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1^st May, 2001

Dear User, 

We are once again with you with our Newsletter for May 2001.  As usual, in this newsletter, we have incorporated latest judgements, circulars etc received by us in the previous month.

At this site we have added three important judgements, If you want to read full text of the any of the following judgements. You may click against the relevant judgement.

1. Whether nominee appointed by the deceased is the Owner Vishin N. Khanchandani & Anr vs. Vidya Lachmandas Khanchandani ( 246 ITR 306 SC )
2. Whether provisions of Service Tax are applicable to Chartered Acountants and Architects. Writ petition dismissed by Bombay High Court All India Federation of Tax Practitioner & Others vs. Union of India ( Writ Petition No. 142 of 1999 )
3. Co-Owner having defined shares transferring immovable property - value of each co-owner less than thresh-hold limit. Provisions - Chapter XX-C of the Income Tax Act, 1961 applicable Appropriate Authority vs. Varshaben Bharatbhai Shah & Others ( 248 ITR 342 SC )

or

You can also visit our section on the Latest Judgements to read the full text of these judgements.

Lok Sabha has passed Union Budget 2001 with modifications. Readers are already aware about the original proposals. In this newsletter we have incorporated fresh / modified proposals for your information.

We have covered many subjects in this newsletter. You may select only those subjects in which you are interested by clicking against the relevant subject given below : -

Union Budget - Modified Proposals
Income Tax Law
Corporate Law
Securities and Exchange Board of India (SEBI)
Chartered Accountants Act
Foreign Exchange (Reserve Bank of India)
Other Laws

Please give your comments to newsletter@laws4india.com. If you are not interested in our news letter. Kindly send us an email to enable us to remove your name from the mailing list.

Thanking you,

Union Budget - Fresh / Modified Proposals

The Finance Bill was passed in Lok Sabha by a voice vote on Wednesday 25.4.2001.

Some of the amendments are as below :-

1. The standard deduction limit is raised to Rs 30,000 from Rs 25,000 for salaried tax payers earning up to Rs 1.5 lakh per year. For those with incomes between Rs 1.5 lakh and Rs 3 lakh, the standard deduction limit has been raised from Rs 20,000 to Rs 25,000. The deduction on income above Rs 3 lakh remains untouched.
   
2. Protection was extended to domestic telecom manufacturers by reducing the Customs duty on all components, except populated printed circuit boards, to 5 per cent. The Budget had seen the reduction in Customs duty on telecom equipment imports from 25 per cent to 15 per cent, leading to protest by industry.
   
3. The reduction in duty on the components used by domestic manufacturers would restore the duty rate differential between imported and domestic equipment.
   
4. For bank depositors, there was partial relief as the TDS threshold on interest income was hiked from Rs 2,500, as proposed in the Budget, to Rs 5,000. This is, however, still half of the TDS threshold applicable earlier. Simultaneously, incentives to savings under Section 80L of the Income-Tax Act have been extended by raising the limit on deductions of interest income from Rs 9,000 to Rs 12,000.
   
   This relief comes with the caveat that the incremental sum (Rs 3,000) would have to be invested in government securities. This deduction limit was originally Rs 15,000 which was brought down to Rs 9,000 in the Budget.
   
5. The last date for filing of returns by corporates and non-corporates has been fixed at October 31. The Bill had provided that while corporate taxpayers could file their returns up to October 31, the non-corporate taxpayers had to file their audited returns by July 31.
   
6. The Finance Minister announced some relief for exporters, too. While export exemption under 80 HHC would be phased out by 2004-05, the timetable has been changed slightly. Budget 2000-01 had announced that export exemptions under Section 80 HHC would be phased out progressively by 2004-05 by 20 per cent every year.
   
   This meant that 40 per cent of the profits from exports were to be taxed during the current financial, 60 per cent next year, 80 per cent by 2003-04 and 100 per cent by 2004-05.
   
   Instead of that, exporters would now have to pay tax on 30 per cent of their export income this year, 50 per cent in 2002-03, 70 in 2003-04 and 100 per cent in 2004-05.
   
7. The recent stockmarket crisis also left its imprint on the amendments. To facilitate demutualisation and corporatisation of stock exchanges, Mr. Sinha announced the waiver of capital gains on transfer of assets under such an arrangement.
   
   Capital gains would have occurred at two stages, including at the broker’s end when the ownership value of their stockmarket ticket is acquired by the government and when the assets of the private stock exchanges are transferred to the new entity which would managing the exchanges. Sebi had recommended that unless the capital gains is waived on the transfer of assets, demutualisation and corporatisation would not be possible.
   
8. The IT sector received its boost with 32 items -— mostly for semiconductors -— being permitted to be imported at 5 per cent basic duty. Clarifications on transfer pricing are also being issued which would apply to transactions between the head office and its branches.
   
   Such adjustments made in case of one enterprise would also not form the basis of a consequential adjustment in the case of the other enterprise.
   
9. The 55 per cent concessional duty on import of crude palmoil by sick vanaspati units —- only three BIFR units are eligible for this -— is being withdrawn to avoid discrimination

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Income Tax

Amendment to Income Tax Rules

In exercise of the powers conferred by section 295 of the Income Tax Act, 1961, the Central Board of Direct Taxes has made the following rules further to amend the income Rules, 1962: -In the Income-tax Rules, 1962, after rule 7, the following rules shall be inserted, namely:-

"7A Income from the manufacture of rubber

1. Income derived from the sale of centrifuged latex or cenex manufactured from rubber plants grown by the seller in India shall be computed as if it were income derived from business, and thirty-five per cent of such income shall be deemed to be income liable to tax.
2. In computing such income, an allowance shall be made in respect of the cost of planting rubber plants in replacement of plants that have died or become permanently useless in an area already planted, if such area has not previously been abandoned, and for the purpose of determining such cost, no deduction shall be made in respect of the amount of any subsidy which, under the provisions of clause (31) of section 10, is not includible in the total income.

7B. Income from the manufacture of coffee

1. Income derived from the sale of coffee grown and manufactured by the seller in India, with or without mixing of chicory or other flavouring ingredients, shall be computed as if it were income derived from business, and forty per cent of such income shall be deemed to be income liable to tax.
2. In computing such income, an allowance shall be made in respect of the cost of planting coffee plants in replacement of plants that have died or become permanently useless in an area already planted, if such area has not previously been abandoned, and for the purpose of determining such cost, no deduction shall be made in respect of the amount of any subsidy which, under the provisions of clause (31) of section 10, is not includible in the total income.

( Vide Notification No. 45 /2001 [153 / 87 / 2000 -TPL] dated 28-2-2001)

Tax Deduction at Source

A number of representations have been received by the Board pointing out the problems being faced by the assesses in getting due credit for tax deducted at source under the provisions of section 199 of the Income Tax Act, 1961 in respect of tax deducted in terms of section 194-I of the Act. Such problems in getting due credit for tax deducted at source mainly relate to the following situations :-

1. Tax is deducted at source under the provisions of section 194 I of the Act on advance rent pertaining to more than one financial year to be adjusted against future rent.
2. Subsequent to the deduction of tax at source on advance rent pertaining to one or more financial years:

1. Rent agreement gets terminated / cancelled resulting into refund of balance amount of advance rent to the tenant.
2. Rented property is transferred by way of sale, lease, gift, etc., with tenant in occupation or otherwise resulting into refund of balance amount of advance rent to the transferee or the tenant, as the case may be.

In the situation mentioned at (a) in para above, difficulty in getting due credit for tax deducted arises because the entire amount of advance rent does not accrue to the assessee as income in one financial year since the income from the property is taxed on the basis of annual letting value whereas the tax is deducted at source on the entire amount of advance rent pertaining to more than one financial year. Therefore, credit for entire amount of tax deducted at source is not allowed in terms of section 199 of the Act because the credit is to be given for the assessment year for which such income is assessable. Thus, the assessees do not get credit for the entire amount of tax deducted at source in the first assessment year in which part of the advance rent is offered as rental income, on the basis of the certificate furnished under section 203 of the act. Further there is a difficulty in claiming the credit in the remaining assessment years to which balance of advance rent related in the absence of the certificate for tax deducted at source for these years

In the situation as at para (b) mentioned above, difficulty in getting due credit for tax deducted at source arises because rental income ceases to accrue to the assessee on account of termination / cancellation of rent agreement of transfer of the rented property subsequent to the deduction of tax at source on advance rent pertaining to one or more financial years. The credit is not given in the hands of the assessee in whose names certificate for tax deduction at source stands because there is no relatable rental income and further credit for tax is not allowed to any person other than the person in whose name certificate for tax deducted at source has been issued. Thus in such cases, even though tax has been deducted at source and paid to the Government, due credit for such tax deducted is not allowed.

The matter has been considered by the board and it has been decided that credit for tax deducted at source shall be allowed to the assessee on whose behalf such tax has been deducted and to whom certificate for tax deducted at source has been furnished under section 203 of the act as under:

1. In such cases as referred to in (a) above where advance rent is spread over more than one financial year and tax is deducted thereon , credit shall be allowed in the same proportion in which such income is offered for taxation for different assessment years based on the single certificate furnished for tax so deducted on the entire advance rent.
2. In respect of the situation as at (b) credit for the entire balance of tax deducted at source, which has not been given credit so far, shall be allowed in the assessment year relevant to the financial year during which the rent agreement gets terminated / cancelled or rented property is transferred and balance of advance rent is refunded to the transferee or the tenant ,as the case may be.

( Vide Circular No. 5/2001 dated 2-3-2001 )

Search and Seizure

The petitioner had filed a petition on basis of newspaper reports. It was held that in absence of authentic or reliable material to substantiate the petitioner’s plea that authorities were not acting as required under section132 merely on basis of certain newspaper reports, petition could not be entertained and, hence petition had to be dismissed - Namit Verma v. Union of India 115 Taxman 153 (Del)

Co-operative Society - Sec. 80 P (2)(e)

The assessee co-operative society, working as sales agent for import and distribution of fertilizers in Jammu and Kashmir, claimed deduction under section 80 P (2) (e). It received composite payment from the state government for various services rendered, including storage of fertilizers in its godowns. It was held that if assessee could satisfy the income tax authorities that any part of the income received by it was attributable to activity of storage, that part of income would be eligible for deduction under section 80P(2) (e) and it was for the assessee to work out such bifurcation and restrict its claim accordingly – CIT v/s J. & K. Co-operative Supply & Marketing 115 Taxman 165 (J&K)

Kar Vivad Samadhan Scheme

The Commissioner (Appeals) affirmed assessment order under certain heads and remanded certain issues to assessing officer for fresh disposal. The assessee filed appeal to the Tribunal against order affirming assessment. While the appeal was pending, assessee filed declaration under KVSS. The declaration was accepted and disposed of under section 90(1). Thereafter, the assessing officer issued notice under section 142(1) to decide issues remanded to him by the Commissioner (Appeals). It was held that it could not be said that the entire matter got settled when declaration filed by assessee was accepted by the designated authority and as such notice under section 142(1) after order of designated authority was within jurisdiction - Killick Nixson Ltd. v. DCIT 115 Taxman 239 (Bom)

Capital Gains

The assessee-HUF sold certain shares out of a lot which had been thrown into common hotchpot by its co-parceners. It was held that cost of acquisition of those shares could not be taken as "nil" as held by ITO. It was also held that cost of acquisition could not be taken at their market value on date on which these were thrown into the common hotchpot, as held by Tribunal. It was further held that cost of acquisition in the hands of the individual concerned who threw shares into common hotchpot would be cost of acquisition in hands of assessee - HUF. It was also held that the Tribunal having not addressed itself to the question as to what amount was paid by the individuals who threw the shares into the common hotchpot for their acquisition, should undertake that exercise while dealing with matter under section 260 – CIT v/s N.N. Mohan & Sons 115 Taxman 252 (Del)

Transfer

Pursuant to a decree of the High Court, the deceased’s estate was handed over to the assessee and her mother having equal shares as per WILL. The assessee’s mother, by WILL, allotted her half share to the assessee’s four sons. Thus the assessee had one-half share while each of her four sons had one-eighth share in joint properties and assessments were made in the status of AOP in respect of joint properties till assessment year 1972-73. By virtue of a deed of partition on 9-11-72, some properties, including Ajmeri Gate property, were allotted to four sons, while some properties were allotted to the assessee. The sons contributed their individual shares in Ajmeri Gate property as capital in a partnership constituted by them. While the revenue’s case all through was that assessee and her four sons were co-owners, ITO treated the deed of 9-11-72 as a deed of settlement. The ITO held that there was transfer of assessee’s one-half share to her sons by the deed of 9-11-72 and, therefore, section 52(2) was attracted. The Tribunal held that deed as a partition deed by which properties earlier held as joint tenants-in-common by parties to the deed were partitioned between assessee on one hand and her four sons, on the other. It was held that by partition, each co-sharer got a separate allotment by virtue of his antecedent title as co-sharer and, therefore, in the instant case, there was no transfer involved within meaning of section 2(47) – CIT v/s Smt Angira Devi – 115 Taxman 257 (Del)

Applicability of Chapter XX-C

The purchase of immovable property by the Central Government was the subject matter of transfer. It was held that such transfer must be seen in real light and not in a technical manner. The co-owners entered into a single agreement of transfer of an immovable property so that though total agreement value exceeded the amount specified under Chapter XX-C, the value to each co-owner was less than the amount specified under chapter XX-C. The share of each co-owner was definite. It was held that provisions for pre-emptive purchase would apply where apparent consideration of property as a whole exceeds specified limit under chapter XX-C - Appropriate Authority and another v/s Smt Varshaben Bharatbhai Shah and others 248 ITR 342 (SC). You ca click here for the full text of the judgement.

Attachment of Stock Exchange Card

On death or default of the member of a stock exchange, the Income Tax Department took recourse to garnishee proceedings for recovery of tax dues and sent an attachment notice to the stock exchange for the membership rights. The right of nomination vested in the stock exchange absolutely. The legal representatives of the member had no right to nominate unless his dues to the exchange were cleared. It was held that stock exchange card was not a right or property. It cannot be subject to attachment. Since the member had no dues to the stock exchange, garnishee order could not be issued - Stock Exchange, Ahmedabad v/s ACIT 248 ITR 209 (SC)

Valuation of Property on dissolution

The assessee-firm, engaged in selling of flats, was dissolved and the partners, by way of family arrangement, agreed to settle their mutual claims by adopting the book value of the flat used as office. The Assessing Officer adopted the market value of the said flat on the basis of the last flat sold plus anticipated increase thereon by date of dissolution and made addition to the assessee’s income. It was held that the assessing officer would not be bound by valuation made of assets under agreement even if he concluded that same did not represent fair value. It was also held that in view of the fact that both appellate authority and Tribunal recorded concurrent finding of fact that the assessee-firm was a family concern and the flat in question was used as office before and after dissolution and the same was not to be sold and that valuation made by the Assessing Officer was arbitrary and accordingly, deleted addition to income. Held no interference with Tribunal’s decision was called for – CIT v/s Associated Builders 115 Taxman 19 ( Bom )

Book Profit u/s 115 J

It was held that under explanation (iii) to section 115J (IA), profit to be taken into consideration is profit as per books of account and not as calculated under the Income Tax Act – CIT v/s G.T.N. Textiles Limited 115 Taxman 55 ( Ker )

Exemption for Educational Institutions

It was held that in section 10(22), words "existing solely for educational purposes and not for purposes of profit" qualify not only expression "other educational institutions" but also "university". It was also held that section 10(22) applies to all universities, whether situated in India or foreign country, subject to fulfillment of other requirements of the section. It was also held that for purposes of claiming exemption under section 10(22), source of income is irrelevant. It was further held that the label "university press" is not sufficient to establish that the assessee is engaged in an educational activity. It was also held that a university or other educational institution need not be constituted, set up or established in India to claim benefit of exemption but imparting of education or providing any educational facilities in India is a sine qua non. It was held that the absence of the word "India" in section 10(22) is inconsequential and it has to be read into section 10(22) - Oxford University Press v/s CIT 115 Taxman 69 (SC)

Cash Credits

The ITO accepted increase in the assessee’s subscribed capital. The Commissioner, in section 263 proceedings, set aside the ITO’s order holding that there was a device used by the assessee for converting black money by issuing shares and ITO failed to conduct detailed investigation into genuineness of the shareholders. The Tribunal reversed the Commissioner’s order and rejected the reference application. The High Court held that no question of law arose out of the Tribunal’s order. It was held that the Tribunal came to a conclusion on facts and as such no interference was called for - CIT v/s Steller Investment Limited 115 Taxman 99 (SC)

Agricultural Income

It was held that the Parliament has the power to define with agricultural income in the Income Tax Act and as such amendment to clause (1A) of section 2 to effect that income arising from transfer of land situated in municipal limit would not be agricultural income, is good in law - Singhai Rakesh Kumar v/s Union of India 115 Taxman 101 (SC)

Payment for Goodwill

In pursuance of the deed of partnership, legal heirs of the deceased partner of the assessee-firm were paid certain sums out of profits annually towards use of the deceased’s goodwill. Such payments were claimed and allowed as revenue expenditure. Subsequently, under another agreement, those legal heirs were to be paid a fixed sum, payable in three installments, in consideration of their relinquishing right and title in goodwill. It was held that acquisition of goodwill of business is acquisition of capital asset and therefore, its purchase price is capital expenditure, irrespective of whether it is paid in lump sum at one time or in installments distributed over a definite period. It was also held that on facts of the instant case, payment was for acquisition of goodwill and, as such, amount paid to legal heirs for relinquishing right and title in goodwill was capital in nature - Mehra Khanna & Co. v/s CIT 115 Taxman 117 ( Del )

Charitable Trust

It was held that sec. 13(1)(bb) would apply to a public charitable trust for relief of poor, education or medical relief that carried on business, regardless of whether or not that business is held by trust in trust, i.e. as a part of its corpus in respect of A.Y.s 1979-80 to 1983-84. It was also held that exemption under section 11 would be available to a trust that carries on business only if business is carried on "in the course of actual carrying out of the primary purpose of the trust". The assessee–trust carried on business of running a newspaper. That business, though held by the assessee as a part of its corpus, did not directly accomplish, wholly or in part the assessee-trust’s objects of relief of poor and education. It was held that since it could not be said that the assessee-trust carried on business in the course of actual accomplishment of the trust’s objects of education and relief of poor, the assessee-trust was disentitled to exemption under section 11 in view of section 13(1)(bb). It was also held that with effect from 1-4-92, consequent to substitution of sub-section (4A), all that is required for business income of a trust or institution to be exempt is that business should be incidental to attainment of objectives of trust or institution and therefore, from assessment year 1992-93 onwards, the assessee would be entitled to benefit of section11 – ACIT v/s Thanthi Trust 115 Taxman 126 (SC)

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Corporate Law

Change of Registered Office of the Company

In exercise of powers conferred by sub-section (1) of section 642 read with sub-section (2) of section 17A of the Companies Act, 1956, the Central Government has made the following rules further to amend the Companies (Central Government’s) General Rules and Forms, 1956. These changes have come into force on the date of publication in the Official Gazette.

After rule 4BB, the following rule shall be inserted :

"4BBA. Change of registered office within a state

1. The company seeking confirmation from the Regional Director for shifting its registered office from the jurisdiction of one Registrar of Companies to the jurisdiction of another Registrar of Companies within the same state shall make an application in Form 1AD to the Regional Director along with a fee of Rs.5000.
2. The Regional Director shall pass an order in writing confirming the change after giving necessary opportunity of being heard to the parties within four weeks from the date of receipt of application.
3. The company shall file a copy of the confirmation order passed by the Regional Director with the concerned Registrar of Companies within two months from the date of the confirmation order and the Registrar shall make necessary changes in the register and transfer the records to the Registrar of Companies under whose jurisdiction the company has shifted its Registered Office".

A new Form 1AD has been prescribed for this purpose.

( Notification No. GSR 51(E), dated 31-1-2001 issued by the Department of Company affairs, Ministry of Law, Justice and Company Affairs )

Company Law Settlement Scheme

The Department of Company Affairs has directed the Registrar of Companies to prosecute those companies which did not respond to the Company Law Settlement Scheme and Fast Track Exit Scheme. The Government had introduced a fast track section 560 scheme which expired on December 25, 2000.

Additional Principal Bench at Chennai by Company Law Board

In exercise of the powers conferred by sub-section (4B) of section 10E of the Companies Act, 1956 read with regulation 4 of the Company Law Board Regulations, 1991, the Company Law Board has constituted with immediate effect an Additional Principal Bench at Chennai for the purpose of exercising and discharging its powers and functions in the manner specified below :

Matter falling under sections 235,237,247 and 250 and matters falling under Chapter VI of Part VI of the Companies Act, 1956 and all other matters incidental thereto, shall be dealt with by Additional Principal Bench at Chennai consisting of not less than two members from amongst the following provided that ordinarily the Chairman or the Vice-Chairman shall be member of the Bench :

1. Shri Justice A.K. Banerji, Chairman
2. Shri S. Balasubramanian, Vice-Chairman
3. Shri C.R. Mehta, Member
4. Shri C.R. Das, Member
5. Shri K.K. Balu, Member

In terms of regulation 4(4) of the Company Law Board Regulations, 1991, interlocutory and miscellaneous applications may be heard and decided by a bench consisting of a single member.

The jurisdiction of the Additional Principal Bench, Chennai shall be the state of Andhra Pradesh, Karnataka, Kerala, Tamil Nadu and Union Territories of Pondicherry and Lakshadweep Islands. The Bench may sit at such places in the Southern Region as may be convenient in exercise of its powers and functions.

( Vide Order F.No.10/65/91-CLB dated 18-1-2001 issued by the Company Law Board )

Appointment of and / or payment of remuneration to managerial personnel

Circular F.No. 12-7-2000-CL-VII dated 27-12-2000, issued by Department of company affairs

Cases are coming to the Department of Company Affairs wherein public companies or private companies which are subsidiaries of public companies are submitting applications to the Department of Company Affairs for approval of the Central Government for appointment of and / or payment of remuneration to managerial personnel in excess of the limits prescribed in sections 269,310 311 and 387 and in terms of section 198(4) read with schedule XIII to the Companies Act 1956, which provides scales of remuneration (salary, dearness allowance, perquisites and any other allowance).

The scales of monthly remuneration prescribed in Para 1 of Section II of Part II of Schedule XIII have since been revised vide notification GSR No.215(E) dated 2^nd March, 2000. The revised scales are as under:

Where a particular company intends to pay a remuneration higher than that prescribed in the Companies Act read with the necessary schedule, an application may be made to the Department of Company Affairs giving in detail the justification along with a copy of the resolution passed by the Board / AGM as the case may be.

In order to reduce subjectivity and to bring in an element of greater transparency and objectivity, the company which submits an application for a remuneration which is higher than the prescribed limit must take into consideration the following factors (detailed note on each as applicable be furnished) and give a detailed justification. The application for increase in the remuneration should not be submitted in a mechanical way:

1. Reasons for loss / inadequacy of profit
2. Steps taken to improve the performance of the company
3. Financial health/performance of the company as may be reflected by effective capital, net worth, turnover, profit/loss, dividend declared, etc
4. Nature of industry – high technology area, core sector, infrastructure field, etc
5. Export performance and bet foreign exchange earned
6. Performance of the company in socio-economic activities
7. General performance of industry in the relevant sector
8. Foreign investment and foreign collaborations
9. Expansion / diversification / modernization / technology up-gradation
10. Qualification, experience, period of association and contribution of the proposed appointee
11. Requirement of personal skill and challenges ahead
12. Past remuneration of the proposed appointee
13. Creativity / innovativeness of the proposed appointee / company
14. Recognition / award obtained by the proposed appointee / company
15. The amount of remuneration proposed to be paid including salary, allowance, perquisites and whether it will have any effect on the overall financial health of the company
16. Any other factors relevant to the proposal, which the company may like to bring to the notice of the Government justifying their proposal.

Deficiencies generally observed in respect of the applications on the above subject are listed below :-

1. Application fee is not paid in proper manner. Sometimes the demand draft is not for the full amount of application fee and sometimes the demand draft is not payable in favour of Pay & Accounts Officer, Department of Company Affairs, New Delhi as prescribed in rule 2 of he companies (Fees for application) rules, 19061 as amended vide GSR No.501(E) dated 6^th July 1999.
2. Application is not filled in properly and completely in respect of all the columns. If a column is left blank, the letters NA should be filled up implying "Not Applicable".
3. Applications are submitted after remuneration in excess of schedule XIII has already been paid to the managerial person.
4. Certified copies of newspaper in English and in local newspaper in local language as required in terms of section 640B of the Companies Act are not furnished.
5. Certified copies of director’s report and audited accounts of the company for each of the last 5 financial years of the company are not enclosed
6. In case of foreign collaboration, certified copy of the FIPB approval letter(s) is not furnished.
7. Remuneration drawn by the proposed appointee from the applicant company or from any other company during the past 3 years prior to the proposed date of appointment is not indicated in terms of monetary package.
8. Requirements of section 316(2)/(4) of the Companies Act are not followed where the proposal is for appointment as managerial person in two or more than two companies and resolution is not passed by all the companies concerned.
9. Estimated project cost and source of finance together with projected equity, position regarding growth in effective capital, projection of turnover and net profit as computed under section 198 of the Companies Act, to the next five years is not given as required in column 4 of the application (Forms 25A and 26) in respect of new companies.
10. Figure of turnover, net profit as computed under section 198 of the companies act, as projected / un-audited for the year in which the application is made, is not given even if the application is made towards the end of financial year / after the end of financial year, un-audited figures of working results are not furnished.
11. In case of proposal for mid-term increase for remaining period, it is not indicated how the requirements of section 269(2) of the Companies Act read with Parts I and II of Schedule XIII was met at the time of appointment of Managing Director / Whole-time director / Manager and how the mid-term increase in remuneration is justified in terms of working results of the company.
12. Papers / Documents attached with the application are not authenticated and seal of the company is not put on each paper.

Attention is also invited to Explanation to section 198 of the Companies Act, which states that ‘Remuneration’ includes any expenditure incurred by the company giving benefit to its directors / managers on items mentioned at (a) to (d) of the said Explanation, i.e.

1. in providing any rent free accommodation or any other benefit or amenity in respect of accommodation free of charge to any of the persons specified in sub-section (1);
2. in providing any other benefit or amenity free of charge or at a concessional rate to any of the persons aforesaid;
3. in respect of any obligation or service which but for such expenditure by the company would have been incurred by any of the persons aforesaid; and
4. to effect any insurance on the life or to provide any person, annuity or gratuity for any of the person aforesaid or his spouse or child.

The term "salary" under the provisions of the Income Tax Act, 1961 has been defined to include all payments received by a person in employment and includes wages, fees, commission, perquisites profits in lieu of or in addition to salary, advance salary, person, gratuity, encashment of leave, etc. Certain items of perquisites are, however, excluded to the extent permissible for the purpose of payment of income-tax as per the Central Board of Direct Taxes circular No.781 (F,No.275/192/99-IT(B) dated 5^th November, 1999. It has been observed that companies sometimes indicate the value of perks stating that the same is as per the Income Tax Act. This is not the correct position and value of perquisites included in the total remuneration under section 198 of the companies act is to be indicated as per actual cost. Income tax liability as per CBDT circular is to be indicated separately.

The applicant companies should, therefore, hereafter also ensure that the prescribed forms are completely and properly filled in regard to all the details so that the applications submitted are complete and proper at the time of submission itself. This will result in quicker and faster disposal. In this regard, a check list is also enclosed to facilitate proper filing of the applications. It is hoped that with filing of complete application disposal would be quicker.

Check list

Please ensure before submitting the application that the following information / documents have been furnished:

1. Proper application fee in the manner provided vide GSR No.501(E) dated 6^th July, 1999
2. Copies of public notices in English and in local newspaper in local language
3. Monetary value of each of the perquisites and allowances and total remuneration package (in the form of statement annexed) valued as per actual cost
4. Appropriate and clear resolution in support of the proposal
5. In case of appointment as managerial personnel in two or more companies the manner in which compliance of section 316(2) (4) has been made
6. Reasons for loss / inadequacy of profit, steps taken to improve the financial performance and future projections
7. Full and proper justification for proposed appointment/remuneration
8. The manner in which compliance of section 269(2) of the companies act was met at the time of appointment/reappointment of the managerial person where mid-term increase in remuneration is proposed
9. Application for condonation of delay under section 637B of the companies act along with justification and requisite application fee where the application was not submitted within 90 days of date of appointment / reappointment
10. Monetary value of total remuneration in rupees or rupees equivalent drawn by the proposed appointee during last three years from the applicant company or any other company
11. Copy of the directors report and the audited accounts of the company for each of the last five financial years of the company
12. Each column of the application is filled up
13. Copies of FIPB approvals, in case of foreign collaboration / investment
14. Each page of application and documents attached is authenticated under the seal of the applicant company

Statement of remuneration proposed

In rupees / rupees equivalent per month

1. Salary

• Basic salary
• Bonus
• Gratuity (non-taxable)
• Contribution to provident fund (non-taxable)
• Contribution to superannuation fund / annuity fund (non-taxable)

2. Allowance

• Entertainment allowance
• Special allowance

3. Perquisites

• Accommodation
• Gas / electricity / water expenses
• Children education
• Transport and driver
• Leave travel concession (non-taxable)
• Medical reimbursement (non-taxable)
• Insurance
• Personal effect
• Medical (non-taxable)

• Servant, maid, cook
• Security
• Telephone
• Club fee

Total

Note 1. Any other item(s) which the company wants to indicate, may be added in the appropriate group above.

Note 2. As per Explanation given under section 198 of the Companies Act, the salary and perquisites included in the total remuneration should be valued as per actual cost.

Note 3. Income tax liability be indicated on a separate sheet to be attached.

Statement of income-tax liability with reference to remuneration proposal

Time limit for filing information memorandum

In exercise of the powers conferred by the clauses (a) and (b) of sub-section (1) of section 642 read with sub-section (3) of section 60A of the Companies Act, 1956, the Central Government hereby makes the following rules further to amend the Companies (Central Government’s) General Rules and Forms, 1956. These rules have come into force on the date of their publication in the Official Gazette. "Rule 4CCCA. For the purposes of sub-section (3) of section 60A, prescribed time limit for filling information memorandum between the first offer of securities, previous offer of securities and the succeeding offer of securities shall be three months."

( Notification No. GSR 96 (E) dated 14.2.2001 issued by the Department of Company Affairs, Ministry of Law, Justice and Company Affairs )

Secretarial Audit and Compliance by Companies

In exercise of the powers conferred by sub-section (1) of section 642 read with proviso to sub-section 383A of the Companies Act, 1956, the Central Government has made the following rules to come into force on the date of their publication in the Official Gazette. Every company not required to employ a whole-time secretary and having a paid-up share capital of ten lakh rupees or more shall obtain a certificate from a secretary in whole-time practice. Such a company must file with the Registrar a certificate in the form or as near thereto as circumstances admit in respect of each financial year, within thirty days from the date on which its annual general meeting was held. Where the annual general meeting of such company for any year has not been held, there must be filed with the Registrar such certificate within thirty days from the latest day on or before which that meeting should have been held in accordance with the provisions of the Companies Act. Every secretary in whole-time practice for the purpose of issue of certificate referred to above shall have right to access at all times to the register, books, papers, documents and records of the company whether kept in pursuance of the Act or any other Act or otherwise and whether kept at the registered office of the company or elsewhere and shall be entitled to require from the officers or agents of the company, such information and explanations as the secretary in whole-time practice may think necessary for the purpose of such certificate. Every such certificate shall be laid by the company in its annual general meeting.

( Notification NO.GSR 52(E), dated 31-1-2001, issued by the Department of Company Affairs, Ministry of Law, Justice and Company Affairs )

Distinct Corporate Identity

It was held that a company is a distinct legal entity from its shareholders. It was held that corporate legal entity does not mutate or transform itself or undergo a transfer with each change in shareholders. It was further held that if total shareholding of a company is purchased by one person or a group of persons acting in concert, legal consequence would not be that company ceases to exist or undergoes a cataclysmic metamorphosis leading to its complete disappearance. It was also held that where suit is filed against a company and there is change in its ownership and consequently, its name, that would not result in dismissal of suit - Memtec Limited v/s Lunarmech 30 SCL 55 (Del)

Oppression & Mismanagement

The petitioner, holding 12.5 % shares in the company, alleged in a petition under section 397-398 that the second respondent entered into a joint development agreement with the erstwhile owner of a land, utilized company’s funds by debiting amounts to "Bangalore building advance account" of the company and got apartments so constructed out of those funds registered in individual names of the respondents. The petitioners further submitted that they, being minority shareholders, were thus oppressed by the respondents’ conduct, and also that the respondents being guilty of frittering away valuable funds of company, same amounted to a clear case of mismanagement of company. According to the respondents, the entire transaction was in personal name of the second respondent and, this company not being a party, had no rights under the agreement over those apartments. The statutory auditors, deputed with consent of both parties, observed that the entire advance taken from "Bangalore building advance account" had been squared up and adjusted against balances in each of respondent’s credit. It was held that since there was no sale agreement between the erstwhile land owners and the company and the company was not a party to joint development agreement, it would be wrong to hold that the respondents had usurped company’s properties. It was further held that the company had wrongly debited advances, given for construction, under "building advance account" instead of debiting the same in personal accounts of the respondents or setting the same against credit entries standing in their names as and when payments were made. It was held that with a view to ensure that the respondents did not derive any undue benefit by advances paid by the company, respondents should pay interest of 15 % to the company on all such advances, while being entitled to the same rate of interest on credit balance standing in their names - V G. Coelho v/s Flavours & Essences (P) Limited 30 SCL 64 (CLB Chennai)

Oppression and Mismanagement

The Petitioner, holding 10 per cent shares in respondent-company, filed petition under sections 397 / 398 / 402 and 403 against respondent-company but also arrayed its 17 subsidiaries as respondents, though he did not hold any shares in any of them except in one. It was held that the petitioner, not being a shareholder in any of subsidiaries (except one), his locus standi to file petition under section 397 / 398 in respect of those subsidiaries being a question of law, had to be decided as a preliminary issue. It was also held that a person who is not a member of a company, would be disentitled to invoke provisions of section 397 / 398 against that company. It was also held that on a strict application of provisions of section 397 and 398, a member of a company who is not a shareholder of its subsidiary company would be disentitled to file petition against subsidiary on basis of his being a member of holding company - Shankar Sundaram v/s Amalgamations Limited 30 SCL 167 (CLB Del )

Joint Petitions u/s 397 and 543

A private company was incorporated with the object of operating a bus transport service. The petitioner’s grandfather ‘D’ had filed a petition under sections 397 and 398 against "R", managing director of the company. While the petition was pending, both "D" and "R" died and the court constituted a new board of directors so as to include one person from each group besides a nominee of the court. D’s shares and R’s shares were transmitted to the petitioners and respondents respectively. "R" was in possession of the branch office’s tenanted premises. The newly constituted board of directors resolved to get possession of tenanted premises from respondent No.1 who claimed to be its tenant and who was running a private shop in those premises. The petitioners, in a petition under sections 541, 542 and 543 read with sections 406 and 402 (f) sought the court’s directions to respondents, inter alia, : (a) to render accounts of company and hand over records, (b) to render accounts of sale of certain buses, (c) to restore tenanted premises of company, and (d) not to use company premises for commercial purposes. It was held that joint petitions under sections 397 / 398 and 543 are not maintainable. It was further held that poser of court under section 543 to assess damages against delinquent directors can be invoked only after a prima facie view is formed in petition under section 397 or 398 holding directors guilty of an act of misfeasance or misconduct. It was also held that invoking provisions of section 543 by a separate application would be possible only after a prima facie view on petitioner’s petition under section 397 or 398 had been formed. It was held that where assets of a company are in possession of someone else who is not supposed to have them, a separate petition is maintainable whereby court can direct such a person to return the company’s assets - Sanjeev Kumar Bhardwaj v/s Ghanshyam Dass30 SCL 228 ( Del )

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Securities and Exchange Board of India (SEBI)

Meeting of Group on Risk Management in Equity Markets on 31-1-2001

Pursuant to the discussions in the meeting of the Group on Risk Management in Equity Markets held on January 31, 2001, the stock exchanges have been advised to implement the following :-

Automated Lending and Borrowing Mechanism, (ALBM)

Vide circular No. SMDRP / POLICY / CIR-31 / 2000, dated July 27, 2000, an option was given to the pure securities borrower of withdrawal of shares from the clearing house / clearing corporation, subject to margins. This option is being withdrawn w.e.f. the next settlement following date of this circular and the shares borrowed under this facility shall be retained with the clearing corporation or clearing house of the exchange.

System for Gross Margining at the sub-broker level

With effect from February 28, 2001, the sub-brokers will mandatorily provide the client code number while acting on behalf of clients at the order entry level and the exchanges will ensure the same.

Continuous Net Settlement (CNS)

Vide circular No. SMDRP / POLICY / CIR –51 / 2000, dated November 6, 2000, it was provided that the facilities of CNS would be provided in 15 scrips mentioned in that circular. It has now been decided that the CNS facility would also be available in voluntary rolling settlement segment of the stock exchanges in all the scrips which are having facility of ALBM / MCFS in those stock exchanges in the account period settlement.

Scrips eligibility for ALBM / MCF

For the eligibility of the scripts for the facility of ALBM / MCFS, the exchanges shall henceforth ensure that the scrip satisfies all the three parameters mentioned below :

A. Market Capitalization

The scripts must have a minimum market capitalization of Rs.200 crores. The scrips which are currently in the ALBM of MCFS in any of the exchanges would, however, continue to be eligible for this facility even though the market capitalization is now less than Rs.200 crores. However, in subsequent review, these scrips would have to qualify on criteria other than market capitalization

B. Liquidity

For the purpose of liquidity the scripts shall satisfy either all the following four parameters or the parameter of impact cost

(i) Liquidity measured as under :

1. Trading Volume-average trading volume in the scrip in the last six months should be among the top 75% of the above universe meeting the market capitalization criterion.
2. Number of Trades – average number of trades should be among the top 75% of the trading above universe meeting market capitalization criterion.
3. Trading Frequency – the scrip should have been traded on al least 75% of the trading days in the last 6 months.
4. Velocity of Trades – the script should have been among the top 75% in terms of number of shares traded as a percentage of the total number of shares traded in the q equity capital of the company for at least six months.

Or

Liquidity based on Impact Cost : Impact cost must be less than 2.5%.

C. Floating Stock

The minimum floating stock criteria should be applied as under :

1. at least 25% of the company’s equity capital must be held by non-promoters,
2. in case, the non-promoter holding is less than 25% the market capitalization of non-promoter holding of the company’s capital should be at least Rs.100 crores subject to a minimum non-promoter holding of 10% of paid-up capital.

Non-promoter holding shall be as provided in our circular No. SMDRP / Policy / Cir-7 / 2001 dated February 1, 2001. The list of scripts so eligible would be reviewed every six months.

Mark to Market Margin in Rolling Settlement

Vide circular No. SMDRP / Policy / CIR.53 / 2000 dated November 15, 2000, it was provided that the mark to market margin in rolling settlement would be applicable as in the account period settlement system, It has now been decided that the mark-to-market profits and losses across the settlements for which the positions are unsettled would be permitted to be netted off.

Collection of Margins

All the margins prescribed by SEBI shall be collected on T+1 basis

Bank Guarantee towards Base Minimum Capital (BMC)

The stock exchanges may take their own decisions regarding [tenure of bank guarantees deposited by members towards BMC.

( Vide SMDRP /Policy / CIR-10 / 2001, dated 13-2-2001, issued by Secondary Market Department, SEBI )

Secondary Market and Corporate Governance

SEBI had convened a meeting of all the stock exchanges on January 17, 2001 to discuss various issues relating to secondary market including the compliance of the provisions of corporate governance. On the basis of discussion in the meeting, the stock exchanges have been directed to implement the following:

A. Setting up a separate monitoring cell

The stock exchange shall set up a separate monitoring cell with identified personnel to monitor the compliance with the provisions of the corporate governance. This cell shall obtain the quarterly compliance report from the companies who are scheduled in the first phase and shall submit a consolidated compliance report to SEBI within 30 days of the end of the quarter, commencing from the quarter ending March, 2001. The companies who are scheduled in the first phase of clause 49 of the Listing Agreement will be required to submit a quarterly compliance report to the stock exchanges within 15 days from the end of the quarter. The report shall be submitted either by the Compliance Officer or the Chief Executive Officer of the company after obtaining due approvals in the prescribed format.

B. Listing of initial Public Offerings

As per the schedule of implementation of corporate governance specified by SEBI Circular No. SMDRP / Policy / Cir-10 / 2000, dated February 21, 2000, all the entities seeking listing for the first time are required to comply with the provisions of corporate governance at the time of listing. The stock exchanges shall ensure that these provisions have been complied with before granting any new listing. For this purpose, it will be satisfactory compliance, if these companies have set up the Board and constituted the Committees such as Audit Committee, Shareholders / Investors Grievance Committee’s etc before seeking listing. A reasonable time to comply with these conditions may be granted only where the stock exchange is satisfied that genuine legal issue exists which will delay such compliance. In such cases, while granting listing, the stock exchanges shall obtain an undertaking from the company. In case of the companies failing to comply with this requirement without any genuine reason, the application money shall be kept in an escrow account till the conditions are complied with.

( SMDRP / Policy / CIR-03 / 2001 dated 22-1-2001 )

Disclosure of financial information by Institutions pertaining to Securities market operations

With a view to enhance the transparency in the functioning of the institutions in the securities market, namely stock exchanges, clearing corporations and the subsidiaries of the stock exchanges which partake the character of public institutions, it has been decided that these institutions should disclose financial information pertaining to their operations to the public. Accordingly, the stock exchanges, clearing corporations and subsidiaries of the stock exchanges shall post their annual accounts on their respective web-sites. In addition, these entities shall also make available a copy of their annual accounts to investors, intermediaries and general public at a reasonable cost. Stock exchanges, clearing corporations and subsidiaries of stock exchanges are advised to take immediate steps to comply with this directive.

( SMDRP / Policy / Cir-04 / 2001 dated 22-1-2001 )

Foreign Institutional Investors

In exercise of the powers conferred by section 30 (1) of the Securities and Exchange Board of India Act, 1992, SEBI has made the following amendments to the SEBI (Foreign Institutional Investors) Regulations, 1995 from the date of publication in the Official Gazette :-

1. In regulation 9, after sub-regulation (1), the following provisos shall be inserted :

"Provided that a Foreign Institutional Investor who does not desire to renew its registration or has failed to make an application for renewal under sub-regulation (1) shall at the time of expiry of registration, obtain a specific permission from the Board, for dis-investing the securities held by it on its own account or on behalf of its sub-account(s) within a stipulated time period, subject to such terms and conditions as may be specified by the Board :

Provided further that where a Foreign Institutional Investor does not desire to renew registration of any of its sub-account(s) or has failed to make an application for renewal of registration of sub-account(s), the Foreign Institutional Investor shall at the time of expiry of registration, obtain, a specific permission from the Board for dis-investing the securities held by it on behalf of sub-account(s) within a stipulated time period, subject to such terms and conditions as may be specified by the Board"

2. In regulation 15, in sub-regulation (1), after clause (d), the following clause shall be inserted :

"(e) commercial paper

3. In regulation 15, in sub-regulation (2), in the explanation to the proviso, the words, ‘commercial paper’, shall be inserted, after the words, "government securities" and before the words, "and treasury bills"
4. In regulation 15,, in sub-regulation (3) in clause ( c ), in the first proviso, the words, "commercial paper", shall be inserted, after the words, "government securities" and before the words "including treasury bills".

( Vide Notification No. SO 128(E) dated 13-2-2001, issued by SEBI )

Registration Fees on Brokers

It was held that SEBI has the necessary authority under section 11(2)(k) to collect cumulative fees both for purpose of regulating activities contemplated under section 11 as also for purpose of registration under section 12(2) of the SEBI Act. It was also held that, therefore, it is impermissible to attack levy of fee on brokers for registration on ground that same is not authorized by law. It was further held that there is nothing wrong in classifying brokers as a separate class for the subject of levy based on their annual turnover because volume of transaction of a broker has a direct nexus with objects to be achieved. It was held that since the fee is not being levied on turnover as such, but fee is being levied on brokers, making their annual turnover as a measure of levy, which is a fee for regulating activities of securities market and for registration of brokers and other intermediaries in the said market, it is futile to contend that such levy would be either turnover tax or tax on income. It was also held that a trading member of NSE is a member of NSE though with limited right and as such liable to pay registration fee - B.S.E. Brokers Forum v/s SEBI – 30 SCL 31 (SC)

Onus of Proof of Market Manipulation

On receiving complaints regarding the unusual price movement of the scrip of the company, SEBI directed the exchange to freeze proceeds received by it from auction / closing out of transactions. On investigation, SEBI found that there was price rigging and market manipulation in trading of the scrip. SEBI, being of the view that the auction price did not reflect the true market price, directed the exchange to release money to all offerers to the extent of standard price of securities and impound only difference between standard price and auction price. According to SEBI’s directions, the appellant’s short position for 5800 shares for which appellant could not give delivery, was closed out at Rs.118 as per bye-laws of the stock exchange. However in another settlement, the appellant had an outstanding purchase of 5100 shares which was also closed at the rate of Rs.118. But the appellant was given credit at standard rate of Rs.97 instead of at the then closed out price of Rs.118. On appeal, SEBI held that the appellant being a manipulator was not entitled to close out price and rejected the appellant’s claim. It was held that in a market where share price is rigged, even unsuspecting investors will also get involved and it may be incorrect to generalize that all those who had transacted in shares of a company during a particular period were manipulators. It was also held that it was for SEBI to show that the appellant was involved in rigging and only if it was found that the appellant was a party to market rigging or manipulation, order of SEBI would stand confirmed. In, the absence of any evidence to show that the appellant was in any way connected with manipulation of market, impugned order rejecting his claim was held to be untenable and the matter was remanded for further investigation - Sanman Consultants v/s SEBI 30 SCL 46 ( (SAT-Mum)

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Chartered Accountants Act

Payment of Stipend

An amendment was inserted in regulation 48 providing for payment of a monthly stipend to article clerks by every principal engaging them at rates depending on location of their normal place of work. It was held that the provision was intended to enable article clerks to meet a portion of their pocket expenses and to remunerate them for services rendered as such articled clerks and object also was to enable bright students to take up training in accountancy. It was also held that the said stipend was related to expenses incurred by articled clerks as also services rendered by them. It was held that obligation on the chartered accountant to pay stipend by statute has to be performed and hence it would be incorrect to term it as discriminatory and violative of Article 14 of the Constitution. It was also held that fixation of stipend based on population is not discriminatory and violative of Article 14 on the ground that it would affect financial capacity of the chartered accountant - R.Sunder v/s Institute of Chartered Accountants of India 30 SCL 240 ( Mad )

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Foreign Exchange (Reserve Bank of India)

Foreign currency accounts by a person resident in India

RBI has amended the Foreign Exchange Management (Foreign currency accounts by a person resident in India) Regulations, 2000. In regulation 9, for the proviso, the following proviso shall be substituted, namely :

"Provided that the EEFC Account referred to in regulation 4 shall be opened, held or maintained in the form of a non-interest bearing current account only."

In the schedule to the said regulations, in paragraph (1) for the words "up to 35 %" and "upto 25 per cent", the words "upto 70 per cent" and "upto 50 per cent", shall be substituted.

Foreign Currency Accounts by a Person Resident in India

RBI has amended the Foreign Exchange Management (Foreign currency accounts by a person resident in India) Regulations, 2000 with immediate effect. In Regulation 7, after sub-regulation (7) the following sub-regulation shall be added, namely :

"(8) A national of a foreign state resident in India being an employee of a foreign company on deputation to the office / branch / subsidiary / joint venture in India of such foreign company may open, hold and maintain a foreign currency account with a bank outside India and received the salary payable to him for the services rendered to the office / branch / subsidiary / joint venture in India of such foreign company, by credit to such account :

Provided that

1. The amount to be credited to such account shall not exceed 75 per cent of the salary accrued to or received by such person from the foreign company;
2. The remaining salary shall be paid in rupees in India.
3. Income-tax chargeable under the Income Tax Act, 1961 is paid on the entire salary as accrued in India."

( Vide Notification No. GSR 103 (E) [ FEMA 34 / 2001 – RB ] dated 22.1.2001 issued by the Exchange Control Department, RBI )

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Other Laws

Over-riding Effect of Special Court Act

The Appellant had taken loans from a party which was subsequently declared as a notified person. It was held that since the appellant-debtor did not deposit the loan amount with the custodian despite notices to effect that higher interest would be charged, the Special Court was justified in awarding interest @ 21.5 % and 23 % as claimed by custodian notwithstanding contention of the appellant that interest in excess of 18 %, as specified in loan agreement, should not have been awarded by the Special Court. It was further held that the provisions of the Special Court Act have overriding effect over the provisions of SICA and as such declaration of the appellant-debtor as a sick company under SICA would be no bar to recovery proceedings against debtor under Special Court Act - Solidaire India Limited v/s Fairgrowth Financial Services Limited 30 SCL 59 (SC)

Andhra Pradesh Non-Agricultural Lands Assessment Act, 1963

It was held that for purpose of subjecting non-agricultural lands to assessment at the rate specified in the schedule for being used for industrial purposes, there must be a finding as a fact that land in fact in praesenti is used for an industrial purpose. It was also held that it is only land which is actually in use for an industrial purpose that can be assessed to non–agricultural purposes and there is no warrant to interpret the word "used" to mean "land meant to be used" or "set apart for being used" - Federation of Andhra Pradesh Chambers of Commerce and Industry v/s State of Andhra Pradesh 115 Taxman 143 (SC)

Circulars under Central Excise

It was held that circulars issued by the Board are binding on the department, which is precluded from challenging correctness of the said circulars even on ground of the same being inconsistent with the statutory position. It was also held that whatever action the department has to take, the same will have to be consistent with the circular which is in force at the relevant time. It was also held that where impugned show-cause and demand notices were ab initio bad, being contrary to existing circulars at the relevant time, they would be liable to be quashed - Paper Products Limited v/s Commissioner of Central Exise 115 Taxman 147 (SC)

The Supreme Court has held that the Tenant using part of residential premises for his official work can not be evicted by the Land lord under East Punjab Urban Rent Restriction Act.

A Division Bench of Justice Mahapatra and Justice Shivraj Patil has held as under :

" In these days computers, internet and other facilities are kept at home for convenience and use. In residential buildings where persons alive with family members, a room may be used for the purpose of doing home work relating to office files or study of children of allied or ancially use in a building leased for residential purpose" it said.

It is not possible to say that use of one room for doing home work or study itself will change the user of the building and that the classification and character of the building is changed" said Justice Patil, writing the judgement for the bench. The court said use of a room in residential building for personal purpose should be distinguished from use of such a room for business, industry or other commerial activity or as a regular public or professional office.

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