module and
we are once again through IFRS, embracing in a way a mathematical base for presentation based on what is
known as fair valuation. The truth is mathematics is pure, but mathematics can give many possible answers but
the truth. What has happened on Wall Street and everywhere in the present situation is all-round confusion,
giving rise to a crisis which has given rise to erosion in confidence, leading to depression and doom. Hope so that
IFRS does not get caught by twisted mathematicians in the field of fair valuations. Certainty exist that India will
soon be IFRS compliant one, after all India is having a huge professional resource, though there are many
deviations or lacuna pointed through out to be IFRS-Compliant nation and again it is obvious that the Government
and professional fraternity must be preparing themselves to find out the solution to the technical and the logical
problem the nation is facing now.
In any debate on convergence or adoption, India must first aspire to uphold the purity of IFRS and be fully IFRS-
compliant nation and second it should take a stand that it has full belief in the proposed deviations as being the
best practices and then the confidence and conviction to influence the International Accounting Standards Board
(IASB) through consensus about what it believes is right and the need to bring the required
improvement/amendments in IFRS rather than remaining as a carved-out nation. We cannot just take short-term
local view rather we need to take long-term global view on IFRS.

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RELEVANT UPDATES – JUNE 2011

SEBI Update
Shareholding of promoter/promoter group to be in dematerialized mode
17 June 2011 CIRCULAR NO. ISD/ 3/2011

In order to further promote dematerialization of securities, encourage orderly development of
the securities market and to improve transparency in the dealings of shares by promoters
including pledge / usage as collateral, SEBI in consultation with Stock Exchanges, has decided
that the securities of companies shall be traded in the normal segment of the exchange if and
only if, the company has achieved 100% of promoter's and promoter group's shareholding in
dematerialized form latest by the quarter ended September 2011 as reported to the stock
exchanges. In all cases, wherein the companies do not satisfy the above criteria, the trading in
securities of such companies shall take place in trade for trade segment.

SIMILALRY, SEBI has also amended Grant of prior approval to registrars to an issue and share
transfer agents and merchant bankers

Change of Name by Listed Companies
16 June 2011CIRCULAR NO. MRD/DP/07/2011

All listed companies seeking change of name to comply inter alia with the following provision:-

At least 50 per cent of its total revenue in the preceding 1 year period should have been
accounted for by the new activity suggested by the new name
Or
The amount invested in the new activity/project (Fixed Assets + Advances + Works-in-
Progress) is at least 50 per cent of the assets of the company. The 'Advances' shall include only
those extended to contractors and suppliers towards execution of project, specific to new
activity as reflected in the new name.
To confirm the compliance of the aforesaid provision 2.2, the company shall submit auditor's
certificate to the exchange.

Standardisation of Rating Symbols and Definitions
15 June 2011CIR/MIRSD/4/2011

Considering the international practices, standardised symbols and their definitions have been
devised for the following:
a) Long term debt instruments;
b) Short term debt instruments;
c) Long term structured finance instruments;
d) Short term structured finance instruments;
e) Long term mutual fund schemes; and
f) Short term mutual fund schemes.

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Processing of investor complaints against listed companies in SEBI Complaints Redress System
(SCORES)
03 June 2011CIR/OIAE/2/2011

This has the following salient features:
• Complaints and reminders thereon are lodged online at anytime from anywhere;
• An email is generated instantaneously acknowledging the receipt of the complaint and
allotting a unique complaint registration number for future reference and tracking;
• The complaint moves online to the entity (intermediary or listed company) concerned for its
redressal;
• The entity concerned uploads an Action Taken Report (ATR) on the complaint;
• SEBI peruses the ATR and disposes of the complaint if it is satisfied that the complaint has
been redressed adequately;
• The concerned investor can view the status of the complaint online;
• The entity concerned and the concerned investor can seek and provide clarification(s) online
to each other;
• The life cycle of a complaint has an audit trail; and
• All the complaints are saved in a central database which would generate relevant MIS reports
to enable SEBI to take appropriate policy decisions and or remedial actions.

Liquidity enhancement schemes for illiquid securities in equity derivatives segment
June 2011CIR/D1NPD/5/20102

In consultation with BSE, MCX-SX, NSE and USE, it has been decided to permit Stock
Exchanges to introduce one or more liquidity enhancement schemes (LES) to enhance liquidity
of illiquid securities in their equity derivatives segments.

The LES can be introduced in any of the following securities:
a. New securities permitted on the Stock Exchange after the date of this circular,
b. Securities in case of a new Stock Exchange / new Segment, and
c. Securities where the average trading volume for the last 60 trading days on the Stock
Exchange is less than 0.1% of market capitalization of the underlying.

In consultation with BSE, MCX-SX, NSE and USE, it has been decided to permit Stock
Exchanges to introduce one or more liquidity enhancement schemes (LES) to enhance liquidity
of illiquid securities in their equity derivatives segments.
Visit for complete details : http://lpguide.wordpress.com/2011/06/24/liquidity-enhancement-schemes-for-
illiquid-securities-in-equity-derivatives-segment/

Modification to Investor Protection Fund (IPF)/ Customer Protection Fund (CPF) Guideline
CIRCULAR NO. MRD/DP/06/2011

Exemptions have been sought by Stock Exchanges from strict compliance with Clause 24 of the
Annexure to Circular dated October 28, 2004 on the ground that the residual amount remaining
after satisfaction of claims against the defaulting broker should be refunded to the broker and
not credited to the IPF/CPF. SEBI hence amended the clause with a view to harmonise the
practices followed by various exchanges to meet investor claims. For Details visit:
http://lpguide.wordpress.com/2011/06/20/modification-to-investor-protection-fund-ipf-customer-protection-fund-cpf-
guidelines/

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Periodical report- Grant of prior approval to underwriters
17 June 2011, CIRCULAR NO. MIRSD/6/2011

SEBI (Underwriters) Regulations, 1993, have been amended vide Notification No. LAD-
NRO/GN/2011-12/03/12650, dated April 19.With the said amendment, the requirement of
taking prior approval by the underwriters from SEBI for change in status or constitution has
been dispensed with. However, the underwriters are required to take prior approval from SEBI
for change in control. Pursuant to the aforesaid notification, all underwriters shall report the
following change(s) to SEBI on a half-yearly basis within 15 days of expiry of the half-year,
commencing from the half-year ended September 30, 2011.If there is no change during the
relevant half-year, it shall be indicated in the report.

Grant of prior approval to Depository Participants
CIR/MIRSD/9/2011 dt June 17, 2011

With this amendment, Depositary Participant would be required to take prior approval from
SEBI for change in control.

SIMILARLY FOR DEBENTURE TRUSTEE, CREDIT RATING AGENCY, BANKERS TO AN ISSUE &
MECHANT BANKERS.

MCA Update

Companies (Amendment) Regulations, 2011
14 June 2011G.S.R. (E).

Power of RDs under Section 25 and Section 609(2) has been extended and clarified.

Guidelines for declaring financial institution as Public Financial Institution under Section 4A of
the Companies Act, 1956
02 June 2011General Circular No 34/2011

Now, the Central Government has framed following criteria for declaring any financial
institution as PFI under section 4A of the Companies Act, 1956:—

(a) A company or corporation should be established under a special Act or the Companies Act
being Central Act;

(b) Main business of the company should be industrial/ infrastructural financing;

(c) The company must be in existence for at least 3 years and their financial statement should
show that their income from industrial/infrastructural financing exceeds 50 per cent of their
income;

(d) The net-worth of the company should be Rs. one thousand crore;

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(e) Company is registered as Infrastructure Finance Company (IFC) with RBI or as an Housing
Finance Company (HFC) with National Housing Bank;

(f) In the case of CPSUs/SPSUs, no restriction shall apply with respect to financing specific
sector(s) and net-worth.

Guidelines for Fast Track Exit mode for defunct companies under section 560 of the Companies
Act, 1956
07 June 2011General Circular No. 36/2011

In order to give an opportunity for fast track exit by a defunct company, for getting its name
struck off from the register of companies, the Ministry has decided to modify the existing route
through e-form – 61 and has prescribed the new Guidelines. The Guidelines for “Fast Track Exit
mode” for defunct companies under section 560 of the Companies Act, 1956 are enclosed
herewith. These Guidelines will be implemented w.e.f. 3rd July, 2011

By 30th June, 2011 on proposed new rules namely Companies (Dematerialization of Certificates)
Rules, 2011
06 June 2011No 17/143/2011-CL.V

The Ministry of Corporate Affairs is considering to issue Companies (Dematerialization of
Certificates) Rules, 2011 so that all public Companies and their subsidiaries which have raised
money by issue of shares, debentures, by accepting public deposits, stock, bond or any
other financial instruments from public, other than from directors of the company, shall be
required to issue and keep such share certificates, debenture certificates and certificates issued
for receipt of deposits, stock, bond or any other financial instruments in dematerialized form
only, in the manner prescribed in the Depositories Act, 1996

Clarification regarding participation by shareholders or Directors in meetings under the
Companies Act,1956 through Electronic mode
06 June 2011General Circular No. 35/2011

Green Initiatives in the Corporate Governance-Clarification regarding participation by
shareholders or Directors in meetings under the Companies Act,1956 through Electronic mode.
In respect of shareholders meetings to be held during financial year 2011-12, video conferencing
facility for shareholders is optional. Thereafter, it is mandatory for all listed companies

The Companies (Cost Accounting Records) Rules, 2011
June 03 2011Notification

The Companies (Cost Accounting Records) Rules, 2011 Dated 03-06-2011

Companies Director Identification Number (Second Amendment) Rules, 2011
02 June 2011Notification

Special Drive to clear pendency of e-forms filed with Registrar of Companies prior to
implementation of revised Regulation 17 of the Companies Regulation, 1956

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RBI Update
Enhancement of Rates of Provisioning for Non-Performing Assets and Restructured Advances

1.Sub-Standard Advances :
Advances classified as “sub-standard” will attract a provision of 15 per cent as against the
existing 10 per cent. The “unsecured exposures” classified as sub-standard assets will attract an
additional provision of 10 per cent, i.e., a total of 25 per cent as against the existing 20 per cent.
However, “unsecured exposures” in respect of Infrastructure loan accounts classified as sub-
standard, in case of which certain safeguards such as escrow accounts are available as indicated
in our circular DBOD.No.BP.BC.96/08.12.014/2009-10 dated April 23, 2010, will attract an
additional provision of 5 per cent only i.e. a total of 20 per cent as against the existing 15 per
cent.

2. Doubtful Advances :
Doubtful Advances will continue to attract 100% provision to the extent the advance is not
covered by the realisable value of the security to which the bank has a valid recourse and the
realisable value is estimated on a realistic basis. However, in respect of the secured portion,
following provisioning requirements will be applicable:

The secured portion of advances which have remained in “doubtful” category up to one year
will attract a provision of 25 per cent (as against the existing 20 per cent);

The secured portion of advances which have remained in “doubtful” category for more than
one year but upto 3 years will attract a provision of 40 per cent (as against the existing 30 per
cent); and the secured portion of advances which have remained in “doubtful” category for
more than 3 years will continue to attract a provision of 100%.

Inclusion of the “Sberbank” in the Second Schedule to the Reserve Bank of India Act, 1934
01 June 2011RBI/2010-11/553

Remittance of assets by foreign nationals - Opening of NRO Accounts
09 June 2011A.P. (DIR Series) Circular No. 70

The foreign nationals employed in India holding valid visas are eligible to maintain resident
accounts with an Authorised Dealer Category - I (AD Category-I) bank in India. The AD
Category-I banks are required to close the resident accounts of such foreign nationals on their
leaving the country and transfer their assets to their accounts maintained abroad. When a
person resident in India leaves India for a country (other than Nepal or Bhutan) for taking up
employment, or for carrying on business or vocation outside India or for any other purpose
indicating her / his stay outside India for an uncertain period, her / his existing account should
be designated as a Non-Resident (Ordinary) [NRO] Account.

AD Category-I bank should obtain the full details from the account holder about his legitimate
dues expected to be received into his account. There should not be any other inflow / credit to
this account other than this. The funds credited to the NRO account should be repatriated
abroad immediately, subject to the AD Category-I bank satisfying itself regarding the payment
of the applicable Income tax and other taxes in India. The amount repatriated abroad should

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not exceed USD one million per financial year. The debit to the account should be only for the
purpose of repatriation to the account holder’s account maintained abroad.

Prudential Guidelines on Restructuring of Advances by Banks
10 June 2011RBI/2010-11/ 561

Banks were advised that if due to lack of expertise / appropriate infrastructure, they find it
difficult to ensure computation of diminution in the fair value of advances extended by their
small / rural branches, they will have the option of notionally computing the amount of
diminution in the fair value and providing therefore at five percent of the total exposure in
respect of all restructured accounts where the total dues are less than rupees one crore till the
financial year ending March 2011. It was also advised that the position would be reviewed
thereafter. On a review, it has been decided that the above alternative option of computing
diminution in the fair value of advances extended by small and rural branches on restructuring
will remain applicable for another two years, i.e. till the financial year ending March 31, 2013.

Pre- funded instruments / Electronic fund transfers
09 June 2011 CIR/MIRSD/03/2011

While receiving funds from the clients through pre-funded instruments, such as, Pay Order,
Demand Draft, Banker’s cheque, etc., it is observed that the stock brokers are unable to
maintain an audit trail of the funds so received, as the details of the name of the client and bank
account-number are not mentioned on such instruments. This may result in flow of third party
funds / unidentified money, which is not in accordance with the provisions of the aforesaid
circular and also affects the integrity of the securities market.

Therefore, with a view to address the aforesaid concerns, it has been decided in consultation
with the major stock exchanges and associations of stock brokers, as under:

a. If the aggregate value of pre-funded instruments is ` 50,000/- or more, per day per client, the
stock brokers may accept the instruments only if the same are accompanied by the name of the
bank account holder and number of the bank account debited for the purpose, duly certified by
the issuing bank. The mode of certification may include the following:

i. Certificate from the issuing bank on its letterhead or on a plain paper with the seal of the
issuing bank.

ii. Certified copy of the requisition slip (portion which is retained by the bank) to issue the
instrument.

iii. Certified copy of the passbook/bank statement for the account debited to issue the
instrument.

iv. Authentication of the bank account-number debited and name of the account holder by the
issuing bank on the reverse of the instrument.

b. Maintain an audit trail of the funds received through electronic fund transfers to ensure that
the funds are received from their clients only.

Page 15


OTHER RELEVANT NOTIFICATIONS

Particulars Notification & Dates

Retail Electronic Payment Systems – NEFT / NECS / 02 June 2011RBI/2010-11/559
RECS / ECS – Levy of Processing Charges

Opening of Branch/Subsidiary/Joint 14 June 2011RBI/2010-
Venture/Representative Office or Undertaking 11/566
Investment Abroad by NBFCs

Findings of Forensic Scrutiny - Guidelines for 31 May 2011RBI/2010-11/555
prevention of frauds

Reporting of Offshore Derivative Instruments(ODIs)/ 15 June
Participatory Notes(PNs) activity 2011CIR/IMD/FII&C/7/2011

Redemption of Indian Depository Receipts (IDRs) 03 June
into Underlying Equity Shares 2011CIR/CFD/DIL/3/2011

Overseas Direct Investment-Liberalisation and 29 June
Rationalism RBI/2010-11/584

FDI- Issue of Equity Shares under the FDI Scheme 30 June
allowed under the Government route RBI/2010-11/586

INDIRECT TAX Update
CBEC amends tariff value of brass scrap
15 June 2011Notification No. 38/2011 - Customs (N. T.)

7404 00 22 --- Brass Scrap (all grades) --- Tariff value US $ (Per Metric Tonne) 4323

Regarding constitution of Committees to advise the authority for writing off of arrears of
Central Excise duty and Customs duty
01 June 2011Circular No. 946/07/2011

It has been decided by the Board to constitute three - member Committees of Chief
Commissioners and Commissioners, which will examine the proposals for write – off of
irrecoverable arrears and recommend deserving cases to the authority competent to order such
write – off.

Notification related to Diesel and cinematographic film
25th June, 2011 Notification No. 33/2011-Central Excise

In the said notification, in the Table,-

Page 16


(i) against S. No. 19, against item (i) occurring in column (3), for the entry in column (4), the
entry “Nil” shall be substituted.

(ii) for S.No.73A and the entries relating thereto, the following S.No.37 and entries shall be
substituted, by Colour positive unexposed cinematographic film in rolls of any size and length
and colour negative unexposed cinematographic film in rolls of 400 feet and 1000 feet

Notification related to Crude,Diesel, petrol and petroleum product
25 June 2011 Notification No.52/2011-Customs

In the said notification, in the Table,-

(i) after S. No 72A and the entries relating thereto, the following S. No. and entries shall
be inserted, namely:-

(1) (2) (3) (4) (5) (6)

“72B. 2710, 2711, All goods, other than goods 5% - -’’;
2712, 2713, mentioned at S. Nos. 72 A, 73,
2714 or 2715 74A,74B, 75 E, 76, 77A, 488A and
488B

(ii) against S. No. 487, for the entry in column (4), the entry “Nil” shall be substituted;

(iii) against S. No. 488A, for the entry in column (4), the entry “2.5%” shall be substituted;

(iv) against S. No. 488B, for the entry in column (4), the entry “2.5%” shall be substituted;

Regarding imposition of definitive anti-dumping duty on import of sewing machine needles
from China PR
Notification No. 50/2011-Customs

Heading/Sub Country Country Producer Expor Duty Unit Currency
Heading of Origin of exports ter Amount

(2) (4) (5) (6) (7) (8) (9) (10)

8452.30 China PR China PR Any Any 1,55,362 Per lakh Indian
needles Rupee

Seeks to amend Notification No.107/2008-Customs, dated the 6th October, 2008 so as to
enhance the extent of Margin of Preference in respect of specified goods imported from Least
Developed Countries of South Asian Free Trade Agreement (SAFTA)
Notification No. 49 /2011-Customs

Amendments in the notification of the Government of India in the Ministry of Finance
(Department of Revenue), No.107/2008-Customs, dated the 6th October, 2008, published in the
Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 718 (E),
dated the 6th October, 2008, namely:-

in the Table, in column (4), for the entry “75%”, wherever it occurs, the entry “100%” shall be
substituted.

Page 17


Rate of Exchange or Conversion of each of the foreign currency w.e.f.01.07.2011
28 June 2011 Notification No. 41 /2011-Customs

CBEC determines that the rate of exchange of conversion of each of the foreign currency
specified in Schedule I & II into Indian currency. Refer www.lpguide.wordpress.com for
further details.


Particulars Notification reference

Regarding centralised registration facility for recorded 03 June 2011
smart card manufacturers
Notification No.14/ 2011 - Central
Excise (N.T.)

Bifurcating their excess Input Tax Credit by certain 14 June 2011
dealers
No.F.6(86)/Policy/VAT/2011/170
-177

Framing of assessments under CST Act, 1956
Notice Date : 22 June 2011

Clarification on circular No 33/2011 dated 01.06.2011 Notice Date : 20 June 2011

SERVICE TAX Update
CBEC came out with a circular clarifying certain issues pertaining to newly introduced services:

Short Term Accommodation Service:

Sl. Queries Clarification

1. What is the relevance of declared tariff? Is the “Declared tariff” includes charges for all amenities
tax required to be paid on declared tariff or provided in the unit of accommodation like furniture,
actual amount charged? air-conditioner, refrigerators etc., but does not include
any discount offered on the published charges for such
unit. The relevance of ‘declared tariff’ is in determining
the liability to pay service tax as far as short term
accommodation is concerned. However, the actual tax
will be liable to be paid on the amount charged i.e.
declared tariff minus any discount offered. Thus if the
declared tariff is Rs 1100/-, but actual room rent
charged is Rs 800/-, tax will be required to be paid @

Page 18


5% on Rs 800/-.

2. Is it possible to levy separate tariff for the It is possible to levy separate tariff for the same
same accommodation in respect of accommodation in respect of a class of customers
corporate/privileged customers and other which can be recognized as a distinct class on an
normal customers? intelligible criterion. However, it is not applicable for a
single or few corporate entities.

3. Is the declared tariff supposed to include cost Where the declared tariff includes the cost of food or
of meals or beverages? beverages, Service Tax will be charged on the total
value of declared tariff. But where the bill is separately
raised for food or beverages, and the amount is
charged in the bill, such amount is not considered as
part of declared tariff.

4. What is the position relating to off-season When the declared tariff is revised as per the tourist
prices? Will they be considered as declared season, the liability to pay Service Tax shall be only on
tariff? the declared tariff for the accommodation where the
published/printed tariff is above Rupees 1000/-.
However, the revision in tariff should be made
uniformly applicable to all customers and declared
when such change takes place.

5. Is the luxury tax imposed by States required For the purpose of service tax luxury tax has to be
to be included for the purpose of determining excluded from the taxable value.
either the declared tariff or the actual room
rent?

Services Provided by Restaurants:

1. If there are more than one restaurants belonging to the Service Tax is leviable on the service provide by a restaurant
same entity in a complex, out of which only one or which satisfies two conditions: (i) it should have the facility of air
more satisfy both the criteria relating to air- conditioning in any part of the establishment and (ii) it
conditioning and licence to serve liquor, will the other should have license to serve alcoholic beverages. Within the
restaurant(s) be also liable to pay Service Tax? same entity, if there are more than one restaurant, which are
clearly demarcated and separately named, the ones which satisfy
both the criteria is only liable to service tax.

2. Will the services provided by taxable restaurant in The taxable services provided by a restaurant in other parts of
other parts of the hotel e.g. swimming pool, or an open the hotel e.g. swimming pool, or an open area attached to the
area attached to a restaurant be also liable to Service restaurant are also liable to Service Tax as these areas become
Tax? extensions of the restaurant.

3. Is the serving of food and/or beverages by way of When the food is served in the room, service tax cannot be
room service liable to service tax? charged under the restaurant service as the service is not
provided in the premises of the air-conditioned restaurant with a
licence to serve liquor. Also, the same cannot be charged under
the Short Term Accommodation head if the bill for the food will
be raised separately and it does not form part of the declared
tariff.

4. Is the value added tax imposed by States required to For the purpose of service tax, State Value Added Tax (VAT) has
be included for the purpose of service tax? to be excluded from the taxable value.

Page 19



Subject Date and Notification No. Remarks

Amends Notification No. 14 June 2011 Seeks to rescind Notification
07/2010-Service Tax, dated No. 33/2009 dt. 01.09.2009
Notification No. 38/2011-
the 27th February,2010
Service Tax

Exempt service provided in 14 June 2011 Extended upto 1-1-2012
relation to transport of
Notification No.39/2011-
specified goods by rail
Service Tax

Amends Notification No. 14 June 2011 Seeks to amend
09/2010-Service Tax, dated Notification No. 01/2006
Notification No.40/2011-
the 27th February,2010 dated 01.03.06 to provide
Service Tax
abatement for transport of
goods by rail.

Check the above notifications at: http://www.servicetax.gov.in/st-notfns-home.htm

DIRECT TAX Update
Section 10(15)(i) of the Income Tax Act, 1961 - Amendment in Notification No G.S.R. 607(E),
dated the 9th June, 1989
03 June 2011Section 10(15)(i) of the Income Tax Act, 1961

Post Office Savings Bank Account To an extent of the interest of Rs. 3,500 in the case of an
individual account and Rs. 7,000 in the case of
joint account.

Section 10(23AAA) o the Income Tax Act 1961 - Amendment in Notification No S.O. 672(E) dated
the 27th July, 1995
03 June 2011 NOTIFICATION NO.33/2011

In the said notification, in paragraph (1), after clause (c), the following clause shall be inserted,
namely:—to meet the cost of annual medical tests or medical checkups of the member, his
spouse and dependent children.

Exemption u/s 139(1) to Specified Person from the requirement of furnishing a return of income
for Assessment year 2011-12

In exercise of the powers conferred by sub-section (1C) of section 139 of the Income-tax Act,
1961 (43 of 1961), the Central Government hereby exempts the following class of persons,

Page 20


subject to the conditions specified hereinafter, from the requirement of furnishing a return of
income under sub-section (1) of section 139 for the assessment year 2011-12, namely :—

Class of Persons

1. An Individual whose total income for the relevant assessment year does not exceed five lakh
rupees and consists of only income chargeable to income-tax under the following head,—

(A) "Salaries";

(B) "Income from other sources", by way of interest from a savings account in a bank, not
exceeding ten thousand rupees.

Conditions

2. The individual referred to in para 1,—

(i) has reported to his employer his Permanent Account Number (PAN);

(ii) has reported to his employer, the incomes mentioned in sub-para (B) of para 1 and the
employer has deducted the tax thereon;

(iii) has received a certificate of tax deduction in Form 16 from his employer which mentions
the PAN, details of income and the tax deducted at source and deposited to the credit of the
Central Government;

(iv) has discharged his total tax liability for the assessment year through tax deduction at
source and its deposit by the employer to the Central Government;

(v) has no claim of refund of taxes due to him for the income of the assessment year; and

(vi) has received salary from only one employer for the assessment year.

Cost Inflation Index for Financial Year 2011-12 is 785
23 June 2011 Notification No. 35/2011

IFRS Update
IFRS implementation faces more delayed: The implement of new accounting norms for the
Indian Inc. may be delayed by a year, until a new law on taxes i..e.DTC becomes an Act,
providing relief to thousands of companies struggling to meet the deadline to shift to new
standards.

Global Accounting Body for full IFRS in India: The IASB has requested the government to adopt
global accounting standard instead of the converged one. As soon India’s problem will become
global issue.

Page 21


POSTS IN OUR BLOG THIS MONTH

1. Relaxation in SEBI (Stock Brokers and Sub-brokers) Regulations, 1992

2 Cost Accounting Records Rules and Cost Audit Report Rules, 2001

3. Amendment in Companies Act : Definition of PFI

4. BSE-New Norms for Revocation & Direct Listing

5. MCA General Circular: Regarding filing of Annual Documents

6. Companies (Passing if the resolution by Postal Ballot) Rules, 2011

7. XBRL Mandatory : Latest

8. Green Initiative in Corp governance regarding participation Of Shareholders & Directors through
E-Mode

9. Filing of Balance Sheet and Profit and Loss Account in XBRL Format

10. General Circular No. 37/2011 dated 07th June 2011 on XBRL Taxonomy

11. Indian Government Accounting Standards (IGAS) 1 – Guarantees given by Governments:
Disclosure Requirements

12. Last week : News from the Ministry of Corporate Affairs

13. SEBI: Standardization of rating symbols and change in criteria for seeking name change

14. SEBI: Shareholding of promoter/promoter group to be in dematerialized mode

15. Periodical report- Grant of prior approval to underwriters

16. Modification to Investor Protection Fund (IPF)/ Customer Protection Fund (CPF) Guidelines

17. Withdrawal of 1937 Stamp Duty notification in Delhi on Merger

18. Liquidity enhancement schemes for illiquid securities in equity derivatives segment

19. Directors & Officer’s Liability Insurance

20. Buy Back : Complete

21. 12 Cases of Wrong E-Filing Detected

22. Shareholders Rights :Must See

23. Settlement Of Prosecution

Page 22


24. Learn CARO easily and sequentially

25. Section 233B of the Companies Act,1956- Audit of Cost Accounts in certain cases.

26. Cost Inflation Index for F.Y.2011-12 is 785.

27. Exemption u/s 139(1) to specified person from the requirement of furnishing the return of
Income for A.Y.2011-12

28. Amendment in the process of issue of TDS Certificate.

29. Payment of interest in respect of PPF HUF a/c.

30. Rate of Exchange or Conversion of each of the foreign currency w.e.f.01.07.2011.

31. ODI-Liberalisation and Rationalism.

32. FDI-Issue of Equity Shares under the FDI Scheme allowed under the Government route.

Contributors can share their blogs or articles at lpguide.wordpress.com
or can mail us at team.lguide@gmail.com. The same will be published
in our eNewsletter or Handbooks.

We won’t forget to acknowledge the CSClubIndia
Team for their valuable guidance in making this
eNewsletter.
Visit:csclubindia.net or e-mail to rohit@csclubindia.net

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