IPPsIPPs RELATED LEGAL RELATED LEGAL PROVISIONS IN PROVISIONS IN

INCOME TAX ORDINANCE, 2001INCOME TAX ORDINANCE, 2001SALES TAX ACT, 1990SALES TAX ACT, 1990

WPPFWPPFWWF ORDINANCEWWF ORDINANCE

BYBYSYED MUHAMMAD IJAZ, FCA, LLBSYED MUHAMMAD IJAZ, FCA, LLB

M M YousafYousaf AdilAdil SaleemSaleem & Co. a member & Co. a member firm of Deloitte Touchfirm of Deloitte Touchéé TohmatsuTohmatsu

INCOME TAX INCOME TAX ORDINANCE, 2001ORDINANCE, 2001

Clause 132 Part I of 2Clause 132 Part I of 2ndnd ScheduleSchedule�� Profits and gains derived by a taxpayer from an electric power gProfits and gains derived by a taxpayer from an electric power generation project eneration project set set

up in Pakistan on or after the 1st day of July, 1988up in Pakistan on or after the 1st day of July, 1988. The exemption under this . The exemption under this clause shall apply to such project which isclause shall apply to such project which is--

a)a) not formed by the not formed by the splitting up, or the reconstruction or reconstitutionsplitting up, or the reconstruction or reconstitution, of , of a business already in existence a business already in existence or by transfer to a new business of any or by transfer to a new business of any machinery or plant used in a businessmachinery or plant used in a business which was being carried on in which was being carried on in Pakistan at any time before the commencement of the new businessPakistan at any time before the commencement of the new business; and; and

b)b) owned by a company owned by a company fifty per cent of whose shares are not held by the fifty per cent of whose shares are not held by the FederalFederal Government or Provincial Government or a 1[Local Government] orGovernment or Provincial Government or a 1[Local Government] orwhich is not controlled by the Federal Government or a Provinciawhich is not controlled by the Federal Government or a Provincial Government or l Government or a [Local Government]:a [Local Government]:

c)c) Provided that the Provided that the condition laid down in subcondition laid down in sub--clause (a) shall not apply to clause (a) shall not apply to the Hub Powerthe Hub Power Company Limited Company Limited

�� [Provided further the [Provided further the exemption under this clause shall not apply to oil fired exemption under this clause shall not apply to oil fired power plants setup [between 22nd October, 2002 and 30th June, 20power plants setup [between 22nd October, 2002 and 30th June, 2006]06]but shall apply to Dual Fuel (Oil/Gas) power projects set up on but shall apply to Dual Fuel (Oil/Gas) power projects set up on or after the or after the first September, 2005] first September, 2005]

�� Provided further that the exemption under this clause Provided further that the exemption under this clause shall be available to shall be available to companies registered in Pakistan or companies registered in Pakistan or AzadAzad Jammu and Kashmir owning and Jammu and Kashmir owning and managing managing HydelHydel Power Projects,Power Projects, set up in set up in AzadAzad Jammu and Kashmir or Jammu and Kashmir or Pakistan.]Pakistan.]

Clause 20 Part II of 2Clause 20 Part II of 2ndnd ScheduleSchedule

�� The rates of tax as specified in clause (b) The rates of tax as specified in clause (b) of Divisionof Division--III of PartIII of Part--I of First Schedule I of First Schedule shall be reduced to 7.5% in case of shall be reduced to 7.5% in case of dividend declared or distributed on shares dividend declared or distributed on shares of a company set up for power of a company set up for power generation.]generation.]

Provisions incorporated through Provisions incorporated through Finance Act, 2009Finance Act, 2009

�� ACCELERATED DEPRECIATION TO ALTERNATE ENERGY ACCELERATED DEPRECIATION TO ALTERNATE ENERGY PROJECTSPROJECTS. . [Section 23B, section 57 and Third Schedule][Section 23B, section 57 and Third Schedule]--

�� A new section 23A has been inserted whereby First Year AllowanceA new section 23A has been inserted whereby First Year Allowance(FYA) at the rate of 90% of the cost of plant, machinery and (FYA) at the rate of 90% of the cost of plant, machinery and equipment has been allowed.equipment has been allowed.

�� The plant, machinery and equipment has to be installed in PakistThe plant, machinery and equipment has to be installed in Pakistan an by a company set up for the purpose of by a company set up for the purpose of alternate energy power alternate energy power generationgeneration. .

�� The FYA will be allowed in lieu of initial allowance allowed The FYA will be allowed in lieu of initial allowance allowed u/su/s 23 in 23 in respect of respect of ““eligible depreciation assetseligible depreciation assets”” put to use after July 01, put to use after July 01, 2009. 2009.

�� This has been done to encourage investment in this sector both bThis has been done to encourage investment in this sector both by y residents and nonresidents and non--residents. The amendment has also been made in residents. The amendment has also been made in section 57 to allow carry forward of losses for indefinite periosection 57 to allow carry forward of losses for indefinite period.d.

�� KotKot AdduAddu shall continue to enjoy shall continue to enjoy exemption under clause 138exemption under clause 138

�� Companies qualifying for exemption Companies qualifying for exemption u/cu/c132 of this schedule in respect of receipts 132 of this schedule in respect of receipts from the sale of electricity (still available)from the sale of electricity (still available)

�� The The corporatizedcorporatized entities of entities of WapdaWapda so far so far as they relate to their receipts on account as they relate to their receipts on account of Sales of electricityof Sales of electricity

The Legal PositionThe Legal Position

�� Section 23 read with 57 and third Schedule Section 23 read with 57 and third Schedule vsvsclause 132 of Part II of 2clause 132 of Part II of 2ndnd ScheduleSchedule

�� 132 to applicable to power projects132 to applicable to power projects

�� It is not applicable to Oil fired Plants It is not applicable to Oil fired Plants setup [between 22nd setup [between 22nd

October, 2002 and 30th June, 2006October, 2002 and 30th June, 2006

�� shall apply to Dual Fuel (Oil/Gas) power projects set shall apply to Dual Fuel (Oil/Gas) power projects set

up on or after the first September, 2005]up on or after the first September, 2005]

�� 22ndnd Proviso Proviso vsvs the power plantsthe power plants--the legal position?the legal position?

�� Other provisions i.e. Single Object of Other provisions i.e. Single Object of memorandum etcmemorandum etc

SALES TAXSALES TAX

�� Special rules for supply of Electric Power Special rules for supply of Electric Power chapter III to Sales Tax Special Procedure chapter III to Sales Tax Special Procedure 20072007

�� 1% special excise is not applicable by 1% special excise is not applicable by virtue of Sr. 11 of SRO 655(I)/2007 as virtue of Sr. 11 of SRO 655(I)/2007 as amended to date (Federal Excise Act)amended to date (Federal Excise Act)

�� SRO 603(I)/2009 dated 25SRO 603(I)/2009 dated 25--66--2009 2009 withholding rules applicable to LTU cases withholding rules applicable to LTU cases will also apply to will also apply to IPPsIPPs

�� Refund Rules are applicable to Refund Rules are applicable to IPPsIPPs due to due to change in section 8B(2) by finance Act, 2009change in section 8B(2) by finance Act, 2009

�� Table 2 Clause 6 of 6Table 2 Clause 6 of 6thth schedule i.e. schedule i.e. Supply of Supply of fixed assets against which input tax adjustment fixed assets against which input tax adjustment is not available under a notification issued in is not available under a notification issued in terms of clause (b) of subterms of clause (b) of sub--section (1) of section section (1) of section 88 of the Sales Tax Act, 1990.of the Sales Tax Act, 1990.

�� Table 2 Clause 4 of 6Table 2 Clause 4 of 6thth schedule i.e. schedule i.e. Raw Raw material and intermediary goods manufactured material and intermediary goods manufactured or produced, and services provided or rendered, or produced, and services provided or rendered, by a registered person, consumed inby a registered person, consumed in--house for house for the manufacture of goods subject to sales tax.the manufacture of goods subject to sales tax.(units used in power house)(units used in power house)

11. Application.11. Application.——The provisions of this Chapter The provisions of this Chapter shall apply for Collection and payment of sales shall apply for Collection and payment of sales tax on tax on �� electric power imported, generated, produced, electric power imported, generated, produced,

transmitted and supplied by transmitted and supplied by �� electricity generation, transmission and distribution electricity generation, transmission and distribution

companies licensed under the Regulation of Generation, companies licensed under the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 (XL Transmission and Distribution of Electric Power Act, 1997 (XL of 1997), of 1997),

�� including their distributors, dealers and agents, or including their distributors, dealers and agents, or

�� by any other person dealing in importation, generation, by any other person dealing in importation, generation, production, transmission, distribution and supply of electric production, transmission, distribution and supply of electric power.power.

Chapter III to Sales Tax Special Chapter III to Sales Tax Special Procedures 2007Procedures 2007

�� Mandatory registration Mandatory registration u/s/ru/s/r 14 of Chapter III of Sales 14 of Chapter III of Sales Tax Special ProceduresTax Special Procedures

�� 13. Levy and collection of sales tax.13. Levy and collection of sales tax.—— (1) Every (1) Every person, referred to in the preceding rule, who supplies person, referred to in the preceding rule, who supplies electric power shall charge and collect sales tax at the electric power shall charge and collect sales tax at the rate specified in subrate specified in sub--section (1) of section 3 of the Act.section (1) of section 3 of the Act.

�� Stages of collectionStages of collection defined defined u/s/ru/s/r 2 to rule 13 of 2 to rule 13 of Chapter IIIChapter III-- See Responsibility of payment in next See Responsibility of payment in next slideslide

�� Value of Supply:Value of Supply: In case of an IPP, HUBCO or KAPCO, In case of an IPP, HUBCO or KAPCO, the value of supply shall be the amount received by such the value of supply shall be the amount received by such IPP or, as the case may be, HUBCO or KAPCO, on IPP or, as the case may be, HUBCO or KAPCO, on account of Energy Purchase Price only and any amount account of Energy Purchase Price only and any amount in excess of Energy Purchase Price received on account in excess of Energy Purchase Price received on account of Capacity Purchase Price, Energy Price Premium, of Capacity Purchase Price, Energy Price Premium, Excess Bonus, Supplemental Charges, etc., shall not be Excess Bonus, Supplemental Charges, etc., shall not be deemed as a component of the value of supply:deemed as a component of the value of supply:

�� (a) in case of its importation, the responsibility to pay sales (a) in case of its importation, the responsibility to pay sales tax shall be of the tax shall be of the importer, and the value thereof shall be the value as determinedimporter, and the value thereof shall be the value as determined under section 25 or, under section 25 or, as the case may be, section 25B of the Customs Act, 1969 (IV of as the case may be, section 25B of the Customs Act, 1969 (IV of 1969), including the 1969), including the amount of customsamount of customs--duties and duty of excise duties levied thereon; andduties and duty of excise duties levied thereon; and

�� (b) in case of generation, transmission, distribution and supply(b) in case of generation, transmission, distribution and supply of electric power by a of electric power by a public sector project like WAPDA a private sector project includpublic sector project like WAPDA a private sector project including an IPP, a Captive ing an IPP, a Captive Power Unit or any other person, the responsibility to collect saPower Unit or any other person, the responsibility to collect sales tax shall be of the les tax shall be of the person making the supply, and the value shall be the price of elperson making the supply, and the value shall be the price of electric power including ectric power including all charges, surcharges excluding the amount of late payment surall charges, surcharges excluding the amount of late payment surcharge, rents, charge, rents, commissions and all duties and taxes whether local, Provincial ocommissions and all duties and taxes whether local, Provincial or Federal, but r Federal, but excluding the amount of sales tax, as provided in clause (46) ofexcluding the amount of sales tax, as provided in clause (46) of section 2 of the section 2 of the Act8[: Provided that in case of electric power supplied by WAPDAAct8[: Provided that in case of electric power supplied by WAPDA, the additional , the additional charge of charge of RsRs. 0.10 per . 0.10 per kwhkwh, collected on account of , collected on account of NeelumNeelum JehlumJehlum Hydro Power Hydro Power Development Fund shall not be included in value for determinatioDevelopment Fund shall not be included in value for determination of sales tax n of sales tax payable.]payable.]

�� (3) In case of an IPP, HUBCO or KAPCO, the value of supply shall(3) In case of an IPP, HUBCO or KAPCO, the value of supply shall be the amount be the amount received by such IPP or, as the case may be, HUBCO or KAPCO, on received by such IPP or, as the case may be, HUBCO or KAPCO, on account of account of Energy Purchase Price only and any amount in excess of Energy PuEnergy Purchase Price only and any amount in excess of Energy Purchase Price rchase Price received on account of Capacity Purchase Price, Energy Price Prereceived on account of Capacity Purchase Price, Energy Price Premium, Excess mium, Excess Bonus, Supplemental Charges, etc., shall not be deemed as a compBonus, Supplemental Charges, etc., shall not be deemed as a component of the value onent of the value of supply: Provided that in case WAPDA or KESC disputes any amouof supply: Provided that in case WAPDA or KESC disputes any amount, WAPDA or, as nt, WAPDA or, as the case may be, KESC, shall issue a certificate showing such amthe case may be, KESC, shall issue a certificate showing such amount and the tax ount and the tax involved therein and such certificate shall be deemed to be a Crinvolved therein and such certificate shall be deemed to be a Credit Note for the IPP edit Note for the IPP for the purposes of section 9 of the Act, and shall be accountedfor the purposes of section 9 of the Act, and shall be accounted for in the return for for in the return for the tax period in which such Credit Note is issued:the tax period in which such Credit Note is issued:

Date of Filing Date of Filing

�� WAPDA and KESCWAPDA and KESC--21st day of the month 21st day of the month following the month in which the electric power following the month in which the electric power bill or invoice has been raised.bill or invoice has been raised.

�� In case of an IPP, the due date for the purpose In case of an IPP, the due date for the purpose of filing monthly sales tax return and for of filing monthly sales tax return and for payment of sales tax shall be the 25th day of payment of sales tax shall be the 25th day of the month following the month to which the the month following the month to which the sales tax invoice relates.sales tax invoice relates.

�� Any person other than an IPP, WAPDA or KESC Any person other than an IPP, WAPDA or KESC who supplies electric power shall file a monthly who supplies electric power shall file a monthly sales tax return under section 26 of the Act and sales tax return under section 26 of the Act and Chapter II of the Sales Tax Rules, 2006, and Chapter II of the Sales Tax Rules, 2006, and deposit the amount of sales tax payable for the deposit the amount of sales tax payable for the tax period by the due date.tax period by the due date.

�� Determination of sales tax liability in Determination of sales tax liability in

respect of WAPDA and KESC.respect of WAPDA and KESC.——

�� entitled to claim admissible input tax entitled to claim admissible input tax adjustment in the manner specified in adjustment in the manner specified in section 7 of the Act, read with sections 8 section 7 of the Act, read with sections 8 and 8B thereof.and 8B thereof.

�� WAPDA and KESC shall be entitled to WAPDA and KESC shall be entitled to claim admissible input tax adjustment claim admissible input tax adjustment against sales tax paid on their taxable against sales tax paid on their taxable purchases made in the month immediately purchases made in the month immediately preceding the tax period.preceding the tax period.

16. Input tax adjustment for registered 16. Input tax adjustment for registered

consumers.consumers.——

�� power bill issued by electric power distribution power bill issued by electric power distribution company shall be treated as a tax invoice as company shall be treated as a tax invoice as defined in clause (40) of section 2 of the Act.defined in clause (40) of section 2 of the Act.

�� registered consumers shall be entitled to claim registered consumers shall be entitled to claim input tax adjustment against such invoice after input tax adjustment against such invoice after the bill has been paid, as per the provisions of the bill has been paid, as per the provisions of section 7, 8 and 8B of the Act provided the bill section 7, 8 and 8B of the Act provided the bill contains registration number and address of the contains registration number and address of the business premises declared to the Collector by business premises declared to the Collector by such consumer.such consumer.

�� Books of AccountBooks of Account

�� shall maintain records as prescribed under shall maintain records as prescribed under section 22 of the Act or a notification issued section 22 of the Act or a notification issued there under.there under.

�� shall print in his bill or invoice, as the case may shall print in his bill or invoice, as the case may be, registration number of the consumer, if be, registration number of the consumer, if applicable, the rate and the amount of sales tax applicable, the rate and the amount of sales tax required to be charged by him under subrequired to be charged by him under sub--section section (1) of section 3 of the Act.(1) of section 3 of the Act.

�� may issue a computer generated sales tax may issue a computer generated sales tax invoice and keep his record on the computer in invoice and keep his record on the computer in the prescribed format.the prescribed format.

�� 18. Penalty.18. Penalty.——NonNon--issuance of electric issuance of electric power bill for a tax periodpower bill for a tax period--be liable to be liable to penalties under the relevant provisions of penalties under the relevant provisions of the Act.the Act.

�� If the tax is not paid within the due date If the tax is not paid within the due date or in the manner as provided under this or in the manner as provided under this Chapter, the registered person shall be Chapter, the registered person shall be liable to pay default surcharge and such liable to pay default surcharge and such other penalties prescribed in the Act.other penalties prescribed in the Act.

WWF & WPPFWWF & WPPF

WWFWWF

�� Industrial EstablishmentIndustrial Establishment

�� Definition of total IncomeDefinition of total Income

�� Intention of Legislature/promulgationIntention of Legislature/promulgation

�� Definition of worker/Legal OpinionDefinition of worker/Legal Opinion

�� Matter Matter subjudicesubjudice before a court of lawbefore a court of law

�� Applicability to workers of workers community or Applicability to workers of workers community or specifically working in industrial under takingsspecifically working in industrial under takings

�� Charging sectionsCharging sections--basis ofbasis of

THE MAGIC TERMSTHE MAGIC TERMSin detailsin details

Industrial EstablishmentIndustrial Establishmenti.i. Any concern owning or managing a factory, workshop or other estaAny concern owning or managing a factory, workshop or other establishment in blishment in

which articles are produced, adapted or manufactured with the aiwhich articles are produced, adapted or manufactured with the aid of electrical, d of electrical, mechanical, thermal, nuclear or any other form of energy transmimechanical, thermal, nuclear or any other form of energy transmitted mechanically tted mechanically and not generated by human or animal agency;and not generated by human or animal agency;

ii.ii. Any concern working a mine or quarry or natural gas or oilfield;Any concern working a mine or quarry or natural gas or oilfield;iii.iii. Any concern running a public transport serviceAny concern running a public transport serviceiv.iv. Any concern engaged in the carriage of men and goods by inland mAny concern engaged in the carriage of men and goods by inland mechanically echanically

propelled vessels;propelled vessels;IvaIva)) Any establishment, to which the West Pakistan Shops and EstablisAny establishment, to which the West Pakistan Shops and Establishment hment

Ordinance, 1969 (W.P. Ordinance No. VIII of 1969), for the time Ordinance, 1969 (W.P. Ordinance No. VIII of 1969), for the time being applies;being applies;v.v. Any concern engaged in the growing of tea, coffee, rubber or cinAny concern engaged in the growing of tea, coffee, rubber or cinchona; andchona; andvi.vi. Any other concern or establishment which the federal government Any other concern or establishment which the federal government may, by may, by

notification in the Official Gazette, declare to be an industrianotification in the Official Gazette, declare to be an industrial establishment for the l establishment for the purposes of this ordinance,purposes of this ordinance,

But does not include any concern or establishment which is ownedBut does not include any concern or establishment which is owned by government, or by by government, or by corporation established by the Government or by a Corporation thcorporation established by the Government or by a Corporation the majority of the e majority of the shares of which is owned by government.shares of which is owned by government.

Total IncomeTotal Income

i.i. Where return of income is required to be filed Where return of income is required to be filed under this Ordinance, the under this Ordinance, the profitprofit (before (before taxation or provision for taxation) as per taxation or provision for taxation) as per accounts accounts oror the the declared income declared income as per the as per the return of Income, return of Income, which ever is higherwhich ever is higher; and; and

ii.ii. Where return of Income is not requiredWhere return of Income is not required to to be filed, the be filed, the profitprofit (before taxation or (before taxation or provision for taxation) as per accounts provision for taxation) as per accounts oror four four percent of the receiptpercent of the receipt as per the statement as per the statement filed under section 115 of the Ordinance, filed under section 115 of the Ordinance, whichever is higherwhichever is higher

The Charging ProvisionsThe Charging Provisions--Section 4Section 4

�� 2% of 2% of total income total income by every by every industrial establishmentindustrial establishment with total with total income greater than income greater than RsRs. 500,000/. 500,000/--

�� To be paid to taxation officer having jurisdiction over industriTo be paid to taxation officer having jurisdiction over industrial al establishmentestablishment

�� Payable on or before the date of filing of returns of income witPayable on or before the date of filing of returns of income with proof of h proof of paymentpayment

�� Taxation officer shall determine the amount of WWF by order in wTaxation officer shall determine the amount of WWF by order in writingriting�� Any amount payable or refundable due to such order is adjustableAny amount payable or refundable due to such order is adjustable under under

subsection 1subsection 1�� Any amount determined in access of what was required to be paid Any amount determined in access of what was required to be paid as a as a

result of Appeal shall be refundedresult of Appeal shall be refunded�� Provisions of the Income Tax Ordinance for mode and time of recoProvisions of the Income Tax Ordinance for mode and time of recovery of very of

the Income tax the Income tax leviableleviable under the Ordinance shall mutatis mutandis apply under the Ordinance shall mutatis mutandis apply to recovery of amount due under subsection 1to recovery of amount due under subsection 1

�� Appeals against the order of taxation officers can be filed befoAppeals against the order of taxation officers can be filed before the re the Commissioner of appeals appointed under the OrdinanceCommissioner of appeals appointed under the Ordinance

Further amount Further amount --section 4Asection 4A

�� Federal Govt. by notification in official gazette and by Federal Govt. by notification in official gazette and by appointment of one or more committees on appointment of one or more committees on recommendation can in addition to the amount payable recommendation can in addition to the amount payable under section 4 for any year of account can determine under section 4 for any year of account can determine such amount as may be recommended by such such amount as may be recommended by such committeescommittees

�� Committees have to examine individually the financial Committees have to examine individually the financial reasons and circumstances for each industrial reasons and circumstances for each industrial undertakingundertaking�� Can call such information as they deem necessaryCan call such information as they deem necessary

�� If no such information is furnished by the industrial undertakinIf no such information is furnished by the industrial undertaking g the committee can recommend of the basis of available the committee can recommend of the basis of available informationinformation

Liability to be discharged by Liability to be discharged by certain personscertain persons-- Section 5Section 5

�� Person who is liable to pay Income tax in Person who is liable to pay Income tax in respect of the Income relatable to such respect of the Income relatable to such industrial establishmentindustrial establishment

�� U/s 13 Federal Government can reduce or U/s 13 Federal Government can reduce or remit the amount due through a remit the amount due through a notification in Official Gazettenotification in Official Gazette

WORKERWORKER’’S PROFIT S PROFIT PARTICIPATION FUNDPARTICIPATION FUND

DefinitionsDefinitions

�� Company;Company;�� Means a company as defined under Companies Ordinance 1984Means a company as defined under Companies Ordinance 1984�� And IncludesAnd Includes

�� A body Corporate established by or under any law for the time A body Corporate established by or under any law for the time being being inforceinforce;;

�� Any institution, organization or association whether incorporateAny institution, organization or association whether incorporated or d or not, declared by Federal Government in the Official Gazette to bnot, declared by Federal Government in the Official Gazette to be a e a company for the purposes of this Act;company for the purposes of this Act;

�� ProfitsProfits�� As defined As defined u/su/s 87C of companies Act87C of companies Act--Since companies Act is not Since companies Act is not

more there and in 1984more there and in 1984’’s Ordinance Net profits are not defined s Ordinance Net profits are not defined there this definition is redundantthere this definition is redundant

�� WorkerWorker�� Employee of the company including through contractor as Employee of the company including through contractor as

defined under clause xxx of section 2 of the Industrial relationdefined under clause xxx of section 2 of the Industrial relations s Ordinance, 2002Ordinance, 2002

The charging provisionThe charging provision--Section 3Section 3

�� Company to which Company to which schemescheme applies applies shallshall has to has to establish fund establish fund u/su/s 3 as soon as the accounts of 3 as soon as the accounts of the year in which the scheme become applicable the year in which the scheme become applicable are finalized but not later than 9 months from are finalized but not later than 9 months from the close of the year the close of the year

�� Pay to fund subject to adjustment Not later than Pay to fund subject to adjustment Not later than 9 months of close of the year 5% of its profits9 months of close of the year 5% of its profits

�� Furnish audited accounts to Federal Government Furnish audited accounts to Federal Government and the Boardand the Board

Management of FundManagement of Fund--Section 4Section 4

�� Board of trusteeBoard of trustee--establish within 2 months of establish within 2 months of establishment of fundestablishment of fund

�� TwoTwo persons elected by workers amongst persons elected by workers amongst themselvesthemselves

�� TwoTwo being nominated by the company one of being nominated by the company one of whom shall be from accounts branch of the whom shall be from accounts branch of the companycompany

�� Trustees shall elect for one year a person to be Trustees shall elect for one year a person to be the chairmanthe chairman--alternatively amongst the trusteesalternatively amongst the trustees

�� Procedures of the Board are defined Procedures of the Board are defined u/s/su/s/s 3 to 3 to 1111

PenaltyPenalty--Section 5Section 5

�� Federal Govt. on default of the company can charge Federal Govt. on default of the company can charge RsRs. . 5000 and 5000 and RsRs. 1000 for each day of default if the default . 1000 for each day of default if the default continuescontinues

�� Penalty if not paid is recoverable like a land revenuePenalty if not paid is recoverable like a land revenue

�� On application within a period of 6months from the date On application within a period of 6months from the date of order Federal Govt. can review the orderof order Federal Govt. can review the order

�� If any defaulting employer complies strictly to the If any defaulting employer complies strictly to the scheme and provisions so far as they are applicable then scheme and provisions so far as they are applicable then notwithstanding any thing contained in this act or notwithstanding any thing contained in this act or scheme, penalty cannot be charged neither the company scheme, penalty cannot be charged neither the company is liable to pay interest as provided in the schemeis liable to pay interest as provided in the scheme

�� Powers with the Federal Powers with the Federal GovtGovt

�� To call for informationTo call for information

�� Settlement of disputesSettlement of disputes

�� Delegation of powersDelegation of powers

�� Power to make rulesPower to make rules

�� Act to override other lawsAct to override other laws

The schemeThe scheme

�� This scheme shall apply to all companies This scheme shall apply to all companies engaged in engaged in industrial undertakingsindustrial undertakings which which satisfy any one of satisfy any one of the following condition,the following condition, and to such other companies and to such other companies as the Federal Govt. may, by notifications in the official as the Federal Govt. may, by notifications in the official gazette, specify in this behalf, namely:gazette, specify in this behalf, namely:--�� The number of workers employed by the company at any time The number of workers employed by the company at any time

during a year is 50 or moreduring a year is 50 or more

�� The paid up capital of the company as on the last day of its The paid up capital of the company as on the last day of its accounting year is accounting year is RsRs. 5 m (. 5 m (RsRs 2 M before 20062 M before 2006’’s change) or s change) or moremore

�� The value of fixed assets of the company at cost as on the last The value of fixed assets of the company at cost as on the last day of the accounting year is day of the accounting year is RsRs. 20m (. 20m (RsRs. 4m before the . 4m before the change ) or morechange ) or more

�� Industrial undertakingIndustrial undertaking means an means an institution, organization, enterprises or institution, organization, enterprises or establishment which involves the use of establishment which involves the use of electrical, mechanical, thermal, nuclear or electrical, mechanical, thermal, nuclear or any other form of energy transmitted any other form of energy transmitted mechanically and not generated by human or mechanically and not generated by human or animal agency and which is engaged in any animal agency and which is engaged in any one or more of the following operations;one or more of the following operations;

i.i. ……..ii.ii. ……..iii.iii. The transformers, generation, conversion, The transformers, generation, conversion,

transmission or distribution or electrical energy, transmission or distribution or electrical energy, including hydraulic power; andincluding hydraulic power; and

iv.iv. ……....v.v.

Legal prepositionLegal preposition

�� Reading application of scheme with Reading application of scheme with definition of industrial undertakingdefinition of industrial undertaking

�� Remember any one condition has to metRemember any one condition has to met�� They are generating energyThey are generating energy--The definitionThe definition

�� Have more than 5 m paid up capHave more than 5 m paid up cap--Condition Condition

�� Have more than 20 m cost of assetsHave more than 20 m cost of assets--ConditionCondition

�� Even if workers clause is not met above 2 Even if workers clause is not met above 2 will be met in most caseswill be met in most cases

�� Fund is available for investment is Fund is available for investment is companycompany’’s operationss operations

�� Company shall pay interest 2.5% above Company shall pay interest 2.5% above bank rate or 75 percent of dividendbank rate or 75 percent of dividend’’s rate s rate which ever is higherwhich ever is higher

�� Incase the company issues further capital Incase the company issues further capital the fund shall have the first optionthe fund shall have the first option

Distribution & Disbursement of Distribution & Disbursement of BenefitsBenefits

�� All workers are eligible to benefits and to participate however All workers are eligible to benefits and to participate however he he has to complete 6 months of employment in a year for eligibilityhas to complete 6 months of employment in a year for eligibility

�� Shares of workers shall be calculated in number of units with a Shares of workers shall be calculated in number of units with a face face value of value of RsRs. 10. 10

�� Be divided into three parts for three categories of workersBe divided into three parts for three categories of workers�� Category 1(Average monthly salary not exceeding Category 1(Average monthly salary not exceeding RsRs. 7500)= 4 * x. 7500)= 4 * x�� Category 2 (Average monthly salary Exceeding 7500 but not Category 2 (Average monthly salary Exceeding 7500 but not RsRs. .

15000)= 2 * x15000)= 2 * x�� Category 3 (Average monthly salary Exceeding 15000)= x Category 3 (Average monthly salary Exceeding 15000)= x

�� Monthly salary be rounded to the nearest 10Monthly salary be rounded to the nearest 10�� Number of units available for each category be divided equally iNumber of units available for each category be divided equally in all n all

workers of that categoryworkers of that category�� No worker shall be allowed to get more than four times of the No worker shall be allowed to get more than four times of the

minimum wages of unskilled worker notwithstanding any thing minimum wages of unskilled worker notwithstanding any thing contained in this schemecontained in this scheme

DistributionDistribution

�� 100% of annual income of fund +capital gains 100% of annual income of fund +capital gains

�� A worker who voluntarily leaves A worker who voluntarily leaves employementemployement or or terminated one 100% of net assets value in his nameterminated one 100% of net assets value in his name

�� For continuing workers its choice for them to get their For continuing workers its choice for them to get their 100% share in assets every year to leave them invested 100% share in assets every year to leave them invested

�� Incase of retirement or death while in employment will Incase of retirement or death while in employment will receive 100% in net assets in his namereceive 100% in net assets in his name

�� Voluntary contributions can be made not exceeding 10% Voluntary contributions can be made not exceeding 10% of their annual wagesof their annual wages

MiscMisc

�� Fund is Exempt from Income tax (clause Fund is Exempt from Income tax (clause 9)9)

�� Allowable deduction in Income taxAllowable deduction in Income tax--for for companies (clause 8)companies (clause 8)

�� Income of workers are Income tax exempt Income of workers are Income tax exempt (clause 10)(clause 10)

�� Audit (clause 12)Audit (clause 12)

�� This shall be in addition to other benefits This shall be in addition to other benefits that may be available to workersthat may be available to workers