NELLORE CHARTERED ACCOUNTANT - Nellore Branch of SIRC of ICAI · 2015-11-02 · “Making way for Bigger Horizons” Volume 1 / Issue 02 April 2014 11 Members requested to contribute

www.icainellore.org

Editorial Committee

“Making way for Bigger Horizons”www.icainellore.org 1

Volume 1 / Issue 02April 2014

Nellore Branch (SIRC)of

The Institute of Chartered Accountants of India

NELLORECHARTERED ACCOUNTANTN E W S L E T T E R

Dear Members,The warmth, affection and good wishes received by me from members were heart-warming, propelling and motivating us. We assure you that my colleagues and I would explore newer areas of activities as part of the Continuing Profes-sional Education.

The Chairmen and Secretaries of all the Branches with the members of SIRC had the pleasure and privilege of interact-ing with our beloved President CA. K. Raghu and Vice-Pres-

EditorCA. V.M.V. SubbaraoCell : 93902 21100Email : [email protected]

CA. Chinni Sravan KumarCA. K. RajeshCA. B. Durga PrasadCA. P. Ramesh Kumar Reddy

Managing CommitteeCA. K. Kiran KumarChairman

CA. P.V. Rama Raghava RaoVice Chairman

CA. R. Yugandhar ReddySecretary

CA. A. SankaranarayanaTreasurer

CA. J.V. Chalapathi RaoSICASA - Chairman

CA. A. PundarikakshamMember

CA. B. SekkizharEx-Officio & Regional Council Member

ident CA. Manoj Fadnis at the Orientation Programme held on 27th and 28th March 2014 at Kodaikanal. Matters of professional interest and improving the activities at the Branch level were the focal points discussed at the programme.

Programmes :

I am happy to share with you that the Seminar on Bank Audit held on 23rd March and most of the members participated in the programme. Recently Companies Act undergone major changes, a CPE seminar on companies act going to be organized in our branch on 30th April, 2014. For this purpose we are inviting expert faculties from Chennai members are requested to attend and update the knowledge on com-panies act.

We are conducting one day family trip to penchalakona on 27.04.2014 which includes entertainment and cpe lecture meeting on Forensic Accounting for this purpose we are inviting faculty from Chennai.

Bank Audit

April is the month when our members in practice would be fully involved in Bank Branch Audit. With the competence and skill of our members known for, I am con-fident that the bank audit would be completed with ease, perfection and precision.

As the Election process is on, I urge you to cast your vote positively in theinterest of nation and to promote the democracy.

“Making way for Bigger Horizons”With Warm Regards,

CA. K. KIRAN KUMARCHAIRMAN

“Making way for Bigger Horizons”www.icainellore.org


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Release of News letter during Bank Audit Seminar conducted at ICAI Branch, NELLORE on 23-03-2014

Best Wishes :

Date Name occassion Mobile No. 01.05.2014 CA D. Penchala Reddy Birthday 9440390238 01.05.2014 CA G. Venkata Suman Birthday 9382140083 07.05.2014 CA M. Chandramouli Marriage Day 9440276919 07.05.2014 CA K.V. Raja Mohan Marriage Day 9347104455 07.05.2014 CA P. Sankar Marriage Day 9966408156 10.05.2014 CA P. Dayakar Reddy Birthday 9440736738 10.05.2014 CA C.H. Venkateswarlu Marriage Day 9848158694 11.05.2014 CA S. Rammohan Rao(Gudur) Birthday 9849421579 15.05.2014 CA I. Sundara Raja Rao Marriage Day 9397124245 17.05.2014 CA P. Ashok Reddy Birthday 9940266666 17.05.2014 CA I. Sundara Raja Rao Birthday 9397124245 18.05.2014 CA P. Shankar Birthday 9966408156 19.05.2014 CA P. Lalitha Marriage Day 9849802926



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Members requested to contribute articles by mailing to usEmail ID : [email protected]

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Forensic AccountingIntroduction :• Forensic just means ‘usable in a court of law’• Forensic accounting is focused upon the identification, interpretation, and communication of the evidence of economic transactions and reporting events• Relating to the application of scientific knowledge to a legal problem• The investigation of an allegation whose evidence is expected to be presented in the judicial forum

Nature :• An FA has a unique responsibility involving the integration of accounting, auditing and investigative skills• Thinking beyond the numbers and Thinking out of Box• Presume the existence of fake transactions, Make no assumption of management integrity• Nothing to do with accounting or assurance standards• Show less concern for arithmetical accuracy

Need :• Forensic Accounting is essentially required in wake of growing frauds e.g.• Rapid use of information technology, Growing Cyber crimes• Increase in number of Corporate Scams. • Failure of regulators to track the securities scams • Helping to Governments in achieving compliance with various forms & regulations

Role :• Investigating and analyzing financial evidence• Developing computerised applications to assist in the analysis and presentation of financial evidence• Communicating their findings in the form of reports• Assisting in legal proceedings as an expert witness

Requisites :• Interpersonal and communication skills, which aid in disseminating information about the company’s ethical policies.• Thorough knowledge of company’s governance policies and laws that regulate these policies

Key Differences :• The involvement of the forensic accountant is almost always reactive – they primarily respond to complaints arising in

criminal matters, statements of claim arising in civil litigation and enquiries arising in corporate investigations.• The primary role of a financial internal auditor is to be proactive in the prevention and detection of fraud or irregularity in a

corporate or regulatory environment. External auditor is monitoring compliance with GAAP and fair representation of the financial condition of the company

• ‘Watchdog’ v ‘Bloodhound’

Scope :• In the scenario of implementing ERP’s, forensic accountants can play the role of proactive risk reduction tools and take

part in the designing the systems• According to IMF, money laundering has become a major global problem. An FA can unearth such money laundering

transactions by application of his skills set• CAs with in-depth analytical knowledge along with integrity and accountability are most suitable to be the forensic auditors

You can reach the author at [email protected]

CA.K.Madhusudhan RaoChennai



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ALL ABOUT ONE PERSON COMPANYCompanies Act, 2013 has opened the corporate door for the individuals who have all the entrepreneurial expertis and always wanted to have their own company by the new concept of ONE PERSON COMPANY

DEFINITION:-

Section 2(62) of the Companies Act, 2013 defines OPC to mean a Company which has only one person as a member.It can have only one member at any point of time.It may have only one director but can however appoint more than 15 directors after passinga special resolution. As per section 3(1) and (2), OPC can only be incorporated as a privatelimited company. Such a company may either be:1. a company limited by shares; or2. a company limited by guarantee; or3. an unlimited company

The words ‘‘One Person Company’’ is required to be mentioned in brackets below the name of such company, wherever its name is printed, affixed or engraved. One Person Company - Opportunities for Small Entreprenuers

ELIGIBILITY FOR INCORPORATION AND NOMINEE MEMBER- As per Rule 3(1) of the Companies (Incorporation) Rules 2014, only a natural person who is an Indian Citizen and resident in India shall be eligible to incorporate / form a OPC. Indian resident means who has stayed in India for a period of not less than 182 days during the immediately preceding one calendar year.

- A nominee for OPC has to be natural person who is and Indian citizen and resident in India.

- No person shall be eligible to become a nominee in more than one OPC. At the time of incorporation of OPC, the sole member of OPC is required to appoint another person as his nominee and his name shall have to be mentioned in the Memorandum of Association of the OPC.

The nominee so appointed shall become the MEMBER IN THE FOLLOWING SITUATION:

a. in the event of the sole member’s death; or

b. in the event of the sole member becoming incapacitated to contract;

A nominee so appointed is required to give his written consent for the same which is required to be filed with the ROC at the time of incorporation of the OPC along with its MoA and AoA. A nominee has the right to withdraw his consent if he so desires.

As per Rule 4 of the Companies (Incorporation) Rules 2014:

1. Memorandum of OPC should mention the name of nominee by the OPC subscriber with the Registrar in

Form No. INC.2.

2. The consent of his nominee is to filed in Form No. INC.3

3. OPC to file with the Registrar within 30 days any change in membership:

4. Form No INC.4 is to be filed for the intimation of such cessation and Nomination.

FOLLOWING PERSON CANNOT BE MEMBER OF OPC:

CA.B.Durga PrasadNellore



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1. Minor (as per Rule 3(4) of the Companies (Incorporation) Rules 2014). A minor cannot even hold share with beneficial interest.

2. Foreign Citizen3. Non Resident4. A person incapacitated to contract5. Persons other than a Natural Person i.e. living human being

NUMBER OF DIRECTORS:OPC can have one or more Directors on its board. As per the provisions of Sec 149 a OPC can have a maximum of 15 directors. It can, however appoint more than 15 directors after passing a special resolution.

OPC is required to file Annual Return:

As per the proviso to section 92(1) of the Companies Act 2013, the annual return in case of OPC shall be signed by the company secretary or where there is no company secretary, by the director of the OPC.

Financial Statements:

a. The financial statements of a one person company can be signed by one director alone.b. Cash Flow Statement is not a mandatory part of financial statements for a One Person Company. [Section 2(40)]c. Board’s report to be annexed to financial statements may only contain explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report.d. OPC should file a copy of the financial statements duly adopted by its member, along with all the documents which are required to be attached to such financial statements, within one hundred eighty days from the closure of the financial year.

Annual General Meeting:As per section 96(1) of the Companies Act 2013, the provision relating to holding of AGM is not mandatory for a OPC.

BOARD MEETING:- Atleast one Board Meeting must be held in each half of the calender year and the gap between the two meetings should not be less than ninety days.

- For the purposes of holding Board Meetings, in case of a one person Company which has only one director, it shall be sufficient compliance if all resolutions required to be passed by such a Company at a Board meeting, are entered in the minutes book, signed and dated by the member and such date shall be deemed to be the date of the Board Meeting for all the purposes under this Act.

Cessation of OPC status:

As per Rule 6(1) of the Companies (Incorporation) Rules 2014, OPC shall cease to be entitled to continue as a OPC if:

1. Its paid up capital exceeds Rs.50 lacs; or

2. Its average annual turnover during the relevant period i.e. immediately preceding 3 consecutive financial years exceeds Rs.2 Crores

3. Intimation for increase in threshold limit has to be filed in Form INC 5.

Conversion of OPC into public or private company

As per Rule 6(2) of the Companies (Incorporation) Rules 2014, OPC is mandatorily required to be converted itself



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into either a private or a public company. Such conversion shall happen within 6 months from the:

1. date of increase of its paid up capital as mentioned in Rule 6(1), i.e. exceeding Rs.50 lacs; or2. last day of the relevant period during which its average annual turnover exceeds Rs.2 Crores.3. Application for conversion has to be made in Form INC 6.

As per Rule 6(2), (3) and (6) of the Companies (Incorporation) Rules 2014, OPC should ensure that the conversion shall happen in accordance with the provisions of Section 18 of the Companies Act, 2013 which provides for neces-sary alteration in memorandum and articles, read with section 122 of the Act. The other requirements of minimum capital, minimum number of directors and subscribers as the case may be need to be complied with at the time of any such conversion by OPC.

Conversion of Private Companies into OPC:

A private company can be converted into a OPC provided:1. it is not a Section 8 (with charitable objects) company2. its paid up capital is equal to or less than Rs.50 lacs3. its average annual turnover is equal to or less than Rs.2 crores in the relevant period4. it obtains a NOC from members and ceditors5. it passes a special resolution in its general meeting for such conversion and the same is filed with the Registrar within 30 days in form MGT 14

Provisions not applicable to OPC:As per Section 122, the following provisions shall not apply to a One Person Company:Section 98 – Power of Tribunal to call meetings of membersSection 100 – Calling of extra ordinary general meetingSection 101 – Notice of meetingSection 102 – Statement to be annexed with noticeSection 103 – Quorum for meetingsSection 104 – Chairman of meetingsSection 105 – ProxiesSection 106 – Restriction on voting rightsSection 107 – Voting by show of handsSection 108 – Voting through electronic meansSection 109 – Demand pollSection 110 – Postal BallotSection 111 – Circulation of members’ resolution.

Contracts by One Person Company

If OPC limited by shares or by guarantee enters into a contract with the sole member of the company, who is also the director of the company and where the contract is not in writing, it should be ensured that the terms of the contract or offer are contained in a memorandum or are recorded in the minutes of the first meeting of the Board of Directors of the company held next after entering into contract. The said provision is not applicable in case the contract is in writing and where the contract entered is by the company in the ordinary course of its business.



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The company should inform the Registrar about every contract entered into by the company and recorded in the minutes of the meeting of its Board of Directors within a period of fifteen days of the date of approval by the Board of Directors

Opportunities to small Enterprenuers:

Small entrepreneurs can carry on their business in form of OPC with status of separate legal entity. The concept is good for Entrepreneurs with new ideas and new ventures trying to explore the corporate world with minimum compliances and maximum benefits as exemptions. Various small and medium enterprises, doing business as sole proprietors, might enter into the corporate domain through OPC. The unorganized sector of the economy will find an outlet to show their entrepreneurial expertise. So the small entrepreneurs enjoy the benefit of OPC and can hence boost the economy of our country.

DIRECT TAXESPARTNERS AREN’T LIABLE TO PAY TAX ON INCOME WHICH IS EXEMPT IN HANDS OF FIRM

CBDT CLARIFIESSECTION 10(2A) OF THE INCOME-TAX ACT, 1961 - FIRM - SHARE OF PROFITS TO PARTNER OF FIRM - CLARIFICA-TION ON INTERPRETATION OF PROVISIONS OF SECTION 10(2A) IN CASES WHERE INCOME OF FIRM IS EXEMPT

CIRCULAR NO. 8/2014 [F.NO.173/99/2013-ITA-I], DATED 31-3-2014

A reference has been received in the Board in connection with the interpretation of provisions of section 10(2A) of the Income tax Act, 1961 (‘Act’) seeking clarification as to what will be the amount exempt in the hands of the partners of a partnership firm in cases where the firm has claimed exemption/deduction under Chapter III or VI A of tire Act.

2. The matter has been examined. Sub section (2A) of section 10 was inserted by the Finance Act, 1992 w.e.f. 1-4-1993 due to a change in the scheme of taxation of partnership firms. Since assessment year 1993-94, a firm is assessed as such and is liable to pay tax on its total income. A partner is not liable to tax once again on his share in the said total income.

3. It is clarified that ‘total income’ of the firm for sub section (2A) of section 10 of the Act, as interpreted contextu-ally, includes income which is exempt or deductible under various provisions of the Act. It is, therefore, further clari-fied that the income of a firm is to be taxed in the hands of the firm only and the same can under no circumstances be taxed in the hands of its partners. Accordingly, the entire profit credited to the partners’ accounts in the firm would be exempt from tax in the hands of such partners, even if the income chargeable to tax becomes NIL in the hands of the firm on account of any exemption or deduction as per the provisions of the Act.

4. This may be brought to the notice of all concerned.

Nellore Branch of SIRC of ICAI Organises one day Residential Programme at Penchalakona on 27th April 2014.Programme starts 6-30 am and Concluds at 7-00 pmDarshan of Sri Lakshmi Narayanaswamy Temple at Krishnareddy Palli.Darshan at PenchalakonaCPE Lecture Meeting on Forensic Accounting and Reecent Changes in Service Tax Law.Entertainment programs for ladies and childrenRequest to Register on or before 25th April (Friday) 2014.For Imformation contact : CA. K. Kiran Kumar. CA. A.V. Seshaiah Cell : 988535479 9989599206.

CPE Credit 3Hours

Delegate Fee : Rs. 700/- per head whichincludes transportation, breakfast, lunch.



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INDIRECT TAXESSERVICE TAX

PARLIAMENT COMPETENT TO IMPOSE SERVICE TAX ON RESTAURANTS AND HOTELS - SINGLE JUDGE KERALA HC ORDER CANNOT BE ACCEPTED: BOMBAY HC

BY this Writ Petition under Article 226 of the Constitution of India, the Petitioners are claiming a writ, order or direction declaring clause (zzzzv) of Section 65(105) of the Finance Act, 2011 as ultravires the Constitution of India, null, void and of no legal affect.

Clause (zzzzv) reads –

(zzzzv) to any person, by a restaurant, by whatever name called, having the facility of air-conditioning in any part of the establishment, at any time during the financial year, which has licence to serve alcoholic beverages, in relation to serving of food or beverage, including alcoholic beverages or both, in its premises;

It is inter alia the submission of the petitioner that the tax which is sought to be imposed on services in the present case is nothing but a tax on the sale or purchase of goods.

The High Court observed -

++ Article 366(29A)(f) is inserted by the Constitution (Forty-sixth Amendment) Act, 1982 so as to take care of the continuing controversy, namely, that while taxing sale or purchase of goods the State Legislature cannot impose a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration.

That the controversy was on account of the following judgments of the Supreme Court –

++ In the case of Associated Hotels of India Limited (2002-TIOL-65-SC-CT) where it was concluded that -

“17. The transaction between a hotelier and a visitor to his hotel is thus one essentially of service in the performance of which and as part of the amenities incidental to that service, the hotelier serves meals at stated hours. The Rev-enue, therefore, was not entitled to split up the transaction into two parts, one of service and the other of sale of food stuffs and to split up also the bill charged by the hotelier as consisting of charges for lodging and charges for food stuffs served to him with a view to bring the latter under the Act.”

++ In the case of M/s Northern India Caterers (India) Limited v/s Lt. Governor of Delhi, (1980) 2 SCC 167, the Supreme Court held that when meals were served to casual visitors in the restaurant operated by the Assessee in its hotel, the service was for satisfaction of a human need and did not constitute a sale of food.

Relying upon these decisions and the amendment made the petitioner submitted that each of the aspects which go into sale or purchase of goods has thus been included so that the State can impose a tax envisaged by Entry 54 of List II and, therefore, a separate tax on service cannot be imposed, levied, assessed or recovered by the Parliament.

The High Court expressed its inability to agree to the above and observed -

++ Each of these judgments of the Supreme Court must be seen in the context of the challenge raised and argued before it. The challenge was to several State Acts and particularly levying, assessing and recovering sales tax on the food and meals served in a restaurant. The argument was that this is a service and not a sale of goods and particularly food items or drink. It is in that context and when the Supreme Court rendered the decisions so as not to empower the States to impose such a sales tax, that the Parliament clarified that the food or drink may have



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been served in the restaurant or hotel, but it is nothing but a sale of goods within the meaning of the Sales Tax Act. Therefore, it will not be possible for the hoteliers or restaurants to say and urge that they do not sell goods, but only provide services.

++ The Parliament, therefore, inserted an inclusive definition in the Constitution vide Article 366(29A) which reads thus:

“(f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made.”

++ This inclusive definition was inserted so as not to leave any room for argument that a tax on sale or purchase of goods does not include a tax on the supply of goods which may be food or any other article for human consumption or any drink (whether or not intoxicating), by way of or as part of any service or in any other manner whatsoever. It is for that limited purpose and to put an end to the controversy, which was dealt with by the Supreme Court and to get over the basis of its judgments or to alter them that the Parliament stepped in.

++ We do not see as to how a service tax can be said to be a component of tax on sale or purchase of goods envis-aged by Entry 54 of List II (State List). To say that the Parliament was denuded of its competence to legislate and impose a tax on service provided by an airconditioned restaurant serving food and drink, under its taxing power, is to do violence to the plain language of the Constitutional provisions, Articles and Entries.

++ Once we take care of the argument and hold that the very foundation has no basis in law, then, there is no dif-ficulty in holding that the Parliament is fully competent to impose a tax on service.

++ It is, therefore, clear that a sales tax is on sale of goods while selling, supply thereof is contemplated and covered by Article 366(29A) (f) of the Constitution of India. It does not mean that the service during the course of or while supplying the goods is taxed, but the tax is and remains on sale of goods. That is why the State Legislatures were held to be empowered to impose, levy, assess and recover a tax on sale of articles of food and drink which have been termed as “goods”.

++ In this context if one refers to amendment to the Finance Act and ChapterV of the Finance Act, 1994, it would be clear that what is imposed is a service tax. Therefore, a service must be to any person by the Restaurant and which can be called by any name such as hotel, lunch home, dining or lunch & dinner home having the facility of airconditioning in any part and that is termed as an establishment. The restaurant and which has licence to serve food or alcoholic beverages or both in its premises, is rendering a taxable service. When it renders such service that service can be taxed in terms of the Finance Act.

++ A service tax or tax on a service, which is made taxable by the Finance Act is thus a completely distinct tax. It should not be and cannot be confused leave alone equated with a tax on sale or purchase of goods.

++ A “service” has been defined to mean the action of serving, helping or benefiting. It is also understood as some-thing provided, usually for a fee that may not be classed as manufacturing or production in any form. That is how professional services are identified and known.



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++ By no stretch of imagination, therefore, a service tax can be the same as a tax on sale and purchase of goods. By the nature of the tax, which has been imposed, so also, bearing in mind the wording of the entries in the Seventh Schedule to the Constitution of India, it would be evident that a service tax is not a tax on supply of goods.

++ What is contemplated by Article 366(29A)(f) is the supply, by way of or as part of any service or in any other man-ner whatsoever of goods. Thus, the goods which may be food or any other article for human consumption or any drink (whether or not intoxicating), being supplied in the course of their sale, does not mean that the tax imposed on them is a service tax. The tax is on the sale or purchase of goods. That includes the supply of goods. The service during such course is not taxed. The sales tax, therefore, cannot be termed as a service tax. The food or article for consumption of human beings or any drink is sold. Therefore, the State Legislature can levy the sales tax thereon. The Parliament levies the service tax when a service is rendered by a restaurant to any person and noted as above.

++ The Parliament cannot be said to have transgressed into leave alone encroached upon the power of the State Legislature to impose a tax on sale or purchase of goods vide Entry 54 of List II. The taxing power of the Parliament and traceable to Article 248 of the Constitution of India r/w Entry 97 of List I of the Seventh Schedule enables it to impose a service tax. To enable it to so impose, the term “taxable service” has been defined. The definition of the term “taxable service” makes the nature of the tax clear and precise.

Amongst the plethora of case laws cited by the petitioner is also the Kerala High Court decision Kerala Classified Hotels and Resorts Association v/s Union of India 2013-TIOL-533-HC-Kerala-ST .

The High Court held that the analysis of the Single Judge of Kerala High Court in the cited case cannot be accepted. The High Court observed –

The learned Single Judge of Kerala High Court beyond referring to three Supreme Court judgments, namely, As-sociated Hotels of India Ltd. (supra), Northern India Caterers Limited (supra) and K.Damodarasamy Naidu (supra), neither observes or holds that the tax in question is covered by the State List (Entry 54). A categoric finding in that regard is necessary. The analysis of the learned Single Judge and of the Constitutional definition, with respect, can-not be accepted. The attempt by the learned Single Judge to get over the judgments of the Honourable Supreme Court relied upon by the learned Additional Solicitor General, does not commend to us. The learned Single Judge has not underscored and noted the distinction, with respect, referred by us in detail. We are, therefore, unable to agree with the view of the l earned Single Judge of Kerala High Court.

Nonetheless the High Court held that the reliance placed by the ASG on decision of the Supreme Court in Tamil Nadu KalyanaMandapam (2004-TIOL-36-SC-ST) is well founded.

The Writ Petition was accordingly dismissed.

Source: taxindiaonline



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Nellore BranchICAI Bhawan, NH-5, Near Toll Plaza,Venkatachalam, NELLORE (A.P.)Tel: (0861) 2164355, 8500084499Email: [email protected]: www.nellore-icai.org

For Advertisments & InformationCA. V.M.V. SubbaraoCell : 93902 21100Email : [email protected]

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NELLORE CHARTERED ACCOUNTANT - Nellore Branch of SIRC of ICAI · 2015-11-02 · “Making way for Bigger Horizons” Volume 1 / Issue 02 April 2014 11 Members requested to contribute