the chamber's journal april 2013

DIRECT TAXES COMMITTEEHalf Day Seminar on Direct Tax Provisions of Finance Bill, 2013 jointly with WIRC

held on 9th March, 2013 at Babasaheb Dahanukar Hall, Fort

CA Kishor Karia chairing the session. Seen from L to R : CA Ketan Vajani, Vice Chairman, CA Gautam Nayak, Faculty, CA Manoj Shah, President, CA Yogesh Thar, Faculty, CA Priti Savla, RCM-WIRC.

CA Gautam Nayak addressing the delegates.

CA Yogesh Thar addressing the

delegates.

INDIRECT TAXES COMMITTEEWorkshop on Finance Bill, 2013 (Indirect Taxes Provisions) jointly with WIRC

held on 9th March, 2013 at Babasaheb Dahanukar Hall, Fort

CA A. R. Krishnan addressing the delegates.

Shri Vipin Jain, Advocate addressing the delegates.

STUDY CIRCLE & STUDY GROUP COMMITTEEStudy Circle Meeting held on 11th March, 2013 on the subject “Finance Bill, 2013”.

CA P. N. Shah chairing the meeting. Seen from L to R : CA Dinesh Shah, Convenor, CA N. C. Hegde, Faculty, CA Manoj Shah, President, CA Haresh Kenia, Chairman, CA Dilip Sanghvi, Vice Chairman.

C N T E N T S

i The Chamber's Journal April 2013 3�

Vol. I No. 7April – 2013

Editorial .................................................................. K. Gopal ...........................................5From the President .................................................................. Manoj Shah.......................................6An Introduction to – Ved and Vedanta.............................................. V. H. Patil ........................................9

1. SPECIAL STORY : The Maharashtra Co-op. Housing Society (As Amended) – Part-I

1. Overview of changed Legislative Scenario for Co-operative Housing Societies ......................................... Ramesh S. Prabhu ...........................17 2. 9th Constitutional Amendment and its impact on Co-operative Societies in Maharashtra ............................... Vinod Sampat .................................43 3. Deemed Conveyance ....................................................... K. K. Ramani ..................................46 4. Settlement of Disputes including Recovery of dues ............. Pankaj Majithia ................................55 5. Members and their Rights and Liabilities ............................ Rajesh Muni ....................................66 6. Transfer, Transmission, Nomination, Gift and Release relating to CHS in the State of Maharashtra ....................... V. R. Ghelani ...................................76 7. Provisions of FEMA & Income-tax Act relevant for Acquisition/Transfer of Immovable Property by/to Non-Residents ................................................................. Natwar Thakrar ...............................80 8. Taxation of Housing Society (Including TDS) ...................... Tushar Doctor .................................89 9. Stamp Duty & Registration Provisions pertaining to Sale & Purchase of Flats .................................................. Manilal Simaria ..............................107 10. Co-operative Housing Society vis-a-vis MVAT & Professional Tax .................................................. C. B. Thakar .................................119 11. Service Tax applicable to Co-operative Housing Society ...... Rajkamal Shah ..............................124 12. Case Laws Index ..................................................................................................................131

2. DIRECT TAXES� �� .................................................................. Ashok Patil, Mandar Vaidya & .........135 Priti Shukla� �� .................................................................. Jitendra Singh & Sameer Dalal .......138� �� ..................................... Sunil K. Jain ..................................143

3. INTERNATIONAL TAXATION� �� ............................................................. Tarunkumar Singhal & Sunil Lala ....146

4. INDIRECT TAXES� �� !��"��#�� ................ Hasmukh Kamdar ..........................155� �� $% �� .................................................................. Nikita Badheka ..............................160� �� '�� !�#�� ........................................ Bharat Shemlani ............................166

5. CORPORATE LAWS� �� "��*�� ...................................................... Janak C. Pandya ............................1696. OTHER LAWS� �� +�;%�� .................................................................. Mayur Nayak, Natwar Thakrar & .....173 Pankaj Bhuta7. BEST OF THE REST .............................................................. Ajay Singh & Suchitra Kamble ........1808. TAX ARTICLES FOR YOUR REFERENCE .............................. Kishor Vanjara ..............................1869. ECONOMY & FINANCE ......................................................... Rajaram Ajgaonkar ........................19910. YOUR QUESTIONS & OUR ANSWERS ................................... V. H. Patil ....................................20211. THE CHAMBER NEWS .......................................................... Hitesh Shah & Paras Savla .............203

ii

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Journal Committee 2012-13

Editor &Editorial

Board 2012-13

Editor K. Gopal

Editorial BoardChairman V. H. PatilMembers

Keshav Bhujle Kishor Vanjara Pradip Kapasi S. N. Inamdar

Subhash ShettyAsst. Editors

Reepal Tralshawala Heetesh Veera

Chairman Yatin Vyavaharkar

��)*+�� Manoj Shah Yatin Desai

ChairmanYatin Vyavaharkar

Vice Chairman Apurva Shah

��)*+�� Manoj Shah Yatin Desai

Convenors Toral Shah Bhadresh Doshi

Past PresidentVipin Batavia)*+�� -��'�'Paras Savla

�("/�5�� 6$�'! Vipul Choksi Ninad Karpe

Members Atul Bheda Bakul Mody Bhavik Shah Dhaval Thakkar Dhiren Dalal Indira Gopal Janak Pandya Ketan Jhaveri Mitesh Kotecha Nikita Badheka Pankaj Majithia Rajkamal Shah Shivratan Singrodia Sonal Desai

Managing Council 2012-13

PresidentManoj Shah

Vice PresidentYatin Desai

Hon. Secretaries Hitesh Shah Paras Savla Treasurer Imm. Past President Avinash Lalwani Parimal Parikh

Members Ajay Singh Apurva Shah Ashit Shah Ashok Sharma Atul Bheda Haresh Kenia Hinesh Doshi Jayant Gokhale K. Gopal Keshav Bhujle Ketan Vajani Kishor Vanjara Ninad Karpe Vijay Bhatt Vipul Choksi Vipul Joshi

Yatin Vyavaharkar

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The Chamber's Journal April 2013 �4

iii

This issue of the Chamber’s Journal reaches you when vacation mood is setting in and most of my friends have made elaborate vacation plans either to get away from the maddening city or to stay home and catch up with family. Benjamin Franklin says house is not a Home unless it contains food and fire for the mind as well as for the body. A more poetic connotation of Home may let it to be open, without being bound by physical location and relate it rather to a mental or emotional state of refuge or comfort. However, in our current real world, it is very difficult to realise the dream to own a house. One finds that a prospective flat owner is treated as a king only till he commits himself by signing an agreement and pays the purchase considerations by availing a housing loan. Subsequent to this event, many unfortunate flat owners find it difficult to even contact the builder who keeps evading all questions stating that the construction work is in its last phase. The flat owner keeps waiting for the day when he would step in to that ‘haven called home’, a finished flat with full amenities in operation, while he continues to honour the installments, to repay the housing loans availed by him. The delay in obtaining possession makes his life miserable. Even if possession is given, often he is informed that the Occupation Certificate cannot be obtained from Local Authorities due to a host of reasons – none of which an ordinary flat owner can relate to or understand and he ends up as an ‘illegal occupant’ of the flat, for which he has paid or is paying the consideration out of his hard earned money. And again, the formation of Co-operative Housing Society is a long drawn process.

In view of the above, it was decided to bring out a comprehensive Special Story on Co-operative Housing Society covering all the related practical aspects. I hope the Special Story in two parts shall help the members to assist their clients. I thank Mr. Vipin Batavia and Mr. Kishor Vanjara in helping the committee in bringing out this Special Story.

I thank all the contributors to this issue for sparing their valuable time for the same Chamber’s Journal.

Wish you all a Happy Vacation.

K. GOPALEditor

The Chamber's Journal April 2013 5�

Editorial

ivThe Chamber's Journal April 2013 �6

From the President

The Chamber’s prestigious journal is going online and the launch is scheduled on 19th April, 2013. As you may be aware, the Chamber’s Journal since 2002 has been digit ised and the Chamber has been releasing softcopies in the form of CDs every year. Last year it came out with a CD having Journal from April 2002 till December 2011. It has been serving good purpose as it saves space in Reader’s office and being in digitised form, it offers nimble search facility. While Chamber could have continued with the CD, it has been thought fit to move with the latest trend of doing away with storage devices and to move the data to ‘cloud’ so as to offer access through net from anywhere. Accordingly, the Journal will also now be available in the e-Journal form and members and subscribers would be in a position to have access from anywhere without having to resort to a physical storage device.

Chamber’s Journal having a concept of Special Story is probably one of its kind professional journal and has been serving the cause of tax profession since last 37 years. The launch of e-Journal therefore is a landmark event and to make this event a memorable one, the Membership & EOP Committee and RRC & Public Relations Committee has organised a Musical Evening for members and their family. Let’s join this event for twin reasons of enjoying fellowship and musical evening on the occasion of Ram Navmi on 19th April, 2013.

7th RRC on International Taxation scheduled in June, 2013 at Bengaluru has now taken concrete shape. It is interesting to observe that many of the faculty shall be presenting for the first time for Chamber. As a new feature, the International Taxation Committee is also introducing ‘Brains Trust’ at the RRC. Brains' Trust is a familiar feature at Direct Taxes RRC and has been found very interesting and useful to delegates. I am quite sure Brains Trust session at the International Tax RRC will also turn out to be interesting and useful. Profiles of the faculties and selection of papers is quite tempting for anyone to resist enrolment and we are expecting encouraging response.

v The Chamber's Journal April 2013 7�

The economic health of India is raising concerns as Current Account Deficit (CAD) has achieved an alarmingly high peak. As per latest data it stood at 6.7% of GDP. The Government has been looking at ways to curb demand for unproductive imports such as gold to check the rising CAD. Though it raised customs duty on gold imports, demand has not moderated much. Added concern arises from the fact that CAD was financed through capital flows, mainly on account of surge in foreign portfolio investments. Portfolio investments by its very nature are hot money and can put a dent in forex position if FIIs start reversing the investments. The deterioration is all-round, with software exports – India’s mainstay when it comes to US dollar earnings – remaining flat at USD 18.9 billion in the quarter from a year ago. Remittances from workers and Indians overseas have also fallen as a weakening currency and lower interest rates deterred fresh inflows. It seems, the state of policy paralysis have gripped India again, from a temporary phase of hope when Mr. P. Chidambaram took over as FM. Though we as Indians would be feeling the lull phase, the world seems to be yet bullish on India as one of the emerging economies.

Chamber received an invitation from Director of Vigilance and has been informed to bring on surface cases of corrupt practices. The Chamber has also sent e-mails to all its members to create awareness. However, still more needs to be done on this front. As an option member may directly approach the Director Vigilance office at Room No. 337 in Aayakar Bhavan, Churchgate, Mumbai and brief him with grievances and instances of corrupt practices. Probably such means are not widely known to assessees and tax practitioners and hence I thought of creating awareness through this column. Let’s take a few bold steps against this unjust treatment and break the circle of tolerance.

Wish you a happy season of summer holidays.

MANOJ SHAHPresident

vi

The Chamber of Tax Consultants

Vision Statement

The Chamber of Tax Consultants (The Chamber) shall be a powerhouse of knowledge in the field of fiscal laws in the global economy.

The Chamber shall contribute to the development of law and the profession through research, analysis and dissemination of knowledge.

The Chamber shall be a voice which is heard and recognised by all Government and Regulatory agencies through effective representations.

The Chamber shall be pre–eminent in laying down and upholding, among the professionals, the tradition of excellence in service, principled conduct and social responsibility.


VED AND VEDANTA


V. H. Patil, Advocate

Ved and Vedanta

vii

BHAKTI-YOGAAfter dealing with Karma Yoga, the yoga of realisation through doing right actions, let us now turn to Bhakti Yoga.

Bhakti-Yoga – The Way of DevotionArjuna uvaca

`Arjuna said:’

Evam satatyukta ye bhaktastvam paryupasate;

Ye capyaksaramavyaktam tesam ke yogavittamah – 12.1

`Those devotees who, ever-steadfast, thus worship You, and those also who worship the Imperishable, the Unmanifested–which of them is better versed in Yoga?’

Sri bhagavan wacha-

`The Blessed Lord said:’

Mayyavesya mano ye mam nitya yukta upasate;

Sraddhaya parayopetah te me yuktatama matah – 12.2

�� eversteadfast, and endowed with supreme `Sraddha �� Yoga.’

Ye tu aksaram anirdesyam avyaktam paryupasate;

Sarvatragam acintyam ca kutastham acalam dhruvam – 12.3

`But, those who worship the Imperishable, the Indefinable, the Unmanifested, the Omnipresent, the Unthinkable, the Unchangeable, the Immovable, the Eternal.’

Sanniyamyendriyagramam Saratra Samabuddhayah;

Te prapnuvanti mameva sarvabhutahite ratah – 12.4

`Having subded all the senses, even-minded everywhere, engaged in the welfare of all beings-��

Kleso dhikatarah tesam avyaktasakta cetasam;

Avyakta hi gatirduhkham dehavadbhih avapyate – 12.5

`Greater is their trouble whose minds are set on the Unmanifested; for the goal of the Unmanifested is very hard to be reached by the embodied.’

Ye tu sarvani karmani mayi sannyasya matparah;

nanyenaiva yogena mam dhyayanta upasate – 12.6

��!�� "!�� #�� $� ��

VED AND VEDANTA


viii

Tesamaham samuddharta mrtyusamsarasagarat’

Bhavami na cirat partha mayyavesita cetasam – 12.7

*+�� /�� /�become ere long, O son of Partha, the Saviour out of the ocean of the mortal Samsara.’

Mayyeva mana adhatsva mayi buddhim nivesaya;

Nivasisyasi mayyeva ata urdhvam na samsayah – 12.8

�4 ��!�� 5��!�� 5��!��!�� hereafter.’

Atha cittam Samadhatum na saknosi mayi sthiram;

Abhyasa Yogena tato mam icchaptum dhananjaya – 12.9

*/��!��!�� !�� $��<��=�Dhananjaya (Arjuna).’

Abhyase pe asamarthosi matkarma parmo bhava;

Madartham api karmani kurvan siddhim avapsyasi – 12.10

‘If you are unable to practise abhyasa also, be intent �� <��>�� <��!��

Athaitadapi asakto’si kartum madyogam asritah;

Sarva karma phala tyagam tatah kuru yatatmavan – 12.11

`If you are unable to do even this, then taking refuge ��! �� $controlled.’

Sreyo hi jnanam abhyasat jnanat dhyanam visisyate;

Dhyanat karma phala tyagah tyagat santiranantaram – 12.12

'Better indeed is knowledge than (blind) abhyasa; meditation (with knowledge) is more

esteemed than (mere) knowledge; better than meditation, is the renunciation of the fruit of actions; peace immediately follows renunciation.’

Bhakti-Yoga is a yoga of realising God through constant love for God.

��<� ��#��<� � �� @�� his Bhakti sutras `Bhakti is an intense love to God, when a man gets it, he loves all, hates none, he becomes satisfied forever. This love cannot be reduced to any earthly benefit “Bhakti is greater than karma, greater than jnyana yoga, because these are intended to an object in view, while Bhakti is its own end”.

However there is really no much difference between knowledge (Jnana) and Bhakti as some people think. At the end they converge and meet at the same point of realisation of God.

In a way Bhakti-Yoga, among all the yogas, is the simplest of realisation, because love is very common and as such it is rather easy to turn towards God.

However its, great disadvantage is in its way of its practice may degenerate in its lower form, many times degenerates into hideous fanatism and the followers of one religion may think that theirs is the only religion which leads to realisation and others will not lead to realisation and they accordingly hate other religions, and persecute those who are not following their religion, when really all these religions are different ways of realisation.

@�� <� $Q��Bhagavad Gita, let us take the resume of Chapter 1 to 11 before coming to chapter 12.

Chapters 1 to 5 deal with the philosophy of life (Jnana) and the ways of implementing the philosophy of life and the ways of realisation of philosophy by way of Jnana yoga and Karma yoga.

These Chapters dealt with three basic principles underlying the philosophy of life (i) Paramatma is all pervasive, all pervading both inside and outside universe (ii) Atma is Anadi and Ananta, it is always there, it was there, it is there, and it will be there, for eternity (iii) The object and purpose of life and

VED AND VEDANTA


ix

living is to realise one’s self and to merge with Paramatma.

SAGUNA AND NIRGUNA BHAKTIIn fact, the principle of Bhakti has been introduced �� with the science of life. They deal with Karma (in the form of performance of swadharma), Vikarma (the mental sadhan, the inner complementary process which helps that Karma) and the final ��<��!�� Z!��and burns to ashes all the Karma. With this, the �� /��sense, it is the principle of bhakti that has been � ��!�� !��one-pointedness of mind and discusses the means therefore and the need for it. The eleventh chapter presents the complete and holistic vision Let us now see how we have made the long journey from one-pointedness to this vision.

Beginning was made with one-pointedness of mind. Once this is achieved, one becomes capable of pursuing any study. One-pointedness of mind can be utilised for the study of any subject with good results. But such a study is not the highest goal of the concentration of mind. The study of �� !��the concentration of mind. Concentration of � ��!�� mathematics or any other branch of knowledge, but this is not its true test. Hence it was recommended in the Seventh Chapter that we should concentrate our mind on the feet of ��[�� \��!��continuously, till the moment of death, to be at the feet of the Lord with all the sense organs devoted to Him and the whole being dedicated to His service. All our sense organs must be trained to serve this one purpose (All the sense have become used to devotion; there is nothing else in the mind) – This is what should happen. All the sense should be madly in love of the Lord. Those around us may be wailing or singing hymns, they may be absorbed in weaving webs of desires and passions, or one may be in the company of saintly persons; whatever may be the condition,

the senses should be trained by constant practice in such a way that the thought of the Lord would be in mind at the moment of death. This lesson of constancy has been given in the eighth chapter. To sum up, there is teaching of concentration �� concentration directed to the Lord in the seventh, of the yoga of ceaseless striving in the eighth and that of deduction to the Lord in the ninth chapter. The tenth chapter tells us how to proceed step by step to grasp gradually that the Lord is pervading the entire creation right from an ant to the creation of all beings. The eleventh chapter presents the complete and holistic vision. I call this vision of the cosmic form the yoga of totality. This vision essentially means realizing that the whole world is contained in a grain of sand. This is the complete and total vision. The element of ��<� ��!�� " ��

In the last two shlokas of Chapter 11. The Lord, �� "�<��@ ��<��tells Arjuna, that a Bhakta can reach Him following either of these two paths.

Chapter 12 can be divided into three parts: (i) shlokas 1 to 5 worships of form and formless #��"�<��@ ��<��] �̂�� #��<��_��{|�] ^�� #!��<��shlokas 13 to 20.

I. Form and formless worship}�~!�� !�� the mode of worship. Does one worship God with a form? Or the unmanifest reality without a form? Which of the two is more suitable for approaching God? Better designed for a seeker’s spiritual evolution?

Krsna considers Arjuna to be more devotional. He, therefore, declares worshipping Him as the better approach. But, He follows up His declaration by �� reach God. The devotional need a form, an idol for worship. They lack the capacity to focus their concentration on the unmanifest Ideal without the help of an idol. Whereas, the intellectual, the introvert can concentrate on the all-pervading

VED AND VEDANTA


x

formless reality. Either way, a seeker finally uses single-pointed concentration and mediation to gain enlightenment.

II. Progressive ways to reach GodA spiritual seeker must reach an advanced state of concentration before he can actually mediate and attain Godhood, self-realisation. In deep mediation the mind is set on the self with the intellect supporting it. A seeker maintains this state of single-pointedness before merging with the self. This being the most advanced and ultimate spiritual practice few can directly relate to it. To those less evolved Krsna advises self-purification through constant practice of spiritual disciplines. The practice of these helps you withdraw the mind from the world and concentrate upon the self. If you cannot practice even spiritual disciplines you then surrender all your actions to the Lord. Perform actions for His ��<��@�� !�� /��this also is not possible, keep the goal of realisation in mind while acting in the world. You may satisfy ��!�� !��!�� ! ��of your actions.

The topic’s last verse provides four facets of spiritual practices. Any spiritual practice must be backed by knowledge. A seeker must practise a discipline with �!��!�� !��It then leads him to concentrate and meditate upon the supreme God. He must then mediate without an �� !��/�� !�� the meditator attains the absolute State of peace and bliss.

III. Thirty-five qualities of a bhakta – Devotee of GodThe last topic covers eight verses. It enumerates the �� $��!�� #�� God is not blind faith, mere prayer or routine ritual. ��!�� !�� !�� The Lord declares that those who possess them are ��

@�� \��{|� �� <��}�~!��!��!�� [�� <��"!��<��@ ��!��<��

��[�� !��!�� raised by Arjuna, as He really loves both of them ��!�� !�� directly, tells Arjuna, that out of two Bhaktis the "��!��<� � �� @ ��!��Bhakti is very difficult to start and to end it. Similarly the LORD says that, not only the `Suguna �� !�� @ ��!��<� ��

Then the LORD goes to describe the various Gunas of real Bhakta.

Advesta sarva bhutanam maitrah karuna eva ca;

Nirmamo nirahankarah sama duhkha sukhah ksami – 12.13

`He or she who hates no creature, and is friendly and compassionate towards all, who is free from the feelings of “I and mine”, even-minded in pain and pleasure, forbearing’.

Santustah satatam yogi yatatma drdhaniscayah;

Mayyarpita mano budhih yo madbhaktah sa me priya – 12.14

Èver content, steady in meditation, self-controlled, and possessed of firm conviction, with mind and �� !��

Yasmannodvijate loko lokannodvijate ca yah;

Harsamarsa bhayodvegaih mukto yah sa ca me priyah – 12.15

Òne by whom the world is not agitated, and who also cannot be agitated by the word, who is freed �� ~�� !��

Anapeksah sucirdaksa udasino gatavyathah;

Sarvarambha paritagi yo mabhaktah sa me priyah – 12.16

Òne who is free from dependence, who is pure, prompt, unconcerned, untroubled, renouncing every

VED AND VEDANTA


xi

!��< �� !��

Yon a hrsyati na dvsti na socati na kamksati;

Subhasubha paritagi bhaktiman yah sa me priyah – 12.17

`One who neither rejoices, nor hates, nor grieves, nor desires, renouncing good and evil, full of �� !��

Samah satrau ca mitre ca tatha manapamanayoh;

Sitosna sukhaduhkesu samah sangavivarjitah – 12.18

`One who is the same to friend and foe, and also in honour and dishonour, who is the same in heat and cold, and in pleasure and pain, who is free from attachment.’

Tulyaninda stuirmauni santusto yena kenacit;

Aniketah sthiramatih bhaktiman me priyo narah – 12.19

��!�� !�� silent, content with anything, homeless, steady-minded, full of devotion, such a person is dear to ��

Ye tu dharmyamrtam idam yathoktam paryupasate;

Sraddadhana matparama bhaktaste ativa me priyah – 12.20

'And they who follow this Immortal dharma (socially stabilising and atman-revealing), as described above, endeared with `sraddha’ and �� "!��#��

FOUR TYPES OF BHAKTAS It is Bhakti with knowledge which the Gita demands from the disciple and it regards all others forms of devotion as good in themselves but still inferior; they may do well by the way, but they are not the thing at which it aims in the soul’s culmination. Among those who have put away the

sin of the rajasic egoism and are moving towards the Divine, the Gita distinguishes between four kinds of Bhaktas. There are those who turn to him as a refuge from sorrow and suffering in the world, arta. There are those who seek him as the giver of good in the world, artharthi. There are those who come to him in the desire for knowledge, jinasu. And lastly there are those who adore him with knowledge, jnani. All are approved by the Gita, but only on the last does it lay the seal of its complete �� }�� !�� are high and good, udarah sarva evaite, but the ��<� � ��<�� We may say that these forms are successively the Bhakti of the vital emotional and affective nature, that of the practical ad dynamic nature, that of the reasoning intellectual nature, and that of the highest intuitive being which takes up all the rest of the nature into unity with the Divine. Practically, however, the others may be regarded as preparatory movements. For the Gita itself here says that it is �� after possession of the integral knowledge and after working that out in oneself through many lives, attain at the long last to the Transcendent. For the knowledge of the Divine as all things that are is � ��!�� !��mahatma, who is capable of fully so seeing him and of entering into him with his whole being, in every way of his nature, by the wide power of this all-embracing knowledge, sarvavit sarvabhavena.

Still the supreme Godhead does not at all reject these devotees because of their imperfect vision. For the Divine in his supreme transcendent being, unborn, imminuable and superior to all these partial manifestations, cannot be easily known to any living creature. He is self-enveloped in this ��<�� Q��by which he is one with the world and yet beyond it, imminent but hidden, seated in all hearts but �� @��!�� <�� @��!��the Divine, when they are only his works and his powers and his veils. He knows all past and all ��!�!�� !�� knoweth. If then after thus bewildering them with his workings in nature, he were not to meet them

VED AND VEDANTA


xii

in these at all, there would be no divine hope for ��!�� to their nature, as they approach him, he accepts their Bhakti and answers to it with the reply of divine love and compassion. These forms are after all a certain kind of manifestation through which the imperfect human intelligence can touch him, these desires are first means by which our souls turn towards him; nor is any devotion worthless or ineffective, whatever its limitations. It has the one �� devotee with faith desires to worship, I make that �� !��

By the force of that faith in his cult and worship he gets his desire and the spiritual realization for which �� < �� from the Divine, he shall come in the end to seek in the Divine all his good. By depending for his joys �� his joy. By knowing the Divine in his forms and �!�� <�� }��the Transcendent who is the source of all things.

ABSOLUTE SELF-SURRENDER This absolute self-giving, this one-minded surrender is the devotion which the Gita makes the crown of its synthesis. All action and effort are by this devotion turned in to an offering to the supreme and universal Godhead. “Whatever thou doest, ��!��~��!�� whatever thou givest, whatever energy of Tapasya, of the soul’s will or effort thou puttest forth, make �� !��Here the least, the slightest circumstance of life, the most insignificant gift out of oneself or what one has, the smallest action assumes a divine � �� to the Godhead who makes it a means for his possession of the soul and life of the God-lover. The distinctions made by desire and ego then disappear. As there is no straining after the good result of one’s action, no shunning of unhappy result, but all action and result are given up to the Supreme to whom all work and fruit in the world belong for ever, there is no farther bondage. For by an absolute self-giving all egoistgic desire disappears from the heart and there is a perfect union between the Divine and

the individual soul through an inner renunciation of its separate living. All will, all action, all result become that of the Godhead, work divinely through the purified and illumined nature and no longer belong to the limited personal ego. The finite nature thus surrendered becomes a free channel of ��/�� 5��!�� !�� !�� out of the ignorance and the limitation, returns to its oneness with the Eternal. The Divine Eternal is �� 5�� !�� !�� supporter of all creatures. He is the enemy of none and he is the partial lover of none; none has he cast out, none has he eternally condemned, none has he favoured by any despotism of arbitrary caprice; all ��!�� !�� the ignorance. But it is only this perfect adoration that can make this in dwelling of God in man and man in God a conscious thing and an engrossing and perfect union. Love of the Highest and a total self-surrender are the straight and swift ways to this divine oneness.

HUMAN REPRESENTATION OF THE DIVINE IDEAL OF LOVE The teachers of the doctrine of Bhakti have tried to �� !�� }�� /�� But that is unavoidable, it being the only means possible. “The whole universe is to us a writing ��/�� !�� forms of love are graded as follows according to the intensity of the personal affection involved.

1. Santa: Devotion that has risen above ceremonialism and is constant and philosophically oriented but is without that madness of intensely active love, is called Santa. Such Bhakti is calm, peaceful and gentle.

2. Servantship: This comes when the devotee develops the feeling that he is a faithful and eternal servant of God and has attachment to Him appropriate to this relationship.

3. Sakhya or friendship��}��!�� with the Lord, confidence, and a lack of

VED AND VEDANTA


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awe in the face of His divine majesties are �� $��the devotee becomes a playmate of God in His grand cosmic sport. The doctrine of the universe as the Divine lila or sport is as follows: God, the perfect being has no wants, and hence no purpose yet to be achieved can be attributed to His creative activity. So it has to be described as His sport, and the devotee must feel that he is a participant in this Divine sport. He is to feel that God is his eternal playmate, and His creation a sport. “As soon as you give up the serious idea of reality as the characteristic of the changing incidents of the three minutes of life and know it to be but a stage on which we are playing, helping Him to play, at once misery ceases for you….. He is playing when He is building up the earths and suns and moons; He is playing with the human heart, with animals, with plants. We are his chess-men… and we are consciously or unconsciously helping in His play. And Oh, bliss! We are His playmates.”

4. Vatsalya: It means loving God as our child. Here the fear-creating majesty of God is completely forgotten. Also reverence obedience and such restraining influences are abandoned. God becomes a little child needing the devotee’s love and protection. Such a form of love is possible only in societies that accept the idea of divine Incarnation.

5. Madhura or Conjugal: In devotional philosophy, this is considered the highest and the most intense form of devotion. The love between a man and a woman, which is the most powerful form of human love, is utilised in the cultivation of devotion…”God is the only male and the souls are his wives, and the devotee develops a passionate love for Him in the light of this relationship. All the passionate love of the human heart must go to God. He is the Beloved. Whom else can this heart love?... Who I the universe is more ��!��

Often devotees cultivating this form of love utilise the language and form of human love in their descriptions of these diverse sentiments. Those who look at these descriptions from a purely physical point of view misunderstand it; for only when the dominance of the physical sense has abated, can this form of love be practiced or understood. “Fools do not understand this; they never will. They look at it only with the physical eye. They do not understand the mad throes of the spiritual love. How can they? `For one kiss of Thy lips, O Beloved! One who has been kissed by Thee, has his thirst for Thee increasing for ever; all his sorrows vanish, and he �� }�� that kiss of the Beloved, that touch of His lips which makes the Bhakta made, which makes of man a God. To him, who has been blessed by such a kiss, ��@��!�� !��and moons die out, and the universe itself melts away into that infinite ocean of love. That is the perfection of the madness of love….”

To further intensify the sense of attachment to, and dependence on God, Bhaktas take up the symbolism of the illicit love of a girl for her lover. The highest illustration of this we get in the love of the Gopis for Krishna. “Human language cannot describe how Krishna in the groves of Vrinda was madly loved, how at the sound of his voice the ever-blessed Gopis rushed out to meet him forgetting everything, forgetting the world and its ties, its duties, its joys �� =��!��<�� love and at the same time are able to attend to all the vanities of the world. Are you sincere? `Where Rama is, there is no room for any desire, where desire is, there is no room for Rama’; these never ��$�� <�� <��together.”

This type of Prema Bhakti, intense love of God, sets at naught all worldly values. To a critic of such intense #��$��"� ��<� �� the whole world is a lunatic asylum. Some are made after worldly love, some after name, some after fame, some after money, some after salvation and going to heaven. In this big lunatic asylum, I am also mad I am mad after God. If you are mad after money, I am mad after God. You are mad; so am I. I think my madness is after all the best.”

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“We all begin as dualists in the religion of love. God is to us a separate Being. Love comes between in the middle, and man begins to approach God and God also comes nearer and nearer to man…. As father, mother, son, friend, master and love… and the last point of progress is reached when the devotee feels that he has become absolutely merged in the object of his worship.”

UNIVERSAL LOVE AND HOW IT LEADS TO SELF-SURRENDERHow can we love the Vyashti, the particular, without first loving the Samasthi, the universal? God is the Samashti, the generalised and the abstract universal whole; and the universe that we see is the Vyashti, the particularised thing. To love the whole universe is possible only by way of loving the Samashti the universal which is, as it were, the one unity in which are to be found millions and millions of smaller unities. The philosophers of India do not stop at the particulars; they cast a hurried glance at the particulars, and immediately start to find the generalised forms which will include all the particulars. The search after the universal is the one search of Indian philosophy and religion. The Jnani aims at the wholeness of things, at that one absolute and generalised Being, knowing which he knows everything. The Bhakta wishes to realise that one generalised abstract Person, in loving whom he loves the whole universe. The Yogi wishes to have possession of that one generalised form of power, by controlling which he controls this whole universe. The Indian mind, throughout its history, has been directed to this kind of singular search after the universal in everything-in science, in psychology, in love, in philosophy. So the conclusion to which the Bhakta comes is that, if you go on merely loving one person after another, you may go on loving them so for an infinite length of time, without being in the least able to love the world as a whole. When, at last, the central idea is, however, arrived at, that the sum total of the aspirations of all the souls in the universe, whether they be free, or bound, or struggling towards liberation is God, then alone it becomes possible for any one to put forth universal love, God is the Samasthti, and this visible universe is God differentiated and

made manifest. If we love this sum total, we love everything. Loving the world and doing it good will all come easily then; we have to obtain this power �� #��5�� ~�<��do good to the world. “Everything is His and He is my Lover; I love Him,” says the Bhakta. In this way everything becomes sacred to the Bhakta, because all things are His. All are His children, His body, His manifestation. How then may we hurt any one? How then may we not love any one? With the love of God will come, as a sure effect, the love of every one in the universe. The nearer we approach God, the more do we begin to see that all things are in Him. When the soul succeeds in appropriating the bliss of this supreme love, it also begins to see Him in everything. Our heart will thus become an eternal fountain of love. And when we reach even higher states of this love, all the little differences between the things of the world are entirely lost; man is seen no more as man, but only as God; the animal is seen no more as animal, but as God; even the tiger is no more a tiger, but a manifestation of God. Thus, in this intense state of Bhakti, worship is offered to every one, to every life, and to every being “knowing that Hari, the Lord, is in every being, the wise have thus to manifest unswerving love towards all beings.”

As a result of this kind of intense all-absorbing love, comes the feeling of perfect self-surrender, the conviction that nothing that happens is against us, Apratikulya. Then the loving soul is able to say, if pain comes, “Welcome pain.” If misery comes, it will say, “Welcome misery, you are also from the Beloved.” If a serpent comes, it will say, “Welcome serpent.” If death comes, such a Bhakta will welcome it with a smile. “Blessed am I that they all come to me; they are all welcome.” The Bhakta in this state of perfect resignation, arising out of intense love to God and to all that are His, ceases to distinguish between pleasure and pain in so far as they affect him. He does not know what it is to complain of pain or misery; and this kind of uncomplaining resignation to the Will of God, who �� ! � � ��the glory of grand and heroic performances.

�

Special Story – The Maharashtra Co-op. Housing Society


Synopsis During a century of its existence, the Co-operative sector in India has built a network consisting of more than 6 lakh individual co-operative enterprises and over 250 million members. India’s co-operative movement is numerically the largest movement of its kind in the world. With a working capital base of ` 34,00,555 million, its presence is felt in practically all walks of rural life and a coverage spanning almost all villages of the country. Co-operatives play a dominant role in the economic and social life of the nation. In Maharashtra, nearly 2.30 lakh co-operative enterprises are functioning, of which about 80,000 are co-operative housing Societies.

However, the Constitutional guidelines for the regulation of this key sector were, until now, very sketchy. As a result, there was great divergence and disuniformity between the laws governing co-operatives in various states, and the core values of democratic functioning and autonomy were greatly diluted. Towards remedying this, the 97th Constitutional Amendment was passed last year, triggering a cascade of changes in the legislation and governance of this sector.

Massive legislative changes in the Co-operative Sector are happening in the country and in the individual states. These changes affect all kinds

of co-operative enterprises, and also co-operative housing societies. But in this article, let us focus on the changes relating to the co-operative housing sector in Maharashtra.

The changes have happened at three levels:

1) 97th Constitutional Amendment in January 2012

The Constitutional Amendment was passed by the Parliament and is applicable to the whole ��!��/�� !� �� $operative societies, makes it a fundamental right to form co-operatives, gives a directive principle for the State to ensure autonomy and democratic functioning in co-operatives, and mandates that every state must amend its co-operative laws to bring uniformity and sweeping reforms, including electoral reforms, by February 2013. It mandates that access to information and records must be ensured by the Registrars.

2) Amendment of Maharashtra Co-operative Societies (MCS) Act, 1960 vide Ordinance in February, 2013

The MCS Act amendment was passed by Governor is applicable to all the co-operatives in the State of Maharashtra, including co-operative businesses and co-operative

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CA. Ramesh S. Prabhu

Overview of changed Legislative Scenario for Co-operative Housing Societies

Overview of changed Legislative Scenario for CHS


housing societies. It is yet to be ratified by the State Legislature, or it will lapse within six months. The amended Act defines a new authority i.e. State Co-operative Election Commissioner, who will now supervise and conduct the elections of all co-operatives in Maharashtra. It creates a new distinction between members – “Active” and “Non Active”, and creates mechanisms to enable Active members, and disenfranchise and expel persistently non-active members. It also specifies reservation of a minimum of 5 seats in all co-operative elections for SC/ST/OBC/VJ and women on the managing committees of all societies. It seeks to limit the role and tenure of administrators in all co-operatives. It ��!��!��auditors, and mandates them to register FIRs (First Information Reports) in case of fraud, misappropriation, etc. It also defines a more dominant role for the office of the Registrar of Co-operatives, with powers to impose stiff �� $��from contesting the next term.

3) Amendment of Maharashtra Co-operative Housing Society (CHS) Model Bye-Laws in March, 2013

These Model Bye-Laws were framed by the office of the State Registrar of Co-operatives, and all housing societies in Maharashtra are required to hold a Special General Body Meeting and adopt them before 30th April, 2013. It gives a bigger role to the General Body vis-à-vis the Managing Committee, and also vis-à-vis individual members. The General Body can now impose larger penalties, and participate to a greater extent in the society’s management.

Although the amendments in the Constitution are well-intentioned, their interpretation in the MCS Act and the Maharashtra Housing Bye-laws makes one wonder whether autonomy is being given, or whether the existing autonomy of

co-operative housing societies is being encroached by the State Co-operation Department. Some seemingly well-intentioned sections and bye-laws are likely to produce undesirable side-effects on the peaceful functioning of housing societies. They may cause rifts and divisions between members, and give rise to bitter disputes.

Below, we will look at these legislations in greater detail, including amended articles of the Constitution, amended sections of the MCS Act and amended bye-laws of the co-operative housing societies.

But first, let us acquaint ourselves with the history and background of this sector as a whole.

Historical BackgroundCo-operative society is a business model to undertake an economic activity to serve its members who are also its owners. It is a people enterprise where like-minded people volunteer to take up a commercial activity for self help and mutual help. Co-operative businesses can be started by persons of limited means to share scarce resources, income and growth. This business model empowers economically and socially weaker sections of society to uplift themselves.

Defined as “an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise”, co-operatives follow certain broad values other than those associated purely with profit making. Need for profitability is balanced by the needs of the members and the wider interest of the community. The cornerstones of co-operative behaviour are self-help, democracy, equality, equity and solidarity. Voluntary and open membership, democratic control, economic participation, autonomy, training and information and concern for community are the overarching features by which the co-operatives put their values into practice.

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Co-operative legislation in IndiaCo-operatives in India were introduced by the British primarily to aid small-scale farmers �� !�� Co-operative Societies Act was adopted in 1904, which then only included credit co-operatives. The Act was soon amended in 1912 known as “Co-operative Societies Act, 1912” to grant the registration of non-credit co-operatives, including housing societies. Soon in 1919, the co-operative was made a State subject and respective State Governments were advised to enact their own co-operative law to promote, regulate, and administer the co-operative enterprises to promote the economy of the respective State.

Maharashtra, then known as Bombay State, become the pioneer state to lead and enact “Bombay Co-operative Societies Act, 1925” and gave all kinds of support to co-operative enterprises. After Independence, co-operatives were defined as a State subject in the Constitution of India.

The various states enacted new laws/amended the existing ones under Entry No. 32 of List II, Schedule 7 of the Constitution. The new legislations gave them a major role in the functioning of the co-operative institutions. Co-operative Societies having jurisdiction over more than one State were governed by Multi-State Co-operative Societies Act. However, there were no guiding principles in the Constitution regarding the formation, and regulation of co-operative societies.

When the States were renamed, Maharashtra enacted “Maharashtra Co-operative Societies Act, 1960” to register, promote, regulate and manage the co-operative societies.

During a century of its existence, this sector has built a network of over 6 lakh individual co-operative enterprises, with over 250 million members and working capital of ` 34,00,555 million. Especially in the villages, its presence is felt in practically all walks of life. Co-operatives play a dominant role in the economic and social

life of the nation. In Maharashtra, nearly 2.30 lakh co-operative enterprises are functioning, of which about 80,000 are co-operative housing societies.

Origins of CHS in Indian citiesCo-operative housing societies started for the �� }� �� /�� /�� co-operatives, the cooperative housing movement started rolling by the beginning of the 20th century. Bangalore Building Co-operative Society, the first housing co-operative in India, was founded in 1909 in Karnataka (former State of Mysore) followed by the Saraswat Co-operative House Building Society Ltd., Bombay in 1915. Housing societies mobilised capital to purchase suitable land and build multiple houses to be allotted to different members of the society. The entire asset was owned and managed by a legal enterprise consisting of all the members. The houses were allotted for the exclusive use of the members, whereas the common areas (i.e., open ground, staircase, compound, recreation area etc.) were reserved for the use of all the members. The housing society was registered under the applicable State Co-operative Societies Act.

The Indian population has grown at an average of 2% annually, within which the urban population, mega cities and slums grew by 3%, 4% and 5% respectively. Industrialisation and urban migration have created a critical housing situation. The UN Report “State of World Population” indicates that 29% of the Indian population is urban and it is expected to touch 41% by 2030. Ironically, 55% of the present urban population lives in slums. In 2007, ��!� �� /�� 2.47 crore houses in urban areas and 1.59 crore houses in rural areas, adding up to 4.06 crore units. Such shortages lead to social and economic exploitation of the masses by middlemen. Co-operatives are best suited to handle such a huge problem.

In a housing co-operative, if it is well managed, the accent is not so much on individual gain

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as on common good. ‘To each according to his need and by each according to his ability’ is its motto. Like the old joint family system, property is vested collectively in the family as a unit and not in its individual constituents. Its aim is a �� building company exists to exploit human need �� !� ��$�� exists to make capital serve human need.

Section 2(16) of the Maharashtra Co-operative Housing Society Act, 1960, defines a Housing Society as a Society, the object of which is to provide its members with open plots for housing, dwelling houses or, flats, or, if open �� !��Z��acquired, to provide its members common amenities and service."

The concept of a Co-operative Housing Society emerged during 1960s when groups of employees of banks, LIC, companies, income tax, Municipal Corporation, etc., came together to purchase of plots of land and construct buildings thereon by contributing 20% of the cost of the entire project and availing the remaining 80% as loan from their employers. For this purpose, one person among the group of people who took the initiative was chosen as the Chief Promoter.

The Chief Promoter took the initiative to survey the locality acceptable to the Group and locate the plot of land available for sale from the owners of the land. He settled the purchase price with the landlord and then located a builder for constructing a building on the proposed land. He negotiated the cost of construction, and worked out the total project cost by adding the cost of land, construction and overheads. He then arrived at a package deal acceptable to all the people in the group.

Once the package was worked out, the Chief Promoter put the proposal to the employers to get loans sanctioned to all the individual members to the extent of 80% of the cost payable by each, at a concessional rate of interest over a period of 20 to 30 years or the service period.

The Chief Promoter would then collect the proposed member’s contributions and deposit the same in the bank as margin money towards the cost of construction of the building and form a proposed society. He would then request his employer to release the loan to all the individual members as per the package deal so that the proposed society could purchase the proposed land and start the construction work. Simultaneously, he would take steps to get the society registered and get a Managing Committee elected to oversee the construction work.

The Chief Promoter and the Managing Committee worked on honorary basis. In this way, between 1960 and 1980, about 10,000 Co-operative Housing Societies were registered in Mumbai (then Bombay), its suburbs and Thane district.

�� Centric businessAfter 1975, members promoted Co-operative Housing societies started fading away for the following reasons:

1. The Institutions which used to finance, stopped financing on the grounds that the employees should avail finance from HDFC, LIC Housing Finance, etc. which were created specially to finance persons seeking housing ��

2. Maharashtra State Housing Finance which used to give housing loans to the Societies also stopped advancing loans as there were misuses of the funds.

3. The Chief Promoter / person who took the initiative to construct the houses for the benefit of other persons were blamed for any minor mistakes or even otherwise during the construction or even after the possession of the flats, thereby discouraging such persons from coming forward.

4. The Chief Promoter had to run from pillar to post to get sanction for loans as Financial

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Institutions were not willing to disburse loans to Housing Societies constructed by individual persons.

5. Some fraudulent people misused the Co-operative Housing Sector to make money. After initial installments were collected from individuals, the housing societies never came up.

6. Some promoters with poor organising skills initiated the process. Slippages, often triggered by some members not paying their installments in time, caused cost of construction to exceed the initial estimates, making the project unviable and giving a bad name to the promoters.

7. The contractors saw this as a big business opportunity and with the help of certain financial backing and land owners started forming co-operative societies as a business venture, and emerged as Builders and Developers.

8. The general public started accepting these Builders / Developers as they could deliver ��!�� !��

In this way, individual persons stopped taking lead in constructing houses as they had to face numerous hurdles and at the end receive blame from the members. As a result, builders became powerful by capturing the housing �� Z�� !��and often constructing houses for high net �� people from lower and middle income groups. Builders created artificial scarcity of houses by cornering prime housing lands, hoarding flats and artificially inflating the prices. Even MHADA, which was initially formed to build houses for the common man, started ignoring them.

This made it difficult for the common man to �!��Z�� !��

Co-operative Housing Society as compulsory legal entityThe Management of Housing Complexes constructed and sold by the developer is done by registering it as Co-operative Housing rather than other form of organisation like Companies or as Association/condominium under Apartment Act.

The success of Co-operative Housing Societies is ��!��!�� !��by the Government:

1) It exempts the Society from liability to Stamp duty, Registration Fees and Court-fees in certain cases vide section 42 of the Maharashtra Co-operative Societies Act, 1960.

2) The provisions of income-tax are not �� Co-operative Society of the dividends or other payment received by the members of any such Society out of such profits under concept of mutuality or deduction given under section 80P of the Income-tax Act, 1961.

3) In cases of personal occupation by tenant-members, the Government has granted concessions in Municipal and General Taxes.

�^� �� Z�� \�$�� Society by its member to an intending purchaser was effected by a simple instrument annexed to Model Bye-laws, which is expeditious and inexpensive. (However, after 10-12-1985, payment of stamp duty on such transfer ��!��Z��members of co-operative housing society was made compulsory.)

5) The spirit of co-operation shown by the members themselves in the management and conduct of the business of the affairs of the Society.

6) Guidelines and dispute redressal system made available by Registrar of Co-operative Societies, Co-operative Court, MCS Act, 1960, Rules and Bye-laws have enabled housing societies to manage their own affairs.

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7) Builders nowadays resort to it as the only form of organisation to whom the property is to be conveyed.

In Maharashtra, a co-operative housing is accepted as a popular legal entity to manage the affairs of the housing complex, whether it is developed by public sector undertaking (like MHADA or BMC, Collector, etc.), by private-sector builders or under redevelopment of slums, tenanted cess buildings, or any other method of constructing the complexes.

Thus the Co-operative Housing Society has become a “compulsory model” rather than voluntary act of a group of people wishing to own apartments. Disputes arise as the numerous persons from varying backgrounds own �� !� ��Z�� !� ��forced to accept the co-operative model as there is no other option. They are forced to submit to the authority of the Managing Committee of that society, and make adjustments for living among people who are not like themselves, often unwillingly.

Need for 97th Constitutional AmendmentVarious State Governments enacted their own legislations and gave different types of support and incentives to promote the co-operative sector, such as relaxation in income tax rules, concessional stamp duty, sales tax, etc. and also easy grant of loans through State and District Central Co-operative Banks. So, people came to look upon co-operatives as a sector promoted by Government. The bottom-up approach of co-operatives changed to a top-down approach.

The values and principles of co-operative enterprise which is a member centric started fading away. There was no uniformity in the co-operative legislation regarding conduct of election, terms of election, rights of members, accountability of board of directors, levy of penalty, etc. This lead to scams, and co-operatives became politically driven

enterprises of some people for their political advantage. Unwanted interference by government officials in the working of the societies encroached on the freedom of the people considering it to be their own.

There is now a growing realsation that undue State interference, lack of autonomy and widespread politicisation has severely impaired these institutions. The need to introduce urgent reforms in the sector was clearly understood. In the last two decades, many committees were appointed to study various issues of co-operatives. These Committees strongly advocated the need to replace the existing government-dominated co-operative laws by a new people-centric legislation.

This compelled the Central Government to give a separate Constitutional status to co-operative enterprise. Accordingly, the 97th Constitutional amendment was enacted, and became effective in all states from 16th Feb., 2013. It mandates all States to make a uniform set of co-operative legislations throughout India.

The object of the 97th Constitutional Amendment is to ensure that the Co-operative Societies all over the country function in a democratic, profession, autonomous and economically sound manner. The amendment has empowered the Parliament in respect of multi-State Co-operative Societies and the State Legislatures in case of other Co-operative Societies to make appropriate laws.

Salient features of 97th Amendmenta) Right to form Co-operative Societies as

a Fundamental Right by insertion of the words ‘Co-operative Societies’ in sub- clause (c) of clause (1) of Article 19;

b) Directive Principles of State Policy for voluntary formation, autonomous functioning, democratic control and professional management of Co-operative Societies, (Insertion of Article 43B in Part IV of the Constitution);

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c) Provisions for incorporation, regulation and winding up of co-operative based on the principles of democratic member-control, member-economic participation and autonomous functioning;

d) Specifying the maximum number of Directors of a Co-operative Society not exceeding twenty-one members;

e) Providing for a fixed term of five years from the date of election in respect of the �� bearers;

f) Providing for a maximum time limit of six months during which a Board of Directors of a Co-operative Society could be a superseded or kept under suspension;

g) Providing for independent professional audit;

h) Providing for right of access to information to Members of Co-operative Societies;

i) Empowering the Government to obtain periodic reports of activities and accounts of Co-operative Societies;

j) Providing for reservation of one seat for the Scheduled Castes or the Scheduled Tribes and two seats for women on the Board of every Co-operative Society, which have individuals as members from such categories; and

k) Providing for offences and penalties relating to Co-operative Societies.

The 97th Constitutional amendments is intended to ensure the autonomous and democratic functioning of co-operatives, and also enhance the public faith in these institutions and also ensure the accountability of management to the Members and other stakeholders and also provide for deterrence for violation of the provisions of the law.

Maharashtra Co-operative Societies (Amendment) Ordinance, 2013Maharashtra Government constituted a committee of experts to receive a report about the amendments required in the Maharashtra Co-operative Societies Act, 1960 to give effect to the Constitutional amendment. After the receipt of the expert committee report a committee of Group of Ministers of Government of Maharashtra was constituted to look into necessary provisions and its effect in the co-operative movement of the state.

A conference of Ministers, MLAs, MLC, Co-operative Department and other experts in the field was held in Vidhan Bhavan. A presentation was given by Rajgopal Devara, Secretary Co-operative Department. Many suggestions were received from the Hon’ble Members. Thereafter an ordinance to amend MCS Act, 1960 was passed and published in the Government Gazette on 14-2-2013.

Scheme of Regulations of Co-operative Housing SocietiesIn Maharashtra, if any person purchases a flat from a developer, the same is governed by Maharashtra Ownership Flats Act, 1963 (MOFA) which gives statutory rights to the purchasers and protects their interest. One of the statutory obligations cast on the developer is to form a Co-operative Housing Society or company or condominium to manage the entire complex on sale of 60% of the total flats. Thereafter, it casts the duty on him to convey the land and building within 4 months of registration of the legal entity, failing which it is deemed to have been conveyed after the expiry of statutory period of four months. Having deemed to have been conveyed, a competent authority (District Deputy Registrar) is empowered to execute the conveyance deed in the name of the society or any other legal entity, after conducting necessary hearings and satisfying itself.

The co-operative Housing Society gets registered and is regulated under (i) Maharashtra

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Co-operative Societies Act, 1960 (ii) Maharashtra Co-operative Societies Rules, 1961, (iii) Government Notifications issued from time to time. Its internal workings are regulated as per registered Bye-laws of the Housing Society and the resolutions passed by the General body and the Managing Committee from time to time within the framework of the Act, Rules and @��

MCS Act, 1960 has 168 sections divided into 14 Chapters. The MCS Act has made the provisions empowering the State to appoint registrar to implement the provisions of the Act, rights and duties of members, constitution of the Managing Committee or Board of Directors, its election, � ��!��

MCS Rules, 1961 takes care of procedural aspect to implement the provisions made in the MCS Act, 1960. There are 110 Rules divided into 12 chapters.

Model Bye-laws as applicable to Co-operative Housing Societies are approved by the Commissioner of Co-operative from time to time containing different provisions. The Latest Model Bye-laws has 177 provisions divided into 18 Chapters. The bye-laws govern the internal functioning of the societies within the provisions ��\"�}��{�_��!��{�_{��@�� issued by the Government from time to time.

All the State Co-operative Societies Act, Rules have to be within the broad framework given in the Constitution of India with effect from 16th February, 2013. Based on the 97th Constitutional amendment many changes have been done in MCS Act and the Model Bye-laws of Co-operative Housing Societies of which key changes are explained.

Key changes done in the Maharashtra Co-operative Societies Act, 1960 and Model Bye-laws of Co-operative Housing Societies due to 97th Constitutional Amendment

1. DISTINCTION OF ACTIVE AND NON-ACTIVE MEMBERS IS INTRODUCED

Conscious effort is being made to prevent non-serious members from participating in voting and decision-making, so that active members �� Z!��=�� can vote in the affairs of the society including contesting the election or to co-opt in the Managing Committee. Although the legislative intention is to increase participation by carrot-and-stick methods, the side-effect is that these provisions may give rise to bitter disputes and division amongst various members, and between members and Managing Committee.

A) Constitutional Provision: Article 243ZI of the Constitution Provided that “Subject to the provisions of this Part, the Legislature of a State may, by law, make provisions with respect to the incorporation, regulation and winding up of co-operative societies based on the principles of voluntary formation, democratic member-control, member-economic participation and autonomous functioning.” And further Article 243 ZO(2) provides “The Legislature of a State may, by law, make provisions to ensure the participation of members in the management of the co-operative society providing minimum requirement of attending meetings by the members and utilising the minimum level of services as may be provided in such law”.

B) Changes made in MCS Act. 1960: In line with the above provision made in the Constitution, the section 2(19) (a-1) regarding active member concept was introduced in the Amended MCS Act, 1960. As per said section 2(19)(a-1) an ‘Active member" means one who participates in the affairs of the co-operative society and utilises the minimum level of services or products of that society as may be prescribed in the bye-laws.

C) Provision made in the New Model Bye-laws: ��$��@��]�� ^�]�^��}�� member" means a person:

1) Who has purchased and/or owns the Flat / Unit in the Society.

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2) Who attends at least one General Body Meeting of the Society in the previous Five consecutive Years.

3) He has at least paid the amount equivalent to one year of society Maintenance and Service charges, within a consecutive ��

D) Impact of the above changes: The Constitution has provided to make a Co-operative enterprise a member centric who take active part in the activities of the society whether it is economic contribution or taking part in the general body of the society. In a Housing Society, once a flat is purchased or contributed towards the cost of the flat, economic participation of the member is done. However, to continue the active participation, it is provided to attend General Body meeting and also contribute towards maintenance and service charges.

2. “NON-ACTIVE” MEMBERS LOSE VOTING RIGHTS, CANNOT PARTICIPATE IN MANAGEMENT OF SOCIETY, AND MAY BE EXPELLED AFTER 10 YEARS

A) Changes in the Constitution: Voting by Active Members is provided in Article 243ZO (2) of the Constitution of India as discussed above.

B) Changes made in MCS Act, 1960: As per section 26(2),

"It shall be the duty of every member of a society

(a) To attend at least one general body meeting within a consecutive period of ��

(b) To utilise minimum level of services at �� !� ��years as specified in the bye-laws of the society:

Provided that a member who does not attend at least one meeting of the general body as above and does not utilise minimum level of services at �� !� �� $��!�� $��

Provided further�� a member as a non-active member, the society shall, in the prescribed manner, communicate such classification to the concerned member within 30 days from the date of close of the ��

Provided also that, a non-active member who does not attend one meeting of the general body and does not utilise the minimum level �� $�� five years, from the date of classification as non-active member shall be liable for expulsion under section 35.

Provided also that, a member classified as non-active member shall, on fulfilment of the eligibility criteria as provided in clauses (a) and (b) of this sub-section, be entitled to be ��

Provided also that, if a question of a member being active or non-active member arises, an appeal shall lie to the Registrar within a period of sixty days from the date of communication of ��

Provided also that, in any election conducted immediately after the date of commencement of the Maharashtra Co-operative Societies (Amendment) Ordinance 2013, all the existing members of the society shall be eligible for voting, unless otherwise ineligible to vote.”

Further, as per sec. 73-A (9), “In the case of such �� "��#�� Official Gazette, no member shall be eligible for being elected, co-opted or nominated as a �� or does not fulfil the minimum qualification relating to his transactions with the society of

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such monetary limits as may be laid down, in �!��

4!��$\}]{^�� !�� of committee and its members”:

“Without prejudice to the other provisions of this Act or the rules made thereunder, in relation to the disqualification of being a member of a committee, no person shall be eligible for being appointed, nominated, elected, co-opted or, for being a member of committee, if he –

(e) in the case of housing societies, a member who defaults the payment of dues to the society within three months from the date of service of �� !�� of posting demanding the payment of dues;

] $�^�� $�� under sub-section (2) of section 26;”

C) Provision made in the New Model Bye-laws: Model Bye-law No. 22(B) provides that “A member shall be called as 'Active Member' if:–

a. He has purchased and owns the Flat / Unit in the Society.

b. He has attended at least One General Body Meeting within a consecutive period of ��

c. He has at least paid the amount equivalent to one year of society Maintenance and Service charges, within a consecutive ��

A member who is not an 'Active Member' shall be the 'non-Active Member’.”

D) Impact: Expulsion raises major constitutional questions

In a co-operative housing society, expulsion of member should not be taken up as a members have invested lakhs and crores of rupees to own the flat in the society. Even if such non- active member is expelled from membership, the eviction from the flat can be done only by adopting due process of law and may not be

that easy as expelling being non-active member. This is because owning a property is a legal right given to every citizen of India by the Indian Constitution. The people do not become a member of co-operative voluntarily to own the house but they are compelled to become the members after purchasing the flat in a co-operative Housing Society. This is because in major cities, decent ownership houses (other than slum and tenanted building) are by-and-large available only in Co-operative Housing Societies.

3. "ASSOCIATE MEMBERS” WHO ARE NOT JOINT OWNERS CAN VOTE BUT CANNOT BECOME A COMMITTEEE MEMBER OR CONTEST ELECTION

A) Constitutional provision: As per Article 243ZO (2) of the Constitution of India as discussed above, the State has to provide for functioning of the co-operative societies by only active members

B) Provision in MCS Act, 1960: The MCS }��{�_�� |]{�^�� member which is as under:

2(19) (a) "member" means a person joining in an application for the registration of a co-operative society which is subsequently registered, or a person duly admitted to membership of a society after registration and includes a nominal, or �� service user of primary agricultural co-operative credit society.

(a-1) ‘Active member" means one who participates in the affairs of the society and utilises the minimum level of services and products of that society as may be �� $��

(b) ‘Associate member” means a member who holds jointly a share of a society with others, but whose name does not stand �� 5

(c) "Nominal member" means a person admitted to membership as such after

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registration in accordance with the bye-laws

Section 27(2) provides that “ Where a share of a society is held jointly by more than one person, �� But in his absence the person whose name stands second, and in the absence of both, the person whose name stands next, and likewise, in the absence of the preceding persons the person �� is present and who is not a minor, shall have the right to vote.

C) Provision in the New Model Bye-laws : Bye-laws No. 3(xxiv)(b) provides "Associate Member" means a member who holds jointly a share of a society with others, but whose name does not stand first in the share �� 4!��$��@��{�]�^�� “An individual, a firm, a company or a body corporate registered under any law for the time being in force, associate who/which is eligible to be an associate member and membership of who/which has made an application in the prescribed society form for such membership, along with the entrance fee of ` 100/-, may be admitted as such member by the Committee.

Bye-law No. 22(A) “A member shall be entitled to exercise such rights as provided in the Act, �!��$��}�� in the Act and bye-laws, member includes an associate member, therefore, an associate member gets the right to vote. Further as per Model Bye-law No. 25 No Associate member shall have any rights or privileges of an Active member except as provided under section 27(2) of the Act.

Further as per Bye-law No. 118. No person shall be eligible for being elected as a member of the Committee or co-opted on it, if:……

(iv) In case of an associate member, non-submission of the no-objection certificate and

undertaking, as prescribed under these bye-laws, by the member. And(v) he is not an Active member.D) Impact of the above changes: The Model Bye-laws has not prescribed the eligibility criteria to become an associate member like having the joint name in the agreement to �!��Z�� !��~� ��the time of becoming the members towards the cost of the flat. This implies that any member can make any other person of his choice as an associate member by paying an entrance fees of ` 100/-. This may not be the intention of the legislation to provide the associate member. The actual intention could be when two or more persons purchase the property in a CHS, the joint owner also should get the membership of the society as associate memberAccording to the provisions made in the Act and Model bye-laws only active member is entitled to contest the election. An associate member to become active, he need to contribute towards ��!��Z��Z�� contributing ` 100/- as entrance fees will get rights to vote but does not get rights to contest the election. Now the question asked by many is that an associate member contest through an Active Member by taking necessary NOC from active member, therefore, depriving an associate member who has not contributed towards the cost of flat is stated to be illegal. As per the changes made in the Act, only Active member can contest the election and not an associate member who does not fulfil the conditions to become an active member.

4. STRENGTH & COMPOSITION OF COMMITTEE MEMBERS/DIRECTORS

A) Amended Constitutional Provision: Article 243ZJ (1) of the Constitution provides that “The board shall consist of such number of directors as may be provided by the Legislature of a State, by law:

Provided that the maximum number of directors of co-operative society shall not exceed twenty-one:

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Provided further that the Legislature of a State shall, by law, provide for the reservation of one seat for the Scheduled Castes or Scheduled Tribes and two seats for women on board of every co-operative society consisting of individuals as members and having members from such class or category of persons.

(2) The term of office of elected members �� years from the date of election and the term of ��$�� !�� of the board:

Provided that the board may fill a casual vacancy on the board by nomination out of the same class of members in respect of which the casual vacancy has arisen, if the term of �� term

Article 243ZK (1) of the Constitution provides that “ Notwithstanding anything contained in any law made by the Legislature of a State, the election of a board shall be conducted before the expiry of the term of the board so as to ensure that the newly elected members of the board ��!�� term of the office of members of the outgoing board.

B) Changes made in MCS Act, 1960: Section 73-AAA. Of the MCS Act, 1960 provides for Committee and its constitution as under:

“(1) The Committee shall consist of such number of members as may be provided in the bye-laws:

Provided that the maximum number of members of the committee of a Society shall not exceed twenty one.

Provided further that the provisions of the Banking Regulation Act, 1949 shall apply to all societies carrying the business of banking.

(2) The Committee of the society may co-opt “expert directors” relating to the objects and activities undertaken by the society:

Provided that the number of Expert Directors shall not exceed two in addition to maximum twenty one members of the committee as �� !�$�� ]{^�

Provided further that, the committee may, in case of the committee having not more than seventeen members, nominate a person as a functional director and and in case the committee’s having more than seventeen members and not more than twenty-one members, may nominate such number of functional directors not exceeding two.

Provided also that the functional directors of a co-operative society shall also be members of the committee and such members shall be excluded for the purposes of counting the total number of �� proviso to sub-section (1):

Provided also that, such expert directors shall not have the right to vote at any election of the society and shall not be eligible to be elected as ��

(3) The term of the office of the elected �� the term of office bearers shall be co-terminus with the term of the committee.”

Section 73-B specifies Reservation of seats on committees of certain societies for Scheduled Caste, Scheduled Tribes or Other Backward Classes, De-notified, Tribes (Vimukta Jatis) Nomadic Tribes, Special Backward Classes and election thereto.

(1) Notwithstanding anything contained in this Act or in the rules made thereunder or any bye-laws of any society, on the committee of such society or class of societies as the State Government may, by general or special order, direct, three seats shall be reserved.--

(a) one for the members belonging to the Scheduled Castes or Scheduled Tribes;

(a-1) one for the members belonging to the Other Backward Classes;

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(a-2) one for the members belonging to the De-�� ]� �!<�� ^�@�� Tribes or Special Backward Classes;

(3) Any individual member of the society, or any elected, member of the committee of a member-society, or any member of the committee of a member-society, whether elected, co-opted or appointed under this section, belonging to the Scheduled Castes or Scheduled Tribes, shall be eligible to contest the election to a reserved seat and every person who is entitled to vote at the election to the committee shall be entitled to vote at the election to any such reserved seats.

(4) Where no person is elected to any of the three reserved seats, then such seat or seats shall be filled in by nomination from amongst the persons entitled to contest the election to the reserved seats under sub-section (3)”

��

“(1) Notwithstanding anything contained in this Act, or in the rules made there under, or in the bye-laws of any society, there shall be two seats reserved for women on the committee of each society consisting of individuals as members and having members from such class or category of persons, to represent the women members;

(2) Any individual women member of the society, or any woman member of the committee of a member society, whether elected, co-opted or nominated, shall be eligible to contest the election to the seat reserved under sub-section (1).

(3) Where no woman member or, as the case may be, women members are elected to such reserved seats, then such seat or seats shall be filled in by nomination from amongst the women members entitled to contest the election under sub-section (2)

(4) Nothing in this section shall apply to a committee of a society exclusively of women members.”

C) Provision made in the New Model Bye-laws :

The amended Bye-law No. 115. states ”The Committee shall consist of *11/13/ …....... /21 members of the society. This strength includes the reservation of seats as provided under section 73B and 73 C of the Act.

Note: *The strength of the Managing Committee and strength of the quorum for conducting the meeting would be as under:-

No. Members Strength of the M.C.

Quorum in M.C.

General Reserved Seats W, S C / S T , OBC, VJ/NT/SBC

Total

Up to 100 6 2, 1, 1, 1 11 6

101 to 200 8 2, 1, 1, 1 13 7

201 to 300 10 2, 1, 1, 1 15 8

301 to 500 12 2, 1, 1, 1 17 9

501 and above

14 2, 1, 1, 1 19 10

Provided that the Societies having less than 15 ��!��Committee in accordance with the provisions of the Act in this respect.”

Bye-law No. 116(a) provides that “Election of all the members of the Committee shall be held once in 5 years, before expiry of its term, in accordance with the provisions of Sec. 73-CB of the Act and the Rules/procedure framed thereunder. It shall be the duty of the committee to intimate to the State Election Authority for holding of its election before expiry of its term. On failure, the committee members shall cease �� action by the Registrar under section 77A. “

D) Impact: Professionalism, but also caste rivalry

Professionalism. The mandate to co-opt functional directors and expert directors will

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bring professionalism. The elected committee can co-opt expert directors and functional directors.

Caste factionalism and quarrels. There is a very real possibility that caste distinctions between members will now be highlighted. So far, most co-operative housing societies functioned without making distinctions between its various members who belonged to various ��!� � ��@�� reserved seats -- one SC/ST, one OBC, one VJ/NT/SB and two women. In order to comply with these provisions, people will now have to become aware of who belongs to which caste, community or tribe. A side-effect of the heightened awareness of castes etc., will be groupism along caste-based lines, and quarrels citing caste-differences. In many housing societies, the already existing divisions and rifts between people will be coloured by casteist and community-based debates and discussions.

5. ELECTIONS TO BE CONDUCTED BY STATE CO-OPERATIVE ELECTION AUTHORITY

A) Constitutional Provision: Article 243ZK (2) of the Constitution provides that “The superintendence, direction and control of the preparation of electoral rolls for, and the conduct of, all elections to a co-operative society shall vest in such an authority or body, as may be provided by the Legislature of a State, by law:

Provided that the Legislature of a State may, by law, provide for the procedure and guidelines for the conduct of such elections.”

B) Changes made in MCS Act, 1960: Section 73CB says:

“(1) The superintendence, direction and control of the preparation of the electoral rolls for, and the conduct of, all elections to a society shall vest in the authority called as ‘the State Co-operative Election Authority’, as may be constituted by the State Government in that behalf. Every general election of the members of the committee and election of the office bearers of a society

including any casual vacancy to the extent applicable shall be held as per the procedure prescribed.

(2) The State Co-operative Election Authority shall consist of a State Co-operative Election Commissioner, who held the post not below the rank of Secretary to the State Government. The State Co-operative Election Commissioner shall be appointed by the Governor. The State Co-operative Election Commissioner shall hold the office for a period of three years, and he may be re-appointed for a further period of ��"��\�$�� Election Authority shall be at such place as may �� "��#��

"(13) There shall be an Election Fund maintained at the level of the State Co-operative Election Authority. Every society shall deposit in advance the estimated amount of expenditure on its election, as may be prescribed and required by the State Co-operative Election Authority towards the Election Fund. The State Co-operative Election Authority shall incur the necessary expenses for the conduct of the election of the societies, including the election of the office bearers from the said fund. The expenses of holding any election, including the payment of travelling allowances, daily allowances and remuneration, if any, to the persons appointed to exercise the powers and perform the duties in respect of the election, shall be incurred from the said fund and the expenditure shall be made in the manner prescribed. The Registrar, on requisition by the State Co-operative Election Authority, shall recover expenses of holding election from any such society or class of societies;

(14) The committee of every co-operative society shall, –

a. Inform the State Co-operative Election Authority about the expiry of its term of �� of expiry of such term;

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b. Inform any casual vacancy occurred in �� fifteen days of the occurrence of such vacancy;

c. Furnish such books, records and information as the State Co-operative Election Authority may require as per the calendar prescribed by the State Co-operative Election Authority;

d. Provide all necessary help, assistance and co-operation for the smooth preparation of election rolls for the conduct of the election.”

C) Provision made in the New Model Bye-laws

Model Bye-law No. 116(a) provides that “Election of all the members of the Committee shall be held once in 5 years, before expiry of its term, in accordance with the provisions of Sec 73-CB of the Act and the Rules / procedure framed thereunder.

It shall be the duty of the committee to intimate to the State Election Authority for holding of its election before expiry of its term. On failure, the �� expiry of its term and attract action by the Registrar under section 77 A which provides for appointment ��!��

D) Impact: rule of law, no more informal elections

Secret ballot, not show of hands. Informal elections held by show of hands, which used to be the norm in many housing societies, will be a thing of the past. Elections are required to be ��!�!��!��

Election Rules are yet to be framed. Until these are framed and declared, housing societies are currently in a state of suspense. However, considering the very large numbers of co-operative societies, it is felt that the election authority to conduct the election, unless there is considerable delegation of powers.

Additional burden. The society will be required to contribute towards the election fund. This may place an additional burden on smaller housing societies, which are used to informal functioning.

6. NO ADMINISTRATORS IN NON-AIDED SOCIETIES

There is a clear mandate to minimise outside administrators, empower active members to deal with crisis. If and when a managing committee of a society is unable to manage, it will be the active members who will be selected as ��!�� will have to manage the affairs of the society and bring it back on track.

A) Constitutional ProvisionArticle 243ZL provides

“(1) Notwithstanding anything contained in any law for the time being in force, no board shall be superseded or kept under suspension for a period exceeding six months:

Provided that the board may be superseded or kept under suspension in case —

(i) of its persistent default; or

(ii) of negligence in the performance of its duties; or

(iii) the board has committed any act prejudicial to the interests of co-operative society or its members; or

(iv) there is a stalemate in the constitution or functions of the board; or

(v) the authority or body as provided by the Legislature of the State, by law, under clause (2) of article 243ZK, has failed to conduct elections in accordance with the provisions of the State Act:

Provided further that the board of any such co-operative society shall not be superseded or kept under suspension where there is no

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Government shareholding or loan or financial assistance or any guarantee by the Government

(2) In case of supersession of a board, the administrator appointed to manage the affairs of such co-operative society shall arrange for ��!�� in clause (1) and handover the management to the elected board."

B) Changes made in MCS Act, 1960

"�� }�� will take where there is failure or vaccum of management e.g., failure to elect managing committee, to constitute committee or where �� !��4��this section, the word “administrators” has been deleted from many places, and replaced by the ��!�� £��

Sub section (1)(f) says, “Where more than one group of persons in a society is claiming to be elected as the committee members and proceedings in respect thereof have been filed in the Co-operative Court; the Registrar may, either, suo motu or on the application of any officer or member of the society, by order appoint –

(i) Any member or members of the society to be the member or members of the �� 5

(ii) A committee, consisting of not more than three members of the society, or one or more authorised officers, who need not be members of the society, to manage the affairs of the society till a new committee ��!��

Provided also that if no member or members of the Society are willing to work on such Committee, it shall be lawful for the Registrar, �� !�� £��being a member of the society, as he may deem ��<��

Subsections (2) and (3) of 77A say,

“(2) The committee or authorized officer so appointed shall, subject to the control of the

Registrar and to such instructions as he may, from time to time, give, have power to discharge all or any of the functions of the committee or of any officer of the society and take all such actions as may be required to be taken in the interests of the society.

(3) The committee or authorized officer so appointed shall hold office for a period of six months from the date of assuming the management of the society and shall make necessary arrangements for constituting a new committee within the said period and for enabling the new Committee including any new Committee referred to in sub-clause (1) of sub-section (1), which is determined by the Court to ��!��

Provided that, in no circumstances the term of �� !�� £��exceed six months from the date of their holding ��

Section 78-A concerning “Power of suspension of committee or removal of member thereof”, says,

"(1) If in the opinion of the Registrar, the committee or any member of such committee has committed any act, which is prejudicial to the interest of the society or its members or if the State Co-operative Election Authority constituted under section 73-E has failed to conduct the elections in accordance with the provisions of this Act or where situation has arisen in which the committee or any member of such committee refuses or has ceased to discharge its or his functions and the business of the society has, or is likely to, come to a stand-still, or if serious financial irregularities or frauds have �� ~!� � �� to this effect or, if there is a perpetual lack of quorum or where in the opinion of the Registrar the grounds mentioned in sub section (1) of section 78 are not remedied or not complied with, or where any member of such Committee, stands disqualified by or under this Act for being a member of committee, the Registrar may after giving the committee or the member,

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as the case may be an opportunity of stating its or his objections in writing as provided under sub-section (1) of section 78 and after giving a reasonable opportunity of being heard, comes to a conclusion that the charges mentioned in the notice are proved, and the administration of the society cannot be carried out in accordance with the provisions of this Act, Rules and bye-laws, he may by order stating reasons therefor -

(a) (i) supersede the committee and –

(ii) appoint a committee consisting of three or more members of the society otherwise than the members of the committee so superseded, in its place or appoint an administrator or committee of administrators who need not be the members of the society, to manage the affairs of society for a period not exceeding six months:

Provided that the Registrar shall have the power to change the committee or any member thereof, or administrator or administrators appointed at his discretion even before the expiry of the �� !�$section:

Provided further that, in case of a society carrying on the business of banking, the provisions of the Banking Regulation Act 1949 shall also apply and the committee shall not be superseded for a period exceeding one year:

Provided also that, nothing in this sub-section shall apply to a society, where there is no government shareholding or loan or financial assistance in terms of any cash or kind or any guarantee by the government;”

C) Impact: less or no involvement of administrator

These provisions are in the direction of giving more autonomy to societies, and almost eliminating the role played by outside administrators. Most Co-operative Housing

Societies do not have any aid from the Government. In such cases, the administrator cannot be appointed by the registrar. Instead, a ��!�� !�� £��who are not the member of the society (i.e. administrator, if no active member of the same CHS is willing to play the role of “authorized officer”) may be appointed for a maximum period of six months, till proper election is held, to manage the affairs of the society. However, as the appointment of administrator by the registrar in the name of authorised officer is provided in the Act, there is always a chance that this provision will be misused.

7. REGULAR EDUCATION & TRAINING TO GROOM LEADERSHIP.

There is a clear mandate to have regular education and training for members and leaders through Apex or Federal Co-operatives, and to put funds aside for the purpose.

A) Constitution Provision: Article 243 ZN (3) says, The Legislature of a State may, by law, provide for co-operative education and training for its members.

B) Changes made in MCS ActSection (24-A) concerns “Co-operative Education and Training to Members, Member of the Committee and Employees, and Contribution thereof”. It says,

“(1) Every society shall organise co-operative ��!�� and employees through such State federal societies of State Apex Training Institutes as the State Government may, by notification in the =�� #�£�� 5

Such education and training shall –

(i) ensure the effective and active participation of the members in the management of the society.

(ii) groom talented employees for leadership position

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(iii) develop professional skills through co-operative education and training

(2) Every member of the committee, whether elected or co-opted, shall undergo such co-operative education and training for such period and at such intervals as may be prescribed.

(3) Every society shall contribute annually towards the education & training fund of the State federal societies or State Apex Training /�� !�� !��!�$�� ]{^��!��rates as may be prescribed, and different rates may be prescribed for different societies or classes of societies.”

C) New Provisions in Model Bye-laws Objects of Co-operative Housing Society as per Bye Law No. 5(b) says, “To provide co-operative education and training to develop co-operative skills to its members, committee members, ��

Also, creation of funds as bye-law 23 (d) says, “To create Education and Training Fund from the Members as contribution of ` 10 per month / per unit or as decided by the General Body”.

D) Impact – Ignorant Managing Committee Members

More professional and law-abiding management: Managing committee members have to undergo a certain number of hours of education and ��

Second line of leadership will also be trained, as the training and education is also intended to groom talented employees.

8. AUTONOMOUS FUNCTIONING AND RESOLUTION OF DISPUTES TO RESOLVED THROUGH ARBITRATION PROCESS

To reduce the numbers of disputes reaching co-operative court and other judicial forums, and to enable members of co-operative societies to try to resolve their internal differences easily, painlessly and in the spirit of compromise,

a “Grievances Settlement and Redressal Committee” has been mandated. Also, the duty has been cast on Co-operative Court to try and resolve problems through arbitration, negotiation and compromise, rather than in a typical court-like fashionA) Constitutional Provision: Article 243ZI says, “Subject to the provisions of this Part, the Legislature of a State may, by law, make provisions with respect to the incorporation, regulation and winding up of co-operative societies based on the principles of voluntary formation, democratic member-control, member-economic participation and autonomous functioning.”

B) Amendment in the MCS Act, 1960Section 89AB is concerning “Grievances Settlement and Redressal Committee its constitution, powers, functions, etc." It says,

“(1) There shall be a Grievances Settlement and Redressal Committee in each society to deal with the grievances of the members and the society relating to its business and management to be constituted in the Annual General Body Meeting of the society to hear and settle the grievances as far as may be practicable within a period of 3 months. The committee of society shall make a report of such constitution of Grievances Settlement and Redressal Committee to the Registrar.

(2) (a) The Grievances Settlement and Redressal Committee shall consist of three active members of the society who shall not be the members of committee of the society.

(b) The chairman of the committee under sub-section (1) shall be a knowledgeable and senior member of the society; and the two other members of the society shall preferably be expert or having experience in such class of societies, and whom the general body considers as independent and impartial.

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(3) If any member, past member or any legal representative of the deceased member of a society has any grievance against any member of the society and if the parties agree to resolve the grievances by settlement, the party aggrieved shall submit written application to the Grievances Settlement and Redressal Committee along with the documents which he relies upon. On receipt of the application, the Grievances "��\�� !��a date and call upon the other party to submit its say along with the documents on which it relies and fix a date of meeting for settlement of the grievances amicably by compromise.

(4) The Grievances Settlement and Redressal Committee shall assist the parties in an independent and impartial manner in their attempt to reach an amicable settlement of their grievances, within the framework of this Act, Rules and Bye-laws. The Grievances Settlement and Redressal Committee may also give or make a proposal for settlement of the grievances between the parties.

(5) If the parties with the assistance of the Grievances Settlement and Redressal Committee reach a settlement agreement, they would draw up a settlement agreement. After considering the settlement agreement, the Grievances Settlement and Redressal Committee shall draw a final settlement agreement resolving the grievances.”

As per Section 93 (3), “where it appears to the Co-operative Court that there exist elements of settlement which may be acceptable to the parties, the court may formulate the issues of the settlement and give them to the parties for their observation and after receiving the observations of the parties, the court shall formulate the issues of possible settlement and refer the disputes for,

(i) Arbitration;

(ii) Conciliation;

(iii) Judicial Settlement including settlement through Lok Adalat;

(iv) Mediation.”

C) New Model Bye-laws Bye-law No 173 says, “(a) The Grievance Settlement and Redressal

Committee shall be formed as provided under Section 89AB of the Act.

(b) The General Body of the Society shall appoint a Grievance Settlement and Redressal Committee to hear and settle the grievances of the members. When referred, such complaints and grievances shall be settled by this committee as far as possible within 3 months.

(c) Grievance Settlement and Redressal Committee shall consist of Three Senior - Knowledgeable - active members of the society and they shall not be the members of the Managing Committee. The complaints and grievances relating to Business and Management of the Society shall be referred to this committee with the consent of both the parties.

(d) The Managing Committee shall make a report of an appointment of Grievance Settlement and Redressal Committee to the Registrar. The working and procedure to be followed by parties and the Grievance Settlement and Redressal Committee shall be governed by the provisions of section 89AB of the Act.

D) Impact of the above changes Two committees in every society. Now there will be two committees functioning in the society – one for looking after day-to-day affairs and implementation of policy decisions, another for resolving disputes. Such committee constitution has to be reported to the registrar. Less burden on courts. The grievance redressal committee is expected to reduce the disputes to be taken to the court. Compromise and win-win solutions are encouraged. Even the co-operative Court is given mandate to transfer the matter for arbitration or Lok Adalat, if the same is desired by both the parties at any stage of disputes.

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9. INDEPENDENT AUDIT & FIR AGAINST FRAUD

Auditors and the audit process has been more clearly defined, and a duty has been cast upon the auditors, Registrar etc., to pinpoint responsibility for fraud, misappropriation etc. and to register FIR against those responsible.

A) Constitutional Provision As per Article 243ZM, “(1) The Legislature of a State may, by law, make provisions with respect to the maintenance of accounts by the co-operative societies and the auditing of such accounts at least once in each �� (2) The Legislature of a State shall, by law, lay down the minimum qualifications and experience of auditors and auditing firm that shall be eligible for auditing accounts of the co-operative societies.(3) Every co-operative society shall cause to be �!� ��!� ��!� � ��to in clause (2) appointed by the general body of the co-operative society.Provided that such auditors or auditing firms shall be appointed from a panel approved by a State Government or an authority authorized by the State Government in this behalf.(4) The accounts of the every co-operative society shall be audited within six months of the �� !��!��relate.”

B) New Section in MCS Act, 1960Section 81 on “Audit” says, “(1) (a) The society shall cause to be audited ��!�� and also cause it to be completed within a �� year to which such accounts relate and in any case before issuance of notice of the holding of annual general body meeting, by auditor ��!� � ��Registrar and approved by the State Government or an authority authorised by it in this behalf, �� ! ��!��

as may be prescribed to be eligible for auditing accounts of societies, appointed by a general body of a society, as provided in sub-section (2A) of section 75 and shall lay such audit report before the annual general body meeting. In case of apex society, the audit report shall also be laid before both houses of State Legislature, in such manner, as may be prescribed:¤�� !��as provided by sub-section (2A) of section 75 and sub-section (1B) of section 79, by order, for the reasons to be recorded in writing, he may cause its accounts to be audited, by an auditor from the panel of the auditors approved by the State Govt. or an authority authorised by it in this behalf…(c) The board of every society shall ensure that the annual financial statements like the receipts and payments or income and expenditure, profit and loss and the balance sheet along with such schedules and other statements are audited within the prescribed period. (e) The auditor’s report shall have:(i) All particulars of the defects or the

irregularities observed in audit and in case of financial irregularities and misappropriation or embezzlement of funds or fraud, the auditor or the auditing firm shall investigate and report the modus operandi, the entrustment, amount involved, and fix the responsibility for such misappropriation or embezzlement of funds or fraud, on the members of the committee or the employees of the society or any other person, as the case may be with all necessary evidence.

(ii) Accounting irregularities and their implications on the financial statements to be indicated in detail in the report with �� loss

(iii) The functioning of committee and sub-committees of the societies be checked and if any irregularities or violation are

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observed or reported, duly fixing the responsibilities for such irregularities or violations.

(f) The remuneration of the auditor or �!� � �� !��by general body of the society.(g) The Registrar shall maintain the list of societies district-wise, the list of working societies, the lists of societies whose accounts are audited, the list of societies whose accounts are not audited within the prescribed time and reasons therefor. The Registrar shall co-ordinate with the societies and the auditors or auditing firms and ensure the completion of audit of accounts of all the co-operative societies in time every year.Explanation-1: For the purposes of this section, the expression “possessing required �!�� !�� duly approved by the State Government or an authority authorised by the State Government in this behalf, from time to time, shall mean and include –(a) A person who is a Chartered Accountant within

the meaning of the Chartered Accountants Act, 1949, who has a fair knowledge of the functioning of the societies and an experience of at least three years in auditing of societies, with a working knowledge of Marathi language;

]�^� �}!� � ��one Chartered Accountant within the meaning of the Chartered Accountants Act, 1949, who have a fair knowledge of the functioning of the societies and the experience of at least three years in auditing of societies, with a working knowledge of the Marathi language;]�^� }�� !� ��holds a Degree from recognised university and also has completed a Government Diploma in Co-operation and Accountancy and who has a fair knowledge of the functioning of the societies and an experience of at least five years in auditing of societies, with a working knowledge of Marathi language;

(d) “Government Auditor” means an employee of the Co-operation Department of the State possessing the Graduation or Post Graduation Degree, in addition to the Higher Diploma in Co-operative Management or Diploma in Co-operative Audit or Government Diploma in Co-operation and Accountancy with a working knowledge of Marathi knowledge, who has completed a period of probation successfully”As per section 81(5B) , “The auditor shall submit his audit report within a period of one month from its completion and in any case before issuance of notice of the annual general body meeting, to the society and to the Registrar in �!�� on the accounts examined by him and on the balance sheet and profit and loss account as on the date and for the period up to which the accounts have been audited, and shall state whether in his opinion and to the best of his information and according to the explanation given to him by the society they said accounts give all information required by or under this Act and present the true and fair view of the �� Provided that, where the auditor has come to a conclusion in his audit report that any person is guilty of any offence relating to the accounts or �� to the Registrar within a period of 15 days from the date of submission of his audit report. The Auditor concerned shall, after obtaining � �� 4 ��Information Report of the offence. The Auditor �� 4 �� !�� liable to be removed from panel of auditors, and he shall also be liable to any other action as the �� <��Provided further that when it is brought to the notice of the Registrar that the Auditor has failed �� !��4 ��/�� by a person authorised by him in that behalf: Provided also that, on conclusion of his audit,

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if the auditor finds that there are apparent �� !�� !�� losses to the society caused by any member of the committee, or officers of the society or by any other person, then he shall prepare a Special Report and submit the same to the Registrar �� !� ��4� �!��!��Special Report would amount to negligence in the duties of the Auditor, and he shall be liable for disqualification for appointment as an auditor or any other action as Registrar may �� <��

C) New provisions in the Model Bye-laws Necessary provision in the agenda items to be discussed in the General body meeting is regarding the appointment of auditors from the panel of Auditors is provided for. Further, the �!� ��!� �� be placed before the General Body meeting.As per Bye-law 147 (1) “Within 45 days of the close of every co-operative year, the Secretary of the society or any other person, authorised by the Committee in that behalf, shall finalise the account of the preceding co-operative year, prepare the Receipts and Payments Statement, the Income and Expenditure Statement for the said year and the Balance Sheet as at the close of the said year in the forms prescribed under Rule 62(i) of MCS Rules, 1961 along with the list of Active members and Non-Active members as at the close of the preceding co-operative year, with amounts to their credit in the share capital account and deposits, if any, the schedules of investments, the debtors, the creditors, the �!�� !��!��! ��etc.”As per Bye-law 147 (3) “Every society shall also ��!�� !� ��or auditing firm from a panel approved by a State Government in this behalf, appointed in the general body meeting together with his written consent within a period of one month from the date of annual general body meeting.”As per Bye-law 147(4), “If the society fails to intimate and file the returns as provided by

section 75(2A) and section 79(1B), the Registrar may cause societies accounts to be audited by appointing an Auditor from the panel of Auditors.

D) Impact – Rigourous accounting, no more casual approach

Managing committees and employees will be forced to be scrupulous. Auditor will lay the audit report before the AGM every year, and discuss �� office-bearers, employees etc. Within 6 months of close of co-operative Financial year, the audit should be completed and report to be submitted by the Auditor before the issue of Notice for General Body meeting which is scheduled to be �� year. This will bring out uncomfortable facts before the general body, making the managing committee more vulnerable to criticism.

10. MANAGING COMMITTEE CAN BE DISQUALIFIED FOR NOT HOLDING AGM BEFORE 30TH SEPTEMBER EVERY YEAR

A) Constitutional Provision: Article 243ZN says, “The Legislature of a State may, by law, make provisions that the annual general body meeting of every co-operative society shall be convened within a period of six months of close of the financial year to transact of its business with such member.”

B) Amendment in the MCS Act, 1960. Section 75(1) says:“(1) Every society shall, within a period of six months after the close of the financial year, to transact its business as may be provided in this Act, call the annual general body meeting of all its members:Provided that, where such meeting is not called by the society, the Registrar or any officer authorised by him may call such meeting in the manner prescribed and that meeting shall be deemed to be a general body meeting duly called by the society.”

SS-VI-22



C) Changes in the Model Bye-laws As per Model Bye-Law No.95(a), “the annual general body meeting of the society shall be held on or before 30th September each year as provided under Section 75(1) of the Act. (As there is no provision for extension to hold AGBM )(b) In case of default in calling the Annual General Body Meeting as above shall attract disqualification and action as provided under section 75(5) of the Act.”

D) Impact – New grounds for dismissal of Managing Committee

For failure to hold the AGM, the Registrar will �� !��meeting, the committee will be held responsible and accountable for such lapses, and possibly dismissed and disqualified from standing for elections for the next term.

11. FILING OF ANNUAL RETURNS BY SOCIETY IS COMPULSORY

A) New Constitutional ProvisionArticle 243ZP says, “Every co-operative society shall file returns, within six months of the close of every financial year, to the authority designated by the State Government including the following namely:--(a) annual report of its activities;(b) its audited statement of accounts;(c) plan for surplus disposal as approved

by the general body of the co-operative society;

(d) list of amendments to the bye-laws of the co-operative society, if any;

(e) declaration regarding date of holding of its general body meeting and conduct of elections when due; and

(f) any other information required by the Registrar in pursuance of any of the provisions of the State Act.”

B) Changes made in MCS Act "�� "�� returns and statements and Registrar's power to

enforce performance of such obligations”. It says,“(1) The Registrar may direct any society or class of societies, to keep proper books of account in such form, including electronic or any other form, as may be prescribed with respect to all sums of money received and expended by the society, and the matters in respect of which the receipt and expenditure take place all sales and purchases of goods by the society, and the assets and liabilities of the society, and to furnish such statements and returns and to produce such records as he may require from time to time; and the officer or officers of the society shall be bound to comply with his order within the �� ]{}^�� >�� !�� months of the close of every financial year to which such accounts relate, to the Registrar or to the person authorised by him. The returns shall contain the following matters, namely-(a) Annual report of its activities;(b) Its audited statement of accounts;(c) Plans for disposal of surplus funds as

approved by the general body of the society;

(d) List of amendments to the bye-laws of the society, if any;

(e) Declaration regarding date of holding of its general body meeting and conduct of elections when due;

(f) Any other information required by the Registrar in pursuance of any of the provisions of this Act.

(1B) Every society shall also file a return regarding the name of the auditor or auditing firm from a panel approved by State Government in this behalf, appointed in the general body meeting together with his written consent, within a period of one month from the date of annual general body meeting.”

C) Changes in Model Bye-lawsAs per Model Bye law No. 147(2), “The society shall prepare and file annual returns as prescribed in the Act & the Rules. The

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society shall file annual returns on or before 30th September of every year to the Registrar including the following matters, namely –(a) Annual reports of Societies activities.(b) Societies audited statement of accounts;(c) Plans for surplus disposal as approved by

the general body of the society;(d) List of amendments to the bye-laws of the

society, if any;(e) Declaration regarding date of holding of

its general body meeting and conduct of elections when due;

(f) Any other information required by the Registrar in pursuance of any of the provisions of the Act.

(3) Every society shall also file a return regarding the name of the auditor or auditing firm from a panel approved by a State Government in this behalf, appointed in the general body meeting together with his written consent within a period of one month from the date of annual general body meeting.

D) Impact – more serious working, new ��

The need to compulsorily file a return in the prescribed form within 6 months of close of co-operative year will bring seriousness to the work of the managing committee. The return form is yet to be prescribed in MCS Rules. But non-filing of Annual Returns will disqualify the entire committee from contesting the election for the next term.

12. BIGGER PENALTIES FOR OFFENCES OF MANAGING COMMITTEE AND ORDINARY MEMBERS

For various criminal offences under this act, the ��!�� !�� increased.

A) New Constitutional Provision: Article 243ZQ says, ”(1) The Legislature of a State may, by law, make provisions for the offences relating to the

co-operative societies and penalties for such offences.

(2) A law made by the Legislature of a State under clause (1) shall include the commission of the following act or omission as offences, namely:--

(a) a co-operative society or an officer or member thereof willfully makes a false return or furnishes false information, or any person wilfully not furnishing any information required from him by a person authorized in this behalf under the provisions of the State Act;

(b) any person wilfully or without any reasonable excuse disobeys any summons, requisition or lawful written order issued under the provisions of the State Act;

(c) any employer who, without sufficient cause, fails to pay to a co-operative society amount deducted by him from its employee within a period of fourteen days from the date on which such deduction is made;

]�^� ��!�� !�� to hand over custody of books, accounts, documents, records, cash, security and other property belonging to a co-operative society of which he is an officer or custodian, to an authorised person; and

(e) whoever, before, during or after the �� bearers, adopts any corrupt practice.”

B) Changes in the MCS Act

New offences have been added by additions and amendments to Section 146.

“It shall be an offence under this Act, if –

(b) any employer and every director, manager, secretary or other officer or agent acting on behalf of such employer who without any �!�� !�� $�� amount deducted by him from its employee

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within a period of 14 days from the date on which such deduction is made, and also any person who fails to comply with sub-section (2) of section 49;

(g) a co-operative society or an officer or member thereof wilfully makes a false return or fails to furnish a return under section 75 or 79 of the Act, or furnishes false information or willfully fails to furnish any information required from him by a person holding an inquiry under section 83, person authorised under section 88 or as required under any provisions of this Act, any officer or member of a society who is in possession of information books and records, fails to furnish such information or produce books and papers, or give assistance to a person appointed or authorised by the State Government or the Registrar under-sections 77A, 78, 78A, 81, 83, 84, 88, 89A, 94, 103 or 110A;

(h) any officer or custodian who wilfully fails to hand over custody of books, accounts, documents, records, cash, security and any other property belonging to a co-operative �� !�� an authorised person or, to a person appointed under section 77A, 78, 78A,103 or 110A, or any other person appointed under this Act or

(h-1) a committee of a society or an officer or member thereof involved in corrupt practices during the election, or

(j) any person wilfully or without any reasonable excuse disobeys any summons, requisition or lawful written order issued under sections 81, 83, 88 or any other provisions under ��}�� or member thereof willfully neglects or refuses to do any act, or to furnish any information required for the purposes of this Act by the Registrar, or other person duly authorised by him in writing in this behalf; or

(l-1) the Committee fails to submit Audit Rectification Report to the Registrar and the Annual General Body Meeting as per Section 82”

Punishments provided under section 146 for these offences are as follows:“Every society, officer or past officer, member or past member, employee or past employee of a society, or any other person, who commits an offence under section 146 shall, on conviction, be punished –(b) if it is an offence under clause (b) of that section, with imprisonment for a term which may extend to three years, or with fine which ��!��!��with both;(g) If it is an offence under clause (g) of that section, with fine which may extend to five thousand rupees;(h) If it is an offence under clause (h) of that section; with fine which may extend to five thousand rupees;(h-1) If it is an offence under clause (h-1) under �� thousand rupees;(j) If it is an offence under clause (j) of that section, with imprisonment for a term which may, extend to one month, or with fine which ��!��!��!��with both; (l-1) If it is an offence under clause (l-1) under �� thousand rupees”Fines for other offences mentioned in Section {�_�� !��!�� !��rupees.

C) Changes made in the Bye-lawsAs per Bye Law No. 166, “The meeting of the General body of the society may prescribe penalties for different breaches of the bye-laws of the society. The Secretary of the society, under instructions from the Committee, shall bring to the notice of the member concerned, the breach/breaches of the bye-law/bye-laws committed by him. If the member persists in continuing the breach / breaches, the Committee shall give the notice to the member to show cause as to why

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the penalty should not be inflicted on him for breach/breaches of the byelaw/bye-laws. The general body meeting, after considering the say of the member and after giving him hearing, may levy penalty to the extent of maximum consolidated penalty of not more than ` 5000/- in a particular year.” (As per the Model Bye-Laws issued in 2009, the maximum amount of penalty was ` 1,000/-).Further, Bye-law no. 66 has a new clause, “(A) Save except other provision in the Act, the A.G.M./ special G.B.M. can penalise a member for committing breaches in his Responsibilities. Such penalty should be reasonable and equal to all such erring members. A.G.M./Special G.B.M. is empowered to frame the penalty amount. The managing committee shall recover such penalties with proper care.”As per new bye-law No. 154(b) “If the Committee of the Society fails to submit Audit Rectification Report to the Registrar and the Annual General Body Meeting, all the members of the Committee shall be deemed to have committed an Offence under section 146 of the Act and shall be liable for Penalty under section 147 of the Act.”

D) Impact – Both Managing Committee and members have to be cautious & scrupulous

Any offence or default shall make the managing committee members liable to penalty, and disqualify them from contesting the next term of the election. Members will also face stiff penalties for defaulting on payments, and other offences. This is a good measure to make the committee and the members responsible. �� !�� one need to undergo because of this provision will be known only when the same is brought to the notice of Registrar.

ConclusionMany welcome changes are happening due to the 97th Constitutional Amendment. However,

the implementation of all these changes will be big task before the Registrar and the State Co-operative Election Authority. These changes will also pose huge challenges to others concerned, including the individual office-bearers and the auditors.

To ease the transition in holding elections, the state has already made a provision that the committee whose term has expired can continue till 31.12.2013, by when elections will be held by the State Co-operative Election Authority. The Election Authority has not been so far constituted, and the election rules, as well as the amended MCS Rules have not been issued.

Every society has received a notice mandating that the newly issued Model Bye-laws must be adopted by 30th April, 2013. However, till the time this issue has gone to the press, the new Model Bye-laws have not been printed and distributed by any of the District Housing Federations, although the same is available on the internet. There are many other small changes, which have not been highlighted in this article.

Although the constitutional amendment intends to give autonomous status to non-government aided societies, the recent amendments in the MCS Act has conferred as may extra powers to the Registrar of Co-operatives, as the committees can be penalised and debarred from contesting for not holding the AGM in time or not filing Annual Returns. Also, administrators can be �� !��

Giving a Constitutional status and making it a fundamental right to form a Co-operative Society is a welcome step. However, one foresees lot of � ��!�� provision.

Many articles on related topics are written by �� $$�� /�am thankful to the Chamber of Tax Consultants for giving me this rare opportunity to give an overview of the changed legislative scenario for co-operative housing societies.

�

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1. Amendments to our Consti tution happens rarely. This is the first time amendments have occurred in our Constitution, which has a major impact on Co-operative Housing Societies. A house is not just constructed of cement, sand, steel or concrete. It is acquired by an individual with a feel ing of belonging, int imacy and warmth, which cannot be expressed in terms of words.

2. There are more than 6.50 lakh Co-operative societies in India. There are more than 26 crore members, who are direct ly and/or indirect ly associated with the Co-operative movement. The working capital of Co-operative Societies in India is more than ` 4 lakh crores and affecting a large segment of people both in central and rural areas. Perhaps the Co-operative movement in India might be the world’s largest co-operative movement.

3. The process of 97th Consti tutional Amendment commenced in the year 2006 and is f inal ised in January

2012. The major impact of the changes is that each State will have its own Co-operative Societies Act. One may add that Co-operation is a State subject . For States , which have not adopted the respective State Co-operative Societies Act, will have to fol low the Central Co-operative Societies Act. Maharashtra State has amended the Maharashtra Co-operative Societies Act 1960 on 14th February 2013.

4. Maharashtra occupies a prominent posit ion in the Co-operative movement. Normally, our image of a Co-operative Society is restricted to Housing Societ ies . There are more than 20 types of Co-operative Societies in Maharashtra. On account of Constitutional Amendments, many changes have been enacted in the Maharashtra Co-operative Societies Act, 1960.

5. Article 19 of the Constitution of India gives the fundamental right pertaining to freedom of speech. Article 9(b) of the Consti tution defines the

SS-VI-27

Vinod Sampat, Advocate

9th Constitutional Amendment and its impact on Co-operative Societies in Maharashtra

9th Constitutional Amendment and its impact on CHS in Maharashtra


SS-VI-28

Co-operative Societies. There are many sweeping changes introduced. The major impact of the same is felt with regards to electoral reforms. With a view to have transparency, it is the right of the members to get information about co-operative societies working with regard to the regular transactions of the Co-operative Societ ies with i ts members. The new Amendment proposes to ensure voluntary formation, autonomy in functioning, professional management in Co-operative Societies, which have been inserted vide Article 43(b) and Article 243(2) of the Indian Constitution. The maximum number of Directors in Co-operative Societies would be 21. There would be seats reserved for Scheduled Caste, Scheduled Tribes and other Backward Classes and women on Board, which may be a laudable thing, but the same would be diff icult to implement. The law stipulates that the term of the elected members would be fixed for a period of five years. The law also stipulates that in certain cases, the Board of Directors can be suspended for a maximum period of s ix months. The law also st ipulates autonomy for the Auditor. The law empowers the Government Authorities to obtain periodic reports and accounts.

6. The aim of the Amendment could be to reduce corruption, introduce transparency and have a s impler approach to the common problems. An impression exists in the minds of many people that Co-operative movement stands for corruption in many activities going on in the Co-operative segment. It would not be exaggerative to state that in the past some persons have

inflated the bi l ls , taken loan from Government agencies and defaulted in payment. This was found in some cases in the Sugar factories, which has bled the Co-operative movement in Maharashtra as the Government has given guarantees.

7. The obstacles pertaining to the working in Co-operative Societ ies is the law does not appreciate the fact that in a Co-operative Housing Society, members are rendering honourary services and one cannot expect professionalism in al l the activities being done by the Managing Committee Members. There are ample examples of dictatorial approaches and bullying tact ics . Just to give a glance of the same, I draw the attention of provisions of Rule 107(b) of the Maharashtra Co-operative Societies Rules 1961. The sum and substance of the same is the person handling cash of the Society, be i t an officer or employee, have to give security to the Society not exceeding ` 2,000/-. If a person wants to commit a fraud, what difference would it make of him if a security of maximum amount of ` 2 ,000/- is offered or not? In any case I ask one and al l how many Co-operative Societies have complied with the above said provision of giving security and how many Auditors have commented on the same in their Audit Report. I have no hesitation in saying that not even 1% of the Co-operative Societies in entire Maharashtra would have complied with the above said provision. Co-operative movement is a 24 x 7 activity of political interference and corruption is the view of some persons. How many Housing Societies in Maharashtra are charging an amount



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of more than ` 25,000/- towards Share Premium at the t ime of transfer is known to one and all.

8. The major changes are –

a) The concept of active members in Co-operative Societ ies is introduced.

b) Only active members would be entitled to stand for election.

c) The member, who does not attend General Body Meeting within 5 years wil l be termed as non-active member. This, in my view will result in members unnecessarily creating obstacles in the smooth working of the Society.

d) Once in five years the Managing Committee Members must attend training session conducted by certain organisations.

e) A system of resolving disputes through Grievance Redressal Committee be implemented.

f) To have a professional help for management.

g) F.I.R. to be filed by the Auditors, who are registered, if there is a fraud in the Society.

h) The quantum of f ine has been increased.

i) More responsibi l i ty cast on the Auditors , including f ixing the responsibi l i ty for such misappropriat ion or embezzlement of funds or frauds.

j) A new authority, namely, State Co-operative Election Committee, wil l conduct elect ion of al l Co-operative Societ ies . This may sound good, but in reality, this will increase the cost for a non-productive purpose is my personal view, without serving any constructive purpose, reminding me of shift ing of capital by Mughul Emperor, Mohd. Gazni , from Delhi to Daulatabad and back from Daulatabad to Delhi.

k) Co-operative Society wil l not have Administrator , but the same power would henceforth be uti l ised by an Authorized Off icer , making the very intention of the Authorit ies toothless.

9. Overall the new Amendment will create more hardship for members of the Co-operative Societies and increase the cost.

�

“Do, or do not. There is no ‘try’.”

— Yoda

Deemed Conveyance


Section 11 of the Maharashtra Ownership Flats Act, 1963 requires the promoter to complete his own title and thereafter convey the title of the promoter in the land and the building to �� Z��!��formed for the purpose, unless the promoter has submitted the property to the provisions of the Maharashtra Apartment Ownership Act, 1970 (MAOA) in accordance with section 10(2) of MOFA. The promoter is required to execute all the necessary documents in accordance with the ownership agreement. MOFA deals with and regulates the activities commencing from entering into an agreement by a builder (called ��^� �� !��Z��in the building in question and ending with the transfer of the building and the land to the society or the company after such society or the company is formed in which the builder/promoter has to take the initiative and complete the necessary formalities for their formation. After such society/company is formed and the title over the building along with the land is conveyed to such organisation, the MOFA, 1963 ceases to have any relevance and the subsequent relations between the society/company and the Z��!��\�$�� "�� }��\�� }��the case may be. In considering the provisions of MOFA, 1963, therefore, the provisions of the ��\�$�� "�� }��{�_��

��!��!��$��the society assume relevance.

If the promoter has submitted the property to the provisions of the Maharashtra Apartment Ownership Act, 1970 (MAOA) and executed and registered a Declaration u/s. 2 of MAOA, 1970 in that case, it is obligatory for the promoter to �� \�$�� "�� the fact of registering a declaration under the said MAOA. In that case it will not be lawful ��$�� and each apartment owner gets rights to the exclusive ownership of his apartment in accordance with the provisions contained in the declaration executed and registered by the promoter u/s. 2 of MAOA. Apart from a �� !��Z��undivided interest in the common areas and facilities appurtenant to such apartment and the interest of each apartment owner is heritable and transferable. All the Apartment Owners are ��! ��$�� registered as exhibit to the Declaration u/s. 2 of MAOA.

Obligation to perfect the title and effect conveyance }�� $�� company the promoter, under section 11 of MOFA, is duty bound

SS-VI-30

K. K. Ramani, Advocate

Deemed Conveyance



– to complete his title to the land on which the building is constructed

�� "�� ¥\��¥� ��title and interest in the land and building

– to execute all relevant documents in accordance with the agreement entered into with the buyers under Section 4 of MOFA

– within the period specified in the �� \��!�� {�� Form of Agreement (Form V) provides a period of four months from the date of registration of society or company for executing the conveyance. This, however, is a model agreement and the parties are at liberty to agree for any other period. In case no period is specifically agreed to in the agreement for sale, Rule 9 of MOF Rules comes into play which also prescribes a period of 4 months for completing the title and effecting the conveyance to the society /company. In case of Apartment owner the promoter is required to execute the Deed of Apartment within 4 months of giving possession or as agreed between them.

Title of the property is very basic to all activities of development. Section 3 which casts duty on a promoter to disclose certain vital information to the prospective buyers of flat, requires under clause (a) not only to make full and true disclosure of the nature of his title to the land �!��! ��!�� !�� Attorney at Law, or by an Advocate of not less than three years standing. The title is to be duly entered in the Property card or extract of Village Forms VI or VII and XII or any other relevant revenue record. Disclosure is required about any encumbrance on such land including any right title, interest or claim of any party in or over such land. These are essential disclosures enabling the purchaser to purchase with eyes open and with full knowledge of facts affecting his title in the property he is going to buy.

The contravention of these provisions visit the promoter with imprisonment up to three years or with fine or both in addition to the � ��!�� !�� !��< ��!�� Z��

Concept of Deemed Conveyance The provision aforesaid was in a large number of cases observed more in breach than compliance. The unscrupulous promoters who did not have perfect title over the land or who dishonestly wanted not to part with ownership rights, �� $�� or having formed such society/company avoided conveying the title in favour of such organisations as long as possible so that the �� <�� 4"/� ��in future and that of additional TDR FSI as per ��\��!�� enjoyed by them.

In order to frustrate such attempts, the Amending Act of 2008 introduced the concept of deemed conveyance to take care of the situation in which the recalcitrant promoter fails to execute the conveyance even at the risk of prosecution and other consequences. �� !�$�� ]�^�]�^��]§^�� {{��=4}��"!�$�� ]�^�provides that if the promoter fails to execute the conveyance in favour of the society or the company or the association, the organisation may make an application in writing to the \��}!�� ]\}^�� true copies of the agreement for sale executed by each individual member or the occupation �� ! �� such society/company/association is entitled to have an unilateral conveyance executed in their favour and to have it registered. In �� \}�� the application accompanied by one specimen ownership agreement only.

=�� !�� \}��making such enquiries as it considers necessary, after verifying the authenticity of the documents

SS-VI-31

Deemed Conveyance


submitted and after giving the promoter a reasonable opportunity of being heard feels satisfied that it is a fit case, he is required, within a reasonable time not exceeding six �� !�� "!�$�� or any other appropriate Registration Officer under the Registration Act, 1908 certifying that �� !� ��!� ��of conveyance deed conveying the right, title and interest of the promoter in the land and building in favour of the applicant as deemed conveyance.

When such certificate of fitness of the case along with unilateral instrument of conveyance ��!��"!�$�� concerned appropriate Registration Officer, he will issue summons to the promoter to show cause why such unilateral instrument should not be registered as deemed conveyance. Opportunity of being heard will be provided to the promoter as well as the applicants and on being satisfied about the case being fit for unilateral deemed conveyance, the Authority will register the instrument as deemed conveyance.

The provision as made stipulates consideration of whether the case is a fit case for deemed conveyance by two authorities successively viz ��\��}!�� "!�$�� "!�$�� \��}!�� as the basis. The law does not make it clear �� "!�$Registrar computes exorbitant stamp duty on the �� deemed conveyance. Will his decision override �� \��}!�� will be the recourse available to the applicants if such a situation arise. These are grey areas ��!�� appropriate provision is called for.

There will be situations where the societies �� \�!��\��}!�� !��admit the applications if the matter is pending �� \�!��

Rules to give effect to Deemed ConveyanceThe concept of unilateral deemed conveyance introduced by the Act of 2008 remained an almost dormant provision mainly for want of �� !�� !��and essential contents of the application to the \��}!�� !��!��=4}�vide�@�� @��4=��|��¨¥\��{��¥¤��//�dated 27th September, 2010.

Rule 12 introduced vide�� |��September, 2010 has prescribed Form VII in � �� !�� !�$�� ]�^�� {{� �� !�� that such society/company/AOP is entitled to have unilateral deemed conveyance in its favour. References to Form VII bring out the following essential facts/ information to be furnished in the application.

(i) As per Para 1, the applicants have to state their identity as to whether the application �� $�� or the company or the Association of apartment takers. The copy of the �� \�� "�� ¥�\��¥}�� <��needs to be annexed to the application.

The mention of ‘Association of apartment takers’ as one of the eligible applicant entities is somewhat confusing as ‘Apartment takers’ have, under the 2010 ��has purchased the apartment in a property which has been submitted under the provisions of the Apartment Ownership Act, by executing and registering a Declaration as provided by that Act.

The Association of apartment Owners contemplated under Maharashtra Apartment Ownership Act, 1970 is not a legal entity and a deed of conveyance under the general law cannot be executed in its favour. Under the Act,

SS-VI-32



the promoter or owner has to execute a deed of apartment in favour of each flat (apartment) owner separately. The Association or the condominium as it is commonly known is an organisation created to regulate mutual relationship between individual flat owners and for enjoyment of common facilities.

] ^� ��"�� ¥�\��¥�}�� of Apartment takers should appoint a member as Authorised Representative and a copy of resolution should be annexed.

] ^� }��"�� ¥�\��is in possession of a plot of land giving details including the name of the building and the wings it has.

(iv) The fact of the members having entered into agreement for sale with the opponent (the promoter) as per section 4 of MOFA all of which are duly stamped and registered and in which the opponent (Promoter) had agreed to convey the suit premises with the entire building constructed thereon to the Society/\��¥�� period or as provided in Rule 9. A copy of such agreement executed with one of the purchasers needs to be annexed.

(v) List of present members with the details of Flat number, area, stamp duty paid, etc. in respect of each member should be annexed.

(vi) The fact of the opponent having failed to execute a conveyance for conveying the right, title and interest in the land and the building in favour of the applicants should be stated as also that the applicant is entitled to have a unilateral deemed conveyance in respect of the suit premises under section 11 of the Act.

(vii) This should be followed by a request to ��\}�� to have an unilateral deemed conveyance

of suit premises and to have it registered. Request can also be made for cost to be awarded and any other relief that may be found due to the applicant.

(viii) The application should be signed and �� }!��

The application should bear a court fee stamp of rupees Two Thousand.

Documents to be attached�� \��}!�� !��@��$�¥�!�¥��\��|{$�$|�{{�� following documents are required to be enclosed �� for unilateral deemed conveyance in Form VII prescribed in MOFA Rules and having it registered :–

1. Duly notarised Application in Form �//� ��\�!��4��"��` |��¥$�properly indexed with page numbers.

2. The synopsis of the events relating to the case.

3. The certified copy of the resolution of the applicant for the application for the deemed conveyance (wherever necessary).

�� ¥�� of organisation seeking conveyance.

5. True copy of one of the registered agreements for sale executed with the promoter with the member of the society or the company.

6. The Vakalatnama.

7. The latest 7/12 extract and village Form No. 6 (Mutation entries) (wherever applicable).

8. The latest Property card (wherever applicable).

9. The last known address of the builder.

SS-VI-33

Deemed Conveyance


10. The registered / executed agreement of sale of land between the owner and the builder / developer (wherever necessary).

11. The registered development agreement between the owner of the land and the developer/builder.

12. The latest title and search report for last 30 years from an advocate.

{�� "��]� � �� ^�� Z��Z��buyer.

14. The Location Map & D. P. Remarks.

{§�� \ ��!��!��Revenue Department.

16. The Layout plan approved by the local authority.

17. The building / structure plan approved by the appropriate authority + ��¥�/=��\�� ¥�\��\�� ¥�=��!�� \�� \�� ] ��available)

{¨�� !�� Z��¥��¥or garages, etc. and the proofs of payment of stamp duty and registration along with Index II.

{�� \��

20. The architect’s certificate regarding the plan approval and use of FSI.

21. The list of building / societies and their addresses in the complex (if applicable).

22. The copies of the legal notices sent to the promoter and the interested parties to execute the conveyance deed or declaration as provided under Maharashtra Apartment Ownership Act, 1970.

23. The affidavit from the authorised representative / the Secretary of the

society that all the documents submitted are true.

24. The affidavit of by the Secretary of the society stating that the applicant has not approached any other forum for the ��\��

After the receipt of the Order from the \��}!�� ¥�Declaration which is proposed to be executed in favour of the applicants is required to be drawn !��!�� \��to be properly drafted giving complete details of property, agreements, payment of stamp duty, registration and all other details of FSI utilised in the building, utilised outside and brought from outside.

Procedure for submission of application u/ss. 10(1) and 11(3) of MOFA and its disposal�� \��of the resolution of the committee or the Board of Directors should accompany the application. Rule 11 inserted by the amended rules of 2010 lays down the procedure for submission of application and its disposal by the Authorities. Following steps are prescribed –

(i) The application is to be presented in �� \� �� ¤�� Authorised representative during the office hours of the competent Authority. In case it is signed by the authorized representative it should be accompanied by the letter of authority.

(ii) On receipt of application the same will �� \�}�� that the person presenting it has authority to do so and that it conforms to all the statutory provisions. In case of satisfaction, the application will be registered as admitted for proceeding with. In case of �� 4��VIII will be sent to the applicant to rectify

SS-VI-34



within a period of 15 days of the receipt of the notice which period may be extended. On rectification the application will be admitted for proceeding further and noted in Register in Form IX.

(iii) After the application is admitted, a notice by registered post acknowledgement due will be sent to the opponent in Form X within a period of 15 days requiring him �� date. Notice will also be given to all the parties for hearing on the specified date and pasted on the office notice board �!��

(iv) On the date fixed, the opponent will file a written statement and shall appear in person or through an authorised representative. The applicants shall also be heard. In case of default by opponent or applicants in making appearance or submitting required written statement and relevant documents, the matter can be decided ex parte unless the case is adjourned to any further date.

(v) No cross examination of any of the parties is permitted.

�� \�� }!�� reasonable time and in any case not later than six months from the date of receipt of the application, after hearing the parties, verifying the authenticity of documents submitted and after making such enquiries as may be necessary pass an appropriate order as deemed fit in accordance with the provisions of the Act. In �� \}� �� !�� "!�$�� Z��<�� entitled to have a unilateral deemed conveyance executed in their favour. Specimen copy of the order for deemed conveyance as passed by the \��}!�� issued by him, form Annexures to this article.

On submission by such society or as the case may be, the company or the association of

�� "!�$�� the concerned appropriate Registration Officer appointed under the Registration Act, {��¨�� !��\��Authority along with the unilateral instrument �� "!�$�� =�� !��the Registration Act, 1908 (16 of 1908) shall issue summons to the promoter to show cause why such unilateral instrument should not be registered as ‘deemed conveyance’ and after giving the promoter and the applicants a reasonable opportunity of being heard, may, on �� !� �� !��\ ��"!��=�� !��!�� land records.

The rule requiring a fresh hearing by the "!�$�� =��!� ��!��!�� dilatory process to make the applicants wait for unduly long time. The Revenue Department �� \��that maintain land records to desist from issuing fresh notice and conducting hearing once the \��}!�� \��!�� of land records will be carried out based on �� \��}!�� Deputy Registrar.

Competent AuthoritySection 5A inserted by Mah 4 of 2008 provides ��"��#�� in the Official Gazette, appoint an officer, not below the rank of the Deputy Registrar of \�$�� "�� \��}!�� such notification and different officers may be �� \��}!�� local areas for the purpose of exercising powers and performing the duties under sections 5, 10 and 11 of the Act.

In exercise of the power conferred, the Government of Maharashtra has notified vide

SS-VI-35

Deemed Conveyance


@�� @��=4�|��¨¥\�$|�]¤��$//^¥��$|��|��!��|��¨�� \��}!�� against their respective designations. The �� }�� <�

�� Whether the obligation to convey the title of the land and building flows from the statutory provisions contained in section 4 or whether it is a contractual obligation arising from the agreement of sale entered into between the flat purchaser and the promoter was considered by the Bombay � ��\�!�� Brindavan Borivli vs. Kamarkar Brothers and Others. The issue before the court was �� \�!��~!� �� based on the valuation of the suit. In the case, before the court the Plaintiff society sought to enforce the obligation and prayed for direction to the promoter to convey the land. The stand was taken that the value of the claim is not capable of monetary valuation and therefore only ` ��¥$�were paid as the court fees. From the side of the promoter reliance was placed on the provisions �� _�] ^��\�!��4��}��according to which in a contract of sale, the stamp duty is to be paid according to the amount of the consideration. The issue, therefore, raised the question as to whether the claim for conveyance amounted to enforcing a contract of sale or enforcing a statutory obligations under MOFA. ��\�!�� !�� !�� of the Act, its object and the claim of legislation held that the present suit is nor a suit simpliciter �� /�� ! ��compliance with a statute. The plaintiff is seeking to enforce only the statutory obligations. The principal relief which the plaintiff is claiming relates to the performance of the obligation under the statute and such a relief is incapable of monetary valuations.

Demand conveyance and stamp dutyFor deemed conveyance, when the deemed Purchase Deed is submitted for adjudication, ��\��"�� <��! ��

the Stamp Duty paid by members in respect �� \ ��!��@��¥§��!��<�{|¥¤��¥{{¥§�{¥{|��{|$�$|�{|� ��!��/��#�� \��"��those members who executed agreements before {�${|${�¨§�� !��market value at the time of execution that will be admissible. If those members did not register the agreements and(i) if the cheque payment was made to the

developer on the date of execution, the ��!��<��!�� execution will be available to him.

(ii) In any other case the true market value that shall be taken will be of the date on which purchase deed was submitted for execution.

�� !�� Z�� construction has changed hands, it is the last �� Z��will be considered for determining the stamp duty payable/paid.The circular referred to above provides great relief to the members who, for any reason, were not able to get the purchase documents registered and who were, prior to the relaxation granted by the circular, subjected to stamp duty at the market value prevailing on the date of deemed purchase deed. The circular also �� ! ��\��of Stamps about the members who purchased Z�� !�� !��!��the Deemed Purchase deed will not stop. Deemed conveyance require that all agreements between promoters and flat purchasers are stamped and all documents are registered under the Provisions of Indian Registration Act. There will be instances where the purchasers who purchased flats prior to 1985 have not paid the stamp duty and in many cases, the agreements are not registered with the Registrar. In several cases individuals signing the agreements with the promoters may not now be available. Insistence on registration of all documents may prove to be a dampener in the achievement of its objectives.

SS-VI-36



The administration, it is learnt, is contemplating to make adjudication for stamp duty and ��$�� the application for deemed conveyance.

The provision of deemed conveyance is expected to come as a solace to large number ��!�� $�� members who have not been vested with the

title and are thus handicapped in undertaking redevelopment projects or making any other arrangement requiring ownership. The provision � ��$�� <��a preventive against the rampant malpractices of unscrupulous builders by removing the helplessness of purchasers of flats who had to remain at the mercy of promoters without any effective recourse against such practices.

Annexure – 1

LIBERAL TRANSLATION OF MARATHI ORDERBEFORE THE DISTRICT DEPUTY REGISTRAR, CO-OPERATIVE SOCIETIES, MUMBAI

CITY (3) COMPETENT AUTHORITY UNDER SECTION 5A OF MAHARASHTRA OWNERSHIP FLATS (REGULATIONS OF THE PROMOTION OF CONSTRUCTION, SALE,

MANAGEMENT AND TRANSFER) ACT, 1963

Application No. 124 of 2012

APPLICANT�� \�$�� !� ��"�� [ � �� !�!�[�� \��\��}�� ]��^��!�� §_

REPRESENTED BY�� }�}@/�}��=\}�>

ORDER (FOR DEEMED CONVEYANCE)

In exercise of the powers conferred on me under Section 11(3) of the Maharashtra Ownership Flats ]��!�� ¤�� \��!�� "��^�}��{�_��/�"!��¤�� \��}!�� !�� ]�^��!�� \��}�� @��{|��|�{|��}�� \�� "�� }�� /�� ! ��\�� \��/��!�� }�� \��!�� }!�� \�� \��and the property described therein." � ��/�� "!�$�� }��!�� }!�� !�� }��{��¨��~!� �� \��\��"�� \�� title and interest of the Promoter in the property in favour of the Applicant.�� !�� !��{$|$|�{��

��{$|$|�{�� "�¥$Place : Bandra, Mumbai Subhash Patil

Competent Authority &District Deputy Registrar,

Co-operative Societies,Mumbai City (3)

SS-VI-37

Deemed Conveyance


Annexure – 2

LIBERAL TRANSLATION OF MARATHI ORDER

BEFORE THE DISTRICT DEPUTY REGISTRAR, CO-OPERATIVE SOCIETIES, MUMBAI CITY (3) COMPETENT AUTHORITY UNDER SECTION 5A OF MAHARASHTRA

OWNERSHIP FLATS (REGULATIONS OF THE PROMOTION OF CONSTRUCTION, SALE, MANAGEMENT AND TRANSFER) ACT, 1963

Application No. 124 of 2012

APPLICANT�� \�$�� !� ��"�� [ � �� !�!�[�� \��\��}�� ]��^��!�� §_

REPRESENTED BY �� }�}@/�}��=\}�>

CERTIFICATE (FOR DEEMED CONVEYANCE)

In exercise of the powers conferred on me under Section 11(4) of the Maharashtra Ownership 4��]��!�� ¤�� \��!�� "��^�}��{�_��/�"!��¤�� \��}!�� !�� ]�^��!�� \��}�� @��{|��|�{|�� \�$�� !� ��"�� [ � �� !�!�[�� \��\��}�� ]��^��!�� §_��"�� !��\�$�� }��{�_�� !��{�_{��!��"��@��=�¥��>"�¥��"#¥�\¥�{�¥��$�§��{¨$�${�¨�� \�� !��}�� \�� \��!�� }��{��¨��"!�$�� }��!��!�� "!��@��|��}�� @��|�]¤��^�"!��@��|��\�"!��@��|�� @��{�"!��@��|�� @��|�"!��@��|¨|�]¤��^�"!��@��|¨_�� @��{�]¤��^�\�"�@��§{�\��!£�� ¤��!<��}�� !�� "!�!�� !� ��|��! �� <��*\�� and Roop Darshan ‘D’ and to transfer all the right, title and interest in favour of the Applicant Society.

��{$|$|�{�� "�¥$Place : Bandra, Mumbai Subhash Patil

Competent Authority &District Deputy Registrar,

Co-operative Societies,Mumbai City (3)

�

SS-VI-38



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SS-VI-39

CA Pankaj Majithia

Settlement of Disputes including Recovery of dues



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SS-VI-40



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SS-VI-41



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/�� <�� !� �� /�� !�� !��!��!��{]}^]�^�� !�� <��¤��\��ª�/��!�� (Sunanda J. Rangnekar vs. Rahul Apartment No. 11 CHS $�� \�!��{��}!�!��|��§�^

/�� !�� !��!�� "�� !��"�� {�{�� }�� !�� \�$�� "�� !��!��"�� {��\�$�� \�!�� /�� !�� !��\�$�� \�!��!��"�� $4��\�$�� "�� !��{�_{�

Procedure for recovery of non-payments of dues by a member /�� !�� !�� !��\�$�� "�� }��{�_��$��

/��!�� !��] ��!� ��!��|{� ��^��!�� !��<�� !�� }�� ¥��!�� !�� {�{��\"�}��{�_��!�� !��

¤��!� ��!�� \��

SS-VI-42



/��!�� !��

}�� }�� ¥��!�� !��

�� {�{��\�$�� "�� }��{�_�� \�$��!� ��"�� !�� !�� !��!��

�� !�� !��\�� !��!��< �� !�� ! �� !��

=�� \�� =�� "��$=��

��"��=�� =�� !�� !��

/�� !�� "��=�� £��

}�� !��!�$�� ]{^��]|^��"�� {�{��}�� !� ��!�� !��

/�� !�� \�� <�� !� �� !��!�� {�� {�� [��!��\��{¨�� !�� !�� !�� !�� !� ��

��!�� !��

��"��=�� !��!�� £��!�� !��"�� !�� !��!��

Additional Measures/Restriction

Section 95 of Maharashtra Co-operative Societ-ies Act, 1960}�� !��$�]{^�� !��\�$�� \�!��!�� {�§�� !�� !�� ¨¨�]�� !�� ^�� !�� \�$�� \�!�� !�� ! �� !�� !�� !�� ¨¨� �� !��!� �� !��

]�^�� !��

]�^�� !�� ~!� �� \�!�� !�� !��!��!� �� !�� !�� \ � ��\�!��

"�� _��\�$�� "�� }��{�_��

�� \�$�� \�!��$�� !�� \�$�� \�!��

SS-VI-43



�� !� �� !�� !�� !�� !�� \�$�� \�!�� /�� !�� !�� !�� !��

}�� $��

}��!�� \��

}�� !�� >�� \�!�� !��/�� !�� !��

/�� !�� \�� =�� !��!�� !��

��!�� <�� !�� !� �� <��@�$�!��\��

}��!�� ¥��!��!�� $��!��}�� !�� !�� @=\� �� !��!�� !��

/�� !�$�� !��!�� !��

� �� !�� ¥�!� ��

}�� \�$�� "�� }�� {�_�� !��!�~�� #�� !�� !�� _��_{��\��\ � ��¤��!��\��{��¨��!�� ¥�!� ��

��}�� |�]{^��\�$�� "�� }�� {�_�� !��!�� !��!�� !�� !�� ¥�!�� }��ª� ��$�� !��!��!��¥�� /��!��!��!�� !¥��|��

Asking for higher transfer fees than ` 25,000

Regulatory provisions�� $�� }�� $��]�^]� ^��$�� ` §�� !��!�� !��` {��"!��!��\ ��!�� !��\�� \�$�� \�$�� "�� |��@��{�¨�� !�� !�� ` |§��

��$��$��¨]�^]� ^�� ` §��4!��$��¨]�^] �^�� !��#��!�� \�$�� #�� \ ��!��}!�!��|��{� ��!��

SS-VI-44



\�$�� !��!��` |§��

Case laws�� "��\�$�� }��\�!�� Shri Ramanna Co-operative Housing Society Limited vs. S. D. Chittar, Bombay, 1989 C.T.J. 319.��\�$�� \�!��$�� ! ��!��!�� !�� !��$�� /��!��

/��The Poona Hindu Middle Class Co-operative Housing Society Limited vs. Shri Sudhakar Gopal Palsule, 1991 C.T.J. 326,��"��\�$�� }��\�!�� !��!��!�� !��$�� !� �� \�!�� !�� !��!�� !�� \�!�� "�� !�� !��!��!��<��

NOC from society>��!�� @��=�~�� \�� !��|��!��{�_{�� {§�� Z��=�� !�� "��!�� <�� !��

�� ¨�� /��"�� <�� !�� ||]|^�� !¥��|�]|^�

Leakage problems}�� $[�� <�� <�� !�� ~�� !�� !� ��pro rata�� !��

"��!� �� <��

4 ��

�� ~!�� ¥�� !�� ! �� ~!��

\��

4�� ! �<� �� !¥�� {��\� � ��¤��!��\�� !��|��\��

General misappropriation/Frauds��!��!�� !�� <� ��

=��!� �� !�� !��!� � ��!� ��!��

��!��!�� !��{¥�� !�� \�$�� !¥��¨��\"�}��{�_��

SS-VI-45



�� Q�!��<� �� !� �� \�� !�� {�_]�^�� {��\"�}�� ¨�}��\"�}��!�� /��

=�� !��!��!��!�� ! �� !�� !�� !�� !��!�� !�� !��/�� ! �� !�� !��!�� !��"��#��!�� ! ��

��\�$�� "�� }��{�_�� !��$�� !�� ! ��!��!�� !�� !�� ! ��}�� ]suo motu)�� ! �� !� �� "��

Commercial Activity from residential premises�� ! �� !�� !��

4�� !�� !�� !��}�� ¥[ �� "!�� ! � �� }�� @�� !¥�� |� ��

�� ! �� !�� ¤��<��@=\��\�$�� !� ��"�� "��!��!��\��!��

=��{_��4��!��|��_��\� ��!�� /�� Q��"�� !�� !�� /�� !�� !�� !��!�� !�� !�� !�� !�!��!�� \� ��!�� "�� \�!��

Commercial usage obeying code of conduct��!�� !�� !�� !�� Z�!�� !��!��$��@�� !�� !��!��! �� \�� !�� !�� $��¤��!��|�� !�� !� ��(Supreme Court: V Sasidharan vs. Peter and Karunakar and Ors.) and (Supreme Court: Dev Brat Sharma vs. Dr Jagjit Mehta CA No 4216 of 1988).

Non–occupancy charges}��@�� {��}!�!��|��{��!��!�� ¥�� /��¬{��

SS-VI-46



Parking space and garage�� !��=�� 4��}��]�=4}^��!�� !��< ��}�� < ��"� �� !��

¤��< �� !��Z�� <�� ! �� {��< �� {§��\��!��

�!��!�� ! ��< �� < ��\�!��~!��>�� < �� <�� ! �� !� ��}#��

}�� \�!��"��\��!�� !��\�� ~!��! ��< ��!�� < ��!� ��

}��!�$��!�� ]{¨^��!�� ¨��\��!�� £��<��< ��!��|�§��§�§�� £��< ��!��|��

Repairs and Illegal construction/�� !��!�� !� � �� \�� @=\��/��!�� !�� <�� !��$��@��{__��$�� <�� !��

�� "�� ]�� \�!�� ¤�� @��|�{��|��|�� |¨$_$|��_^

�� ! �� !�� !�� !��!�� !�� !�� !��

Nomination and Will in favour of different heirs}�� }�� [�� @�� }�� !��[��"!�� !��!�� !��

��!�� !�� \�!�� ~!��“GATANEKAR vs. GATANEKAR” (AIR 1982 (Bombay)/482).� /�� !�� !��

/�� "�� !�� @��"�� !��<�� !�� !�� !�� !�� !�� Z�� !�� |��}��

SS-VI-47



��"�� £�� \�$�� "�� !�� |��}��/�� !�� !�� !�� \�$�� "�� !�� |��}�� !��!��

Non-formation of Co-operative Society by the builder/�� ! �� $�� \�$�� "�� !��=�� 4�� }�� {�_�� \� � ��\�!��[��!��<�� ! �� \�$�� "�� \�$�� \�!��}�\�$�� ~!� �� "�� \�!�� \�$�� "�� \�$�� "�� $�� ! ��

Right to access documents & transactions of the society��\�$�� "�� }��]{�_�^�� |�� !�� /�� $�� <�� \�� ¥�"��!¥��|��\"�}�� ! �� !� �� !��Q�!�� !�� !��! �� $��` §¥$��/�� !�� !�� !�� !��

Right to make RTI application\�$�� !� ��"�� !�� /�� ]��/^�}��|��§��!�� !��!�� !¥��|]�^�� !�� !�� !�� !�� !�� !��"�� !� �� !¥��ª��¨��\"�}��!�� !�� <�� 4 ��}��}!�� !��/�}��"��{�]{^�

Expulsion of a member in Co-operative Housing Society>��!�� \�$�� !� ��"�� !�� !�� !��

/�� !�� [��¤��!�� §� ��\�$�� "�� }��{�_��!��|¨�|��\�$�� "�� !��{�_{�� $��@��§{��§_��$��

Grounds of expulsion of a member}� �� "�� !��

«� �� < ��"��

«�� !��"��

«� �� !�� "��

«�� !�� Z�� !�� !�� !�� !��

SS-VI-48



«�� $[��"�� \�� !��!��

«� ��!�� !�� }!�� "��

Appeals��\�$�� "�� }��{�_�� !��5

{�� !�� $~!� � ��!��

|�� \�$�� \�!�� !�� {��}��

�� }�� !�� }�� !�� {§|��}�� !�� {§��}��/�� !��"�� §��}�� !� ��!�� ~�� !�� {§|��}��}�� !�� "�� {§|� �� }�� \�� !�� $}��¨��}��!�� }�� "��#��

/�� !�� \�$�� \�!��

�� !�� }��"��#��}��\�!��/��!��\�$�� \�!�� !�� !�� §��}�� !��"�� }��\�!�� ¤�� !��}�� ||_�ª�||�� \�� !� �� /�� \�$�� "�� !��

Section 101 of Maharashtra Co-operative Societies Act, 1960�� <�� !�� !�$�� !��!�� < ��!�� ! � �� !�� !��!�� !��

Conclusion��!��!��!�� !�� ª�� !�� !��!�� !� �� !�� !�� /�� !�� ¥�� !�� !�� ª��!�� !��

�

SS-VI-49

“Facts are the enemy of truth.”

- Don Quixote - “Man of La Mancha”

Members and their Rights and Liabilities


In this article provisions of section 22 to 35 of the Maharashtra Co-operative Societies Act, 1960 (hereinafter referred as ‘The Act’) along with Rules, 19 to 30 of the Maharashtra Co-operative Societies Rules 1961 (hereinafter referred as ‘The Rules’) for the time being in force concerned with the members and their rights and liabilities are being considered. The Act has been recently amended by The Maharashtra Co-operative Societies (Amendment) Ordinance, 2013. The amendments have come in to force with effect from 14th February, 2013.

The definition of the term Society has been aptly amended by clause 2(h) of the impugned ordinance of 2013 to bring out and emphasise the objective of the legislation. The society is now specifically described as an autonomous association of persons, united voluntarily to meet their common needs and aspirations through a jointly owned and democratically controlled enterprise and adhering to the co-operative principles and values.

It is important that before the rights are being claimed by the members and liabilities of the members are being enforced, the ultimate end and objective of the legislation is always kept in foresight and is followed.

A co-operative society is a union of persons established according to the principles of equality, number of whose members is

unlimited and the purpose of which is, by joint performance of economic acts, to improve the financial position of its members or the conditions under which they carry on their profession, by means of either self-help or self-help with Government support, …… (C. P. Khanna vs. V. K. Kalghatgi and others 1970 C.T.D.23).}��!¥��|]{�^]�^��}��means a person who has joined in an application for the registration of the co-operative society which is subsequently registered or a person who has been duly admitted to membership of the Society after registration and includes a nominal and an associate member. A class of sympathizer members has since been excluded pursuant to the amendment of the Act by the ordinance of 2013.

1. Persons who may become members

1.1 As per section 22 of the Act only the following could be admitted as a member in the Society:

(a) An individual who is competent to contract under the Indian Contract Act, 1972;

(b) A firm, company or any other body corporate or a society registered under the Societies Registration Act, 1860;

SS-VI-50

CA Rajesh Muni




(c) A society registered, or deemed to be registered under this Act;

(d) The State Government or the Central Government;

(e) A local authority;

(f) A registered Public Trust.

1.2 Society’s membership is an open membership and every person is entitled to become a member of the society. The word ‘person’ in this section is not confined to a human being but includes a firm, society, company, State Government, local authority and public trust as enumerated in clauses (b) to (f).

1.3 As per Rule 19, no person shall be admitted as a member of a society unless:

(a) He has applied in writing in the form laid down by the society or in the form �� 5

(b) His application is approved by the committee of the society and the resolution of the general body of the members;

(c) He has fulfilled all other conditions laid down in the Act, rules and the bye-laws of the society;

(d) In case of the members other than the individuals, their application for membership is accompanied by a resolution authorizing to apply for such membership.

1.4 A minor may be admitted as a member through his guardian (Fiberglass Pilkington vs. Arun (1977) 1 C.L.C. 80).

1.5 The promoters of a co-operative society become a member only after the registration and not prior to it. They can exercise rights of membership only after registration (Khar-Seven Stars Co-operative Housing Society Ltd., vs. Dr. Lila Parmanand and another, 1973 C.T.D. 386).

1.6 If the interest of any person or a class of �� Z �� <��Z ��

State Government may by publishing a general or special order in the Official Gazette declare that such persons or class of person engaged in or carrying on any profession, business or employment shall be disqualified from being admitted, or for continuing as a member or shall be eligible for membership only to a � � �� "!�� !�� !�� !��so long as such person is engaged in or carrying on that profession, business or employment.

{�� }�� !�� being admitted or to continue as a member when the person carries on profession, trade or employment contrary to the objects of the Society. The decision in regard to applicability of such disqualification of any person shall be �� !�� !�� !�� or his removal from the membership shall be communicated by an order by the Registrar or the person authorised in this behalf of not below the rank of District Deputy Registrar of Co-operative Societies. No decision adverse to any such person shall be given without giving him an opportunity of being heard. Such person shall cease to be a member of the society on expiration of a period of one month from the date of receipt of such order by him. The word �� !�~��ordinary appeal or revision. It does not take the special legislative power conferred on the Government.

1.8 While on one hand an institution like a co-operative society should not be allowed to be exploited by influential persons to form a caucus, it is equally necessary that elements considered undesirable by overwhelming majority of persons should not be foisted on unwilling members to destroy the homogeneity of the organisation by which the very basis of co-operative effort will be put in jeopardy. When majority of the members of the society are of the view that a particular person should not be admitted as a member of the society, than such

SS-VI-51



person should not be forced on the society as a member (President, Nagarpalika Prathamik Shalla Shiksha Servant Co-operative Credit Society Ltd., Buldana vs. Ramchandra, 1967 Bom 319).

1.9 The society must communicate their decision for refusal of the membership to the applicant within three months from the date of receipt of an application of membership or within fifteen days of the date of the decision whichever is earlier. The applicant shall be deemed to have been admitted as a member of the society on the expiry of the period of three months from the date of the application. If any question arises whether a person has become a deemed member or otherwise, the same shall be decided by the Registrar after giving a reasonable opportunity of being heard to all the concerned parties. The Registrar cannot entertain a complaint about the admission of a member when the society has not decided the issue within the permissible time.

2. Open Membership2.1 Section 23 of the Act provides that no society shall, without sufficient cause, refuse admission to membership to any person duly �!�� !�� Act and its bye-laws.

2.2 The bye-laws means bye-laws registered under the Maharashtra Societies Act, 1960 and for the time being in force and includes registered amendments of such bye-laws. The commissioner for co-operation and Registrar, Co-operative Societies Maharashtra by their letter dated 24th December, 2010, has provided approval to Model Bye-laws prepared by the Mumbai District co-operative Housing Federation Ltd. Respective societies could adopt the said model. So however, the society may adopt different bye-laws. The bye-laws are meant for internal management of the Society. Bye-laws as such do not have force of statute but they may be binding between the persons affected by them (Co-operative Credit Bank vs. Industrial Tribunal, Hyderabad, A.I.R. 1970 S.C. 245).

2.3 The bye-laws of the society constitute a contract between a member and the society and unless it is prohibited expressly by any enactment or rules or is contrary to public policy, the bye-laws must govern the members as well as the Society (Y. D. Bole and another vs. Shivaji Mahadev Nagvekar 1964 C.T.D. 122).

2.4 Where bye-laws which are binding on the Society lay down procedure, it is not open to a �� $�� of it on the ground that they were following a certain practice in the previous years. If the Society does not want the procedure prescribed by the bye-laws, the obvious course is not to ignore it altogether but to take steps to amend it after passing and obtaining sanction of the Registrar (The Konkan Co-operative Housing Society Ltd., Bombay and Others vs. Subarao Venkatesh Bhujle and Others 1964 C.T.D.)

2.5 If the society refuses to accept the application from an eligible person for admission as a member, or the payment made by him in respect of membership, under Rule 19A such person could tender an application to the Registrar in the prescribed Form No. ‘H-1’ together with the payment in respect of share money, interest and fees for membership. The Registrar shall forward the application and the amount so paid to the concerned society within thirty days from the date of receipt of such application and the amount. In case the society refuses to admit the applicant as a member, it shall communicate the decision within sixty days with reasons therefore and refund the share money and the entrance fees with the said communication. If the society fails to communicate such decision to the applicant, the applicant shall be deemed to become a member of such society. In this regard also, the decision of the Registrar after providing reasonable opportunity to all the parties concerned, to determine whether a person has become a ��

2.6 Vide provision of section 23(2), a person aggrieved by the decision of the society refusing

SS-VI-52



the admission to membership may appeal to the Registrar within sixty days from the date of the decision of the society. Such appeal as far as possible shall be disposed of by the Registrar within a period of three months from the date of its receipt. The Registrar needs to record the reasons for the delay, if any, in the disposal. In this regard too, the decision of the Registrar is �� !� �� the date of the decision.

|�� "�� |��}�� may admit a nominal or associate member. Such member is not entitled to any share in any form �� "�� Ordinarily, a nominal member shall not have any of the privileges and rights of a member nor bear liability unless as may be provided in the bye-laws of the Society.

2.8 As per Rule 20, a society may admit joint members provided they make a declaration in � � ��in the share certificate shall have the right to vote and all the liabilities will be borne jointly and severally by them as provided in the Act, rules and bye-laws.

2.9 A new section 24A introduced vide the amendment ordinance of 2013 with effect from 14th February, 2013 mandates for every society now to organise a co-operative education and �� It would be organised through State Federal Societies or State Apex Training Institute that the State Government would specify through a �� #�£��!�� and training provided shall ensure effective and active participation of the members in the management of the society; it shall groom talented employees for leadership position and shall develop professional skills through co-operative education and training.

2.10 Every member of the Committee whether elected or co-opted is supposed to undergo such co-operative education and training. The

period for the training and the interval at which it must be taken is not yet prescribed and shall be notified. The Society shall be required to contribute annually to the fund of the said State Federal Societies or State Apex Training Institute towards the education and training. The rate at which the contribution is to be made will also be ��

3. Cessation of membership3.1 Section 25 of the Act specifies the following instances when a person shall cease to be a member viz.:

(a) On his resignation from the membership of the society being accepted;

(b) On the transfer of the whole of his share or interest in the society to another member;

(c) On his death or removal or expulsion from the society.

(d) In case of a member being a firm, company, any other corporate body, society or trust, on its dissolution or ceasing to exist.

3.2 It is only when the resignation of member is accepted he ceases to be a member. A person who ceases to be a member cannot continue as shareholder (Dhondiram Mallappa Shingare vs. Shri Warna Sahakari Karkhana Ltd., 1965 C.T.D. 55).

3.3 As per Rule 21, a member may withdraw from the society after giving three months notice to the Secretary of the Society of his intention to resign his membership of the society. Such resignation shall not be accepted by the society unless the member has paid his dues in full to the society and has also cleared his liability if any as surety to any other member or otherwise. The said withdrawal from membership shall be also subject to the restrictions regarding the maximum amount of share capital that can be refunded in a year by the society.

3.4 As provided in section 25A of the Act, the committee of a society shall remove the name

SS-VI-53



of the person from the register of its members when the member has ceased to be a member ��!�� !�� a member or continues to be a member under the provisions of the Act. The society should issue a prior show cause notice to such members whose names are necessary to be removed. If the Society fails to comply with the requirement, the Registrar shall direct such society to remove the name of such person and the society shall be bound to comply with such direction.

4. Rights and duties of members4.1 Section 26 of the Act has been since substituted by the ordinance of 2013. Sub-section (1) provides for a member to exercise such rights as provided in the Act, rules and bye-laws. However, a member is restricted from exercising the right of a member of the society until the required payment to the society in respect of the membership or for acquisition of such interest in the society is made. In case if the society has decided to increase minimum contribution of a member in respect of the membership, due notice of demand to the member is mandatory with a reasonable time for its compliance by the member.

4.2 Sub-section (2) of section 26 casts the following duties of the member of the society:

(a) To attend at least one general body meeting within a consecutive period of ��5

(b) To utilise minimum level of services at �� !� �� $��society.

4.3 The stipulated duties laid under clauses (a) and (b) for the member are mandatory and must be duly complied by every member. On the failure of any member in compliance of the stipulated duties, the society is required to classify the defaulting member as ‘non-active member’ within sixty days of the end of the

�� !� ��said member, in the prescribed manner about �!��

�� /��!��$�� the society does not attend at least one meeting of the general body and does not utilise the minimum level of services as specified in the bye-laws in the next five years from the date ��!� �� !�� the society, the said member shall be liable for expulsion under section 35 of the Act.

��§� =��!�� provided in said clauses (a) and (b), the non-�� $�� as an active member.

4.6 An appeal can be filed before the Registrar within sixty days from the date of communication of classification of a member being active or non-active member.

4.7 Unless in the circumstances where a member is otherwise ineligible to vote, all the existing members of the society shall be eligible to vote in the election held by the society after 14th February, 2013, the date commencement of the amendment ordinance of 2013.

4.8 The amendment since introduced in the section is a proactive provision to encourage the members to involve themselves in the affairs of their society.

5. Voting powers of members5.1 As per the provisions of section 27 of the Act, a member has only one vote in the affairs of the society and every right to vote has to be exercised personally and not by proxy. In case of an equality of votes, the chairman of the society has a casting vote. It is explained further that in case of votes to more than one candidate from the panel, they shall be considered as one vote only.

5.2 Respective members have eligibility to vote as follows:

SS-VI-54



Sr. No.

In the case of Eligibility for voting right Conditions

1 Individual Member ]�� {�¥|¥|�{�^� /�� individual is an active member

Eligible to vote after completion of the period of two years from the date of his enrollment as a member of the society.

2 Joint holding of the share in the society

First named person in the share certificate if present at the meeting

Only in the absence of the person whose names stand preceded that the next person named in the share certificate who is present in person at the meeting shall have the right to vote.

3 Minor Member Through the guardian Eligible to vote after completion of the period of two years from the date of his enrollment as a member of the society.

4 Society Through one of its ‘Active Members’ appointed to vote on its behalf

Eligible to vote only after completion of the period of three years from the date of its investing any part of the fund in the share of such federal society.

5 Company or body Corporate constituted under any law

Through any of the directors or officers appointed to vote on its behalf

6 Firm Through any of the partners ��

7 Local authority or public trust

Through any of its members or trustees appointed to vote on its behalf

8 Federal Society As regulated by the rules made under the Act and the bye-laws of the Society

5.3 Nominal members do not have the right to vote and are also not eligible to be a member of a committee or for appointment as a representative of the society to any other society. The nominees ��#�� <�� !��

5.4 Pursuant to the amendment to the Act by the ordinance of 2013, the member who has taken loan from the society and is a defaulter as provided in section 73CA(1)(i) of the Act, has no right to vote in the affairs of the society. Earlier the restriction applied only to an agricultural credit society. Now the same applies to all the societies.

SS-VI-55



6. Restrictions on holding of the shares

6.1 Under section 28 of the Act, a member cannot hold more than one-fifth portion of the total share capital of the society or have or claim any interest in the shares of the society exceeding twenty thousand rupees. The �� to the Government or any society or to those members who hold the shares with the previous sanction of the State Government or a Zilla Parishad.

7. Restrictions on transfer or charge on shares or interest

7.1 Subject to the aforesaid restrictions under section 28 of the Act or the rules that may be in force for the limits in holding of the shares, a transfer or charge on the share or interest of a member in the share capital of the society is not permitted by section 29 of the Act unless:

(a) Such shares or interest was held by the member for more than one year;

(b) The transfer is made to a member of the society or to a person whose appeal for admission as a member is allowed by the Registrar under section 23 of the Act or to a person who is deemed to be a member under section (1A) of section 23.

7.2 However with regard to a member who has resigned or who is expelled or who has ceased to be a member on account of his being disqualified by the Act, or by the rules made thereunder or under the society’s bye-laws, the society is permitted to acquire the share of interest of such member in the share capital by paying for it at the value determined in the �� year cannot make payment in excess of ten per cent of the paid up share capital of the society �� preceding. Such limitations of payment in excess of ten per cent does not apply for transfer made by the State Government in the capital of the

society and the Government is permitted to withdraw from the society, its share capital at any time after giving a minimum notice of three months.

7.3 Subject to the provisions of sub-section 3 of section 29 and the bye-laws, the society shall refund the amount within six months from the acceptance of resignation or, as the case may be the date of demand made by the member, heirs or legal representative of the deceased member, the value of share capital held by such member who has resigned or deceased.

7.4 Unless the nominee or claimant of the deceased member’s share is admitted duly as a member, such shares cannot be transferred to him.

7.5 In terms of Rule 24, the transfer of share is not effective unless:

(a) it is made in accordance of the provisions of the bye-laws;

(b) a clear fifteen days notice is given in writing to the society stating the name of the proposed transferee along with his consent, his application for membership and the value proposed to be paid by the transferee;

(c) All liabilities of the transferor due to the society are discharged;

(d) The transfer is registered in the books of the society.

The charge in favour of the society on the share so transferred will continue unless discharged otherwise.

8. Transfer of interest on death of member

8.1 As per section 30 of the Act, on the death of a member of a society, the society shall transfer the share or interest of the deceased member to a person or persons nominated in accordance with Rules 25 and 26 or, if no person

SS-VI-56



has been so nominated, to such person as may appear to the committee to be the heir or legal representative of the deceased member.

8.2 As mentioned earlier, the nominee, heir or legal representative as the case may be of the deceased member is necessary to be duly admitted as a member of the society first. As such, the share of the deceased member is a property which can devolve as per the relevant law of inheritance. Such devolvement may have been attached with certain obligations or liabilities. It is also possible that ultimately the legal heir may not claim or inherit the estate of the deceased. Such person may not wish to be a member of the society or even the society may refuse the membership to the said nominee or �� !��requirement of its bye-laws. Hence the death of a member by itself may not result in transfer of share to the nominee or legal representative or even to the heir. Application of mind by the society through its executive committee for admission of a member is a prerequisite of the transfer of the share of the deceased member.

8.3 Irrespective of the provision under this section or section 22 which mandates a member to be competent to enter into a contract, the share or the interest of the deceased member in the society could be acquired by a minor or person of unsound mind by way of inheritance or otherwise. Under Rule 20(2), the member so admitted will enjoy such rights and liabilities through the legal representatives or guardians as laid down by the bye-laws of the society.

8.4 The nominee, heir or legal representative as the case may be, may instead, require the society to pay him the value of the share or interest of the deceased member. Such value of the share shall be ascertained as per the Rule 23.

8.5 The society may pay all other moneys due to the deceased member from the society to such nominee, heir or legal representative, as the case may be.

8.6 All transfers and payments duly made by a society in accordance with the provision of section 30 following the procedure according to Rule 25(1) (and 3) shall be valid and effectual against any demand made upon the society by any other person.

8.7 It is a settled principle of law that a nomination to a share or interest in a co-operative society is only meant to provide an arrangement between the death of the original member and full administration of his estate. The intention of the section is to provide as to who has to deal with the society on the death of a member and not to create a new rule of succession. Mere nomination does not either vest title or disrupt the title of persons who are interested in the estate of the deceased under the ordinary law of succession. Though in law, the society has no power to determine as to who are the heirs or legal representatives, with a � �� !��!� ��section confers on the society, to determine who is the heir or legal representative of a deceased member and provides for transfer of the shares and interest of the deceased member’s property to such heir or legal representative. The nominee or the legal heir or representatives recognised by the society holds the share and interest of the deceased for disposal of the same in accordance with law. The persons entitled to the estate of the deceased do not lose their right to the same. The section only secures proper discharge to the society without involving the society into unnecessary litigation which may take place as a result of dispute between the heirs. The rights of the heirs or persons entitled to the estate are decided in a court of law. The society will be bound to follow decision of the court in this regard.

9. Share or interest not liable to attachment

9.1 Vide provisions of section 31 of the Act, the share or interest of a member in the capital of a society or in the loan stock issued by a Housing

SS-VI-57



Society or in the funds raised by a society from its members by way of savings deposit, shall not be liable to attachment or sale under any decree or order of a court for or in respect of any debt or liability incurred by the member. Neither the Official Assignee under the Presidency Towns Insolvency Act nor a Receiver under the Provincial Insolvency Act nor any such person or authority under any corresponding law for the time being in force, shall be entitled to or have any claim on such share or interest.

10. Rights of members to see books, etc.

10.1 Section 32 of the Act provides every member of a society with a right to inspect the following:

(a) A copy of the Act, the rules and bye-laws;

]�^� ��!� ��and loss account;

(c) A list of the members of the committee;

(d) A register of members;

(e) The minutes of general meetings;

(f) Minutes of committee meetings and

(g) Those portions of the books and records in which his transactions with the society have been recorded.

10.2 The inspection shall be provided free of �� !� ��!�� !�� under sub-section (2) of section 32.

10.3 As per Rule 27, on the written request from a member and payment of such fees in that regard, the society is obliged to provide to the member, a copy of any of the documents mentioned above in sub-section (1) of section 32. The copies shall be provided within one month from the date of payment of such fees.

11. Certain societies to give pass books to members

11.1 Under section 32-A of the Act, the society which advances loans to its members or such other society which the State Government may notify are required to issue a pass book to each member which shall contain an account of the transactions with the member providing the following details.

(a) date of the transaction,

(b) the amount of loan advanced,

(c) the rate of interest,

(d) the repayment made by the member,

(e) the amount of principal and the interest due and

(f) other details as may be prescribed.

11.2 Entries should be made in the pass book from time to time and it is to be counter signed by such office bearer of the society as may be authorised in that behalf by the Committee. The member is required to present the pass book to �� <��some time for making the entries, a receipt shall be issued by the office bearer to the member in regard thereof. The entries made in the pass book unless otherwise proved, is a prima facie evidence of the amount of transactions of the society with the member.

12. Liability of past member and estate of deceased member

12.1 As per the provisions of section 33 of the Act, a past member is liable for the liability of the society up to the date on which he ceased to be a member.

12.2 The liability of the deceased member up to the date of his death continues for a period of two years from the date of his death.

12.3 In the event of winding up of the society in terms of the provisions of the Act, the liability

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of a past member or of the estate of the deceased member who ceased to be a member or has died is for a period of two years preceding the date of the order of winding up and it continues until the entire liquidation process are completed. However, their liability extends to only the liability of the society as they stood on the date of his ceasing to be a member or the death of the member as the case may be. The liability of the past member or a deceased member to the debts of the society arises only on the winding up of the society under section 102 and not before.

13. Insolvency of member 13.1 As per section 34 of the Act, dues of a society from a member in solvency proceedings against him shall rank in order of priority next to the dues payable by him to Government or to a local authority.

14. Expulsion of members14.1 A society under section 35 of the Act, may expel the member for his acts which are detrimental to the interest or proper working of the society.

14.2 The right to determine whether a member should be expelled is available only to the society and not to any other authority including the State Government.

14.3 As per Rules 28 and 29, a resolution has to be passed by majority of not less than three-fourths of the members entitled to vote and present at the general meeting held for the said purpose.

14.4 Such resolution could not be considered valid unless the member concerned is given an opportunity of representing his case to the General Body.

14.5 The expulsion of a member involves certain rights including right to property and therefore no resolution expelling a member can be passed unless he has been given an opportunity to explain charges and the action

intended to be taken. No resolution shall be effective unless it is approved by the Registrar. The Registrar in proceedings contemplated in the matter of giving approval to resolution of expulsion of member has to hold inquiry after notice to member concerned and must give him hearing. The Registrar is not only to look at the formalities but he has also to consider the merits of the case against the member sought to be removed. Exercising of such powers by the Registrar could be only in case where the order under revision are either totally unjust or unreasonable or in breach of principles of natural justice or in violation of legal requirements involved (The Bombay Suburban District Government Servant Co-operative Housing Society Ltd. vs. D. G. Gawand, 1981 C.T.J. 197).

14.6 Rules 28 and 29 lays the situation under which a member could be expelled. A member is liable to be expelled when he is:

(a) persistently in default in payment of society’s dues,

(b) persistently fails to comply with bye-laws governing his dealings with the society,

(c) bringing disrepute to the society and acting in detriment to the interest and proper working of the society.

14.7 Under Rule 29(2) the resolution of the society for expulsion of member shall be effective from the date of the approval by the Registrar.

14.8 The member so expelled shall not be eligible for readmission as a member of that society or for admission as a member of any other society for a period of one year from the date of such expulsion. The Registrar on an application made by the society and in special circumstances, may sanction the readmission or admission in the other society before the expiry of said period of one year for such expelled member to be admitted as a member of the said society or of any other society.

�

SS-VI-59

Transfer, Transmission, Nomination, Gift and Release relating to CHS in Maharashtra


First of all, what is the difference between Transfer of shares and Transmission of shares in a CHS?Transfer of shares in a CHS together with the interest of the member in the f lat allotted to him as a member of the society can be by way of sale or by gift whereas transmission takes place on demise of the member either according to the Will of the deceased member or according to personal law of succession applicable to the deceased member, in absence of his valid Will.

In case of transfer by sale, proper sale deed is required to be executed by and between the sel ler and the buyer, proper stamp duty as per the market value of such flat as specified in the Stamp Duty Ready Reckoner is required to be paid and the sale deed also needs to be registered as required under The Registration Act,1908. Further, as per the bye-law of the Society, transfer premium upto maximum of ` 25,000/- is payable to the Society.

Whereas in case of transmission no such documentation is required and as such, no stamp duty is payable as well no transfer premium is payable to the Society.

Procedure for Transfer of shares together with the interest of the member in the flat allotted to him in the CHS Section 29 of the Maharashtra Co-operative Societ ies Act , 1960 and Rule 24 of the Maharashtra Co-operative Societies Rules, 1961 and relevant Bye-laws of the Society are the major provisions relating to the transfer of flats.

Under Section 29 (2) (a) of the Act, a member has to hold the shares for a minimum period of one year before he transfers his shares together with his interest in the f lat . As per Rule 24 of Maharashtra Co-operative Societies Rules, 1961 no transfer of shares shall be effect ive unless i t is as per the bye-laws adopted by the Society. Further important requirements for transfer are as under:

(i) Clear fifteen days' notice in writing is required to be given to the Society indicating therein the name of the proposed transferee, his consent and the value proposed to be paid by the transferee

(ii) All dues and liabilities of the transferor due to the Society including any charge

SS-VI-60

V. R. Ghelani, Tax Consultant & Legal Advisor

Transfer, Transmission, Nomination, Gift and Release relating to Co-operative Housing Societies

in the State of Maharashtra



in favour of the Society on the share so transferred, are to be discharged

(iii) Resignation by the original member

(iv) Application for membership of the Society by the transferee

(v) Payment of Transfer fee as may be prescribed under the bye-laws of the Society

(vi) Payment of Membership fee by the proposed transferee as may be prescribed under the bye-laws of the Society

(vii) Transfer premium at the rate fixed by the general body, but within the limit prescribed by circulars issued by the Government from time to t ime. As per the circular dated 20/12/1989 the transfer premium should not exceed ` 25,000/-

(viii) Copy of duly registered agreement with appropriate stamp duty paid to be submitted to the Society

(ix) Declaration by transferee to use the flat for residence purpose only

(x) Undertaking to discharge all liabilities to the Society

(xi) If the transferor has availed of any loan for purchasing the flat from any bank, housing financing agency, no objection from that bank or housing financing agency is required to be submitted to the Society.

The Secretary should examine the documents received and verify as to the compliance of the Act, Rules and bye-laws of the Society and place the same before the Managing Committee of the Society for its approval. If the application for transfer is rejected, the secretary has to communicate the decision

to the applicant within 15 days from the date of the decision or within 3 months from the date of receipt of applicat ion, whichever is earlier. If the applicant does not receive intimation from the Society within 3 months from the date of submission of application, it is deemed that the application for membership is accepted.

Transmission of shares together with the interest of the member in the flat allotted to him in the CHS, on demise of a member(i) I f the society has received a val id

nomination from a deceased member, the Society is bound to transfer the shares to the nominee, unless there is any restraint from court of law. However, such nominee does not become owner of the shares or the flat, as he holds the same only as a trustee of the true legal heir/s of the deceased member.

(ii) I f the member dies leaving behind him his val id Wil l , then his shares together with the interest in the flat of the deceased member is to be transferred by the Society to the name of the person who inherited the same under his Will, subject to production of probate of the Will by such heir. However, in absence of a probate, if al l the other legal heirs provide an affidavit to the Society declaring that they have no objection to the transfer of shares together with interest in the flat of the deceased member, to the said heir and al l the heirs provide undertaking in writ ing by way of indemnity bond, agreeing to indemnify the Society in case of any claims from other sources, then the Society will transfer the shares and flat to the said legal heir as per the Will.

SS-VI-61

Transfer, Transmission, Nomination, Gift and Release relating to CHS in Maharashtra


(iii) If a member dies without a nomination and without a valid Will, the Society is empowered to transfer the shares together with interest of the deceased member in the flat allotted to him, to the person, who in the opinion of the Managing Committee, is the heir or legal representative of the deceased member. Within one month from information of his death, the Society shall invite claims and objections to the proposed transfer of share together with interest of the deceased member in the flat. A notice to this effect to be placed on the notice board of the Society and to be published in two local newspapers and all costs thereof to be borne and paid by the legal heir. If no claims and objections received, the Society will transfer the shares together with interest of the deceased member in the flat to said legal heir after obtaining proper indemnity bond from such legal heir agreeing to indemnify the Society in case of any claims from other sources.

All the above cases of transfers are treated as “transmission” and hence no documentation l ike sale deed etc . is necessary to be executed. Therefore, no stamp duty or any transfer premium is required to be paid.

Nomination made by a member of the CHSA member can nominate any person/s as his nominee/s by submitting the prescribed form for nomination as per the bye-laws adopted by the Society. A member is entitled to revoke the nomination at any time and make a fresh nomination.

Under Sect ion 30 of the Maharashtra Co-operative Societies Act, 1960 a nominee is entitled to the membership of the Society in place of the deceased member. When a

nominee applies for membership, the Society is bound to admit him as a member. It has been held that when a nomination is made in accordance with the rules and bye laws of the Society, the Society is not bound to make any inquiry or to invite any objection and is bound to transfer the shares or interest of a deceased member in the name of such nominee or nominees and no other person (Sindh Co-operative Housing Society Ltd. vs. Gangabai. 1968 C.T.D. 11).

The Division Bench of the Bombay High Court has held that the society is not concerned whether the nominee is a relative of the deceased. Once there is a valid nomination, the society is obliged to deal with the nominee. The refusal to register nomination in favour of named nominee on the ground that he is not a legal heir or representative of the deceased was held contrary to the Act. (Om Siddharaj Co-Operat ive Housing Society vs . State o f Maharashtra1998 (4) Bom. C.R. 506)

I t is very clear on the plain reading of section 30 that the intention of the section is to provide for who has to deal with the society on death of a member. The purpose of the nomination is to make certain the person with whom the society has to deal and thereby to avoid confusion in case there are disputes between the heirs and legal representatives and to obviate the necessity of obtaining legal representation and to avoid uncertainties as to whom the society should deal to get proper discharge. The nominee holds the share and interest of the deceased for disposal of the same in accordance with law. It is only as between the society and the nominee that the relationship of the society and its member is created and this relationship continues and subsists only till the estate is administered either by the person entitled to administer the same or by the court or the rights of the heirs or the persons entitled

SS-VI-62



to the estate are decided in a court of law. Thereafter , the society wil l be bound to follow such decision. (Gopal Vishnu Ghatnekar vs . Madhukar Vishnu Ghatnekar AIR 1982 Bom.482)

In view of the above legal posit ion, the nominee could not be said to have become the owner of the property of the deceased member qua the other heirs merely by virtue of the nomination. But between the society and the nominee, relationship of the Society and its member is created. Therefore, the nominee is enti t led to enjoy the r ights of a ful l - f ledge member, on his making application for membership of the society. With the result, he being a member of the society he can be a candidate for the post of a Managing Committee member.

I f there are more than one nominee nominated by the deceased member, al l such nominees must make a joint application and indicate the name of the nominee whose name should stand first in the share certificate. That person will be treated as the member and others will be treated as associate members. If the nominees desire that the shares are to be transferred to only one nominee, they should inform the Society accordingly. Further, the nominees should execute an indemnity bond agreeing to indemnify the Society against any adverse

Gift of shares together with the interest of the member in the flat allotted to him in the CHSWith effect from 1/05/2002, if gift deed is executed in favour of family member being husband, wife, brother or sister of the donor or any lineal ascendant or descendant of the donor, then the stamp duty payable is 2%

of the market value of the flat. In all other cases, stamp duty payable will be as per Article 25 under Schedule I of the Bombay Stamp Act, 1958.

A gift deed is also required to be registered under the Registrat ion Act , 1908. The registration fee is 1% of the market value of the f lat or Rs. 30,000/- whichever is less. Other formalities and procedures for application of membership of the Society by the Donee are required to be completed as prescribed in the Act, Rules and bye-laws of the Society.

Release of share in case of co-owners of a flat in a CHSIf there are more than two co-owners of a f lat in a CHS, a co-owner can release his share in the flat by executing a proper Release Deed in favour of the other co-owner/s. If the flat is ancestral property and the Release is in favour of other co-owners who are the legal heirs of this ancestral property, then stamp duty payable will be Rs. 200/- only. In all other cases, stamp duty payable will be as per Article 25 under Schedule I of the Bombay Stamp Act, 1958. A Release Deed is required to be registered under the Registration Ac, 1908.

Suggestion by the AuthorEvery Society must insist that each member should file valid nomination form as per the Bye Laws of the Society. Each member should also make a Will under which he should bequeath the shares and the flat to the person nominated by him. This would avoid legal complications and disputes after his demise amongst the legal heirs of the member. The Society will also find it easy to accept the nominee as its member without any difficulty.

�

SS-VI-63

Provisions of FEMA & Income-tax Act Relevant for Acquisition/Transfer of Immovable Property ...


IntroductionRecently India had emerged as a hot spot for investment in real estate by NRIs and Foreign nationals of India Origin (popularly known as PIOs). At a time, when most of the world economies are passing through recessionary trends, India as a growing economy with positive GDP growth holds promise as the safest bet for investment in the real estate sector with growth potentials.

Under the FERA regime, buying or selling of immovable property was governed by the citizenship of a person. Accordingly, a foreign citizen was required to obtain prior approval from RBI for buying or selling of properties in India even though he happened to be a resident of India. Under FEMA, the thrust is on residential status, meaning a foreign citizen ��!� �� resident of India or is deemed to be a resident of India can buy and sell properties without prior approval from RBI subject to general restrictions on citizens of eight countries (viz. citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan) and restriction on buying agricultural land / plantation property / farm house. In order to be deemed as a person resident in

India, from FEMA angle, the person would need to meet the criterion for residency defined in Section 2(v) of FEMA.

Section 195 of the Income-tax Act casts an obligation on a purchaser to deduct tax at source from the purchase consideration in respect of capital gains of the non-resident seller. This withholding tax obligation applies to individual/ HUF purchasers who otherwise do not have any TDS obligation under other provisions of the Act. The purchaser, in order to determine capital gains chargeable to tax in the hands of the non-resident seller, will need details of the cost, the year of purchase, cost of improvement, if any, stamp duty valuation, etc., in respect of the property proposed to be purchased.

This article deals with important provisions, issues and compliance requirements under FEMA while touching upon provisions & issues under Income-tax Act relating to purchase/sale of immovable property by NRIs/PIOs. This issue is a Special Story on The Maharashtra Co-operative Housing Societies Act; hence this article is restricted to provisions relating to acquisition/transfer of immovable properties under FEMA & Income-tax Act and does not deal with provisions/issues relating to construction/ development projects.

SS-VI-64

CA Natwar Thakrar

Provisions of FEMA & Income-tax Act relevant for Acquisition/Transfer of

Immovable Property by/to Non-Residents



A. Issues under FEMAAcquisition of immovable property in India by persons resident outside India is regulated in terms of Section 6(3)(i) of FEMA as well as by regulations contained in Notification No. 21 - Foreign Exchange Management (Acquisition and transfer of immovable property in India) Regulations, 2000 issued by RBI as amended from time to time.

Under FEMA, the thrust is on residential status. Non-residents are categorised as (i) Non- Resident Indians (NRIs) or (ii) a foreign national of Indian Origin (PIO) or (iii) a foreign national of non-Indian origin.

Meaning of NRI / PIO:– Section 2 of the FEMA deals with various

�� /��*�� /�� ¤�/��*�� !�� /�� ¤�=/�� $�� @�� the term Non-resident Indian “NRI”.

�� @�/�� 4>�}�Notification No. 21 which is a specific notification dealing with acquisition/ transfer of immovable property in India. ��4>�}�@�� @��§�� @�/��to mean a person resident outside India who is either a citizen of India or person of Indian origin. The term “NRI” is also defined in FEMA Notification No. 13 to mean a person residing outside India, who is a citizen of India. Regulation 3 of @�� @��|{�� relating to acquisition / transfer of immovable property in India by person resident outside India who is a citizen of India. Therefore “NRI” for the purpose of acquisition/ transfer of immovable property in India will exclude PIO.

�� ¤��/�� =� � ��¤/=�� in Regulation 2(c) of FEMA Notification No. 21 to mean an individual (not being

a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan) who (i) at any time, held an Indian Passport, or (ii) who or either of whose father or mother or whose grandfather or grandmother was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955). Regulation 4 of Notification No. 21 deals with provisions relating to acquisition / transfer of immovable property in India by PIOs.

Therefore, one should bear in mind different �� @�/��¤/=�� !��

Person Resident in India�¤�� /�� "�� 2(v) of FEMA.

In respect of an individual, the definition of person resident in India under Section 2(v)(i) would mean to be a person residing in India for more than one hundred and eighty-two days �!� ��!�� but does not include –

(A) a person who has gone out of India or who stays outside India, in either case –

(a) for or on taking up employment outside India, or

(b) for carrying on outside India a business or vocation outside India, or

(c) for any other purpose, in such circumstances as would indicate his intention to stay outside

(B) a person who has come to or stays in India, in either case, otherwise than –

(a) for or on taking up employment in India, or

(b) for carrying on in India a business or vocation in India, or

SS-VI-65



(c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period.

In other words, to be treated as 'a person resident in India' under FEMA, a person has not only to satisfy the condition of 182 days ��!� ��!�� year, but must also satisfy the purpose test. The reasons for stay in India, type of visa, etc. will play a vital role in determination of the residential status of an individual in India.

A foreign national who becomes a person resident in India does not require approval from RBI for purchase of immovable property in India from FEMA angle, but approvals, if any, prescribed by other authorities, state government, etc., will have to be obtained.

Many a time, questions are asked as to what formalities one needs to comply for change in the residential status? Well, RBI does not determine the residential status. The residential status is determined automatically by operation of law. The onus is on the individual to prove his / her residential status, if questioned by any authority.

The following examples explain the provisions of FEMA in relation to residential status in a better way.

1. Mr. X leaves India on 1st January, 2013 for taking up employment outside India for �� status?

Mr. X will be considered a non-resident, w.e.f. 1st January, 2013 irrespective of the fact that he was residing in India for more than 182 days in the preceding financial year 2011-2012 in view of exception (A)(a) ��

2. Mr. Mark, a foreign citizen of non-Indian origin sets up a proprietary concern in India on 1st June, 2012 for carrying on

business. What will be his residential ��!�� |�{|$|�{��

Mr. Mark will be considered resident in India, w.e.f. 1st June, 2012 as he came to India for carrying on business, irrespective of the fact that he had not at all stayed in /�� !� �� 2011-2012. His situation is covered by �� ]�^��

3. Mr. Y, staying in Dubai for past several years came to India on 1st May, 2012 for medical treatment. He has not visited India during F.Y. 2011-2012. He is planning to return to Dubai after medical treatment. Doctors have advised him to stay in India up to 31st October, 2013. What will be his residential status under 4>�}�� |�{|$|�{��ª�2013-2014?

Notwithstanding his stay exceeding 182 days in India during the current year, Mr. Y was not present in India for 183 days or more during the preceding financial year 2011-2012. Hence he continues to be a non-resident during the financial year 2012-2013. His situation is also �� ]�^��

His situation for financial year 2013-2014 is covered by exception B(b) of the definition � ��Q�� /�� purpose and period. Hence he will continue to ��$�� !� �� |�{�$2014 as well.

Acquisition of Immovable Property– RBI has granted general permission for

purchase of residential/commercial property ��@�/¥¤/=� ��!� ��!��Z�� a Co-operative Housing Society. However, NRI/PIO cannot acquire agricultural land / plantation property / farm house in India by way of purchase or gift.

– No documents are required to be filed with RBI by NRI/PIOs. However, in case

SS-VI-66



��! � � �� in form IPI with RBI within 90 days from the date of acquisition is mandatory.

– PIO can acquire any immovable property in India other than agricultural land / farm house/plantation property by way of gift from a resident in India or from NRI/PIO.

– PIO can acquire any immovable property in India by way of inheritance from a person resident outside India who had acquired such property in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of these Regulations or from a person resident in India.

– Foreign national of non-Indian origin cannot be added as a second holder to a residential / commercial property purchased by NRI/PIO.

– There are no restrictions on number of residential / commercial properties that NRI/PIO can purchase for own use or investment. However, trading/ speculation in real-estate are completely prohibited.

– A foreign national of non-Indian origin cannot acquire immovable property in India. These restrictions would not apply where a person is deemed to be resident in India or where the immovable property in India is proposed to be acquired by way of a lease for a period not exceeding 5 years.

However, it should be noted that citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan cannot acquire or transfer immovable property in India, (other than on lease, not exceeding five years) without prior permission of RBI even when they are deemed to be resident in India.

– A foreign national of non-Indian origin who is resident outside India cannot acquire residential / commercial property in India by way of gift.

Sale/Transfer of Immovable Property– NRI can sell property in India without RBI

approval to –

i. a person resident in India or

ii. an NRI or

iii. a PIO

– PIO can sell property in India to –

i. a person resident in India.

ii. an NRI or

iii. a PIO – with the prior approval of Reserve Bank

– Foreign national of non-Indian origin including a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan can sell property in India with prior approval of Reserve Bank to –

i. a person resident in India

ii. an NRI

iii. a PIO

– NRI / PIO can sell agricultural land / plantation / farm house in India to a resident in India who is a citizen of India.

– PIO can transfer residential or commercial property in India by way of gift to a person resident in India or to a person resident outside India who is a citizen of India or PIO.

– Foreign national of non-Indian origin resident outside India would require prior approval of RBI to sell agricultural land / plantation property / farm house acquired in India.

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Mortgage of Immovable Property in India – NRI / PIO can mortgage residential /

commercial property to an authorised dealer / housing finance institution in India.

– A foreign national of non-Indian origin resident in India or outside India, cannot mortgage his residential / commercial property in India, without the prior approval of RBI, to a party in India or abroad.

Mode of payment for purchase of Immovable Property in India – NRI / PIO can purchase residential /

commercial property in India out of funds remitted to India through normal banking channel or funds held in NRE / FCNR (B)/ NRO account.

– No part of the purchase consideration can be paid outside India. No payment of purchase price can be made either by travellers cheque or in foreign currency.

– Refund of application / earnest money / purchase consideration made by the house building agencies / seller on account of non-allotment of flat / plot, cancellation of bookings / deals for purchase of residential / commercial property together with interest, if any (net of income tax payable thereon) can be credited to NRE account provided original payment was made by way of inward remittance or by debit to NRE / FCNR (B) account.

Borrowing for purchase of Immovable Property in India – NRI / PIO can avail housing loan/ loan in

rupees from authorised dealer or housing finance institution in India approved by the National Housing Bank for purchase / repairs / renovation / improvement of the residential accommodation / commercial property.

– NRI can also avail housing loan in rupees from his employer in India, subject to certain terms and conditions given in Regulation 8A of Notification No. FEMA 4 and A.P. (DIR Series) Circular No.27 dated October 10, 2003.

Repatriation of sale proceeds of Residential/Commercial Property– When the property was acquired out

of foreign exchange sources i.e. out of amount remitted through normal banking channels / by debit to NRE / FCNR (B) account, then the amount to be repatriated should not exceed the amount paid for the property in foreign exchange (computed in terms of the same foreign currency) received through normal banking channel or by debit to NRE account (foreign currency equivalent, as on the date of payment) or debit to FCNR (B) account.

Example:Mr. A sold a flat in a Co-operative Housing Society for ` 605,00,000 in financial year 2013 which he had acquired for ` 180,00,000 being proceeds of US $ 100,000 remitted by him from abroad in financial year 1985. This was his only property in India. He sold this flat for ` 605,00,000/- equivalent to US $ 110,000 in 2013. Mr. A seeks your professional advice on the amount that he can remit outside India.Capital gains in terms of foreign currency by Mr. A is as follows – ` US $Sales ( $1= ` 55) in 2013 605,00,000 110,000 Purchase ($1= ` 18) in 1985 180,00,000 100,000 425,00,000 10,000

Mr. A has gained US $ 10,000 in terms of foreign exchange of US $ 100,000 invested by him.Mr. A will be entitled to remit US $ 100,000 out of sale proceeds of US $ 110,000 being original amount invested in foreign currency under ��!�� _]�^��@�� @��|{�� entitled to remit balance US $10,000 being capital gains in foreign currency under US $ 1 Million "��

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– Repatriation of sale proceeds of residential property purchased by NRI / PIO out of foreign exchange is restricted to two such properties. Sale proceeds of additional houses (more than two) and capital gain can be repatriated under US $ One Million Scheme, which is available per financial year.

– Sale proceeds of the property acquired out of local rupee resources (inclusive of sale proceeds of assets acquired by way of inheritance or settlement) by NRI /PIO

also can be remitted outside India under US $ One Million Scheme subject to tax compliance.

Renting of Immovable Property– NRI/PIO can rent out residential /

commercial property purchased out of foreign exchange / rupee funds, if the same are not required for immediate use. Rent received, being current income can be repatriated abroad after payment of applicable taxes.

FEMA PROVISIONS FOR INVESTMENT IN REAL ESTATE BY NRI/ PIO AT A GLANCE

NRIs PIOs Others

Acquire Reg. Reg. Reg.

Agricultural Land, Plantation, Farm House

3(a) No except Inheritance from PROI/PRII.

Restriction on use/ repatriation possible

4(c) No except Inheritance from PROI/PRII

Restriction on use/ repatriation possible

5 Branch

In accordance with applicable law

SourceRemittances from abroad

Form IPI has to be filed with RBI within 90 days

Repatriation

Allowed

Diplomatic �� Government

Source

Remittances from abroad

Approval from Ministry of External Affairs

Repatriation

Allowed

Other Land 3(a) Yes 4(a)

4(c)

4(b)

Purchase

Inheritance

Gift from NRIs, PIOs & PRII

Transfer 5(a)

Agricultural Land 3(b) Sale or Gift to PRII only

4(e) Sale & gift to PRII who is citizen of India

Other Land Gift, Sale or inheritance to NRIs, PIOs & PRII

4(d)

4(f)

Sale to PRII

Gift to NRIs, PIOs & PRII

Repatriation 6(a) &(b)

Up to Original Investment in FC and for Residential Property – maximum for 2 houses

Balance under US $ 1 Million Scheme

Up to Original Investment in FC and for Residential Property – maximum for 2 houses

Balance under US $ 1 Million Scheme

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B. INCOME-TAX PROVISIONSPurchase of Immovable Property by NRI/PIO’sPurchase of Immovable Property for an inadequate consideration is income – Clause 9 of the Finance Bill 2013 seeks to amend existing Section 56 of the Income-tax Act to provide that where purchase consideration in respect of immovable property is less than the stamp duty valuation by an amount exceeding rupees fifty thousand, the differential value will be taxable in the hands of the purchaser !�� \��!��]�^�of Explanation to S. 56(2)(vii).Therefore, if the consideration is less than valuation adopted for the purpose of stamp duty, both buyers as well as sellers will have to pay tax. Example:Mr. X sells his property to Mr. Y for ` 5 cr. where stamp duty value is ` 6 cr. What will be the tax liability of both Mr. X and Mr. Y?Mr. X will be deemed to have received sale consideration of ` 6 cr. Under S. 50C of the Income-tax Act and will be required to pay tax based on this deemed sale price under same head of income. Whereas, Mr. Y will be deemed to have received other income of ` 1 cr. under proposed S. 56(2)(vii)(b) of the Act and will be required to pay tax on ` 1 cr. This is a case taxation of the same income in the hands of two persons. However, there is no remedy available under the Act.Tax withholding on purchase of immovable property exceeding ` 50 lakh in value – Clause 43 of the Finance Bill 2013 seeks to insert new Section 194IA to the Income-tax Act to provide for one per cent tax withholding in respect of purchase of immovable property from a resident transferor at the time of credit or payment whichever is earlier where the total amount of consideration for the ��!��<��The provision restricts itself to payments made to resident transferors since non-resident transferors would be governed by the provisions S. 195. There is no proposal as of now to seek a certificate for NIL or lower deduction of tax at source by making an application to Assessing Officer. Therefore,

1% deduction will be required in all cases where purchase consideration exceeds ` 50 lakhs.

Sale of Immovable Property by NRI/PIO'sSection 195 requires any person responsible for paying to a non-resident any sum chargeable under the provisions of the Income-tax Act (not being income chargeable under the head “Salaries”) to deduct income tax thereon at the rates in force. The liability of the payer to deduct tax at source is irrespective of the legal status or liability under other provisions of the Act. Therefore, individuals /HUFs not covered by provisions of S. 44AB (i.e., Tax Audit requirements) during the last previous year and hence not liable to deduct tax under normal provisions of the Act have an obligation to deduct tax under S. 195 in respect of payment made to non-residents which are chargeable to tax in India. The objective of the provisions is to recover tax liabilities of the non-residents at source to save tax department from the hassles of recoveries later on. Tax deduction will be “at the rates in force” at the time of deduction i.e., the rates prescribed under the relevant Finance Act [Section 2(37A)(iii)] or the �� !��virtue of provisions of section 90 or an agreement �� \��#��!�� 90A. When the non-resident payee does not hold a valid Permanent Account Number (PAN), section 206AA of the Act provides that tax withholding shall be at the highest of the following three rates –��

Act, orb. At the rates in force (includes DTAA rates), orc. At the rate of twenty per cent Deduction of tax at the prescribed rate on gross amount may create undue hardship and may not be acceptable to the non-resident as the tax is required to be withheld on a sum which is chargeable to tax i.e. capital gains. In order to determine capital gain tax liability, the purchaser will require details such as the year & cost of purchase, the cost of improvement, stamp duty valuation, etc. in respect of the property intended to be purchased from non-resident along with his PAN.

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Any shortfall in tax withholding will cast an obligation on the purchaser to pay tax liability of the non-resident seller. This may create considerable hardship.

Options available to payer/payee to comply with obligation of Deduction of Tax at Source

A. Application u/s. 195(2) by the payerNumerous judicial pronouncements have debarred computation of chargeable portion of the payment made by the payee without reference to the Assessing Officer. Provisions of section 195(2) enables a payer to make an application to the Assessing Officer for determination of chargeable portion of the payment in the hands of the non-resident for the purpose of withholding tax at source. @�� !��section 195(2). The Assessing Officer is required to follow Rule 10 of the Income-tax Rules to determine the income element in the case of such applications.

B. Application u/s. 197Under section 197 both payer as well as payee is �� <�� }�� =��for authorising the payer for NIL or lower rate of deduction of tax at source. The application shall be made in prescribed Form No. 13.

C. Application u/s. 195(3) by the payeeSection 195 (3) provides a machinery under which a ��$�� /��$��=�� !�� <��payment without any deduction of tax at source.A non-resident is eligible to make an application under section 195(3) only if the following conditions as laid out in rule 29B of the Income-tax Rules are �� (i) the applicant has been regularly assessed to

income-tax in India and has furnished the returns of income for all assessment years for which such returns became due on or before the date on which the application is made;

(ii) the applicant is not in default or deemed to be in default in respect of any tax (including advance tax and tax payable under section 140A), interest, penalty, fine, or any other sum payable under the Act;

(iii) the applicant has not been subjected to penalty under clause (iii) of sub-section (1) of section 271;

(iv) where the person concerned is not a banking company –(a) it has been carrying on business or

profession in India continuously for a period of not less than five years immediately preceding the date of the application, and

(b) the value of the fixed assets in India of such business or profession as shown in its books for the previous year which ended immediately before the date of the application or, where the accounts in respect of such previous year have not been made up before the said date, the previous year immediately preceding that year, ��<��!��

��}�� =�� !�� !¥��195(3) authorising the recipient to receive the income without deduction / lower deduction of tax. �� !��!�� {�§]�^� ��an “Order” and therefore is not appealable.

D. Certificate from a Chartered Accountant for effecting remittance

In order to mitigate the difficulties faced by the �� !¥��{�§]|^��the payees u/s. 195(3), the CBDT has prescribed a Form under Rule 37BB for Chartered Accountant’s \�� 4��@��{§\��!��< ��from the payer to allow the authorised dealers to make remittances to non-residents.Despite the fact that Form 15CB being elaborate to the extent that the payer would determine the sum chargeable, the revenue authorities contend that a person making remittance to a non-resident can rely ��\}�� chargeable to tax in India.

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The above view was based on the revenue’s understanding of the ruling of Hon’ble Supreme Court of India in the case of Transmission Corporation of AP Ltd. vs. CIT [1979] 239 ITR 587, where the question that came up for consideration was whether it was obligatory for the remitter to deduct tax at source on the entire payment if it had not applied to the Assessing Officer under section 195(2) for deduction of tax at a lower or nil rate of tax. The Hon’ble Supreme Court opined that even when a fraction of income is embedded in the total payment, section 195(1) will apply and tax will have to be deducted at source. However, the Hon’ble Supreme Court further explained their observation in the case of Transmission Corporation of AP Ltd. vs. CIT [1979] 239 ITR 587 in the case of GE India Technology Centre (P) Ltd. vs. Commissioner of Income-tax reported in [2010] 193 Taxmann 234 (SC). The Hon’ble Supreme Court made following important observations at Para 7 of the ruling – “While deciding the scope of section 195(2) it is important to note that the tax which is required to be deducted at source is deductible only out of the chargeable sum. This is the underlying principle of section 195. Hence, apart from section 9(1), sections 4, 5, 9, 90, 91 as well as the provisions of the DTAA are also relevant, while applying tax deduction at source provisions. Reference to the Income-tax =��]��"^�!�� {�§]|^��{�§]�^�� by the non-resident or by the resident payer is to avoid any future hassles for both resident as well as non-resident. In our view, sections 195(2) and 195(3) are safeguards. The said provisions are of practical importance. This reasoning of ours is based on the decision of this court in Transmission Corporation in which this court has observed that the provision of section 195(2) is a safeguard. From this it follows that where a person responsible for deduction is fairly certain then he can make his own determination as to whether the tax was deductible at source and, if so, what should be the amount thereof.” In light of the above observations by the Hon’ble Supreme Court, it is clear that it is not obligatory for the payer to make an application under section

195(2) even when a remittance is chargeable to tax including composite payment when it is possible to ascertain the element of income embedded in the remittance with certainty. The remitter therefore �� !��However, it is possible that above contention may ��!��!�� drawn litigation. Any default in tax withholding will make the payee liable to pay taxes which are not /short deducted along with interest and penalties.

Refund of excess TDS to the deductorIn certain situations referred to in Circular 7 of 2007 dated 23-10-2007, where no income has accrued to the non-resident due to cancellation of contract or where income has accrued but no tax is due on that income or tax is due at a lesser rate, etc. due to which genuine claim for refund arises, the excess amount can be refunded to the deductor with prior approval of the Chief Commissioner of Income-tax or the Director General of Income-tax concerned.

C. Wealth Tax ProvisionsIf a non-resident holds more than one house, he will be required to pay Wealth tax in respect of additional houses at the rate of 1 %, if the market value of the additional house(s) exceeds ` 30 lakhs as on the valuation date. However, in case the additional house(s) are rented for residential purposes for a period of at least 300 days during the �� of Wealth Tax.

ConclusionIncome-tax Act has prescribed various time consuming and complicated compliance requirements resulting in to considerable hardships for deals in real estate by/ with non-residents. " �� !�� !��which can give fillip to investments in housing / commercial properties and hold the potential of giving boost to the real estate sector which of late is showing some sign of fatigue. Multiplier effect of positive steps can provide boost to this important sagging sector of the economy.

��

SS-VI-72



1. Meaning Under section 2(19) of the Income-tax Act, 1961 (“the Act”), a co-operative society is defined as a co-operative society registered under the Co-operative Societies Act, 1912 or under any other law for the time being in force in any State for the registration of co-operative societies. ��!��!��$�� society is available only after registration under the applicable co-operative law for registration.

So Income-tax recognizes a co-operative society when it is

1. Registered under Co-operative Society Act, 1912, or

2. Any other law in any state for registration of co-operative society.

So, the co-operative society registration is necessary for claiming deduction u/s 80P of the I. T. Act.

In this regard, it should also be noted that Regional Rural Bank, although registered under Regional Rural Bank Act, 1976 are also regarded as co-operative society as per CBDT Circular 319 dt. 11-1-1982. However, this has been withdrawn by CBDT vide Circular No. 6/2010, dated 20-9-2010.

2. StatusIn view of the separate rates of taxes specified in the Finance Acts and returns of income giving a separate code for status for co-operative societies the status is that of a co-operative society. The residential status is generally Resident & Ordinarily Resident (R&OR) unless the control and management are situated wholly outside India.

2.1 With respect to status, observations reproduced below from following judgments are worth noting –

2.1.1 Nasik District Labour Societies, Co-operative Federation Ltd. vs. ITO (1986) 18 ITD 354 (Pune-Trib.)

The ITO held that since clause D1.1 says that only primary labour society can become member �� !�� ~!� � ��person cannot contribute labour, the members of the primary societies cannot be treated as members of the assessee-society. The conditions of section 80P(2)(a)(vi) are thus not fulfilled. Further, what is required in section 80P is that the assessee is engaged in the collective disposal of the labour of its members. The assessee-society which supervises or co-ordinates affairs of members labour co-operative societies cannot be said to be engaged in collective disposal of labour of its members. Reliance was placed on Assam Co-operative Apex Marketing Society Ltd. vs.

SS-VI-73

CA Tushar Doctor

Taxation of Housing Society (Including TDS)



Addl. CIT [110 ITS 33 (Guwahati). Accordingly, the ITO rejected the claim.

In appeals the Commissioner (Appeals) took note of the proviso to section 80P(2)(a)(vi) and held that since the voting rights are not restricted to individuals who contribute their labour, the denial of exemption is correct. According to the Commissioner (Appeals), exercise of voting rights by a representative of the primary society is not same thing as is required under section 80P(2) (a)(vi) proviso. The Commissioner (Appeals) further relied on CIT vs. U.P. Co-operative Marketing Federation Ltd/[1983] 122 ITR 913 (All.). The Commissioner (Appeals) was aware of the contrary view in CIT vs. Tamil Nadu Co-operative Marketing Federation Ltd. [1983] 144 ITR 74 (Mad.) but found no reason to grant relief in view of the proviso above. The Commissioner (Appeals) also rejected the claim regarding mutuality.

2.1.2 M. V. Rajendran vs. ITO (2003) 260 ITP 442 (Ker.).

The first question to be examined is whether notice under section 133(6) of the Income-tax Act can be issued to a cooperative society including a co-operative bank. Section 133 is extracted hereunder:

“133. The Assessing Officer, the Deputy Commissioner (Appeals), the Joint Commissioner or the Commissioner (Appeals) may, for the purposes of this Act, (6) require any person, including a banking company or any officer thereof, to furnish information in relation to such points or matters, or to furnish statements of accounts and affairs verified in the manner specified by the Assessing Officer, the Deputy Commissioner (Appeals), the Jt. Commissioner or the Commissioner (Appeals), giving information in relation to such points or matters �� }�� =��Deputy Commissioner (Appeals), the Joint Commissioner or the Commissioner (Appeals), will be useful for, or relevant to, any enquiry or proceeding under this Act.

Provided that the powers referred to in clause (6), may also be exercised by the Director-

General, the Chief Commissioner, the Director and the Commissioner: Provided further that the power in respect of an inquiry, in a case where no proceeding is ending, shall not be exercised by any Income-tax authority below the rank of Director or Commissioner without the prior approval of the Director or, as the case may be, the Commissioner.”

Section 133 is in the nature of a survey power conferred on various Income-tax authorities. Under sub-section (6) of section 133, the Income Tax authorities referred to therein can require any “person”, including a banking company ��!�� relation to such points or matters, or to furnish ��!�� !��"�� |]�{^��/��$��}��

“(31) ”person” includes

(i) an individual

(ii) an HUF

(iii) a company

] �^��

(v) an association of persons or a BOI whether incorporated or not

(vi) a local authority, and

]� ^�� ~!� � �� within any of the preceding sub-clauses."

Explanation. For the purpose of this clause, an association of persons or a BOI or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with ��~�� 5

The definition clause is inclusive and not exhaustive. After arraying the categories of persons covered by normal meaning of term person the residuary clause covers every �� ~!� � �� of the preceding sub-clauses. This clearly shows that the Act does not propose to exclude anyone or any institution from the scope of definition

SS-VI-74



of the term person. A society constituted under the Co-operative Societies Act is an artificial juridical person and so much so it answers the �� !�� referred. Therefore, section 133(6) squarely applies to a co-operative society as well. Mr. M.K. Damodaran, learned counsel appearing for one of the petitioners has pointed our that banking companies are specifically included in section 133 (6) and going by the care taken by the legislature in specifically including banking companies, it has to be assumed that ��$�� !��from the scope of the definition, person. I do not think, his contention can be accepted. In fact specific inclusion of banking company in section 133 (6) was unnecessary because banking companies otherwise come within the scope of person under the residuary category ]� ^�� !��¤�� enquiry under section 133(6) will have to be directed against the banks, as banks are the main �!�� !�� 5�� !�� not want to leave any room for doubt. Therefore, �� $�� or co-operative bank in section 133(6) does not make any difference. Co-operative societies or co-operative banks are not immune from proceedings under section 133(6) so far as they �� this argument stands rejected.

3. Section 139(1) provides that every person having total income above the exemption limit, ��!�� 4!�� provided that total income for the purpose of section 139 has to be computed before applying deduction of exemption 10A, 10B or 10BA or Chapter VIA.

Since the co-operative society has not been given basic exemption, even if it has one rupee of income before applying deduction u/s 80P or other deductions under Chapter–VIA, it will ��!��

�� !��$�� society is ITR-5 as the society is AOP.

Section 10(27) of the I. T. Act provides exemption to co-operative society formed for promoting interest of the member of SC or ST. Other than this there is no specific exemption to co-operative society. However, a number of 100% deduction u/s 80P is allowed which is confused with 100% exemption by many.

Since there is no threshold limit for taxability of income in case of a co-operative society, it implies that if a society has any taxable income, ��!��

4. Due Date Since accounts of all co-operative societies are subject to statutory audit provisions under respective governing laws, therefore due date for �� !�� !��/��$��}��1961 is September 30.

5. If society earns taxable income it should apply for PAN.

6. A co-operative society is liable to file return of income if it has a taxable income. If it ��!�� !� ��!�� time for the purpose of carry forward and set-off of such loss in succeeding year(s).

7. Computation of income is to be made under various heads of income as in case of any other assessees. However, in respect of contributions from members and surplus arising therefrom the concept of mutuality would apply !�� !��provisions of the Act (in detailed discussion refer para 17).

8. From the gross total income, deductions are allowed u/s 80P. Under Section 80P, it is not a particular “class of society” which is exempt, but a particular “class of income” is deductible. Thus, a society having income from various sources is required to treat each source of income separately, for the purpose of computation of total income.

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The total income of a co-operative society is also computed in the manner in which income �� !��foremost step in this direction is to ascertain gross total income by calculating income under the four relevant heads and then deductions permissible under Chapter VIA i.e., Section 80G to 80P are deducted. The following deductions are available to co-operative societies under Chapter–VIA.

1. 80G Donations to certain funds/charitable institutions, etc.

2. 80GGA \�� research or rural development

3. 80GGC Donations in respect of contributions given by any person to political parties

4. 80-IA Profits and gains of new industrial undertakings or enterprises engaged in infrastructure development

5. 80-IB Profits and gains of certain industrial undertakings other than infrastructure development undertakings

6. 80-IC Special provisions in respect of certain undertakings, or enterprises in certain special category States

7. 80-ID ��!�� and gains from business of hotels and convention centres ��

8. 80-IE Special provisions in respect of certain undertakings in North-Eastern States

9. 80JJA ��!�� and gains from business of collecting and processing of bio-degradable waste

10. 80P Income of co-operative societies

8.1 Deduction in respect of contributions given by any person to political parties 80GGC

In computing the total income of an assessee, being any person, except local authority and �� ~!� � ��funded by the Government, there shall be deducted any amount of contribution made by him, in the previous year, to a political party [or an electoral trust].

Explanation – For the purpose of sections 80GGB and 80GGC, “political party” means a political party registered under section 29A of the Representation of the People's Act, 1951 (43 of 1951).

Section 80GGC allows deduction to non-corporate assessees of contributions to any political party registered with the Election Commission. However, there is nothing in the section to say that political contribution should be defined as per section 293A of the Companies Act, 1956. So, for non-corporate assessees, deduction of advertisement in souvenir, brochure etc., published by a political party will not be available under section 80GGC.

9. Applicability of section 14A in respect of exempt income of co-operative society

9.1 Section 14A of the Income-tax Act provides that no deduction shall be allowed in respect of any expenditure incurred by an assessee in relation to income which does not form part of the total income under the Income-tax Act. It is to be noted that provisions on income which do not form part of the total income include sections 10, 10A, 10B, 10C, 11 and 12. Thus section 14A would not be applicable in respect of deduction allowable under section 80P.

However the surplus arising in the hands of a mutual concern would not form part of the total income, therefore the provision of section 14A may be applied in cases of mutual concern.

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9.2 In Asstt. CIT vs. Kribhco (2011) 38 (II) ITCL 402 (Del ‘D’- Trib.) : (2010) 6 ITR (Trib.) 686 (Del.) it was held that where assessee received dividend and deposits from co-operative societies and claimed deduction, the terms “exempt income” and “deduction from income” are two different propositions and a deduction from income will not amount to an exemption from income. Since both the above receipts of the assessee were not exempt and includible in income merely because deduction under section 80P is provided, it cannot be assumed to be hit by section 14A.

9.3 Assessee was entitled to deduction under section 80P(2)(d) after excluding the expenditure attributable to the earnings of such income in view of section 14A which would be applied to allow deduction under section 80P(2)(d). – Vide Punjab State Co-operative Milk Producer Federation Ltd. vs. CIT & Anr. (No.1) (2011) 42 (I) ITCI. 216 (P&H-HC) : (2011) 336 ITR 495 (P&H) : (2011) 245 CTR (P&H) 432.

10. The Madras High Court in CIT vs. Katpadi Co-operative Timber Works Ltd. (1982) 135 ITR 287 (Mad.) held that deduction under section 80P should be allowed before set-off of unabsorbed loss and unabsorbed depreciation of the earlier years. This decision of the Madras High Court has been overruled by the Supreme Court. As the Supreme Court in CIT vs. Kotagiri Industrial Co-operative Tea Factory Ltd. (1997) 224 ITR 604 (SC) held that if section 80P (1) is read with �� *�� contained in section 80B(5), it has to be held that for the purpose of making deduction under section 80P, it is necessary to first determine the gross total income in accordance with the other provisions of the Act. This means that for the purposes of the present case, the gross total income must be determined by setting off against the income the business losses of the earlier years as required under section 72. Since the losses were in excess of the income, the Income-tax Officer was held to be right in holding that no deduction was permissible under section 80P.

11. Deduction under section 80P cannot be denied merely for the reason that books were not ��!��}�� =�� vide ITO vs. Sherawali Majur Kamghar Sahakari Sanstha Ltd. (2007) 16 (II) ITCL 33 (Mum-Trib) : (2006) 10 SOT 348 (Mum-Trib)

12. When a co-operative society is entitled to deduction under various provisions of the Act, sub-section (3) of section 80P, prescribes the manner of allowability of deduction in such case. According to sub-section (3) of section 80P, in a case where the assessee is entitled also to the deduction under section 80HH, or section 80HHA, or section 80HHB, or section 80HHC, or section 80HHD, or section 80-I or section 80-IA or section 80J, the deduction under sub-section (1) of this section, in relation to the sums specified in clause (a) or clause (b) or clause (c) of sub-section (2), shall be allowed with reference to the income, if any, as referred to in those clauses included in the gross total income as reduced by the deductions under section 80HH. Section 80HHA, section 80HHB section 80HHC, section 80HHD, section 80-I and section 80-IA.

Thus deduction under clauses (a), (b) and (c) of section 80P(2) will be allowed after considering deduction under sections 80HH, 80HHA, 80HHB, 80HHC, 80-I and 80-IA.

13. If a co-operative society carries on certain activities, out of which some of the activities qualify for exemption and some of the activities do not qualify for exemption, then the profits and gains attributable to the exempted activities shall enjoy the exemption and the profits and gains attributable to non-exempt activities are liable to be taxed. While computing income from taxable activities, the proportionate expenditure out of the total expenditure should have to be deducted so as to arrive at the correct income from taxable activities.

13.1 In the case of Kota Co-operative Marketing Society Ltd. vs. CIT (1994) 207 ITR 608 (Raj.) the Tribunal found that if a co-operative society is

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carrying on a business and earning income part of which is exempted and part of which is not �� !��the exempted activity has to be arrived at on the basis of the books of account maintained by the assessee. If separate sets of books or separate accounts of expenditure have been maintained for the exempted and non-exempted activities, there is no problem . If separate books of account have not been maintained and expenses have incurred jointly for earning both the incomes, then such expenses have to be estimated by the Income-tax Officer which are relatable to earn the non-exempted activities in order to arrive at the true and correct income. The exempted clause in a taxation statute has to be construed strictly and cannot be extended beyond the clear language used in the section. It cannot be presumed that no expenditure was incurred in earning the exempted income. According to the scheme of the Act and more particularly the provisions of section 80P read with section 80B(5) amd the provisions of Chapters IV and V of the Act where the assessee is having both taxable as well as non-taxable income, the total income which is exempted and for which the exemption is available under section 80P has to be arrived at. Similarly, the taxable income has to be determined. After determining the said incomes separately, the deductions which are available under Chapter IV and V have to be allowed to arrive at the gross total income �� ¨��]§^�� is exempted under section 80P(2) has to be arrived at separately in order to determine the income under section 80B(2) and it can never be envisaged that the total income which has been so received could be allowed without deducting the expenditure incurred in earning the said income. The use of the words “the whole of the amount of profits and gains of business” attributable to any one or more of such activities appearing at the end of sub-section (2) of section 80P could be only for such income which has to be given for the word “attributable” in the clause has to be in accordance with the commercial accounting principles and under accountancy

as well as in business, the profit could not be arrived at without deducting the expenses ��/�� the expenses incurred in earning the said income ��!��"!�� !��~!�� \�!��

13.2 Similarly, it was observed in CIT vs. Rajasthan Rajya Sahkari Upbhokta Sangh Ltd. (1995) 215 ITR 448 (Raj.) that when an assessee has income from different sources, the total income from each of such sources has to be computed in accordance with provisions of the Income-tax Act and the expenditure incurred for receiving such income has to be taken in to consideration. The assessee has maintained a composite account of the expenses incurred for earning the taxable as well as exempted income and, therefore, bifurcation made in respect of expenditure �� !�~!��

13.3 The Kerala High Court has held that where a Co-operative society carries on activities which give rise to income deductible and also carries on activities which give rise to non-deductible income, such non-deductible income shall be taxed after allowing proportionate expenditure permissible u/s. 80P – Kottayam District Co-operative Bank Ltd., vs. CIT (1990) 188 ITR 568.

13.4 Thus it can be concluded that a co-operative society is entitled to deduction only �� !�� !�� business.

14. Section 80P allows a deduction, in the computation of the total income of a co-operative society. The deduction under section 80P is allowed from gross total income calculated after ignoring income exempt under section 10. In order to claim deduction under section 80P, a co-operative society must establish that it is engaged in carrying on any of the several activities referred to in sub-section (2) of section 80P. Sub-section (2) enumerates different heads of exemption. Each is a distinct and independent head under which deduction is given.

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Exemption under section 80P is enumerated under different heads and all the heads of exemption are independent or alternative or mutually supplementary.

1. Income of co-operative societies engaged in certain specific business activities such as providing banking or credit facilities to its members, cottage industry, marketing of agricultural produce grown by its members, purchase of agriculture implements, seeds etc., for supply to its members, processing agricultural produce of its members without the aid of power is fully deductible.

2. Business income of labour co-operative societies engaged in fishing and allied activities and the collective disposal of the labour of its members is deductible if the voting rights are restricted to members who constitute the labour force, the co-operative credit societies which provide �� in supplying milk, oil seeds, fruits or vegetables raised by its members to federal milk co-op. society, government, local authority and statutory corporation is fully deductible.

3. Income of a co-operative society engaged in activities other than or in addition to the above mentioned activities, shall qualify for a maximum of ` 50,000 deduction in respect of income from such other activities. If it is a consumer co-op. society, such deduction shall be up to ` 1,00,000.

4. Income by way of interest or dividends from investments in another co-operative society is fully deductible. Income from letting of godowns and warehouses for storage, processing etc., of commodities is fully deductible. Besides, income from house property and interest on securities is deductible fully in the case of certain co- operative societies if the gross total income does not exceed ` 20,000.

5. This deduction shall apply only to a primary agricultural credit society or a primary co-operative agricultural and rural development bank.

14.1 Clause (c) of sub-section (2) of section 80P provides for deduction to co-operative societies �� in clause (a) or clause (b) of section 80P(2) either independently of, or in addition to, all or any of �� !��!�� Degree of deduction of profit and gains is as discussed below.

Sub-clause (ii) of clause (c) of sub-section (2) of section 80P provides for deduction to co-operative societies engaged in activities �� !��]�^��!��(b) of sub-section (2) and is not a consumer co-operative society. The maximum amount of deduction will be rupees fifty thousand. However, up to the assessment year 1998-99, the limit of deduction was rupees twenty thousand only.

The income of a co-operative housing or premises society is subject to a further deduction up to ` 50,000/- u/s. 80P(2)(c). Two views are possible in this context. Section 80P(2)(c) refers to “profits and gains“ attributable to “such activities”. The words such activities are in reference to the activities specified in clause (a) and clause (b) of section 80P(2). Clauses (a) and (b) refer to business activities therefore by rule of construction of Ejusdem Generis it can be construed that section 80P(2)(c) refers to �� !��]�^��!��]�^��4!��under Income-tax law the words “profits and gains“ have a definite connotation and have ��!�� and gains of business to which provisions of section 28 to section 44D of Income-tax, 1961 are applicable. Further section 80P (3) refers to deductions u/s 80HH, 80HHA, 80HHB, 80HHC, 80I, 80G under chapter VI A being available to the societies referred to clauses (a), (b) and (c).

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These deductions under chapter VI A are from �� !� �� may be taken that section 80P(2)(c) refers to a society doing business activities. However, another view is that since clause (c) refers to the words “such activities”, the same should be read as they are and since the housing societies do carry on activities, the deduction should be allowed.

14.2 Interest earned on statutory investment in Government Securities by a co-operative society carrying on the business of supplying sugarcane ��!��]�^�� !��to the business of the co-operative society – vide CIT vs. Co-operative Cane Development Union Ltd. (1979) 118 ITR 770 (All.).

14.3 Income from letting out of shops to non-members would fall within the ambit of clause (c) for being not a primary activity of the housing co-operative society – vide CIT vs. Ratnabad Co-operative Housing Society Ltd. (1995) 215 ITR 549 (Bom.).

This rule is applicable in the case of a co-operative society engaged in the business of letting out of building (maybe shops) even if such income is computed under the head “Income from house property” – Film Nagar Co-operative Housing Society Ltd. vs. ITO [2004] 91 ITD 27 (Hyd.) (SC.) However, the same rule is not applicable if the society is not engaged in the letting out of buildings. For instance, where surplus land is given on rent, such income is not subject to deduction under section 80P(2)(C) – Kottayam District Co-operative Bank Ltd. vs. CIT[1988] 172 ITR 443 (Ker.).

14.4 In case of a co-operative housing society providing credit facilities to its members, the �� securities would be exempt. [See CIT vs. Orissa State Co-operative Housing Corporation Ltd. (1976) 104 ITR 157 (Ori.)]

14.5 The assessee co-operative housing society declared income under the head income from house property. There was no income under the

��*�!� �� !�� in terms of section 80P(2)(c)(ii) for the relevant ��}�� =�� processing the returns of the assessee disallowed the claims of the assessee under section 80P(2)(c)(ii). It was held that what is referred to in �� ¨�¤]|^]�^� �� !��to such activities” of a co-operative society and �� !� �� may include even letting of shops, even though the income from such letting is assessed only under the head “house property” and not under ��*�!� ��/��that there is reference to “profits and gains of business attributable to any one or more of such activities” in section 80P(2)(a), and there is �� !��!� �� ¨�¤]|^]�^��*�!� ��is conspicuous by its absence in section 80(P)(2)(c). What is referred to in section 80P(2)(c) is, only “profits and gains attributable to such activities”, which cannot possibly be equated to the expression “profits and gains of such business” used in section 80P(2)(b) or similar, expression used in section 80P(2)(a).

��*�� only to net proceeds of the business. But, that does not seem to be the invariable conclusion in all contexts.

/�� *�� of other activities. Therefore, assessee was entitled to deduction under section 80P(2)(c)(ii). Film Nagar Co-operative Housing Society Ltd. vs. ITO (2005) 1 (II) ITCL 444 (Hyd ‘B-Trib.) : (2004) 91 ITD 27 (Hyd-Trib.).

14.6 In Maker Tower A & B Co-op. Hsg. Society Ltd. vs. ITO (2008) 20 SOT 253 (Mum-Trib.), �� !�� ¨�¤]|^]�^��!��not be denied applying provisions of section 80P(2)(f) as assessee was not claiming deduction in respect of interest income on securities and income from house property chargeable under section 22, therefore, deduction of ` 50,000 was allowable under section 80P(2)(c).

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15. In view of clause (d) of section 80P(2), where a co-operative society derives income by way of interest or dividends from its investments with any other co-operative society, the whole of such income would be exempt from tax.

15.1 According to Addl. CIT vs. U. P. Co-operative Federation Ltd. 1978 CTR (All.) 293, the term investment is wide enough to include interest on loans and advances made to another society.

15.2 Interest received by a co-operative society from State Marketing Federation for the loan given for the purchase of goods on their behalf would come within the purview of section 80P(2)(d)and the funds provided by the assessee would be treated as investments with other co-operative societies – vide CIT vs. Shri Amreli Zilla Shakari Kharid Vehcan Sangh Ltd. (1991) 39 ITD 65 (Ahd.-Trib.)(TM).

15.3 Where a co-operative society, deposited its surplus funds with a co-operative bank, for a period of three months and received interest, it was held that short-term call deposits amounted to investments by a co-operative society with another co-operative society and the income by way of interest derived therefrom was deductible under section 80P(2)(d) – vide CIT vs. Haryana Co-operative Sugar Mills Ltd. (1990) 180 ITR 631 (P&H).

15.4 Assessee was entitled to deduction under section 80P(2)(d) after excluding the expenditure attributable to the earnings of such income in view of section 14A which would be applied to allow deduction under section 80(P)(2)(d). – vide Punjab State Co-operative Milk Producers Federation Ltd. vs. CIT & Anr. (No. 1) (2011) 42 (I) ITCL 216 (P&H-HC) : (2011) 336 ITR 495 (P&H) : (2011) 245 CTR (P&H) 432.

15.5 The whole of interest and dividend income derived by a co-operative society from its investments in any other co-operative society is deductible under section 80P(2)(d). Interest derived by the assessee co-operative sugar mill from its investment in co-operative bank would

qualify for deduction in its entirety under section 80P(2)(d), without adjustment of interest paid by the assessee to the co-operative bank – CIT vs. Doaba Co-operative Sugar Mills Ltd. [1998] 96 Taxman 509/230 ITR 774 (Punj.& Har.).

16. Date of acquisition for computing capital gains on transfer

16.1 The decision of Gujarat High Court in CIT vs. Anilaben Upendra Shah (2003) 262 ITR 657 (Guj) is relevant in this regard.

In a case where the assessee becomes a member in a housing society by acquiring shares therein and in view of such acquisition there is allotted a flat to him then, for determining the period �� !��Z��! � � ��shares and sale thereof will be relevant. Capital �� !��Z��!��<��as short-term/long-term depending upon the date of acquisition / transfer of shares. The only caveat is that the above proposition would apply only if the shares of the housing society and flat are bundled and one cannot be sold/transferred without selling/transferring the other simultaneously.

16.2 In CIT vs. Jindas Panchand Gandhi (2006) 9 (I) ITCL 134 (Guj-HC) : (2006) 279 ITR 552 (Guj.), the assessee, an individual, became a member in V Apartments (G Co-operative Housing Society). ��Z�� ! �� vide resolution dated 4-11-1980, passed by the managing committee of the society. On the date of allotment, i.e., 4-11-1980, the property was under construction and came to be completed on 12-9-1983. Physical possession of the flat was handed over to the assessee on 12-9-1983. =��$�${�¨��Z��The assessee worked out long-term capital �� }�� =�� stand of the assessee that it had become the owner of the property as per resolution dated 1-11-1980. According to the Assessing Officer, the assessee had held the property for a period of less than 36 months and as such was liable to short-term capital gains tax. The Commissioner

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(Appeals) upheld the assessment on this count. However, the Tribunal held that there was long-term capital gains. It was held that as the share in co-operative housing society was allotted on 4-11-1980 and sale of the same took place on 30-4-1984, i.e. after a period of 36 months, therefore, there took place long-term capital gains.

17. Co-operative societies may be formed for the purpose of carrying out different activities. Some co-operative societies are formed mainly ��!�!�� formed for carrying out business activities. A receipt out of an activity involving the principle ��!�!�� <��liable to tax. Therefore the receipts of co-operative societies, wherein the principle of mutuality is involved are not liable to income tax. On the other hand receipts from business activities (not involving mutuality) are liable to tax.

Section 80P of the Income-tax Act has provided a number of exemptions and deductions in respect of receipts or income from various kinds of activities carried on by the co-operative societies. A co-operative society may have a number of activities. The income from some activities may be exempt from income tax, whereas income from other activities may not be so exempt.

The principle of mutuality is applicable to mutual benefit funds for societies or members club. The basic principle underlying herein is ��<��!�� [CIT v. Royal Western India Turf Club Ltd.(1953) 24 ITR p. 551 (SC)]. In other words the general principle applicable to mutual concerns is that the surplus accruing to it cannot be regarded as income, profits or gains for the purpose of the Income -tax Act.

The essence of mutuality is complete identity between contributors and participators. [CIT �� 53 ITR p. 241 (SC)]. In the aforesaid case, the Supreme Court has laid down that the essence of mutuality lies in the return of what one

has contributed to a common fund, and if the profits are distributed as shareholders, the principle of mutuality is not satisfied. In this case, the Supreme Court has also laid down that all participators must be contributors to the ��!��5�� !�� !�� \�!�� case of [Surat District Cotton Dealers Association vs. CIT 35 ITR p. 121] has however held that identity of contributors and participators does not mean that there must be actual contribution by all members. The Madras High Court in the case of [CIT vs. Madras Race Club (1976) 105 ITR p. 433] has held that the application of the principle of mutuality is not destroyed by the �� from non-members. Similarly, the Patna High Court in the case of [CIT vs. Ranchi Club Ltd. (1992) 196 ITR p. 137] (Pat. FB) has held that merely because assessee company had entered in to transaction with non-members and earned profit out of transactions held with them, its right to claim exemption on the principle of mutuality in respect of transactions held by it with its members was not lost. The Bombay High Court in the case of [CIT vs. Bombay Oil Seeds and Oil Exchange Ltd.(1993) 202 ITR p. 198] has laid down that the cardinal principle to apply the test of mutuality is that all the contributors to the common fund must be entitled to participate in the surplus and that all the participators must be contributors to ��!��5� ��!��be complete identity between contributors and participators.

The Supreme Court in the case of CIT vs. Bankipur Club Ltd. (1997) 226 ITR p. 97 (SC) has settled the aforesaid principle. The relevant part of the head note is as follows : “under the Income-tax Act, what is taxed is the income, �� *�� *��! �� *�� !�� combine together and contribute to a common �!�� !��~��and in this respect have no dealings or relations with any outside body, then any surplus

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returned to those persons cannot be regarded in ��

There must be complete identity between contributors and participators. If these ��! ��!�� particular form the association takes. Trading between persons associating together in this way �� to tax. Where the trade or activity is mutual, the fact that, as regard certain activities, certain members only of the association take advantage of the facilities which it offers, does not affect the mutuality of the enterprise”. Chemsford Club vs. CIT (2000) 243 ITR 89 (SC).

The Supreme Court has further held that if �� *�!�!�� \�� \�!��is commercial in nature or it is a trade or an adventure in the nature of trade and the transaction entered in to with the members or non-members alike, is a trade/business and the ��!��!��!�� tax.

The relevant part of the headnote is as follows:

“The decision of the Supreme Court in CIT vs. Royal Western India Turf Club Ltd. (1953) 24 ITR ��!"#�� Ltd.(1964) 53 ITR p. 241 and Fletcher (on his own behalf and on behalf of Trustees and Committee of Doctors Cave Bathing Club vs. ITC (1971) 3 All ER 1185 (PC) lay down the broad proposition that, if the object of the assessee company claiming to ��*�!�!��\��*\�!�� a particular business and money is realised both from the members and from the non-members, for the same consideration by giving the same or similar facilities to all alike in respect of the one and the same business carried on by it, the dealings as a whole, disclose the same profit earning motive and are alike tainted with commerciality. In other words, the activity carried on by the assessee in such cases, claiming ��*�!�!��\��*\�!�� or an adventure in the nature of trade and the transaction entered in to with the members

or non-members alike, is a trade/business/transaction and the resultant surplus is profit the income is liable to tax”. On the basis of the aforesaid principle the Supreme Court has held that excess over expenditure received by the ��!�� part of advantages attached to such membership was not taxable as income. Thus, the receipts or surplus arising from the sales of drinks, refreshments etc., or amount received by way of admission fees, periodical subscriptions and �� !�� would been titled to exemption. In this context other observations of the Supreme Court are also important. These observations are as follows:

“In other words, the services offered on the above counts were not done with any profit motive and were not tainted with commerciality. The facilities were offered only as a matter of convenience for the use of the members (and their friends, if any, availing of the facilities occasionally)”.

From the aforesaid observations of the Supreme Court, it is clear that the principle of Mutuality will not be destroyed even if facilities offered by �� !�� availed of by their friends or guests.

So far as contributions from members are concerned, surplus arising out of contributions from members minus expenditure is not a taxable income as the same is governed by the concept of mutuality. In case there is deficit due to expenditure being higher than the contributions, the deficit would also have to be ignored as the same cannot be set off against other income nor there would be any issue of carry forward and set off in succeeding year's).

Further, section 28(iii) which provides that income derived by a trade, professional or similar association from specific services performed for its members shall be treated as business income, can have no application since

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the co-operative housing society is not a trade or professional association.

The concept of “mutuality” means that the �� !�� " ��<�� there is no taxable profit involved wherever such concept applies. The excess of income over expenditure in a year shall supplement the common fund for future utilisation to the benefits of the contributors and the excess of expenditure over income shall be absorbed by the common fund.

Generally the surplus derived by a mutual concern is not chargeable to tax. Therefore, a trade, professional or similar association which functions on the principle of mutuality concept is not chargeable to tax, if there is any surplus on account of subscriptions, membership fees, entrance fees, etc. exceeding the expenditure incurred.

However, the following additional points need to be taken into consideration –

(i) Where a mutual concern carries on the business of insurance, the profits there from are chargeable to tax. Section 44 �� !��have to be computed in accordance with the method prescribed in the Rules contained in the First Schedule.

(ii) In the case of trade, professional or similar associations, the income derived from specific services performed for its members is chargeable to tax u/s 28(iii). However, if there is a loss on account of expenditure exceeding the subscription, etc. from members, such shortfall shall be absorbed by the income chargeable to tax u/s 28 (iii). This set off as per section 44A cannot exceed 50% of the total income of such associations as computed before allowing the set off.

(iii) In the case of a mutual concern, if income is derived both from mutual activity as

well as from non-mutual activity, the exemption applies only to the income from the mutual activity. The income attributable to the non-mutual activity will be liable to tax as was held by the Gujarat High Court in Sports Club of Gujarat Ltd. vs. CIT (1987) 171 ITR 504.

If a society carries on some activities which are mutual and some activities which are not, then the concept would apply to only those activities which are mutual.

18. Under the bye-laws and by passing resolutions at general body meetings, housing and premises societies levy transfer charges under various nomenclatures at the time of transfer of membership in respect of flats and other premises. Under the Model Bye laws, such fees are charged under three heads viz. i. transfer fee, transfer premium and admission fee. The Model Bye-laws have differentiated between the transfer fee on one hand and transfer premium on the other hand. Under Model Bye-laws of 1984, transfer fee was ` 50/- which has been increased to ` 500/- under Model Bye-laws of 2001. In most court decisions, however, transfer premium has been loosely worded as transfer ��$�� of co-operative require that societies restrict such collection to ` 25,000/- per transfer in the city of Mumbai and lower amounts in other parts of the State. Under the bye-laws the transfer premium is credited to reserve fund and the reserve fund can be used by the society for repairs and maintenance and renewals of the property of the society. Thus, the collection of transfer premium is from the members as a class.

One may note that the judgment of Bankipur Club was in the case of a club and the courts have in many cases differentiated mutual associations on facts depending upon the manner and purpose for which contributions are collected from members and who may be the participants or beneficiaries in the surplus generated out of such contributions.

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In view of the diametrically opposite views taken by various benches of Tribunals in the matter of taxability of transfer premiums received by co-op. housing or premises societies, the Special Bench was constituted in the case of Walkeshwar Triveni CHS Ltd. vs. ITO. Crux of the decision dated 4-7-2003 in the case of Walkeshwar Triveni CHS Ltd., vs. ITO (SB)(BOM) ITA No. 4397/Mum/2001 is that in a co-op. society, the basic motive is service to the member, it can charge premium to the extent prescribed under the law and premium paid by a member is not eligible to tax.

The Special Bench decision restricts tax exemption in respect of transfer premium to the extent provided in law. The bye-laws and circular in respect of co-operative housing societies provide limits as afore stated. However, in cases of housing organisations functioning ��}��=��}�� !��Apartment Ownership Act, 1970 or a company u/s 25 of the Companies Act, 1956, since there is no such limit under the applicable laws and �� !��5� �� can charge such transfer premium without such limits as may be decided in their general body meetings.

Transfer fees received by a co-operative housing society, whether from outgoing or from incoming members, is not liable to tax on the ground of principle of mutuality where the predominant activity of such co-operative society is maintenance of property of the society. It was so held by the Bombay High Court in Sind Co-op. Housing Society vs. ITO (2009) 317 ITR 47.

19. In Chelmsford Club Ltd. vs. CIT at 243 ITR 89, the Supreme Court laid down that even the deemed income u/s 22 of the club is governed by the principle of mutuality.

Rental income would arise when part of the property of the co-operative society has been let. Income from renting is taxable under the head of income from house property. Income may also arise on account of renting of community halls or some parts of the property for functions

like marriages. If the renting is to the members of the society, there should not be any taxable income, as the same will be governed by the concept of mutuality. However, here the aspect �� !��<��/��is also rented to outsiders then the income from renting to non-members should be accounted separately. In the case of Royal Western India Turf Club Ltd. 24 ITR 551 (SC) the facilities were allowed to members as well as to the non-members and the court found that the character of the charges made on members were same or similar to that of the charges on non-members and the dealings in both the cases were tainted with commerciality and all the collections went to the same kitty in which the members were the participants and therefore application of concept of mutuality was denied to collection from members as well as from the non-members. In the case of Ranchi Club Ltd. 196 ITR 137 (Pat.) (FB) it was observed by the court that transactions entered into with the non-members with a profit motive which can be tainted with commerciality was irrelevant as even the non-commercial and casual receipts from non-members were taxable. On the aspect of renting, it may also be noted that sometimes renting may be done to outsiders and outsiders are asked to come through members. Receipts are given in the names of members. In such cases, if the tax department �� !�� contention that income is from members of the society may not be accepted. In that case rent income from non-members after deduction of relevant expenditure would be taxable in the hands of society.20. Non occupancy charges are not for not occupying the premises but are levied when the premises are let out. Normally, the societies prepare the bills in the names of the members only and therefore collection of even non occupancy charges would be from members and therefore covered by-concept of mutuality. Under the model bye laws also the non occupancy charges are payable by the members

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for letting their premises. Even if sometimes it has been agreed between the licensor and the licensee that the licensee would pay the non occupancy charges, the society should refrain from billing the same to the non-members.

21. The income of housing society may also arise out of receipts from non-members i.e. ��!�� !��5�� banks, income from advertisements allowed on the premises of the society, renting space for � �� 5��to non-members, donations or any other sums received from outsiders. All these incomes, being not from members, would be taxable subject to provisions of the Income Tax Act. Income arising out of renting of premises or allowing the use of premises would be taxable as income from house property which is subject to deduction of 30%. Other income would be regarded as income from other sources and any expenditure incurred which is related to earning of such income would be deducted and only �� !��5�� !�� <��!��salary, salary of watch and ward and some administrative expenses on proportionate basis may be related to earning of such incomes. In respect of interest income from banks if the interest is from a co-operative bank the same would be fully deductible u/s. 80P(2)(d) and therefore not taxable at all. The interest income from other banks would be taxable. Due to such position in tax law, the societies face a problem many a times as they do not feel safe with the co-operative societies and co-operative banks, whereas interest from nationalised banks and other banks is taxable. Further under the co-operative laws and rules the society has to take �� to keep its funds in the banks which are not co-operative banks. The State Governments make it compulsory for societies to keep their funds deposited with other co-operative societies and co-operative banks but on their part they do not stand guarantor to such deposits!

22. Issues of taxability also arise when a society goes in for redevelopment of its property by selling the development rights to a developer who would utilise the additional FSI through TDR route. The facts of the case, the manner in which transaction is structured and the manner of documentation of such transaction would have substantial impact on the taxability thereof. In general, on the reason that in most of such redevelopments, the additional development rights having come at no cost, no capital gains should become chargeable to tax. Further even if the amount becomes taxable the same may become taxable in the hands of the members but again depending upon the facts of the case and the manner in which transaction is structured and carried out.

23. Tax audit is compulsory if turnover of society (engaged in business) is more than 60 lakhs per year. (w.e.f. 1-4-2011 i.e., A.Y. 2011-12). Tax Audit provisions is generally not applicable to societies which do not carry on any business. For example, housing societies in years of construction of building premises and redevelopments of their properties, provisions of section 44AB would not apply as there is no business activity.

24. Each clause or sub-clause of section 80P(2) is to be treated as a separate and distinct �� !�� Z!��condition(s) of any other clause or sun-clause. – As section 80P is introduced with a view to encouraging and promoting the growth of the co-operative sector in the economic life of the country and in pursuance of the declared policy of the Government, the correct way of reading the different heads of exemption enumerated in that section would be to treat each as a separate and distinct head of exemption. Whenever a question arises as to whether any particular category of an income of a co-operative society is exempt from tax what had to be seen is whether the income fell within any of the several heads of exemption. If it fell within any one head of exemption, it would be free from tax

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notwithstanding that the conditions of another head of exemption are not satisfied and such income is not free from tax under that head of exemption [Kerala State Co-operative Marketing Federation Ltd. vs. CIT (1998) 231 ITR 814, 819 (SC)].

If a co-operative society carries on certain activities income from which is exempted and also certain activities income from which is not �� !��the exempted activities shall enjoy the exemption and those attributable to the non-exempted activities shall be taxed. At the same time, it is just and proper that in order to ascertain the income referable to non-exempt activities the proportionate expenditure out of the total expenditure should be deducted [Cf. CIT vs. Sabarkantha Zilla Kharid Vechan Sangh Ltd. (1977) 107 ITR 447 (Guj.); Sabarkantha Zilla Vechan Sangh Ltd. vs. CIT (1993) 203 ITR 1027 (SC)].

In other words, if a co-operative society is carrying on a business and earning income, part of which is exempted and part of which is not �� !��the exempted activity has to be arrived at on the basis of the books of account maintained by the assessee. If separate sets of books or separate accounts of expenditure have been maintained for the exempted and non-exempted activities, there is no problem. If separate books of account have not been maintained and the expenses have been incurred jointly for earning both the incomes, then such expenses have to be estimated by the Assessing Officer which are relatable to earn the income from non-exempted activities in order to arrive at the true and correct income. It cannot be presumed that no expenditure was incurred in earning the exempted income.

If the society has income some of which is exempt under one clause and the other under another clause of section 80P(2), both will enjoy exemption [Allahabad Dist. Co-op. Bank Ltd. vs. Union of India (1972) 83 ITR 895 (All.)].

25.1 Section 269SS : Restrictions on accepting deposits in excess of ` 20000/- in cash exemption to Co-operative Bank.

25.2 Section 269T : w.e.f. 1-6-2002 no branch of a banking company or a Co-operative bank shall repay any loan or deposit in excess of `. 20,000/-in cash.

It is generally understood (very wrongly) that the income of a co-operative society is exempt under Income-tax Act. In fact the co-operative society is treated under I.T. Act very distinctly. For example, although, it is treated as Association of Persons or AOP. However, it should be noted that co-operative society has its own rate of tax and the tax rate applicable to AOP (which is same as that of individuals) is not applicable to a co-operative society. For example, the provision u/s 67A and section 87 of the I.T. Act, both which relates to method of computing �� }=¤��!��a co-operative society.

As stated earlier, even though a co-operative society is an AOP, a separate tax rate is given in Paragraph B of First Schedule of Finance Act.

26. The normal rates of income tax for the assessment year 2012-13 and 2013-14 are as under :

Net Income Range Rate of Income Tax

Up to ` 10,000 10%

Next ` 10,000 20%

Balance Income 30%

No surcharge is applicable in case of co-operative societies.

Education cess : Education cess @ 2% shall be levied on the total tax payable by the assessee.

SHEC: SHEC @ 1% shall be levied on the total tax (exclusive of education cess) payable by the assessee.

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27. The provision of Chapter XIIBA (AMT) containing sections 115JC to 115JF shall be applicable to all persons other than a company.

As per newly inserted sections 115JC to 115JF, where the regular income-tax payable for a previous year by a person (other than a company) is less than the alternate minimum tax payable for such previous tear, the adjusted total income shall be deemed to be the total income of such person and he shall be liable to pay income-tax on such total income at the rate of 18.5% [Section 115JC(1)]

(i) “adjusted total income” shall be the total income before giving effect to provisions of this Chapter i.e. Chapter XII-BA as increased by the deductions claimed under sections 80-IA to 80RRB other than section 80P included in Chapter VI-A and deduction claimed under section 10AA [Section 115JC(2)]

(ii) “alternate minimum tax:” shall be the amount of tax computed on adjusted �� {¨�§5�³"�� 115JF(b)]

(iii) “regular income-tax” shall be the income-tax payable for a previous year by a person other than a company on his total income in accordance with the provisions of the Act other than the provisions of Chapter XII-BA. [Section 115JF(d)]

Report from an accountant [Section 115JC(3)]: Every person to whom this section applies shall obtain a report, in such form as may be prescribed, from an accountant, certifying that the adjusted total income and the alternate minimum tax have been computed in accordance with the provisions of this Chapter and furnish such report on or before the due date of furnishing of return of income under section 139(1).

The provisions of AMT shall apply to a person who has claimed any deduction under:

(a) under sections 80-IA to 80RRB other than �� ¨�¤5��

(b) section 10AA.

The provisions of AMT under Chapter XII-BA shall not apply to-

(a) an individual or

(b) a Hindu Undivided Family or

(c) an association of persons or a body of individuals (whether incorporated or not) or

]�^�� ~!� � �� section 2(31)(vii),

If the adjusted total income of such person does not exceed Rs.20,00,000.

Tax credit for AMT: Section 115JD provides the credit for tax (tax credit) paid by a person on account of AMT under Chapter XII-BA shall be allowed to the extent of the excess of the AMT paid over the regular income-tax. This tax credit shall be allowed to be carried forward up to the tenth assessment year immediately succeeding the assessment year for which such credit becomes allowable. It shall be allowed to be set off for an assessment year in which the regular income-tax exceeds the AMT to the extent of the excess of the regular income-tax over the AMT.

No interest shall be payable on tax credit allowed under section 115JD.

Consequential amendments have also been made to the following provisions to allow benefit of such tax credit:

(1) Section 140A relating to self-assessment,

(2) Section 234A relating to interest for defaults in furnishing return of income,

(3) Section 234B relating to interest for defaults in payment of advance tax,

(4) Section 234C relating to interest for deferment of advance tax.

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In order to widen the tax base vis-a-vis profit –linked deductions, the Finance Act, 2012 has amended section 115JC effective from assessment year 2013-14 to provide that a person other than a company, who has claimed deduction under any section (other than section 80P) included in Chapter VI-A under the heading “C. – Deductions in respect of certain incomes” or under section 10AA, shall be liable to pay Alternate Minimum Tax (AMT).

Section 115JEE provides that the provisions of Chapter XII-BA shall apply to a person who has claimed any deductions under –

(a) any section (other than section 80P) included in Chapter VI-A under the heading “C. – Deductions in respect of �� 5

Or

(b) section 10AA.

Thus, it can be said that in case of a co-operative society which claims deduction under section 80P, AMT will not be applicable.

28.1 The taxation of co-operative society is often misunderstood and it is common knowledge that many co-operative societies are oblivious to TDS provisions.

28.2 Like others, co-operative society is also liable to deduct tax. If the society

has to deduct income tax it must obtain TAN number and file return of TDS. Some of the important points to be noted in this regard are

A. On Interest PaymentSection 193 of I. T. Act lays down law of TDS on payment of any income by way of interest on securities exempts a co-operative u/s 193(iib).

Section 194A which is law for TDS on interest other than “Interest on securities” exempts from TDS if the interest payment by a co-operative society is less than 10,000.

Section 194A also exempts any person from liability of deducting tax at source if the payee

is a co-operative society engaged in carrying on the business of banking including a co-operative land mortgage.

As per section 194(v), co-operative society is also exempted from liability to deduct tax at source on payment of interest to its members or any other co-operative society.

B. On salaryA co-operative society is liable to deduct tax 192 TDS on salary to its employees if any.

C. On Contractual payments u/s 194CExplanation to section 194C clearly includes a ��$�� is liable for deducting tax at source u/s 194C.

D. All other TD provisionsLikewise, all other TDS provision equally applies to a co-operative society.

Whether the payments made to co-operative society should suffer TDS?

Since the exemption is given only in case of interest payments, as stated above, the payments which falls under sections 194C, 194H, 194I or other TDS provision, no such exemption from TDS is available to a co-operative society and TDS must be made on payments covered under those sections if all other conditions are also ��

The provisions requiring deduction of tax at source (TDS) like those of Section 194C while paying to a contractor for works etc. are equally applicable to co-operative societies.

Illustrative list of TDS requirement is presented below:

a) Salary to employees (sec.192) - Rate of deduction as applicable to individual

b) Payment to contractors/sub-contractors (Sec. 194C For example : Building repairing/painting contracts, security charges, maintenance contracts for lifts,

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motors, etc. pest control service charges, maintenance of Garden, Housekeeping Contracts for Cleaning etc. other contracts of works or labour – Rate of deduction as 2% + Edu. cess + Higher Sec. Edu. cess.

Applicable for payment/credit per contract above ` 20,000/- In case of payments/credit per contract is not more than ` |��¥$��!�� is above ` 50,000/- provisions would applicable.

c) Fees for professional or technical services (Sec.194J) : For example Legal & Prof Fees, Architect Fees- rate of deduction as 10% + Edu. cess + Higher Sec Edu. Cess.

Applicable if payment credit above Rs. 30,000/- �!� ��

The society is required to deposit the TDS to the credit of the Central Government on or before 7th of subsequent month and in case of provision at the year end on 31st March within �� ! ��"�return statement on quarterly basis in Form No. 24Q for salary and in Form No. 26Q for other payments on 15th July, 15th October, 15th January, 15th June (for the last quarter ended 31st March ). The society is required to issue ��"�� !�� 4��@��{_�for salary and Form No. 16 A for other than salary payments.

29.2 Regarding charging appropriate audit/income tax/service tax fees please consider them as your corporate clients, give them best of services – advice – your time and accordingly charge them at fair rate. Generally a tendency is seen to neglect them, since they are co-operative housing society and because

of the other commitment with your clients and to oblige the client, this work is accepted unwillingly (without mentioning such feelings in so many words). That is not the right attitude. As on today practically all laws (like Service Tax, MVAT, Profession Tax, Labour Laws, TDS, etc) are applicable to a co-operative society. Hence, they require proper attention and thorough consultation on a regular & frequent basis. For client it could be one of the activities and that also of his area of choice but for a true professional this is his bread-butter and Jam. For charging one can refer to institutes scale of fees prescribed for metro as well as for non-metro �� !��mentioned in rule 14B r. w. s. 142 (2A), which provisions and form prescribed therein (i.e. Form No. 6B) is nothing but mini – version of tax audit. The time prescribed there also is six months like tax audit date of six months after the year end. There the minimum rate is ` 3,750/- per hour and maximum is ` 7500/- per hour �� $�!�� assistants (i.e. articled clerks) also.

Bibliography and acknowledgement

1. Various publications of WIRC of ICAI & Presentations made at different seminar by different speakers.

2. Various publications of ICAI & Presentations made at different seminar by different speakers.

3. Publications of taxman, Tax publishers, Snow white, Bharat, CCH, Book Corporations & other Pvt. publishers.

4. Various publications of BCAS & presentations made at different seminar by different speakers.

�

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Type of tax : Stamp DutyStamp Duty is one type of tax which has to be paid to the State Government. It is payable on ��!�� of the term instrument is very wide. There are 62 types of instruments which attract stamp duty under the Maharashtra Stamp Act, 1958 (The Act). In addition to it there are 9 types of instruments that attract Stamp Duty under Indian Stamp Act, 1899. The payment of proper Stamp Duty on instruments bestows legality on them. Such instruments get evidentiary value and are admitted as evidence in Courts. The instruments which are not properly stamped are not admitted in evidence by the Court.

Valuation of Stamp Duty for flat and Conveyance in Society1. The Government Authorities on every 31st December publish the Stamp Duty Ready Reckoner for every next calendar year which determines the market value of the property. The valuation factors as contained in reckoner has very wide impact on market value of property.

2. The digitized copy of various zones are also published in the Ready Reckoner so that the ��!�� !��<��

value of the property. The market value of the property is linked to CTS, City Survey Number and the Village zone, and sub-zones where the property is situated.

3. The total area of Mumbai is divided in to 124 Zones and also further in to sub-zones. Basically ��<�� !��column mentions the zones and sub-zones. The second column mentions description of property along with CTS Number. The third column mentions the rate of open land. The fourth column mentions the rate of �� !�� !�� rate of shops and commercial premises. The seventh column mentions the rate of industrial premises. There are additions (premium) and reductions (concession) as per valuation factor, for example in case multi-storey building or tower addition is to be made for lift.

4. Now let us analyse how an individual would know the market value of his property. To begin with the person has to go through the property card of that property. The property card would mention the village as well as the CTS number where the property is situated from zone, sub-zone CTS no. and area, one can know the stamp duty rate per sq. mtr. of that area.

STAMP DUTY ON SOCIETY AND ITS MEMBERS UNDER MAHARASHTRA STAMP ACT, 1958

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CA Manilal Simaria

Stamp Duty & Registration Provisions pertaining to Sale & Purchase of Flats

Stamp Duty & Registration - Provisions pertaining to Sale & Purchase of Flat


Depreciation – The rate of depreciation for old structures1. The valuation is effected by the year of its construction. To give relief to such old buildings, the depreciation is to be allowed on market value in percentage depending upon the age of building as under:

Age of Building in years

More than .......... Up

to

Rate of Depreciation

for RCC Pakka Structure/

Other Pakka Structure

Rate of Depreciation

for Semi - Pakka

or kachha Structure

0-2 Nil Nil

2-5 5% 5%

6-10 10% 15%

11-20 20% 25%

21-30 30% 40%

31-40 40% 55%

41-50 50% 70%

51-60 60% 80%

Above 60 years

70% 85%

2. Notes on valuation while allowing Depreciation :

(1) Valuation is to be done as per market value less deducting above percentage as depreciation according to the age of building and types of building as per above chart.

(2) Stamp Duty is payable on agreement value or market value whichever is higher. For old flat/building/property, market value is arrived at after giving the effect of depreciation and other valuation factors as per particular year ready reckoner. Further if value arrived at as above, even after deducting depreciation value so arrived is less than the developed land value, then the valuation should be done as per land plus construction cost method. Depreciation is allowed on such construction cost.

(3) Occupation Certificate or Completion Certificate are required while calculating depreciation. However, if above two documents are not available, then other ��!�� <��!� � �� issued by the Municipal Corporation, Light Bill, Telephone Bill, Society letter, other evidences for year of construction may help to determine the value after depreciation.

(4) Stamp duty should be always calculated on built-up area. To convert carpet area into built-up area multiply it by 1.2, i.e., Built-up area = Carpet Area X 1.2. concept of super built-up area is done away with. To convert Sq. Feet into Sq. Meter, divide the sq. feet by 0.0929 and from sq. meter to sq. feet, multiply sq. meter by 10.76.

AdjudicationIf the parties have any doubt with regards to the valuation of the property then before presenting the current or old document for registration or otherwise, they can apply to the Collector of Stamps on payment of adjudication fees of `�{��¥$��!��<��!��through the process of adjudication. It needs to be emphasised that such adjudication can be done on signed and an unsigned agreement also. Prospective purchasers are advised that they should submit the document to the Stamp authorities in advance, preferably unsigned agreement so that they can have a clear idea with regards to the Stamp Duty liability. No adjudication is required for the purpose of providing depreciation.

Rates, payment, penalty for stamp duty on immovable property

A) Rates of Stamp DutyThe rates of Stamp Duty are shown in 62 Articles of Schedule-1, appended to the Mumbai Stamp Act. Yes, the rates of Stamp Duty varies from instrument to instrument. Similarly, the Stamp Duty rates in respect of instruments covered under the Indian Stamp Act are indicated in the Schedule appended to the Indian Stamp Act, 1899. The

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stamp duty rate as conveyance of property, sale deed of immovable property is @ 5% on higher of market value or agreement value in Mumbai. However, One should not forget to give impact

of various valuation factors as appear in reckoner which contains Government Valuation factor for that particular year.

INFORMATION FOR STAMP DUTY AND REGISTRATION FEES PAYABLE ON PROPERTY DOCUMENTS FOR MUMBAI AND OTHER PLACES IN MAHARASHTRA

Sr. No.

Types of documents Stamp duty payable

Registration fees payable

I. CONVEYANCE (not being a transfer-charged or exempted under Article 59 w.e.f. 1-5-2012

On the true market value of the property – which the subject matter of the Conveyance – is

(a) if relating to movable property, for every rupees 500 or part thereof;

(b) if relating to immovable property situated, –

(1) within the limits of any Municipal Corporation or any Cantonment area annexed to it or any urban area not mentioned in sub-clause (ii).

(2) within the limits of any Municipal Councils or Nagar Panchayat or Cantonment area annexed to it, or any rural area within the limits of the Mumbai Metropolitan Region Development Authority, or the Influence Areas as per the annual statement of rates published under the Bombay Stamp (Determination of True Market Value of Property) Rules 1995.

(3) within the limits of any Grampanchayat area or any such area not mentioned in sub-clause (ii).

Fifteen rupees.

5 per cent of the market value of the property.



Registration fees is 1% of Market value of ` 1,000/- or part thereof ` 30,000/- whichever is less.

T�� !�� Z�� /��!��!�� <��!��!��Z�� #��¥� ��!��=�� ` 100 stamp paper. It is advisable to get both the agreements registered.

B) Payment of Stamp DutyStamp duty can be paid by purchasing the required stamp papers in the name of any one of executors to the instrument. If stamp papers are not purchased in the name of any one executors, such instruments are not admitted in evidence for any purpose. These instruments are also treated as not properly stamped. These instruments are liable to be impounded and sent to the Collector of Stamps for recovery of proper stamp duty. Stamp duty can also be paid by purchasing the stamp, affixing the adhesive stamps/franking/e-payment on the documents. It can also be paid by way of challans in the Govt. treasury. With effect from 1-5-1994, the stamp paper has to be purchased in the name of any one or either party to the

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agreement. Generally under section 30, of Stamp Act, the buyer is liable for payment of stamp duty !��

�� !��#�� $��#Earlier upto 30-4-2001 the maximum penalty that could be levied on instruments which was 10 times ��!�� !��This had given wide ranging discretionary powers to the authorities. Now with effect from 1-5-2001 ��Z��|�� the stamp authorities. The maximum penalty is 200% of the short fall of Stamp Duty amount.

D) Refund of Stamp DutyRefund can be claimed when the instruments gets �� !��!�� it was purchased and also for other reasons as mentioned in Section 47 of the Maharashtra Stamp Act. The application for refund must be submitted within six months from the date of purchase of stamps to the Joint District Registrar and Collector of Stamps of the concerned district. However, in some special cases like when the transaction is impossible to complete due to some legal hitch, the refund can be claimed within 2 years of purchase of stamps. The refund is granted after proper persuasion follow up and deduction of some money.

Market value of propertyMarket value in relation to any property which is subject matter of instrument means the price at which such property would have fetched if sold in open market on the date of execution of such instrument or the consideration stated in the instrument whichever is higher. The Stamp Duty is payable on the agreement value of the property or the fair market value as per stamp duty ready reckoner, whichever is higher.

Determination of Market ValueThe Stamp Authorities have fixed values of properties for calendar year 2013 with effect from 1st January, 2013 for different localities based on the information accumulated by them. Stamp Duty Ready Reckoner published every year on 1st January, prescribes the area wise rates and

method of its valuation through Government valuation factors for current year market rate of property area wise for which please refer stamp duty ready reckoner and valuation factor.

Appeal against the Market ValueThe market value determined by the Sub-Registrar or Superintendent of Stamps can be challenged by the parties The parties can ask the Sub-Registrar to refer their case to the Collector of the District for determination of true market value and it is binding on the Sub-Registrar to do so when asked by the parties. Party has to pay deficient stamp duty with penalty @ 2% pm. The Collector issues notices to the parties, allows them to produce evidence, grants them hearing, sometimes even �� !��market value of the property which is accordingly informed to the parties. If the parties do not agree with the true market value of the property as determined by Collector of the District they can go for appeal to the Deputy Inspector General of Registration and Deputy Controller of Stamps of the concerned region under Section 32B, of Maharashtra Stamp Act.

Appeal against market value in the courtAny person aggrieved by any order determining the market value under the sub-section (3) of Section 31 or under Section 32-A or any other authority imposing any penalty under Section 32-A may within sixty days from the date of receipt of such order by making an application in writing (accompanied by such fee not exceeding rupees one hundred, as may be prescribed by rules made by the State Government) require the =�� !��!��of the case wherein such order is passed and to refer for decision the question of market value of the property in respect of such order has been passed the proper stamp duty leviable thereon and imposing the penalty to following courts.[a] To the Bombay City Civil Court if such

property is situated in Greater Bombay and[b] To the Court of Civil Judge (Senior Division)

having ordinary jurisdiction, if it is situated elsewhere.

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Stamp Duty compulsory on agreement for sale and its adjustment at the time or conveyance of societyUnder various laws Registration of property is compulsory. Registration done only when proper stamp duty on such document is paid by such purchaser.However, when subsequently, conveyance in favour of society is executed in pursuance of such agreement of sale, the stamp duty, if any, already paid on such agreements by individual member on his agreement will be set off in respect of area on which Stamp Duty is paid towards the total stamp duty leviable on conveyance deed executed subsequently in favour of such society. Payment of proper stamp duty on such agreements which are deemed as conveyances will � ��Z��!�� !��advantage of paying the stamp duty on market value at the time of entering in to an agreement of sale, compared to the amount of stamp duty payable on market value at the time of executing conveyance, which normally takes place after the lapse of time, by which time the market value would have considerably appreciated leading to increase in the amount of stamp duty payable. There may be cases when all members of society has paid proper stamp duty on their old agreement, on entire area and no FSI is left on plot – then on conveyance deed of the society stamp duty will be only ̀100/-.

Disclosure of relevant facts and circumstancesSection 28 of the Maharashtra Stamp Act casts the duty on the executants to disclose and truly set forth relevant facts and circumstances in the instruments. �� !�� involved in the instruments which in turn helps in the determination of proper stamp duty payable on such instruments. Duty is not payable on the title or the heading given on the top of the instrument but on the recitals as stated in the instruments. The parties are penalised for not stating true facts and circumstances in the instruments, since non-disclosure of relevant facts and circumstances lead to evasion of stamp duty.

Impounding of instruments can be made by collector of stamp's if not properly stamped

Stamp Duty and Registration of agreement for transfer of membership in a Co-operative Housing SocietiesThe transfer of flat under an agreement which is not duly stamped and registered cannot be treated as invalid in view of the judgments given by the Maharashtra Co-op. Appellate Court in the case of Pravinchand and Meghji Gala vs. Shankar Darshan Co-op. Housing Society Ltd. wherein it was held that, the society cannot have a concern regarding stamp duty payable for transfer and that cannot be a ground for giving consent to the transfer by the society. It is to be noted that the society is not concerned with a penalty or imposition of additional stamp duty, if any, under the said law as it would be borne by the transfer if so agreed between the parties. Further in the case of Mrs. Chandrika Mehta vs. Indus Co-operative Hsg. Soc. Ltd., before the Deputy Registrar of Co-operative Societies ‘A’ Ward, Bombay the Registrar has given ruling that non-payment of stamp duty cannot be used as ground for refusing or refraining the admission. The willingness to execute an Indemnity Bond for the stamp duty as assured by the appellant appears to be a positive gesture and it is expected to meet a co-operative gesture in reciprocation. Further the agreement cannot be treated as invalid if not registered. On account of the judgment pronounced by Justice Mrs. Sujata Manohar in the case of Usha Arvind Dongre vs. Suresh R. Kotwal 1990 report in M.L.J. Page 306 wherein it was held that, the title of the flats in a Housing Society remains with the society and �� !��Z��from ownership to share and such share does not become an immovable property and thus transfer does not require registration. Thus in view of the aforesaid judgment non-payment of stamp duty and registration charges does not invalidate the agreement. However on 18th February 1994, the Office of the Commissioner of Co-operation has issued a circular stating that the Managing Committee of the Society should satisfy themselves that the parties have paid the stamp duty. The circular further goes on to add that the parties ��!��!�� Z��}��circular dated 8th July 1996 has also been issued by ��\�� $�� ¥

SS-VI-95



clarifying the contents of the circular dated 18th February, 1994. The circular dated 8th July, 1996 expressly states that stamp duty and registration fee must be paid by the parties. These circulars �� "��!��@�� ª�\ ��!��Chapter in Stamp Duty Reckoner published by Authors (10th revised edition 2013). The paras in the above circulars pertaining to registration appears to be in violation of the provisions of Section 41 of the Maharashtra Co-operative Societies Act. In case of Hanuman Vitamis Foods P. Ltd. in writ petition 1820 dt. 17-12-1989 (AIR 1990 Bombay 204) it was held that the transfer of shares in co. op. housing society attracts charges with stamp duty under articles 25(d)(1) of the act.

Stamp Duty on transfer of residential ��In the case of properties which are transferred subject to tenancy the objections should be made to the stamp authorities for allowing concessional stamp duty so that the same may be considered. It is a general view that properties, where there are genuine tenancy under litigation normally fetch less than the market value. The Stamp Authorities will value the property at 112 months rent plus construction cost or the agreement value whichever is higher. The authorities also insist for electricity bill, rent receipts, telephone bill, election card, ration card, passport and 1995 voter list etc., to prove the � ��tenancy. Stamp Duty Department is constituted for collecting the revenue to the treasury of Government. It is a sort of taxing authority. Whereas, registration is quite different. Registration charges are collected for keeping the records of the documents. Hence both are totally different. Stamp Act varies from State to State. Indian Registration Act, 1908 is a Central Act which is common for all the States of India. Law of Limitation applicable to levy stamp duty for the purchase of flat property in a Co-operative Society. There is no Law of Limitation applicable for Stamp Duty payment on purchase of flats in a Co-operative Housing Society unless such sale deed is registered with the Sub-Registrar of Assurances. If the sale deed is registered with the Sub-Registrar of Assurances then the Law of Limitation is ten years from the date of registration of the sale deed.

Stamp Duty on legal heirs due to death of memberIn case of death of a member of a Co-operative ��!� ��"�� Z�� to the legal heir of the deceased member, Stamp Duty has not to be paid when there is transmission ��Z�� the name of the legal heir the question of payment of stamp duty does not arise. It is always better to have will for property in addition to nomination as the nominee is like caretaker or trustee of such property. Stamp duty on Will or transfer of such property by Will is not leviable.

Document of immovable property covered for registrationThere are humangous types of immovable property documents on which stamp duty is properly payable. These documents includes conveyance �� [��ª�[ ��deed, tenancy creation, release deed, surrender of lease or tenancy, exchange of property, power of attorney, development agreement, housing loan agreement, TDR (as movable property etc.), more particularly referred in article 1 to 62 schedule of Bombay Stamp Act, 1958.

Validity of stamp paperProvision of section 52B, stamp paper remains valid for a period of 6 months from the date of issue / purchase.

�� gifted to family memberIf the property is gifted to family member being husband, wife, brother or sister of the donor, or any lineal as ascendant or lineal descendant of the donor, then stamp duty is @ 2% of market value of such property.

Stamp Duty on slum rehabilitation approval (SRA) schemeIn view of Government notification u/s. 9 of the Act, the stamp duty payable such SRA document is just token of ` 100 only.

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I. Registration is notice to publicRegistration of various documents under Indian Registration Act, 1908 (“the Act”) is notation of facts and contents of documents in the records of ��

�� !��}��Registration is the process by which the records of such document is preserved and through observing certain procedure which can be made available to the general public by Registrar. Therefore the registration is notice to the general public. Registered document becomes public document, �!��!�� !��copy of the same can be obtained by anybody on payment of necessary fees and by observing the prescribed procedure. Certain registered document prevails over unregistered document. For example, registered non-testamentary document relating to movable or immovable property shall prevail over any oral agreement or declaration. However, pursuant to any oral agreement or declaration, if under such law delivery and possession of property given is considered as valid transfer, then such oral agreement or declaration will prevail over subsequent registered document. For example mortgage deposit of title deed will prevail over subsequently registered mortgage deed.

Registration is function/process of recording the contents of such document in Government record, its preservation and also notice of such fact to the general public.

II. Some important documents requiring compulsory registration under section 17

For example, following documents are required compulsory registration.

# ��"��>��[��[��ª�[ ��tenancy Sale/Purchase conveyance of immovable property, adoption of son, mutual fund as trust including property in society must be registered. There are other numerous documents required

�� ª�� section 17 for which one has to refer sections 17(1A) and 17(2) of Indian Registration Act, 1908.

III. Documents of which registration is optional as mentioned in section 18 of Bombay Stamp Act, 1958

IV. (A) PLACE FOR REGISTERING THE DOCUMENTS DEPENDS UPON SITUATION OF SUCH SUBJECT MATTER OF PROPERTY (SECTION 28)

The documents requiring compulsory registration or optional registration shall be presented for �� "!�$�� whose Sub-district the whole or some portion of the property to which such document related is situated. It is advisable to put detail schedule of property in agreement to determine the correct value of property.

(B) THERE ARE CERTAIN SPECIFIED PERSONS WHO CAN PRESENT DOCUMENTS FOR REGISTRATION

4�� ¤��Attorney holder, Assignee, (Section 32). Person with �� ~� �� person not required to attend register office for registration however, on proper persuasion, registrar can visit to such person place of availability and registrar the same documents.

V. Procedure on admission & denial of execution (Sections 35 & 36)

A. ADMISSION OF EXECUTION & REGISTRATION

All the persons/parties executing the document should appear personally to sign, put thumb impression before the Registering Officer, or if appearing by a representative, assignee or agent legal heirs then such person should admit execution by remaining present.

REGISTRATION OF DOCUMENT UNDER INDIAN REGISTRATION ACT, 1908

SS-VI-97



B. LANGUAGE OF DOCUMENTSU/s. 19, If any document is duly presented for registration should not be in a language which the �� !�� is not commonly used in the district, the registering ��!�� !��!��it be accompanied by a true translation into a language commonly used in the district and also accompanied by a true copy of such document. In �!�� !�� >�� ª�Hindi languages are normally accepted. If it is in other language then with original document the translated certified copy in Marathi, English or Hindi is to be attached for registration.

C. DENIAL OF EXECUTION & REGISTRATION/��!�� to be a minor, an idiot or a lunatic, or if any such person by whom the document purports to be executed or is dead and his representative or �� !� �� shall refuse to register the document as to the person so denying, appearing or dead:

If any person admitting the execution of a document ��!�� shall nevertheless register it, but shall at the same time endorse a note of such refusal.

D. ORDER OF REFUSALThe Sub-Registrar refusing to register a document, except on the ground that the property to which it relates is not situated within his sub-district shall, make an order of refusal and endorse the word “registration refused” on the document and, on application made by any person executing or claiming under the document shall, without payment and unnecessary delay give him a copy of the reasons so recorded.

E. APPEAL TO REGISTRAR AGAINST THE ORDER OF SUB-REGISTRAR REFERRING REGISTRATION ON GROUND OTHER THAN DENIAL OF EXECUTION U/S. 72

U/s. 72, an appeal within 30 days of such order can be made against an order of Sub-Registrar refusing to admit a document to registration (whether

the registration of such document is compulsory or optional) to the Registrar to whom such Sub-Registrar is subordinate.

F. SUIT IN CASE OF ORDER OF REFUSAL BY REGISTRAR (U/S. 77)

Where the Registrar refuses to order the document to be registered, any person claiming such document as his representative, assignee or agent may, within thirty days after the making of the order of refusal, institute case in the Civil Court within the local limits of whose original jurisdiction is situate for the office in which the document is sought to be registered. Registrar can refuge registration if any one or more requirements for registration not complied with.

G. EFFECTS OF NON-REGISTRATION OF DOCUMENTS REQUIRED TO BE REGISTERED (U/S. 49)

a. Any document requiring compulsory registration u/s. 17 or by any provision of the Transfer of Property Act, 1882, if not registered, no document shall affect any immovable property comprised therein, or

b. Confer any power to adopt, orc. Be received as evidence of any transaction

affecting such property or conferring such power, unless it has been registered.

VI. Necessity for Registration & effects of non-registration

1. Certain registered documents relating to land and immovable property to take effect, and property against unregistered documents. (u/s. 50).2. Non-registered document will put the title of ��!�� ~��ª��to litigations. Registered document has evidential value in court of law. Registration preserves title and interest of purchase in such property.3. Failure to register the document which is required to register under other legislations or law then in such case all consequences under that law would apply. These are the consequences to be faced by such person under that relevant law. For example, trustees of Mutual Fund Trust

SS-VI-98



should apply for registration, failure to which SEBI Regulation will apply.

4. The Registered document is the notice to the public at large as regard to such and in respect of particular property, which is subject matter of registration. Registration is a process by which contents of agreement and such fact is recorded in the Government records maintained by the Registrar.

5. The payment of stamp duty and registration of documents in respect of flat, gala, shop, office etc. immovable property in co-operative society is advisable. The two circulars issued by the Commissioner of Co-operation and Registrar of Co-operative Society, gives direction for registration of such property and transfer of shares.

1. Circular dt. February 18, 1994.

2. Circular dt. July 8, 1996.

6. As per amendment effected on 25-9-2001 under the Indian Registration Act, 1908. Registration is made compulsory in respect of certain immovable properties including transfer of Z�� $�� !� ��

7. In recent time, many properties purchased are �� !�� !�� Housing loan is financed by banks, financial �� !� ��"�� !�� to have earlier chain of documents duly registered before disbursement of loan. For such types of �� $condition of finance before disbursement of loan. Registration is normally done only after payment of proper stamp duty as regards to those documents. Registered documents serves as a proof of payment of proper stamp duty.

8. With effect from 1-4-2003, under section 50C of Income-tax Act, 1961, the market value calculated for the purpose of stamp duty is accepted by Income Tax Department as base for valuation of property for capital gain computation purpose.

9. The Registrar or Sub-Registrar while registering any agreement for purchase or sale of an immovable property having reckoner value or agreement value adopted is ` 30 lakhs and more, are required to file annual information return

(AIR) u/s 285 BA of Income-tax Act, 1961. The AIR provides tool for checking of such transaction of immovable property of ` 30 lakhd and above.

10. As per the amendment dtd. 24-9-2001 in /�� }��{��¨�� section 53A of Transfer of Property Act, document executed even in part performance of the contract requires compulsory registration.

11. W.e.f. 1-6-2013, Union Budget proposes to deduct 1% TDS on purchase of any immovable property having agreement value above ` 50 lakhs.

VII. Procedure to register documents when a person who has executed the document who is due to illness or hospitalisation is unable to visit ��

In such circumstance on perusing the matter to Registering authority, by collecting visit fees the Sub-Registrar has to visit such place or hospital and complete the registration formalities.One has to comply with the procedure and requirement for registration of immovable property ��!� ��Z�� discussed hereinafter.

VIII. Procedure of registration in State of Maharashtra

The process of registration highlighted below mainly involves the following steps and submissions of required documents/papers and �� =��$

{�� duty as per the stamp duty reckoner on blank agreement or on next day of execution of agreement or on same day of execution. The agreement should be typed/printed on one side in black ink on 60 GSM paper. It is better to pay the proper stamp duty on or before its execution.

|�� "�"�� stamp duty collector for payment of S.D.

To execute the agreement, Sub-Registrar require to put photographs, signature and left hand thumb impressions of all concerned parties to execution.

SS-VI-99



3. To visit www.igr.maha.gov.in for public data entry and enter your data in isarita public data entry module. Book your token (by phone or through internet).

4. Visit any Sub-Registrars office of that Taluka (According to village) who will determine registration fees payable and issue the Challan/�� \��and its attachments with head clerk/person incharge who will pre-check the documents and �� ! ��

5. Pay the registration fees by Challan/pay slip ��<�� <�� procedure laid down by respective Sub-Registrar. It is better to pre check at concerned Registrar office the exact procedure and registration fees payable. Registration fees are to be paid on value of such property rounded off nearest to rupees in thousands.

6. In case of document of property having value above ` 5,00,000/- Proof of Permanent Account No. (PAN) of all the parties to the documents is mandatory. If the party does not have PAN, then to ��4��@��_�� !��"!�$Registrar.

7. Two witnesses with their photos and identification proof should remain present for �� two witnesses have to put their photo, signatures and thumb impression before registering authority. Such witnesses should not be necessarily same who has signed as witnesses in the agreement. The property card of land/plot on which the property being registered is situated may be called to produce in certain case. Property card is required to be produced at the time of registration. CTS No./survey No. as appears on the property card provides help to determine true market value of property. Stamp Duty are to be paid an property value nearest to and rounded off to ` 500.

8. For payment of registration fees by government challan or pay-order or bank draft of bank is to be produced. Computer charges/scanning charges, etc. based on number of pages

in documents are to be paid at ` 20/- per page for scanning fees in cash at the time of registration of document. Sometime Registrar calls information from collection of the proper stamp duty is paid on such adjudicated document.

�� !�� !�� form in Marathi as prescribed by the stamp duty department or Registrar or Sub-Registrar. The input registration form and necessary documents are required to be submitted at token window in advance i.e., at least before half an hour of �� #�� =��<�such submissions. Adjudicated document will help in faster registration.

{�� /��! �� of depreciation on market value then the attachment of following proofs will help to avail depreciation on age of building.

(1) Municipal tax assessment bill (2) Completion \�� ]�^�=��!�� \�� ]�^��bill (5) Electricity bill (6) Society letter (7) IOD/CC etc.

11. For proof of authorise structures, the following documents are required:

1. If the building is completed before March 25, 1991 the property assessment municipality bill is required to be attached.

2. If the building is constructed / completed on or after March 25, 1991 in addition to above proof out of following is to be attached :

�� /=�¥\\�]\��\�� ^�of building OR

�� ! �� \�� \�� =�

�� ! �� =��!�� \�� ]=\^

It is advisable that one has to pre-check such requirements and entire procedure with respective Sub-Registrar office, so there cannot be any inconvenience at the time of registration.

12. Any proof of determination of market value will help to facilitate the calculation of true market value. The detailed letter from society showing the

SS-VI-100



age of building, year of construction, built-up area of flat, flat no. and floor on which flat is located, details of lift facility available if any, number of Z��! �� !�� \��"��@��!��@��\"��ª�� ¥� � � ��to justify the calculation of proper market value of such property. For proper valuation, please refer government valuation factors of respective year.

{�� {$§$|��{�� duty is payable with penalty @ 2% per month or part of the month, but maximum penalty not exceeding two times of such deficit amount is required to be paid before registration and proof of such payment of stamp duty and penalty is to be attached at the time of registration of document.

14. Computerised photographs of parties executing the document and witness are also generally taken digitally by the Registrar’s office. The left thumb impression of all the parties including witness to the document is also taken digitally. Through computer generated programming, the thumb impression and photographs are automatically generated and printed on separate paper which has photos of both the parties and witness to be further signed by all the executors before Joint Registrar/ Sub-Registrar or Joint Sub-Registrar. Such witness has to produce his identity proof. From 1-1-2002, �� !�� !��for registration of document as regard to property. Registrations of documents are computerised with ��{$|$|��|�� papers/sheets describing name of the seller, buyer and address of property, etc. is generally given to ��< ��~!�� checking as regard to correctness of data comprised thereon. In view of above, it is advisable to check such data sheet by party as regard to correctness of typed contents thereon. At last the Sub-Registrar �� ª��!��@��ª��!��block on each page of such agreement.

15. Sometime, the documents are executed allow to be registered by power of attorney holder for and on behalf of buyer or seller or builder. In such

case copy of duly executed power of attorney is to be attached with the agreement which is also to be registered with photo, thumb impression and sign. Generally all the parties are supposed to go together for registration; however they can go at different point of time but maximum time limit within four months of execution of such document. Registrar also asks to submit declaration (Ghosana Patra) in prescribed format that power of attorney its sum, substance and contents are in force, valid and subsist on the day of registration. In case of corporate assessee, trust, firm proper resolution of Board/Managing Committee/Office bearer as ��ª��!��!��authorised by proper resolution, seal and sign. Pre-check the registration procedure at joint Sub-�� to 9 pm in shifts.

16. The complete documents along with all above-mentioned details are then scanned by Registrar office and preserved as a permanent �� ª�� !�� should be preserved with agreement. The party has to submit the copy of pay order / demand draft/R.B.I. Challan for registration fees. The Registrar generally by way of pay slip collects registration fees, computer and other charges at ` 20 per page of document are paid by cash towards scanning for which he acknowledges by issuing receipt. The pay order for should be in the name of respective area’s Joint Sub-Registrar or the Sub-Registrar authorised by the department. Registrar also calls original stamp duty paid receipts, challan, stamped document, franking receipt stamp vendors bills e-payment receipt.

17. The original agreement after due registration are returned to party by Registrar against sign on delivery of document by register to party and also on production of the original registration fees �� !��delivered. Registration formalities are completed, after which the documents are returned to party within approximately one hour of completion of registration formalities. If loan is taken then authority letter to collect original documents is taken

SS-VI-101



��<�¥�� !� �� !�� !��parties are advised to take index II as well as �� !�� !��

18. Particularly, for transfer of land, No Objection \�� ]@=\ �̂!��[��\� � ��}��] ��applicable) irrespective of its area in Mumbai.

{�� @��=�~�� \�� ]@=\^��\�� Commissioner, Government or Semi-Government body, if such land or property land is held by trust/statutory authority as the case may be. Now a day’s registration process is computerised and � ��

20. Now the builder or developer have to put the approved plan and schedule of property in the agreement and also to write the area i.e., measurement of flat/shops etc. in agreement. Further the agreement cannot be executed by the builder/developer before approval of plan by competent authority. Builders have to put all necessary details, carpet/ built-up area, etc. in agreement.

IX. The time limit for registration of the document

The document is required to be registered within 4 months time from the date of its execution. If the same is not registered within 4 months time from the date of execution, it can still be registered within �!�� months, on payment of penalty for late presenting the document for registration which can be imposed by the Registrar up to 10 times of registration fees. @�� Z��¨��IGR Pune has issued circular that such person hereto pay stamp duty at prevailing current market rate of stamp duty as per reckoner which is very harsh. If the vendor dies after signing the document but before registration of such document, in such case it is difficult to complete the formality of registration within 4 months of statutory time limit or during the additional time limit of 4 months. In cases of death of vendor the legal heirs of deceased has to comply with the registration formalities.

X. The date from which the registration for leave and licence and tenancy agreement made compulsory

W.e.f. 31-3-2000, Registration of leave and licence is made compulsory. Even the tenancy agreement of the Maharashtra Rent Control Act, has got to be compulsorily registered. Such agreement also must be in writing. Delay in registration may compel to pay stamp duty at current market rate. Now registration fees is payable at 1% of higher of market or agreement value of property subject to maximum fees of ` 30,000/-

XI. If one of the signatories is not willing to attend the office of the Sub-Registrar for completing the registration formalities

If one or more of the signatories is not willing to complete the registration formalities then an application has to be made to the Sub-Registrar of Assurances under section 36 of the Indian Registration Act, 1908. Thereafter the Sub-Registrar of Assurances will issue summons and after giving an opportunity to the person who has not remained present can proceed with the registration formalities. He shall make a noting in the document stating registration refused with regards to the party who has not remained present and can also deliver the document to the party who has applied for registration.

XII. Telephone No. of Stamp Duty and registration help line in Mumbai

With effect from 1-4-2003 Mumbai has honour to ��/�� !�� line for Mumbai. The helpline telephone No. is: 2263 4567

XIII. Through e-search in IGR Maharashtra website, one can avail the facility of e-search of registered documents which are registered from January 2002 onwards.

�

SS-VI-102



IntroductionFrom 1-4-2005, Value Added Tax System is brought in operation for levy of Sales Tax. VAT is State subject and different Legislation operates in respective State. Therefore, the position of VAT vis-à-vis Co-operative Housing Society is required to be seen in relation to provisions of each State.

The position in relation to Maharashtra Value Added Tax Act, 2002 (MVAT Act, 2002) can be analysed as under.

Maharashtra VAT vis-à-vis Co-op. Housing SocietyThe VAT law is generally applicable to persons who are dealing in goods. The scope is normally �� !��}��can be made to certain relevant definitions in the Maharashtra Value Added Tax Act, 2002 (MVAT Act, 2002) for purpose of analysing the responsibilities of Co-operative Housing Societies under VAT.

Section 2(17) – Person“(17) “person” includes an individual, any State Government, the Central Government, any company or society or club or association or body of individuals whether incorporated or �� !�� 4��

��!�� ~!� � ��person not falling within any of the preceding descriptions.”

Section 2(4) – Business“(4) “business” includes, –

(a) any service;

(b) any trade, commerce or manufacture;

(c) any adventure or concern in the nature of service, trade, commerce or manufacture;

whether or not the engagement in such service, trade, commerce, manufacture, adventure or concern is with a motive to make gain or profit and whether or not any gain or profit accrues from such service, trade, commerce, manufacture, adventure or concern.

Explanation.– For the purpose of this clause, –“

Section 2(8) – Dealer“(8) “dealer” means any person who, for the purposes of or consequential to his engagement in or, in connection with or incidental to or in the course of, his business buys or sells, goods in the State whether for commission, remuneration or otherwise and includes,

SS-VI-103

C. B. Thakar, Advocate

Co-operative Housing Society vis-a-vis MVAT & Professional Tax



(a) a factor, broker, commission agent, del-credere agent or any other mercantile agent, by whatever name called, who for the purposes of or consequential to his engagement in or in connection with or incidental to or in the course of the business, buys or sells any goods on behalf of any principal or principals whether disclosed or not;

(b) an auctioneer who sells or auctions goods whether acting as an agent or otherwise or, who organises the sale of goods or conducts the auction of goods whether or not he has the authority to sell the goods belonging to any principal whether disclosed or not and whether the offer of the intending purchaser is accepted by him or by the principal or a nominee of the principal;

(c) a non-resident dealer or as the case may be, an agent, residing in the State of a non-resident dealer, who buys or sells goods in the State for the purposes of or consequential to his engagement in or in connection with or incidental to or in the course of, the business;

(d) any society, club or other association of persons which buys goods from, or sells goods to, its members;–“

/�� Society is also a person for MVAT Act. Society will also include the Co-operative Housing Society. Therefore, if otherwise liable, it can be liable to VAT as any other dealer. Whether the Co-operative Housing Society is liable to VAT or not can be found out from the definition of ‘business’ and ‘dealer’ reproduced above.

To be a dealer, the person should be engaged in the business of buying or selling of goods. The definition of business contemplates that there should be an activity in the nature of business i.e. as trade, commerce or manufacture, etc.

Normally the Co-operative Housing Society do not deal with buying or selling of goods. The Co-operative Housing Society is basically concerned with the maintenance of the building/ buildings owned by it. The revenue is generated by contribution from members. The expenditure is on various common outgoings like, municipal taxes, etc. Therefore, normally there are no business activities to make the Co-op. Hsg. Society liable to VAT provisions. Occasionally Society does make purchases of building materials, etc. for carrying out its repair work. On some occasions the purchases may be heavy. However such purchases are for its own consumption and not for trading, etc.. Therefore no VAT provisions can apply.

It may also be mentioned here that certain Co-operative Housing Societies allow Telephone Service providers to set up their towers on the terrace of their buildings, etc. The issue can be, whether any tax liability is attracted under VAT [�� *��!��}��}��includes the activity of transfer of right to use goods (lease transaction) and hence if above activity amounts to lease, it can be covered for levy of tax under MVAT Act. Only leasing of movable goods can be covered for MVAT Act. The Co-operative Housing Society is actually allowing its immovable property to be used by the hirer and hence there is no leasing of movable goods as such, which can fall into the �� attracted on above activity also. This principle will apply to similar activity of allowing use of premises for putting up hoardings, etc.

Therefore, it may be concluded here that, normally the Housing Society will not be liable to tax under MVAT Act. However it may be mentioned that, subject to other laws applicable to Society and subject to its bye-laws, if Society engages in trading, etc. or other business, then it may be liable for VAT and will be required to follow the law provisions as applicable to any other normal dealer.

SS-VI-104



TDS liability under MVAT Act, 2002The more important issue is about liability of the Co-operative Housing Society to deduct tax at source (TDS).

As per section 31 of MVAT Act the Commissioner of Sales Tax is empowered to notify the list of employers who will be required to Deduct Tax at Source from payment to works contractors. The provisions can be noted, in brief, as under.

(i) The Co-operative Housing Society is notified as an employer to deduct tax at source. In other cases the threshold limit to deduct Tax at Source is ` 5 lakhs, in relation to Co-operative Housing Society it is ` 10 lakhs in previous year or current year, as per Notification under section 31 dated 28-8-2005. In other words, if a Housing Society has awarded a works contract for ` 10 lakhs or more then it will be liable to deduct tax. Thus, in case of repair contracts, etc., the Housing Society can be liable to deduct tax if it has awarded works contract of an amount of ` l0 lakhs or more, in a year.

(ii) The Co-operative Housing Society should deduct tax as and when the bill of works contractor is credited. However if the payment to contractor is before such credit it will be advisable to deduct tax at the time of making payment. TDS is not to be deducted from the Advance Payment. In such cases the tax is to be deducted while adjusting the advance against regular bills.

(iii) The limit of ` 10 lakhs is per contractor, i.e. even if the contractor has performed separate contracts, if total sum payable to contractor exceeds ` 10 lakhs in a year, TDS will be applicable.

(iv) The rate of TDS is 2% if the contractor is a registered dealer under MVAT Act. It will be 5% if contractor is unregistered dealer.

(v) The tax is to be deducted on net amount of bill i.e. not to be deducted on Sales Tax or Service tax shown separately in the bills.

(vi) The TDS amount should not exceed the tax payable by such contractor on such contract, and if the contract is inter-state works contract, no TDS is to be deducted.

(vii) If the contractor produces a no deduction certificate, obtained from Sales Tax Department, then Society is not liable to deduct tax.

(viii) Housing Society failing to deduct tax where applicable or failing to pay to Government after deduction, will be considered to be a dealer in arrears and all provisions of recovery will apply to it, including provisions for levy of interest.

(ix) The TDS amount should be paid into Government treasury within 10 days from end of month in which TDS is deducted. The payment is to be made in challan Form 210.

(x) The Housing Society should issue TDS certificate in Form 402 to the contractor after making payment in Government treasury.

(xi) The Housing Society, deducting tax, should send statement in duplicate in Form 405 to the Joint Commissioner of Sales Tax (Returns) for Mumbai and to Joint Commissioner of Sales Tax (VAT) ADM for rest of Maharashtra within three months from the end of the respective year.

(xii) The Housing Society should maintain a separate register in Form 404 about TDS.

Thus the burden is cast on Housing Societies for tax deduction at source. Normally in relation to its repair contracts, etc. the Housing Society will be appointing contractors and application of TDS provisions be seen accordingly.

SS-VI-105



If Housing Society purchases materials separately by itself and give only labour contract to contractor, then no TDS under MVAT Act, 2002 will apply.

Profession Tax Act – Liability for enrolmentThe other law administered by Sales Tax Department, which can apply to Housing Societies is the Maharashtra State Tax on Professions, Trades, Calling and Employments Act, 1975 (Profession Tax Act). There is schedule appended to Profession Tax Act which specifies the persons liable ��¤�� ¤�� }�� !��Societies. The said entry 16 in the schedule reads as under as on 1-4-2006.

16. Co-operative Societies registered or deemed to be registered under the Maharashtra Co-operative Societies Act, 1960 and engaged in any profession, trade or calling –

(i) State level Societies;

(ii) Co-operative sugar factories and spinning Mills;

(iii) District level Societies;

(iv) Handloom weavers co-operative societies;

(v) All other co-operative societies not covered by clauses (i), (ii),(iii) and (iv) above.

2,500 per annum

2,500 per annum

750 per annum

500 per annum

750 per annum

It is clear from above entry that if at all Housing Society is covered, it can be covered by sub-entry (v) i.e. liable to tax at ` 750 per annum. However, to be liable to pay Profession Tax, such Housing Society should be engaged in the Profession, Trade or Calling. A Housing Society normally does not involve in such activities. It collects contribution from members and meets the common expenses. There cannot be said to be any element of trade, business, etc. in above activity and hence no liability can be incurred under above entry. The Commissioner ��"��"�� liability position in the Circular No. 25T of 2005 dt. 7-10-2005. A reference can be made to said \ ��!��

However there are instances where Housing Society uses its assets for earning some income. For example, it can let the roof top of building to Telephone Service providers for erecting a tower. It may earn rent from such letting activity. However it cannot be said that it is in the nature of trade or business, etc. The renting

is only to earn income out of ideal assets and it cannot be equated with any trade activities. In Determination order in case of M/s. Anand Properties Ltd. (No. PTQ-1181/Adm-7/21/B-1 dt. 25th October,1982), the Commissioner of Sales Tax has held that earning rent income from renting the warehouses is not to be considered as trade etc. and it is held that such person is not liable to Profession Tax. The same principle will apply here. Therefore even under above circumstances also the Housing Society cannot be liable to Profession Tax. It will not be required to obtain any Enrolment. However it is needless to add that if any Housing Society engages in trade, etc. then the said Society will be liable to pay Profession Tax and for that purpose apply for enrolment.

Liability for registrationThus, it can be mentioned that normally Housing Societies will not be liable to pay any Profession Tax. However the Society may be employing employees for carrying out various functions,

SS-VI-106



like, watchmen, liftmen, etc.. If Society is paying salary to these employees, exceeding ` 5,000 per month, it will be required to deduct Profession Tax from their salaries and pay to the Government. The tax is to be deducted as per slab rates. The entry 1 of Schedule to Profession Tax Act provides the slab rates which are as under, as effective from 1-4-2006.

Sr. No.

Class of Persons Rate of Tax ( ` )

1. Salary and Wage earners. Such person whose monthly salaries or wages:

Do not exceed ` 5,000/-

Exceed ` 5,000/- but do not exceed ` 10,000/-

Exceed ` 10,000/-

to be paid in the following manner:

(a) ` 200 per month except for the month of February

(b) ` 300 per month of February

From 1-7.2009

NIL

175 per month

2,500 per annum

2. Salary and Wage earners. Such persons whose monthly salaries or wages:

Do not exceed ` 2500

Exceed ` 2,500 but do not exceed ` 3,500



Exceed ` 10,000

to be paid in the following manner:

(a) ` 200 per month except for the month of February

(b) ` 300 for the month of February

Up to 30-6-2009

Nil

60 per month

120 per month

175 per month

2,500 per annum

Accordingly, if Society is liable for deduction of Profession Tax, it should get itself registered with the Sales Tax Department under Profession Tax Act.

��"�� !��!�� !�� !��!�� attract penalty and interest.

Conclusion In above write up an effort is made to broadly analyse the position of Housing Society vis-à-vis MVAT and Profession Tax. In addition to above any peculiar issue may arise on facts of particular case. The situation can be either under MVAT Act or Profession Tax Act. The same has to be resolved in light of relevant provisions of the Act.

��

SS-VI-107

Service Tax applicable to CHS


Service tax on co-operative societies is a contentious issue. Co-operative housing societies like other co-operative societies are mutual organisations and governed by Maharashtra Co-operative Society Act, 1960 in the State of Maharashtra. Similarly other States in India are also having governing laws for co-operative societies. In this article, we shall deal with the service tax aspects of the co-operative housing societies. In this context, it is important to note that in a co-operative housing society, the land and building belongs to the society and the members by virtue of their membership of the society have right to occupy, enjoy and transfer their flats, subject to the prevailing rules and regulations and bye-laws of the society which are required to be approved by the specified authorities under the law. The society is managed by the Managing Committee of the members and important decisions are taken in the General Body Meetings within the overall limitations spelt out in the bye-laws. A co-operative housing society is a collective mechanism wherein it make payments of property tax and like payment to the municipal co-operation and other Government bodies, incur some expense for common good and allocate and collect the expense in form of certain charges from the members on some basis or the resolutions passed in the General Body

Meetings. Such collections are generally in the form of reimbursements. Some of the functions of a co-operative housing society are statutory functions like transfer of shares of the members with the underlined interest in the property (flats). It works on mutuality principles as the function of the society is for the members and by the members. Though it is not the objective, it is possible that at the end of a particular period, the society may generate some surplus which is used for members in future. In case of deficit, the same is made good by contributions from ��!��!��!�� cannot be said to be consideration for providing any service.

It is clear that a co-operative housing society (society, for brevity’s sake) collects the expenditure incurred either for some specific purpose like municipal taxes, water charges etc. on the basis of area of flats or some other appropriate basis. Other expense like maintenance, repairs to society’s building etc. are also allocated and collected from the members �� "!�� the nature of reimbursements. In this context, it is important to take note of a well deserved judgment of Hon’ble Delhi High Court in case of Intercontinental Consultants & Technocrats Pvt. Ltd.1. In this case, the High Court on the

1. (2013) 29 STR 9.

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CA Rajkamal Shah

Service Tax applicable to Co-operative Housing Society



basis of valuation provisions contained in the Finance Act, 19942 held that the Government lacked power to tax the reimbursement of expenditure. The term “for a consideration” contained under S. 67 has to be viewed in the context of a “service”. There is no element of service in case of “reimbursement of expense” and thus the charge (S. 66) fails. Though the decision is rendered under the old provisions3, the new charging Section 66B is pari-materia same in the context required and therefore equally applicable even after 1-7-2012. If viewed in this context, service tax cannot be applied on mere allocation / collection / reimbursement of expenditure.

On the above background, let us now examine the liability of service tax of co-operative housing �� a statutory meaning from 1-7-20124 which �� and therefore it would be more appropriate to begin with examining leviability from 1-7-2012.

Position from 1-7-2012The Finance Act, 2012, introduced a paradigm shift in the levy of service tax by introducing negative list based taxation. Thus far, service tax levied on 119 types of taxable services covered !�� !�� !��!��4 ��Act, 1994. Now, service tax is levied on the activities defined as “service” therein and a negative list of services is also provided on which no service tax can be levied. Further, certain exemptions are provided under the mega exemption Notification No. 25/2012-ST. The definitions provided u/s. 65(105) is given go-

bye including the “Club or Association Service” under which the Government attempted to levy service tax on co-operative housing societies from 16-6-2005.

�� 5 is, “service means, any activity carried out by a person for another for a consideration” and includes “declared services”6. Certain exclusions are provided in the definition clause itself which includes transfer of title in goods or immovable property and ‘deemed sales’ as provided under Article 366(29A) of the Constitution. Service tax is thus leviable on all the activities defined as “service”, however subject to the exclusion of items listed in the negative list7 and the �� ]�!��^��

}�� it is necessary to have two persons; one is the ‘provider of service’ and the other ‘receiver of service’. However, an explanation8 is inserted under the definition clause that in case of an unincorporated association or body of persons, such association and member thereof shall be treated as distinct persons. A co-operative society is not an incorporated entity and thus ��!��

Under the mega exemption notification (supra), an exemption is provided to a “service by an !� ��$�� under any law for the time being in force, to its members by way of reimbursement of charges or share of contribution”9. The exemption is in relation to certain amounts collected and certain services provided and so far as an association other than trade unions10 is concerned, the following exemptions are provided:

2. S. 67 r.w. S.66 of the Finance Act, 19943. as existed prior to 1.06.20114. by the Finance Act, 20125. S. 65B (44)6. The list of declared services is contained in S. 66E7. The list of negative services is contained in S.66D8. Explanation 3(a) to S.65B (44)�� |¨�!��@�� @��|§¥|�{|�$�"�10. Trade unions have blanket 3 exemption, i.e. without any condition

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“a) for the provision of carrying out any activity which is exempt from the levy of service tax, or

b) in case of a housing society or residential complex, the exemption is limited to ` 5,000 p.m. per member for sourcing of goods or services from a third person for the common use of its members.”

Being the exemption notification, it can be said that both the exemptions are applicable to a co-�� !� �� So far as the monetary limit of ` 5,000 is concerned, �� !�!��i.e. “exemption by way of reimbursement of charges or share of contribution up to an amount of ` 5,000 p.m. per member…………………”. Here in the opinion of the writer, the word, “up to” would mean that exemption is allowed up to collection of ` 5,000 p.m. per member and not that if the amount collected in excess of ` 5,000 p.m. per member, the entire amount would become taxable. In other words, if ` 5,100 is collected p.m. per member, only ` 100 would be liable to be taxed. It is further to be noted that the exemption is allowed for sourcing of any goods or services from outsiders for common use of members. This means any specific or personal use for member would not be considered for exemption and accordingly considered as service and liable to tax. In addition to above, carrying out any activity which is exempt from levy of service tax, would also not be liable to tax as per a) above. Here, though not clear, “activity exempt from levy of service tax” would mean such activities on which service tax is not leviable in the charging section11 and would also include, the exclusions from the definition of service and items listed in negative list and not be limited only to the exemption notification. Hence, there would be a blanket exemption in relation to services covered under Cl. (b) independent of the limited exemption under Cl. (c). It is pertinent to note that the exemption under Cl. (b) is applicable to all unincorporated

organizations or body of persons and hence even the commercial or industrial co-operative societies would be eligible for this exemption.

It is therefore necessary that type of collection by a Co-operative housing society should be examined for leviability of service tax. It is to be borne in mind that every collection do not ipso facto liable for service tax. The definition of service and the charging section pre-supposes provision of service as quid-pro-quo to a consideration. This means an agreement is necessary whether in writng or oral, to establish nexus between consideration and service provided or to be provided. In absence of such nexus, no liability of service tax can be envisaged on mere collection or receipt.

a) Property tax

Collection of property tax is statutory levy by a municipal corporation or a local authority under the Constitution of India. The property tax is levied on sq. ft. basis and the owner of the property is liable to pay the same. A society is a mere collecting agent and pays the same to the authority. There is no element of service in it. Even assuming it as a service, it is not provided for a consideration. Hence service tax is not leviable. As an abundant caution, the society should ensure that the amount collected from the members does not exceed the actual amount.

b) Sinking Fund

It is a fund which is collected by the members of the society to set aside money over a time of period to meet the eventuality of reconstruction of the building. It is obligatory for a housing society to collect Sinking Fund under the Maharashtra Co-operative Societies Act, 1960 and rules made thereunder. The funds collected from a member is transferred to new member if the original ��@�� or contractual obligation is involved so far as collection of sinking fund is concerned. It’s a mere collection from the members of the society.

11. S. 66B

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c) Repair Fund/Painting Fund Like sinking fund, this is also a mere collection to meet eventuality of major repair expenditure in �!�!�� service with any indentified time frame. No expense is also identified. It is also not sure that a member from whom the repair fund is collected would be a receiver of service at the time when it is actually provided. The agreement to provide service to the member is absent. However, as an abundant caution, the society should bring out this candidly in the resolution pertaining to collection of repair fund to avoid any ambiguity.

d) Maintenance and repair charges ‘Maintenance’ as the name suggest is the amount collectively reimbursed to the society to upkeep and maintain the building and premises on regular basis. The members of the society pay maintenance charges on some predetermined basis as decided in the General Body Meeting. Electricity charges for common areas, watchman or security charges and other miscellaneous expenses incurred by the society including accounting, audit etc. is part of maintenance charges. Service tax may be applicable on this. If the actual service provider in relation to any input service, charges service tax in his bill, the society would be eligible to take CENVAT credit of the same.

e) Share transfer fees and donationsShare transfer fees are the amount charged by the society for transfer of shares when a member approaches for its consent for transfer of his flat. It falls within the definition of service as a consideration for an activity carried out for the �� Z�� of service in it and service tax may be leviable on the same.

f) Non Occupancy Charges Non occupancy charges are charges levied by a housing society only when a flat or unit is let out by its members. A unit in a co-operative Housing Society is for occupation and enjoyment of its members. The permission of the society is necessary when the unit is let out. The society

may accord its permission in accordance with the provision of its bye-laws and on payment of some periodical charge. Such charge is a consideration for agreeing to let out its premises and may be liable to service tax. The Finance Act, 1994, S. 66E as introduced from 1-7-2012 contains a list of “Declared Services” on which service tax is leviable. Sub-clause (e) of this list is, “agreeing to the obligation to refrain from an act, or to tolerate an act or situation, or to do an act”. Thus any consideration for allowing a member to let out his premises may be liable under this clause.

g) Parking ChargesCar parking is in relation to regulate the parking place between the members and providing of space by use of vacant land belonging to the society for a consideration. There is an element of service in it and thus service tax may be leviable.

h) Water ChargesWater is “goods” under the Sales of Goods Act, 1935. However, the society is not selling the water to its members. It is just providing the pipeline to deliver water in the members’ premises. So long as it is collecting actual amounts as charged by the municipal co-operation, there may not be any consideration. Therefore, charges recovered from members on actual basis is not liable to service tax. In the event of collection of water charges exceeding the payments, only such extra amount can be chargeable to service tax. In relation to water for common use like swimming pool, garden, club house etc., it is advisable to have separate meter and separate collection from the members. Such charges for use of water for common purpose may be liable to service tax.

i) Charges for use of club house, swimming pool, etc.

These are specific services by the society to the member opting for such facilities. Any consideration paid for this would be liable to service tax.In terms of above discussion, all the charges upon which service tax is leviable if it exceeds the limit of ` 5,000 p.m. per member in a

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��!� �� /��Z��all practical purpose it would be considered as two members. The exemption would be accordingly computed and then the remaining would be liable to service tax.

Basic Exemption of ` 10 lakhsOver and above the limit of ` 5,000 p.m. per member, the basic exemption limit of ` Ten lakhs12 for all taxable service is available to the society. As the basic exemption can be availed on the basis of �� !�� year, the society would not be liable to pay tax

if its taxable service in the previous year has not exceeded ` 10 Lakhs. However, the society should not charge service tax to its members in order to avail the exemption as the exemption is optional and any charge of service tax to the members would mean that it has opted not to avail the exemption. In such a case the liability of service tax would start from rupee one. To avail this basic exemption, it should also not avail any CENVAT credit of payment of service tax on input service. An example of the working of basic exemption limit of ` ten lakhs for detailed understanding is given below:-

i) Collection up to ` 5000/- p.m x 100 members 5, 00,000/-Exempt under clause (c) of entry 28 5, 00,000/- ___________

Liable to tax NILii) Collection of ` 5,500 p.m.x 100 members 5, 50,000/- Up to ` 5000 p.m. x 100 members exempt under clause (c) of Entry 28 (5,00,000/-)

___________ i) & ii) to be counted for exemption limit 50,000/- (+) Share transfer fees 10,00,000/- (+) Non Occupancy Charges 15,000/- (+) Parking charges 25,000/-

__________ Total 10, 90,000/- Less: Basic exemption13 10, 00,000/-

__________ Amount liable to be taxed 90,000/-

It is to be noted that the amounts collected in view of the exemption provided under Cl. (b) as stated above, would not enter in to above computation.The following provisions would apply if the society is liable to pay service tax:

a) Registration under service taxU/s. 69 of the Act, any person liable to pay tax is required to get registered once the taxable amount exceeds ` 9 lakhs. Thus, the society is required to get itself registered by applying within 30 days of crossing the limit of ` 9 lakhs. The maximum penalty for delayed or non-registration is ` 200 per day of delay or ` 10,000/-, whichever is higher. However, if the society has provided taxable service of ` 9 lakhs but it is unlikely to cross the basic exemption limit of ` 10 lakhs, it may not get registered, as it will �� !��|]{^]�^] �^��"�� !��{��Consequently, penalty would not be applicable as there would not be any liability towards service tax.

12. Notification No. 6/2005 – ST as amended from time to time and Notification No. 33/2012 – ST from 1-7-2012.

{�� !�� !��!�� in the preceeding year do not exceed ` 10 lakhs.

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b) Payment of service tax and rate of taxIn accordance with Point of Taxation Rules, 2011, the society is covered under the provisions applicable to “continuous supply of service”14. Accordingly, the payment of service tax shall fall due on monthly basis, i.e. service tax should be paid by 6th of subsequent month in which the amount becomes due for service provided. For example, if the bill is issued for January to March 2013 and the payment is due in June 2013, service tax would be payable on 6th July 2013, irrespective of the fact that whether any payment is received or not. Further, the payment is required to be made electronically.

Applicable rate of service taxThe applicable rate of tax at present is 12% plus 2% Education Cess and 1% Secondary and Higher Education Cess, aggregating to 12.36% on taxable service provided.

Availment of CENVAT credit In case the society is liable to pay tax, it will be entitled to take credit of service tax paid on input service which is used in providing output taxable service in accordance with CENVAT Credit Rules, 2004.

c) Furnishing of service tax returnsThe society would be required to furnish return of service tax in Form ST-3 on half-yearly basis, i.e. for the period of April to September, the return would be required to be filed on or before 25th October and for the period October to March the return would be due by 25th of April.

d) Issue of invoicesUnder Rule 4A of Service Tax Rules, the society would be required to issue invoices showing the prefixed serial number of invoices, date, and registration number of the society, name and address of the receiver of the service (members), description of service, the non taxable and taxable amounts along with service tax thereon. The invoice must show the date on which the payment becomes due as it would become the determinative factor of due date of payment of service tax.

From 16-6-2005 to 30-6-2012Service tax was first introduced on co-operative societies under “Club or Association Service” from 16-6-2005 by Finance Act, 2005 by insertion of S. 65(105)(zzze). Simultaneously, an explanation was added to S. 65(105) to levy service tax on services by unincorporated association or body of persons to its members if provided for a consideration. Prior to this amendment, service tax was not leviable on mutual organizations. �� !��Section 65(105)(zzze) had given expanded meaning to the the term “service", by adding the words “facilities” and “advantage”. This was done to give a wide coverage to the term “service” and as answer to the contention that a club or association do not provide service to its members. Further, the term, “consideration” was also replaced by the terms “subscription” and “any other amount” to avoid any confusion or ambiguity as to whether in fact there is a flow of any consideration from the member to such unincorporated association. So far as the applicability of service tax on a Co-operative Housing Society is concerned, doubts were expressed in many quarters that though the �� !�� or “advantage” by such society to its members, can it be said that recovery or allocation of expense amongst the members regarded as provision of any facility or any advantage to the members. The common examples are property tax, water charges for water used in the members’ premises, etc. As regards to collection of maintenance charges, the building and the premises of the society belongs to the society and not to the members. Any expenditure in relation to maintenance of the building, common areas can be said to have been incurred for the society itself. In case of collection of security charges, it can be said that the society is not rendering any security service. Further, the security service providers, maintenance or repairs service providers, etc. already charges service tax to the society and the society cannot be said to be service provider in this regards. Collection of sinking fund, repair fund, non-occupancy charges

14. Rule 3(b)(i) of Point of Taxation Rules, 2011.

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��Z�� any facility or advantage to the members. Thus, most of the collections may not be regarded as a “facility” or “advantage” to the members. However, the exception could be the collections for club house, swimming pool and the like nature which can only be said to be regarded as facility or advantage to members and chargeable to tax. Another debatable issue is as regards to the “consideration”. The legislature purposely avoided the word, “consideration” as the society cannot be said to have charged any consideration to its members. Instead, the legislature used the word, “subscription or any other amount”. Here again, the issue arises is that whether a member of the society can be said to have paid any subscription to the society. The term, “subscription” in general parlance goes with membership. When some amount is required to be paid to obtain a membership or keep the membership going, the subscription is paid. Further, the words, “any other amount” has to take meaning from the preceding word, “subscription” as per the principle of Ejusdem Generis15. Hence, any amount of the like nature of “subscription” may only be covered in “any other amount”. Thus, so far as the co-operative housing societies are concerned, it is a moot point that whether the levy survives. It is not out of place to mention that the department has also moved slowly on imposing the liability on co-operative housing societies under this clause and as per the information of the writer, not many housing societies are issued notices or paying service tax. The dispute of levy of service tax on co-operative housing society has so far not reached any higher judicial forum to have any definitive solution.

Assuming that the Co-operative Housing Society is liable for service tax, the discussion on leviability on each receipt for the period from 1-7-2012 would apply.Exemption up to ` 3,000/- per month per member in case of Residential Welfare Associations

Exemption is provided by Notification No. 8/2007 dated 1-3-2007-ST in respect of Residential Welfare Association (RWA) for total consideration received upto ` 3,000/- per member per month. However, it is a moot point that whether a co-operative housing society would be regarded as RWA, as the latter is formed by the plot / bunglow owners to avail themselves the common amenities like street lights, internal road maintenance and general maintenance etc. In RWA, the plot / bunglows are registered in the name of the members and the association is formed for providing common services to the members. There is clear distinction between a co-operative housing society and RWA. It may however be noted that the Notification is a beneficial notification and the department is of the view that it is applicable to co-op. housing societies. Thus, a co-operative housing society ��<�� !�� consideration from the member is exempt if it does not exceed ̀3000 p.m. However, from the wording of the �� exceeds ̀3000 p.m. per member, service tax is leviable on the entire amount. It may be noted that collection of property tax, etc. may not be covered in the exemption limit as it may not be regarded as consideration for any facility or advantage to the member.

ConclusionA co-operative society is formed under the State laws to encourage co-operative movement in a democratic society which is avowed Directive Principle of our constitution. Legal issues apart, this sector should be kept out of tax net at least so far as the transactions between the society and its members are concerned. Prior to 16-6-2005, the Government’s efforts to levy tax on members’ clubs had failed as the Hon’ble Calcutta High Court16 has not approved the levy on the basis of mutuality concept. It is desirable that the Co-operative housing societies better be kept outside the ambit of the levy and also relieved of the resultant litigation. In the meantime, the Delhi High Court’s decision can be a ray of hope for the societies against whom action is taken for recovery of tax.

15. Means “of the same kind and nature”. The principle is explained by the Apex Court in case of Siddheshwari Cotton Mills vs. UOI 39 ELT 498 (1989).

16. In Saturday Club Ltd reported in 2006(3) STR 305 (CL), Dalhousie Institute 2006 (3) STR 311 (CL)

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SS-VI-115

Case Laws Index

Addl. CIT vs. U. P. Co-operative Federation Ltd. 1978 CTR (All.) 293 ........................................................97

Allahabad Dist. Co-op. Bank Ltd. vs. Union of India (1972) 83 ITR 895 (All.)]. ........................................103

Assam Co-operative Apex Marketing Society Ltd. vs. Addl. CIT [110 ITS 33 (Guwahati) ..........................89

Asstt. CIT vs. Kribhco (2011) 38 (II) ITCL 402 (Del ‘D’- Trib.) : (2010) 6 ITR (Trib.) 686 (Del.) .............93

Brindavan Borivli vs. Kamarkar Brothers and Others .....................................................................................52

Chelmsford Club Ltd. vs. CIT at 243 ITR 89.................................................................................................101

Chemsford Club vs. CIT (2000) 243 ITR 89 (SC). ..........................................................................................99

CIT vs. Anilaben Upendra Shah (2003) 262 ITR 657 (Guj) ...........................................................................97

CIT vs. Bankipur Club Ltd. (1997) 226 ITR p. 97 (SC) .................................................................................98

CIT vs. Bombay Oil Seeds and Oil Exchange Ltd.(1993) 202 ITR p. 198] ....................................................98

CIT vs. Co-operative Cane Development Union Ltd. (1979) 118 ITR 770 (All.). .........................................96

CIT vs. Doaba Co-operative Sugar Mills Ltd. [1998] 96 Taxman 509/230 ITR 774 (Punj.& Har.). ...........97

CIT vs. Haryana Co-operative Sugar Mills Ltd. (1990) 180 ITR 631 (P&H). .............................................97

CIT vs. Jindas Panchand Gandhi (2006) 9 (I) ITCL 134 (Guj-HC) : (2006) 279 ITR 552 (Guj.) ................97

CIT vs. Katpadi Co-operative Timber Works Ltd. (1982) 135 ITR 287 (Mad.) .............................................93

CIT vs. Kotagiri Industrial Co-operative Tea Factory Ltd. (1997) 224 ITR 604 (SC) ..................................93

!"#�� $�"#%��'�� .................................................. 98, 99

CIT vs. Madras Race Club (1976) 105 ITR p. 433 ..........................................................................................98

CIT vs. Orissa State Co-operative Housing Corporation Ltd. (1976) 104 ITR 157 (Ori.)] ...........................96

CIT vs. Rajasthan Rajya Sahkari Upbhokta Sangh Ltd. (1995) 215 ITR 448 (Raj.) ......................................94

CIT vs. Ranchi Club Ltd. (1992) 196 ITR p. 137] (Pat. FB) ..........................................................................98

CIT vs. Ratnabad Co-operative Housing Society Ltd. (1995) 215 ITR 549 (Bom.). ......................................96

Case Laws Index


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CIT vs. Royal Western India Turf Club Ltd. (1953) 24 ITR p. 551 ...............................................................99

CIT vs. Royal Western India Turf Club Ltd.(1953) 24 ITR p. 551 (SC)] ......................................................98

CIT vs. Sabarkantha Zilla Kharid Vechan Sangh Ltd. (1977) 107 ITR 447 (Guj.) .....................................103

CIT vs. Shri Amreli Zilla Shakari Kharid Vehcan Sangh Ltd. (1991) 39 ITD 65 (Ahd.-Trib.)(TM) ...........97

CIT vs. Tamil Nadu Co-operative Marketing Federation Ltd. [1983] 144 ITR 74 (Mad.) ............................90

CIT vs. U.P. Co-operative Marketing Federation Ltd/[1983] 122 ITR 913 (All.) ..........................................90

Co-operative Credit Bank vs. Industrial Tribunal, Hyderabad, A.I.R. 1970 S.C. 245). .................................68

C. P. Khanna vs. V. K. Kalghatgi and others 1970 C.T.D.23). .......................................................................66

Dhondiram Mallappa Shingare vs. Shri Warna Sahakari Karkhana Ltd., 1965 C.T.D. 55). .........................69

Fiberglass Pilkington vs. Arun (1977) 1 C.L.C. 80). ......................................................................................67

Film Nagar Co-operative Housing Society Ltd. vs. ITO [2004] 91 ITD 27 (Hyd.) (SC.) .............................96

Film Nagar Co-operative Housing Society Ltd. vs. ITO (2005) 1 (II) ITCL 444 (Hyd ‘B-Trib.) : (2004) 91 ITD 27 (Hyd-Trib.). ...................................................................................96

GATANEKAR vs. GATANEKAR (AIR 1982 (Bombay)/482) .......................................................................63

GE India Technology Centre (P) Ltd. vs. Commissioner of Income-tax reported in [2010] 193 Taxmann 234 (SC) ...........................................................................................................................88

Gopal Vishnu Ghatnekar vs. Madhukar Vishnu Ghatnekar AIR 1982 Bom.482) .........................................78

Gujarat High Court in Sports Club of Gujarat Ltd. vs. CIT (1987) 171 ITR 504. ....................................100

ITO vs. Sherawali Majur Kamghar Sahakari Sanstha Ltd. (2007) 16 (II) ITCL 33 (Mum-Trib) : (2006) 10 SOT 348 (Mum-Trib) ............................................................................................................93

Kerala State Co-operative Marketing Federation Ltd. vs. CIT (1998) 231 ITR 814, 819 (SC)]. .................102

Khar-Seven Stars Co-operative Housing Society Ltd., vs. Dr. Lila Parmanand and another, 1973 C.T.D. 386). ..................................................................................................................................67

Kota Co-operative Marketing Society Ltd. vs. CIT (1994) 207 ITR 608 (Raj.) .............................................93

Kottayam District Co-operative Bank Ltd. vs. CIT [1988] 172 ITR 443 (Ker.). ............................................96

Kottayam District Co-operative Bank Ltd., vs. CIT (1990) 188 ITR 568. ......................................................94

Maker Tower A & B Co-op. Hsg. Society Ltd. vs. ITO (2008) 20 SOT 253 (Mum-Trib.) ...........................96

Mrs. Chandrika Mehta vs. Indus Co-operative Hsg. Soc. Ltd.,.....................................................................111

M. V. Rajendran vs. ITO (2003) 260 ITP 442 (Ker.). ....................................................................................90



Nasik District Labour Societies, Co-operative Federation Ltd. vs. ITO (1986) 18 ITD 354 (Pune-Trib.) ....89

Om Siddharaj Co-Operative Housing Society vs. State of Maharashtra1998 (4) Bom. C.R. 506 .................78

Pravinchand and Meghji Gala vs. Shankar Darshan Co-op. Housing Society Ltd ......................................111

President, Nagarpalika Prathamik Shalla Shiksha Servant Co-operative Credit Society Ltd., Buldana vs. Ramchandra, 1967 Bom 319). ............................................................................................67

Punjab State Co-operative Milk Producer Federation Ltd. vs. CIT & Anr. (No.1) (2011) 42 (I) ITCI. 216 (P&H-HC) : (2011) 336 ITR 495 (P&H) : (2011) 245 CTR (P&H) 432. ............................. 93, 97

Ranchi Club Ltd. 196 ITR 137 (Pat.) (FB) ....................................................................................................101

Royal Western India Turf Club Ltd. 24 ITR 551 (SC) ..................................................................................101

Sabarkantha Zilla Vechan Sangh Ltd. vs. CIT (1993) 203 ITR 1027 (SC)]. ................................................103

Shri Ramanna Co-operative Housing Society Limited vs. S. D. Chittar, Bombay, 1989 C.T.J. 319 .............61

Siddheshwari Cotton Mills vs. UOI 39 ELT 498 (1989). .............................................................................130

Sind Co-op. Housing Society vs. ITO (2009) 317 ITR 47. ...........................................................................101

Sindh Co-operative Housing Society Ltd. vs. Gangabai. 1968 C.T.D. 11). ....................................................78

Sunanda J. Rangnekar vs. Rahul Apartment No. 11 CHS - Bombay High Court on 10 August 2005 ........58

Supreme Court: V Sasidharan vs. Peter and Karunakar and Ors.) and (Supreme Court: Dev Brat Sharma vs. Dr Jagjit Mehta CA No 4216 of 1988) ...............................................................62

Surat District Cotton Dealers Association vs. CIT 35 ITR p. 121] ................................................................98

The Bombay Suburban District Government Servant Co-operative Housing Society Ltd. vs. D. G. Gawand, 1981 C.T.J. 197). ...........................................................................................................75

The Konkan Co-operative Housing Society Ltd., Bombay and Others vs. Subarao Venkatesh Bhujle and Others 1964 C.T.D.) ........................................................................................................................68

The Poona Hindu Middle Class Co-operative Housing Society Limited vs. Shri Sudhakar Gopal Palsule, 1991 C.T.J. 326 ......................................................................................61

Transmission Corporation of AP Ltd. vs. CIT [1979] 239 ITR 587 ...............................................................88

Trustees and Committee of Doctors Cave Bathing Club vs. ITC (1971) 3 All ER 1185 (PC) ......................99

Usha Arvind Dongre vs. Suresh R. Kotwal 1990 report in M.L.J. Page 306 ...............................................111

Walkeshwar Triveni CHS Ltd., vs. ITO (SB)(BOM) ITA No. 4397/Mum/2001 .........................................101

Y. D. Bole and another vs. Shivaji Mahadev Nagvekar 1964 C.T.D. 122). ....................................................68

�

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Case Laws Index


SS-VI-118

DIRECT TAXES – High Court


DIRECT TAXES High Court

Ashok Patil, Mandar Vaidya & Priti Shukla Advocates

ML-457

1. Exemption – Sec. 10B – Amendment extending period of exemption to ten years – Assessee enjoying exemption prior to amendment – Eligible for extended period

CIT vs. Dsl Software Ltd. [2013] 351 ITR 385 (Kar.)The assessee was engaged in the business of software development and 100 per cent export oriented undertaking, and was eligible for deduction u/s 10B, and had commenced production from AY 1993-94, the assessee was eligible for deduction until A.Y. 1997-98. As per the provisions of sec. 10B prior to the amendment, the assessee was eligible for exemption for a period of 5 years. The Income Tax (Second Amendment) Act, 1998 amended the provisions of sec. 10B, the object of the amendment �� of 10 years from the date of commencement of business, w.e.f. 1-4-1999. The assessed claimed the deduction for the A.Ys. 1999-2000 onwards. The same was disallowed by the department. The CIT(A) and Tribunal held in favour of the assessee. On appeal by the Department, the High Court while dismissing the appeal held that the assessee was entitled to the benefit of the extension from five years to ten years tax holiday as provided under the amended provisions for ten consecutive years from the date of commencement of production.

2. Revenue expenditure – Repairs and maintenance – Lead to increase in the economic life of the machinery – Held to be revenue expenditure

CIT vs. Vishal Paper Industries [2013] 351 ITR 478 (P&H)

The assessee had incurred repairs and maintenance expenses, which resulted in a increase in life of the machines used by the assessee. The AO held the expenses were in the nature of capital expenditure and disallowed the same. The CIT(A) held that the repairs and maintenance led to a new identifiable asset. The Tribunal held in favour of the assessee. On an appeal to the High Court, while dismissing the appeal, it was held that increase of life of existing asset beyond their original estimated economic life, not a factor relevant to determine nature of repairs and maintenance expenditure and that the expenses were in the nature of revenue.

3. Business expenditure – Sec. 37 – Expenditure incurred on corporate membership fees of club – Revenue expenditure

CIT vs. Groz Beckert Asia Ltd. (2013) 257 CTR (P&H) (FB) 1

In this case the assessee obtained corporate membership of Golf Club, Chandigarh, on payment



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of ` 6 lakhs and ` 16,945 was paid towards services and facilities used during the relevant assessment year. The issue in dispute was whether the expenses were capital or revenue expenditure? The Hon’ble \�!�� !�� treated the same expenditure as revenue and held that the nature of the expenditure incurred by the assessee cannot be said to be a capital expenditure. The corporate membership fees were for a limited period of 5 years. The corporate membership was obtained for running the business with a � ��!��"!�� bring into existence an asset or an advantage for the enduring benefit of the business. The court also held that the expenditure incurred for the period of membership was not long lasting. By subscribing to the membership of a club, no capital asset was created or came into existence. By such membership, a privilege to use facilities of a club alone, are conferred on the assessee and that too for a limited period. Such expenses are for running the �!� �� !��assessee. The court held that it cannot be treated as capital asset. Therefore expenses were deductible as revenue expenditure.

4. Deduction – Sec, 80HHC – For claiming deduction u/s 80 HHC filing, audit report can be filed at any stage of assessment proceedings

CIT vs. Godha Chemicals (P) Ltd. (2013) 257 CTR (Raj.) 10

The point of dispute in this case was whether an }!� �� Return of Income but filed during the course of completion of assessment proceedings, in such situation whether an assessee is entitled to claim deduction u/s. 80HHC of the Act. Dismissing the appeal of the department the court held that the expression “along with return of income” as occurring in sub-s (4) of s. 80 HHC could always be interpreted as directory. While filing of the accountant’s report in sub-s (4) of s. 80HHC, could be considered to be a mandatory requirement for the purpose of the assessee being entitled to claim

��!�� !�� !��only be considered directory in nature and such report cannot be removed out of consideration only because of having not been filed at the time of filing of the return. Therefore the court held that the expression” along with return of income” occurring in sub-s. (4) of s. 80HHC is directory in nature insofar it relates to the time for furnishing of the report of an accountant by the assessee in the prescribed form, and even if such a report in the prescribed form is not furnished along with the return of income, it is furnished during the course of assessment proceedings, it cannot be removed out of consideration only for the reason of the same �� the return.

5. Capital gains – Payment received on dissolution of firm towards his capital contribution of the partner did not amount to transfer – No Capital Gains

Chalasani Venkateswara Rao vs. ITO (2013) 257 CTR (AP) 39

In this case the assessee was paid an amount of ` 15 lakhs by firm “Y” in full and final settlement �� §�� !� ��The point of issue and question of law was whether such amount received by partner on dissolution amounts to transfer in order to attract capital gains. Allowing the appeal of the assessee the High Court held that the amount received from “Y” was towards the full and final settlement of his share and such adjustment of his right is not “transfer” in the eyes of law. The court further held that it was a recognised method of making up the accounts of �� him was nothing but a receipt of his share in the � �� !�� the money value of his share in the assets of the firm. Payment of the amount agreed to be paid to the assessee under the compromise was not in consequence of any share, exchange or transfer of assets of the Firm. The court also held that the �� !��}�Q��{�¨�$¨¨��



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only liable for capital gains excluding the partners. So the amount was not taxable as capital gains.

6. Section 50C – Stamp Duty valuation on date of Registration is the deemed full value of consideration

Bagri Impex (P.) Ltd. vs. ACIT [2013] 31 taxmann.com 39 (Kolkata)

In this case the question of law framed was whether, where the deed of conveyance which was not registered in the year of receipt of consideration, taking the value assessed in year 2007-08 by stamp valuation authority, instead of actual transfer price for assessment year |��_$��~!�� section 50C of the Act?

Dismissing the appeal of the assessee the court held that the intention of the Legislature was very clear from the beginning even before amendment made in 2009 that the value for the purpose of Income Tax shall be as the value for stamp duty. The court refuted the contention of the assessee �� year 2005-06 when the sale proceeds were received on the basis of the definition appearing from section 2(47)(v) of the Act. The court also held that the assessee itself did not follow section 2(47)(v) of the Act because it did not offer the transfer for taxation in the year 1996 when the possession is claimed to have been made over on the basis of the agreement for the sale in accordance with section 2(47)(V) of the Act. The court further held that designs to evade tax are not permitted. The court affirmed the findings of the Assessing Officer that he rightly applied the provision of section 50C and it was applicable for determining full value consideration. He correctly applied the valuation made by the stamp valuation authority for calculation of stamp duty for the assessment year 2006-07.

7. Penalty – Sec. 271D – Provisions of section 271D is not applicable when

money is paid by father-in-law owing to urgent need of money by the son-in-law

CIT vs. Smt. M. Yesodha [2013] 31 taxmann.com 153 (Chennai)

/��!��}�� =�� penalty proceedings under section 271D on the ground that the assessee had obtained a loan of ` 20.99 lakhs in cash from her father-in-law, which was in contravention of the provision of section 269SS. During the penalty proceedings, the assessee claimed that the amount received in cash from her father-in-�� }�� =��held that the assessee received the amount as a loan and not as a gift, because the same was shown as a loan in the balance sheet of the assessee, which was filed along with the return of income. Hence, the }�� =�� =��\/��]}^�dismissed the appeal of the assessee. Tribunal deleted the penalty. On further appeal in High Court, High Court affirmed the findings of Tribunal and held that in the light of relationship between assessee and his father-in-law, the genuineness of transaction was not in dispute and that the amount was paid by the father-in-law for the purchase of property and the source had also been disclosed during the assessment proceedings. The court also held that if there was a genuine and � �� transaction and the taxpayer could not get a loan or deposit by account payee cheque or demand draft for some � �� reason, the authority vested with the power to impose penalty has discretion not to levy penalty. Therefore the court treated the transaction between the assessee and his father-in-law as genuine transaction and it amounted to reasonable cause for deleting penalty u/s 271D of the Act.

8. Section 2(22)(e) – Deemed Dividend C.V. Reddy 2013-TIOL-168-ITAT-Bang. Dated 26th December, 2012.

Advance granted to the director to purchase land in the name of the director but in which the company �!�� s.2(22)(e).

�

DIRECT TAXES – Tribunal


1. Penalty – Sections 271D and 271E – Contravention of sections 269SS and 269T of the Income-tax Act, 1961 – Current account transactions entered into in the course of business viz. – a viz. journal entries – No finding that transactions were undertaken to avoid taxes – Penalty under sections 271D and E not justifiable. A.Y. 2006-07

Dy. CIT vs. Forging Ltd. (2013) 84 DTR (Del.) (Trib.) 153

Assessee entered into a development agreement under which land was to be provided by the assessee and development was to be undertaken by the developer. The developer purchased land on behalf of the assessee. The payments by the developer for purchase of land were credited by the assessee through journal entries in the account of the developers and similarly payments were made by the assessee through ��!�� as the assessee had received and made payment otherwise than through account payee cheques therefore the assessee had violated provisions of sections 269SS and 269T therefore the assessee was liable for penalty under section 271D and E of the Act.

On appeal the Tribunal held that assessee had not accepted any deposit nor advance loan to developer in cash, the transactions were in the nature of business and recorded through �!��!�� transactions were undertaken to avoid payment of taxes. Therefore there was no violation of sections 269SS or 269, hence no penalty under section 271D and 271E was called for.

See, CIT vs. Triumph International Finance (I) Ltd.(2012) 345 ITR 270 (Bom.) wherein Hon’ble Bombay High Court has held that where loan or deposit has been repaid by merely debiting account through journal entries, it must be held that assessee has contravened provisions of section 269T of the Act.

2. Powers of Tribunal – Section 254 read with section 271(1)(c) – Stay of penalty proceedings – Penalty initiated by the CIT(A) pursuant to enhancement of income made by him – Stayed till the disposal of quantum appeal by the Tribunal to prevent multiplicity of proceedings and harassment to the assessee. A.Y. 2004-05 GE India Industrial (P) Ltd. vs. CIT(A) (2013) 152 TTJ (Ahd.) 536

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DIRECT TAXES Tribunal

Jitendra Singh & Sameer Dalal Advocates



Assessment in the assessee’s case was completed u/s 143(3) of the Act was after making various adjustments/disallowances to the return income. On First Appeal the CIT(A) enhanced the income of the assessee making further adjustment/disallowances. The CIT(A) in its order also recorded his satisfaction that assessee had furnished inaccurate particulars of income with respect to the enhancements made by him. Consequently CIT(A) initiated penalty proceedings u/s 271(1)(c) of the Act. Thereafter, notice u/s 274 read with section 271(1)(c) of the Act was issued to the assessee seeking appearance before CIT(A) to show cause as to why penalty should not be imposed on assessee. The assessee made submissions in response to this show cause notice the assessee contended before the \/�]}^�� before the Tribunal on the quantum proceedings, the penalty should be kept in abeyance till the disposal of appeal by the Tribunal which the CIT(A) refuse to accept.

=�� the Tribunal, the Tribunal held that penalty proceedings have been initiated by CIT(A) pursuant to enhancement of income made by � �� before the Tribunal which is in fact the First Appeal of the assessee against the enhancement of income by learned CIT(A). As per the provisions of section 275(1)(a) of the Act the assessing officer cannot pass an order imposing penalty u/s. 271(1)(c) of the Act till relevant assessment is subject matter of appeal before CIT(A) that is ��!�� assessee’s prayer for stay of penalty proceedings undertaken by the. CIT(A) till the disposal of appeal by the Tribunal does not appear to be unreasonable. The Tribunal further held that the provision of section 275(1)(a) of the Act the CIT(A) will get six months time to dispose of the penalty proceedings from the end of the month in which the order of the Tribunal is received by the Commissioner or the Chief Commissioner. In view of these facts, if the CIT(A) proceeds with the penalty proceedings the assessee would be,

prejudiced as it will have to face multiplicity of the proceedings. Therefore, exercising its appellate powers conferred u/s 254(1) of the Act, in order to prevent multiplicity of proceedings and harassment to the assessee, the Tribunal direct the CIT(A) to keep the penalty proceedings in abeyance till the disposal of quantum appeal by it.

3. Written Down Value (WDV) – Section 43 (6) – Waiver of loan taken for purchase of machinery in earlier year cannot be reduced from the WDV of the block of asset. A.Ys. 2001-02 to 2007-08Akzo Noble Coatings India (P.) Ltd. vs. Dy. CIT (2013) 84 DTR (Bang.) (Trib.) 202

Assessee purchased plant and machinery by taking loan from its parent company. The assessee claim depreciation on the full value of the machinery including the loan amount since year in which the machinery was purchased by it. In the present year the parent company waived off the loan amount outstanding in the name of the ��}�� =��!� ��!��of assessment proceedings was of the view that on waiver of loan by the parent company, the written down value (“WDV”) of the machinery had to be reworked by reducing from the opening WDV the amount of loan which had been waived off by the parent company. The Assessingm Officer accordingly withdrew the deprecation already granted to the assessee on the waived off portion of the cost of the machinery in earlier year.

On appeal the Tribunal held that only way by which the WDV on which depreciation is allowed is as per the provisions of section 32(1)(ii) of the Act can be altered is as per the situations referred to in sections 43(6)(c)(i) A and B that is when there is purchase of asset or the asset is sold discarded, demolished or destructed. In assessee’s case the asset is neither sold or discarded or destroyed therefore the WDV cannot

ML-461



be adjusted or disturbed. Further there was no subsidy or grant or reimbursement but there was only a waiver of loan amount due for purchase of machinery thus the case of assessee also did not fall within the scope of the provisions of Explanation 10 to section 43 of the Act also.

4. Penalty under section 271(1)(c) of the Act – return filed under section 153A accepted as such by the department – penalty under section 271(1)(c) is not application – A.Ys. 2001 -02 to 2006-07DCIT vs. Purti Sakhar Karkhana Ltd. [2013] 84 DTR (Nag.) (Tribunal) 65

The assessee was subjected to the search and seizure action under section 132 of the Act on 23-8-2006. Pursuant to the search action notice under section 153A of the Act was issued. The assessee, in response to the same, by way of a letter to the A.O. explained that on perusal of the seized material, it is observed that some of the items wrongly clubbed under capital work-in-progress. The assessee therefore revised the capital work-in-progress on lump sum basis considering the seized material. The effect of reducing the capital work-in-progress will result in reduction in the claim of depreciation in the year when the business is set up. The assessee therefore surrendered the excess capital work-in-progress made in the Assessment Years 2001-02 to 2006-07. In response to the notice issued under section 153A for the Assessment Year 2001-02 to 2005-06, the assessee stated that the return already ��!�� {��]{^��!�� assessee has revised its return for the Assessment Year 2006-07 to give effect to the claim of lower depreciation. The A.O. has accepted the returns as it is without making an addition to returned income. While passing the assessment order, the A.O. has also initiated the penalty proceedings. The assessee objected to same. However, the A.O. has passed the order under section 271(1)(c) of the Act for the Assessment Years 2001-02 to 2006-07.

On appeal, the First Appellate Authority allowed the appeal of the assessee. The department being aggrieved went in further appeal before the Appellate Tribunal. The Tribunal dismissed the appeal of the department by observing that assessee’s assessments having been framed by the A.O. at the same income or loss at which the assessee has filed the return in pursuance of the notice issued under section 153A despite surrender of certain amount by the assessee by reduction of capital work-in-progress, penalty provisions of section 271(1)(c) of the Act is not applicable.

5. Charitable trust – Objects of the trust have been altered without the consent of the department – Not ��!��section 12AA(3) – cancellation of ��"��Krupanidhi Educational Trust vs. DIT(E) [2013] 84 DTR (Bang.) (Trib.) 120

The assessee is a charitable trust and registration under section 12A of the Act was granted on 2-6-1986. The assessee was subject to the survey action under section 133A of the Act on 16-9-2011. According to the Director of Income-tax (Exemptions) [‘DIT(E)’] the survey action revealed that the assessee was running the educational institution on commercial basis and also violated provisions of section 13(1)(c) of the Act. The DIT(E) further observed that the assessee had carried out amendment to the trust deed without prior approval of the department. The DIT(E), �� in response to the show cause notice, cancelled the registration already granted to the assessee under section 12A of the Act. The assessee being aggrieved filed an appeal before the Hon'ble Appellate Tribunal. The Appellate Tribunal was pleased to quashed the order passed by the DIT(E) and allowed the appeal of the assessee by observing that registration granted under section 12A of the Act could not be cancelled under section 12AA(3) of the Act on the allegation of

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running the educational institution on commercial basis and violation of provisions of s 13(1)(c), as mere finding that the objects of the trust have been altered without the consent of the department would not be sufficient to exercise the power under section 12AA(3) without giving �� ~��charitable; further, proviso to section 2(15) did not apply to educational institutions.

UNREPORTED

1. Cash Credit – Section 68 of the Income-tax Act, 1961 – Burden of Proof – During appellate proceedings, assessee filed detailed including assessee's account in books of creditors as well as their PAN – Commissioner (Appeals) found the explanation to be plausible explanation within meaning of section 68 and deleted addition – Even if the assessee gives plausible explanation regarding unexplained advances during appellate proceedings, the addition under section 68 was liable to be deleted. A. Y. 2007-08I.T.O. vs. Sains Engg. Works [I.T.A. No. 980 / Chd / 2010; Order dated 27-9-2012]

��}�� =�� !�� 68 in respect to certain advances received by the assessee, for non-furnishing of PAN and bank account number. During the course of appellate proceedings before the Commissioner, the assessee �� !��!�� !� ��of assessee's account in books of loan creditors, wherein PAN were indicated, also, the amount matched with the entries in the assessee's account in the books of creditors. The Commissioner after calling for the report from the Assessing Officer ��!�� !�� to be plausible explanation within the meaning of section 68 and deleted the addition.

On appeal the Tribunal held that the Commissioner’s action deleting the addition under section 68 of the Act was in consonance with the relevant provisions of section 68 of the Act. Addition for unexplained advances under section 68 should be deleted if plausible explanation is offered by assessee even during appellate proceedings.

#$� %��**+;<�of the Act – Payment made to group company towards Brand Equity contribution – Would be outside the purview of Fringe Benefits Tax (‘FBT’) – As expenses did not contain an element of personal benefit to employees nor there was employer and employee relationship between assessee and the company to which contribution was made. A.Y. 2007-08Asstt. CIT vs. Tata Consultancy Services Ltd. [I.T.A. No. 3457 / Mum / 2011; Order dated 26-9-2012]

The assessee had paid an amount to one of its group concerns towards Brand equity contribution. In consideration of this subscription, the group concern, was, responsible for organising corporate identity and brand promotional activities and campaigns engage professional consultants, make available a pool of sharable resources of the group to the assessee and provide assistance in accessing the network of domestic and international business contacts and also permitted the company to use the business name. The assessee debited the payment under the account head ‘Sales promotion’. The assessee claimed that these expenses so debited to sales promotion head are not liable for FBT and therefore the same may be excluded from 4��}�� =��~��assessee’s claim and included the said expenses for the calculation of the total value of FBT and accordingly completed the FBT assessment

On appeal the Tribunal held that the rationale for introduction of FBT was that it was difficult to

ML-463



��*�� collectively enjoyed by the people which means that the provisions of FBT will be applicable only in respect of those expenses which contain or at least are likely to contain an element of ��/��case the subscription amount has been paid as per contractual agreement between the assessee and group company. As no employer/employee relationship exists between the assessee and the group concern, the subscription payment was to be kept outside the purview of FBT.

3. Reassessment – Section 147 – Income escaping assessment – Disclosure of primary facts – Discrepancy between income from profession as per return of income vis-�=��!��at source does not necessarily lead to escapement of income. A.Ys. 2005-06 & 2006-07Meheria Reid & Co. vs. I.T.O. [I.T.A. No. 53 & 54 / Kol / 2010; Order dated 28-12-2012]

The original assessment was completed under �� {��]{^��}�� =�� reassessment proceedings within a period of four years from the end of the assessment year, as he was of the view that professional income declared by the assessee and the professional income as per tax deduction at source certificates was at variance, and therefore, according to him taxable income had escaped assessment.

On appeal the Tribunal held that mere fact that the assessment has been completed under section 143(1) per se cannot be a good ground to reopen the assessment, without satisfying the conditions precedent for invoking section 147. It is still necessary that there should be reasons to believe that income had escaped assessment and such reasons are subject to judicial scrutiny. The Tribunal held that in the instant case, there is nothing in the reasons to indicate that there is

an escapement of income, but, at the most, need to verify that the reasons of discrepancy between income from profession as per return of income � �$�$� �� !�� !��}�� !��necessarily lead to escapement of income as the � �� !��!��

4. Disallowance of expenses – Section 40(a)(ia) – Payment made by individual – Provisions of section 194C is not applicable – No disallowance under section 40(a)(ia) is required to be made A.Y. 2006-07John Alex Lobo vs. I.T.O. [I.T.A. No. 1352/Mum/ 2012; Order dated13-3-2013]

The assessee was an individual carrying on the business of manufacturing the export of readymade garments. During the year under consideration he has made certain payments for weaving, cloth processing and yarn processing to the third parties on job work basis. The A.O. invoking the provisions of section 40(a)(ia) of the Act disallowed the same by observing that the assessee while making the payment has not deducted TDS on the same. On appeal the First Appellate Authority confirmed the disallowance made by the A.O. The assessee further carried the matter before the Hon'ble Income Tax Appellate Tribunal, Mumbai. The Appellate Tribunal allowed the appeal of the assessee by observing that the assessee was an individual carrying on his own business. Hence, the provisions of section 194C(2) are not applicable to the fact of the present case as the same is applicable for a payment made by a contractor to as sub-contractor. As far as section 194C(1) of the Act is concerned, the same is applicable to the individual from the subsequent Assessment Year. Hence, the assessee was not required to deduct any TDS and therefore, the disallowance made under section 40(a)(ia) is not ~!��

�

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DIRECT TAXES��


DIRECT TAXES ��>�� @�Q��

��

NOTIFICATIONS

Double Taxation Agreement – Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with EthiopiaAn agreement between the Government of the Republic of India and the Government of the Federal Democratic Republic of Ethiopia for the Avoidance of Double Taxation and the Prevention of fiscal evasion with respect to taxes on income has been signed which shall come into force w.e.f. 15th October, 2012. Now vide section 90 of the Income-tax Act, 1961, the Central Government notified that all the provisions of the said Agreement annexed therein shall be given effect to in the Union of India with effect from the 1st day of April, 2013.

�*��+�<�+� �*��='>�$��'��@�@QX�'>�$�

Section 35(1)(ii) of the Income-tax Act, 1961 – Scientific Research Expenditure – Approved Scientific Research Associations/Institutions The organisation(s) Loyola College Society, Nungambakkam, (PAN-AAATL 1018P) and National Agri-Foods Biotechnology Institute, MOHALI have been approved by the Central Government w.e.f. 1-4-2011 onwards in the category of 'University College or Other

Institution', for the departments engaged in scientific research activities subject to the conditions mentioned therein for the purpose of section 35(1)(ii) of the Act.

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INSTRUCTIONS

Section 143 of the Income-tax Act, 1961 – Assessment – Processing of returns for A.Ys. 2010-11 & 2011-12 getting time-barred on 31-3-2013 on online TMS in ITD application On receiving representations from field formations intimating that owing to the delays in PAN Migration, PAN de-duplication and restoration, certain cases remain to be processed. However, AST does not permit these cases to be processed. Therefore, with the Board's approval, the facility of "Online TMS" is extended for the cases time barring on 31-3-2013. The path for the same is AST – TMS – Processing of New Returns (Online TMS).

The said software is capable of handling the issues relating to PAN transfer/de-duplication/restoration which prevented processing of the returns in AST. The key features of the software are: (a) The returns can be entered by AO having return of income, although the PAN is lying in

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DIRECT TAXES��


some other jurisdiction. (b) The returns with PAN out of Jurisdiction, deleted PAN, PAN under de-duplication, PAN under restoration, etc. can be processed on this system. (c) The AO having return of income can process returns till the command for integration of this data to AST is given by the jurisdictional AO. Once data has been integrated with AST, all future actions can be performed by the AO having PAN jurisdiction.

The online TMS is allowed to the categories: (a) PAN under migration, (b) PAN is deleted in de-duplication process. (c) PAN is under de-duplication or restoration.

No processing of any sort will be allowed in respect of invalid PANs or if the PAN is not available or if Name in PAN database does not match with Return name. Due care is directed to be taken while accepting such returns. Alternatively, the AO should initiate the communication with assessee based on the address given in the return for quoting correct PAN and proceed under AST or online TMS, as the case may be. Under no circumstances, processing on standalone except ��!��#/��]/��^¥��Z ��"�is permitted by the Board. The procedure has been enumerated in the user manual available on itaxnet and ITD. The functionality will be available till 31-3-2013. (AST Instruction No. 114, dt. 26-3-2013)

Press Release/MemorandumsGovernment once again urges all tax payers to disclose their true income and pay appropriate Taxes within the current financial year: The Union Finance Minister stated that there is no advantage in suppressing the true income or avoiding paying income tax that is due because, sooner or later, the information available with the Income Tax Department will lead the department to the doors of such persons. The Directorate of Systems of the Income Tax Department has undertaken a business intelligence project to identify PAN

��/��!��!�� in 148 information codes of Annual Information Return (AIR), Central Information Branch (CIB) data and TDS/TCS Returns. Information in the Cash Transaction Reports (CTRs) of FIU-IND has also been included as part of this data matching �� segment of 12,19,832 non-filers linked to more than 4.7 crore information records. Rule based algorithms have been used to identify high priority cases for follow-up and monitoring.

/�� §{��PAN holders by the Directorate of Intelligence and Criminal Investigation. The letter contains the summary of the information of financial transaction(s) along with a customized response sheet and seeks to know whether the person �� /��!��}�@��cell has been set up to capture the response and take follow-up action. There will be an online monitoring system to ensure follow-up action ��<��!�� target segment. The Government once again urged all tax payers to disclose their true income and pay appropriate taxes within the current ��

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%��Z��[�� !�\��]�\�^�Sub-section (4) of section 90 introduced last year by Finance Act, 2012 requires an assessee to produce a Tax Residency Certificate (TRC) in order to claim the benefit under DTAA which recognises different kinds of income. The DTAAs stipulate that a resident of a contracting state will be entitled to the benefits of the DTAA. However, it has been pointed out that the language of the proposed sub-section (5) of section 90 could mean that the Tax Residency Certificate produced by a resident of a contracting state could be questioned by the Income Tax Authorities in India. The Government vide press release

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DIRECT TAXES��


made it clear that that is not the intention of the proposed sub-section (5) of section 90. The Tax �� \�� !�� a contracting state will be accepted as evidence that he is a resident of that contracting state and the Income Tax Authorities in India will not go behind the TRC and question his resident status. In the case of Mauritius, Circular No. 789, dated 13-4-2000 continues to be in force, pending ongoing discussions between India and Mauritius. However, since a concern has been expressed about the language of sub-section (5) of section 90, this concern will be addressed suitably when the Finance Bill is taken up for consideration.

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Section 245 of the Income-tax Act, 1961 – Set off of refunds against tax remaining payable – Directions of Hon'ble Delhi High Court in the Writ Petition (Civil) Nos. 2659 & 5443 of 2012 – Order dated 14-3-2013 As per Hon'ble Delhi High Court's Order dated 14-3-2013, the department requires to follow the procedure prescribed under section 245 before making any adjustment of refund payable by the CPC, Bengaluru. Accordingly, the assessee must be given an opportunity to file response or reply and the reply will be considered and examined by the Assessing Officer before any direction for adjustment is made. The process of issue of prior intimation and service thereof on the assessee will be as per the law. The assessee will be entitled to file their response before the Assessing Officer mentioned in the prior �� }�� =�� !� �� to the CPC, Bengaluru, who will then process the refund and adjust the demand, if any payable.

Further the number of high refund cases where demand is outstanding and also intimation

under section 245 has been issued by the CPC, Bengaluru, pertaining to each CCIT(CCA) region has been forwarded as per the Annexure I of the said directions. (Letter [F.No.DIT(S)-iii/CPC/2012-13/ Demand Management], dated 21-3-2013)

Small Savings Schemes – Revision of interest rates for small savings schemes with effect from 1-4-2013 Based on the decisions taken by the Government on the recommendations of the Shyamala Gopinath Committee for Comprehensive Review of National Small Savings Fund (NSSF), the interest rates for small saving schemes are �� {��}�� that year. Accordingly, the rate of interest on �� !�� year 2013-14 effective from 1-4-2013, on the basis of the interest compounding/payment built-in in the schemes, shall be as under:

Scheme Rate of Interest

w.e.f. 1-4-2012

Rate of Interest

w.e.f. 1-4-2013

1 2 3

Savings Deposit 4.0 4.0

1 Year Time Deposit 8.2 8.2




5 Year Recurring Deposit

8.4 8.3

5 Year SCSS 9.3 9.2

5 Year MIS 8.5 8.4

5 Year NSC 8.6 8.5

10 Year NSC 8.9 8.8

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The Chamber's Journal April 2013

INTERNATIONAL TAXATION – Case Law Update

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A] HIGH COURT JUDGMENTS

I. Tax Avoidance – Whether transfer of shares in an Indian listed company by US holding co to Singapore group co, without consideration, is not taxable in India? Held : Yes – Whether in v iew of the fact that even i f considerat ion was charged, the long term capital gains exemption would be available on sale of listed shares under section 10(38) of the Act and hence there was no merit in Revenue's contentions regarding "tax avoidance" and "treaty shopping"? Held : YesDIT vs. Goodyear Tire and Rubber Company [TS-82-HC-2013 (Del.)]

Facts1. Goodyear Tire & Rubber Company, a company resident in USA, proposed to transfer 75% of its shareholding in Goodyear India Limited, an Indian company to i ts wholly owned subsidiary, Goodyear Orient Company (Pte) Ltd. , a Singapore company.

2. Both the USA as well as Singapore company had approached the Hon’ble AAR for a ruling as regards the taxability in India with respect to the above transfer of the shares.

3. The Hon’ble AAR ruling in favour of the petitioner held that there would be no tax l iabil i ty on either the USA company or the Singapore company on transfer of shares without consideration. I t further observed that even if the transfer was for consideration the same would be exempted from income-tax in view of the specif ic provisions of section 10(38) r.w. section 98 of the Act.

4. Aggrieved, the Revenue filed an appeal to the Hon’ble High Court.

5. The Revenue contended that the proposed scheme was designed for tax avoidance in India. It was submitted that the Singapore Holding company could later claim capital gains tax exemption under India-Singapore Double Taxation Avoidance Agreement (“the DTAA”) on sale of Indian companies shares.

Judgment1. The Hon’ble High Court rul ing in favour of the Goodyear upheld the Hon’ble AAR ruling.

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INTERNATIONAL TAXATIONCase Law Update

CA Tarunkumar Singhal & CA Sunil Lala



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2. I t observed that in view of the provisions of section 10(38) r.w. section 98 of the Act, it becomes apparent that income arising from the transfer of a long term capital asset, if it is an equity share in a company or a unit of an equity oriented fund, where the transaction of sale of such equity share is chargeable to securit ies transaction tax, then such income would be exempt.

3. Thus since the shares of Goodyear India Limited were listed shares, even if a consideration had been charged for the transfer of the 74% share, the income arising therefrom would be exempt by virtue of the provisions of section 10(38) of the said Act.

4. I t further observed that exemption under sect ion 10(38) of the Act was a complete answer to the Revenue's argument regarding treaty shopping and tax avoidance.

5. The Hon’ble High Court also pointed out that i t was not exercising appellate jurisdiction and it was only extraordinary jurisdiction under Article 226 and hence, it was not required to examine the matter in all respects as in case of appeal.

II. Whether in absence of any materia l and comparables , the action of Transfer Pricing Officer in al locating certain per cent of the consultancy charges paid by the assessee to a third party for undertaking study towards the benefits accruing to its AEs as an international transaction is bad in law? Held : Yes – Whether foreign branch losses of assessee could be al lowed to be set off against its profits considering that there is no dif ference in the language of India-Japan DTAA and India-Sweden

DTAA ? Held : YesDIT vs. Patni Computer Systems Ltd. [TS-79-HC-2013(Bom.)] Assessment Year: 2002-03

Facts1. The assessee, Patni Computer Systems Ltd. , paid consultancy charges to M/s. McKinsey & Co. for undertaking a study for the purpose of restructuring the assessee’s organisational structure.

2. The TPO observed that as the business of the assessee and its foreign Associated Enterprises (“AEs”) was closely linked, the growth of the assessee could not be divorced from the growth of the AE’s and vice versa. Thus the changes proposed in the study conducted by McKinsey & Co. would also give benefits to the AEs and an arm’s length allocation of cost of consultancy expenses paid was required to be made.

3. The TPO thus allocated 30 per cent of the cost towards the benefits accruing to the AEs construing the same as an international transaction and accordingly made additions on the ground that there was an arrangement between the assessee and its AEs.

4. The Hon’ble Tribunal held that in absence of any material i t cannot be concluded that there was an arrangement between the assessee and its AEs.

5. Secondly, during the year under consideration, the assessee had set off its losses incurred by i ts branch off ices in Sweden against its profits.

6. The Hon’ble Tribunal following its decision rendered in earlier assessment years wherein India-Japan DTAA was involved, allowed the claim of the assessee.

7. The Revenue contended that for the year under consideration the DTAA was India –Sweden DTAA and not India-Japan DTAA.

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8. Aggrieved, the Revenue filed an appeal to the Hon’ble High Court on both the issues.

Judgment1. The Hon’ble High Court observed that the Hon’ble Tribunal has held that there was no material to support the conclusion that there was an arrangement between the assessee and its Associated Enterprises and the entire case was based on mere presumption and concluded that the order of the Transfer Pricing Officer (“TPO”) was without any evidence.

2. The Hon’ble Tribunal also held that even if any benefit accrued to the Associated Enterprises, it was merely incidental to the consultancy obtained by the assessee from M/s.McKinsey & Co. It held that even if it is assumed that certain benefit accrued to the Associated Enterprises and they were to compensate the assessee, the ALP would have to be determined. This can only be determined on finding out the consultancy charges paid by similarly s i tuated and comparable independent entit ies. In the absence of any comparison, the action of the TPO cannot be upheld.

3. The Hon’ble High Court thus held that since the decision of Tribunal was based on finding of fact, the said question therefore could not be entertained.

4. On second issue, the Hon’ble High Court held that there was nothing brought on record to show that the clauses of DTAA dealing with this aspect of the matter are different in India-Sweden DTAA from that in the India-Japan DTAA and thus refused to entertain the said question.

III. Transfer Pric ing – Whether no adjustment on account of interest on payments receivables from associated enterprise is

warranted in cases when there were payments to be made to the same associated enterprise and the same were in excess of payments receivables throughout the year? Held : YesDIT vs. M/s Boston Scientific International B.V [ITA No. 1223 of 2011] Assessment Year: 2002-03

Facts1. The assessee, Boston Scientif ic International B.V had outstanding amounts of commission receivable from its associated enterprises Boston Scientific Far East BV (BSFE) for a period in excess of 130 days on which no interest was charged.

2. During the assessment proceedings, the AO added the sum of ` 24.32 lakhs on assessee’s failure to charge interest.

3. On appeal, the CIT(A) and Hon’ble Tribunal deleted the addition.

4. Aggrieved, the Revenue filed an appeal to the Hon’ble High Court.

Judgment1. The Hon’ble High Court observed that the Hon’ble Tribunal and CIT(A) has deleted the addition after coming to a conclusion on finding of the fact that assessee had not only received payments from its BSFE but also had made payments to it in respect of purchase of goods for BSFE.

2. The CIT(A) and Hon’ble Tribunal further held that the payments to be made to BSFE were throughout the year in excess of the amounts receivable from BSFE and on this outstanding payments no interest was being paid. Also, the agreement between the BSFE and the assessee also did not provide for charging of any interest.

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3. The Hon’ble High Court thus held that since the decision of the Tribunal was based on concurrent findings of fact arrived at by the CIT (A) and the Tribunal; the said question could not be entertained.

B] TRIBUNAL DECISIONS

IV. India-Germany DTAA – CBDT Circular No. 3 of 2008 – Fees for technical services – Services rendered with the aid of machines or equipment without human interface does not amount to technical services – Certif icates issued by humans with respect to the procedures does not amount to human interface.Siemens Ltd. vs. CIT(A) [2013-TII-34-ITAT-Mum.-Intl.]

Facts1. Siemens Ltd. , the assessee, in pursuance of its tender formalities with the Gujarat Energy Transmission Corporation Ltd. and Maharashtra State Electr ici ty Transmission Company Ltd., was required to obtain type test ing cert i f icate of the circuit breakers manufactured by it . For this purpose it had sent the circuit breakers to be tested in the Laboratory of “Pehla Test ing Laboratory”, Germany (PTL), where the circuit breakers had to undergo destructive tests in the Laboratories. Once the circuit breakers pass through the test in the Laboratories, PTL gives a certificate for the quality of the product manufactured by assessee.

2. The assessee was required to make payment to PTL, Germany for carrying out the type tests. The assessee moved an application u/s 195(2) before the ADIT. It was argued that no income accrues or arises in India as all services were rendered outside

India and the payment was made outside India. That the payment was in the nature of business income of Pehla Laboratory and since it did not had any PE in India, the same was not taxable in India as per the DTAA. It was further submitted that even as per the provisions of Explanation 2 to section 9(1)(vii), the payment does not fall in the nature and category of fees for technical services (FTS). Reliance was also placed on the judgments of various HCs in support of the argument that the expression “Technical Services” involves a human element, whereas in the case of payment in question the services were rendered without any human interface.

3. The Assessing Officer (AO), however rejected the assessee's contentions on the ground that the type of the services provided by the Pehla Lab was of highly technical nature and the payment was definitely covered by section 9(1)(vii) and secondly, the Explanation 2 to sect ion 9 provides that , where the income was deemed or accrued or arise in India, such income shall be included in the total income of the non-resident, whether or not the non-resident has a residence or place of business or business connection in India. Thus the, AO held that payment made by assessee would qualify as FTS as per the DTAA between India and Germany, as well as per section 9(1)(vii) and he directed the assessee to deduct the tax @ 10% on the gross amount of payment to be made to PTL.

4. On an appeal , the First Appellate Authority, confirmed the Assessing Officers order. He further made reference to the Article 12(4) of the DTAA and held that the definition of FTS given therein was similar to Explanation 2 to section 9(1)(vii). Assessee's plea that the payment made to Pehla cannot be taxed in view of Article 7 of the DTAA as Pehla does not have a PE in India was also rejected by the CIT(A).

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DecisionThe Tribunal held in assessee’s favour as under:

1. The expression "fees for technical services" has been given as consideration for rendering managerial , technical or consultancy services. No other definition as such of the term technical services in the Act has been given. The word “technical” as appearing in Explanation 2 is preceded by the word “managerial” and succeeded by the word "consultancy". I t cannot be read in isolation as i t takes colour from the word “managerial and consultancy” between which it is sandwiched. The Courts have held that in such a case principle of noscitur a sociis gets attracted, which means that the meaning of the word or expression is to be gathered from the surrounding word i .e . from the context . Coupling of the words together shows that they are to be understood in the same sense. The word “managerial and consultancy” is a definite indicative of the involvement of a human element. Managerial services and consultancy services has to be given by human only and not by any means or equipment. Therefore, the word “technical” has to be construed in the same sense involving direct human involvement without that, technical services cannot be held to be made available. Where simply an equipment or sophist icated machine or standard faci l i ty is provided albeit developed or manufactured with the usage of technology, such a user cannot be characterised as providing technical services.

2. The Tribunal further held that merely because certif icates have been provided by the humans after a test is carried out in a Laboratory automatical ly by the machines, it cannot be held that services have been provided through the human skills.

V. Fee for technical services – Fees for technical services paid to Indian divers for services rendered outside India, who are non-residents, such payment are covered by the exceptions provided in sect ion 9(1)(vi i )(b) – In the absence of any Branch or PE outside India, it has to be examined as to whether the payment to non-resident was made in respect of services utilised for the purposes of earning any income from any source outside India or notM/s Aqua Omega Services Pvt. Ltd. vs. ACIT [2013-TII-45-ITAT-Mad-Intl.] Assessment Year: 2008-09

Facts1. The assessee was in the business of providing underwater diving services. The assessee had agreed to provide such services in Saudi Arabia under a contract with one M/s Mashhor Covus SDB BHD, Brunei and one M/s Khalifa A Algosaibi Diving and Marine Services Co. , and thus hired the services of divers.

2. These divers were Indian citizens taken from India on a ship owned by the assessee, who, having stayed outside India for more than 180 days, became non-residents. The divers were paid the fees outside India for services rendered in Saudi Arabia. No tax at source was deducted on these payments.

3. According to the assessee, since the services were rendered outside India by the assessee, the income earned by the assessee was from business carried on outside India and hence, the payment made to the divers as fees, was exempt from tax in view of the provisions of section 9(1)(vii)(b).

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4. According to the assessee, the Explanation to section 9, inserted by Finance Act, 2007 with effect from 1-6-1976, had been brought in only to explain the provisions of section 9(1)(vii)(c) and not take away the exception given in section 9(1)(vii)(b), which stipulated that the amount paid by a resident to a non-resident for services rendered outside India was not taxable in India in view of the exception contained in that section.

5. Rejecting the assessee's contention, the AO held that the services rendered by the divers were technical services falling under section 9(1)(vii) and therefore, l iable for deduction of tax at source and in default the provisions of section 40(a)(i) were applicable. The AO also stated that the assessee did not have any branch or permanent establishment outside India and hence in the strict sense, it could not be said to have carried on any business outside India. The AO disallowed the entire expenditure on account of professional charges paid to divers.

6. Further, the AO held that technical fees were paid by a resident to a non-resident for services of technicians engaged for services outside India, and the amounts could not be treated as income. According to the AO, this basic principle that the non-resident was taxable on income in the form of technical fees arising in India, had been null i f ied by the insert ion of Explanation to sect ion 9 by the Finance Act, 2007 with effect from June 1976. Also, as the transactions were not covered under the exception provided under sect ion 9(1)(vii)(b), and by virtue of the explanation inserted to section 9 by the Finance Act, 2007, there could not be leeway available to the assessee in non-compliance to deduction and payment of withholding tax, before making the payments to the non-residents.

7. In appeal, the CIT(A) confirmed the AO's order, observing that the decision of

the Supreme Court in Ishikawajima Harima Heavy Industries Ltd. vs. DIT was nullified by the amendment made by Finance Act, 2010 with retrospective effect from June 1976 by insertion of explanation below section 9(2). Relying on the decision of the AP High Court in the case of Elkem Technology, the CIT(A) held that the transaction with non-residents in the case of the assessee was not covered under the exclusions provided in 9(1)(vii)(b). The assessee did not have any Branch or PE outside India and therefore, as the payments were made to non-residents from India, the business could not be said to be carried on outside India so as to fall within the ambit of exceptions provided in section 9(1)(vii)(b).

8. In appeal before the Tribunal , the assessee submitted that the payments were made to non-residents, for earning income outside India, whereby the provisions of sections 9(1)(vii)(b) could not be applied to conclude that the explanation introduced under sect ion 9(1) would take way the exception conferred under section 9(1)(vii)(b). This was because, the Explanation was introduced to explain the provisions of section 9(1)(vii)(c) and not to take away the exception that was given in section 9(1)(vii)(b).

9. The Revenue submitted that the assessee did not have any branch or PE outside India and as the payments were made to non-residents from India, the business could not be said to be carried on outside India.

DecisionThe Tribunal held in assessee’s favour as under:

1. The Appellate Tribunal al lowed assessees appeal relying in the recent decision of the Delhi High Court in the case of CIT vs. Havells India Ltd. has observed

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that in order to fall within the exception provided in section 9(1)(vii)(b) source of income should be situated outside India. In the present case before us the assessee provides services of underwater diving. For rendering such services under a contract, the assessee took i ts personnel to Saudi Arabia where the services of underwater diving was rendered. The source of receipt was from business carried on abroad with its trained manpower. Section 9(1)(vii)(b) of the Act provides that the income by way of fee for technical services payable by a person who is a resident shall be deemed to accrue or arise in India except where it is payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning income from any source outside India.

2. The Appellate Tribunal further referred to the decision of the cordinate bench of the Tribunal in the case of ACIT vs. Ajappa Integrated Project Management Consultants P. Ltd.

VI. Fees for technical services –The Services of an agent who only receives the materia l , gets the material cleared from the customs and delivers it to the purchasers without any application of mind, are not technical services to facilitate the movements of the tourists abroad are not technical in natureSri Subbaraman Subramanian vs . ACIT [2013-TII-38-ITAT-Bang.-Intl.] Assessment Year: 2008-09

Facts1. The assessee has two proprietary concerns Gemini International and Gemini Tours and Travels.

2. M/s Gemini Tours and Travels was doing business as touring operator and the assessee had undertaken to provide to its customers stay at various resorts and hotels at Maldives and these tourists were received by Mr. Hussain Shiham, who put them into their hotels and resorts and ensured laisoning with the hotels, etc.

3. For the services rendered by him at Maldives, a sum of USD 15 per person was being paid which is retained by the person entitled to such commission and only the balance is paid to the assessee.

4. Gemini International supplied building materials to various tourist resorts at Maldives and faci l i tated the delivery of goods to its customers. The assessee had engaged the services of M/s Misc. Maldives Pvt. Ltd., for weighing the goods, clearance from the customs at Maldives and their delivery to the purchasers. Against these services, commission was paid to M/s Misc Maldives Pvt. Ltd.

5. The AO was of the opinion that s ince no TDS u/s 195 was deducted on these payments the provision of section 40a(i) was invokable, and the expenses were disal lowed. He further held that the commissions were paid for avail ing technical services u/s 9 (1)(vii) and income had accrued to the payee from the payments made by the assessee.

6. On appeal , the assessee contended that sections 194 and 195 had no application to this case s ince the services were rendered outside India by non-residents and payments were also made outside India. He also referred to the provisions of section 5(2) and contended that a non-resident is liable to be charged with income-tax in India, only i f such non-resident renders services in India or through his agents in India.

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7. The CIT(A) held that al though the services were rendered outside India and the incomes were earned and received/paid outside India, however since these activities fell squarely under the definition of ‘technical services' deduction of tax u/s 195 was required on these payments as per the provisions of section 9(1)(vii).

8. In appeal before the Tribunal , in addition to the contentions raised by the assessee before the CIT(A), the Counsel submitted that these parties did not render any technical, managerial or consultancy services but rendered simple handling/receiving services. He submitted that the agent in Maldives only received the goods which were exported by the assessee and facilitated their clearance and delivery to the assessee's clients. He submitted that the non-resident who received the tourists was only intermediary between the assessee and the resorts/hotels and he was not rendering any services of technical nature.

Decision1. The Appellate Tribunal accepted the contentions of the assessee and observed that, the agent only receives the material, gets the material cleared from the customs and delivers it to the purchasers. In this whole exercise, there is no application of mind by the agent and no independent decision taken with regard to the goods to be del ivered. In such circumstances, i t cannot be said that technical services have been rendered by the agent at Maldives. Therefore, the income earned by the said agent outside India is to be considered as his business income and as held by the Delhi High Court in the case of EON Technology Pvt . Ltd. , the business profits of a non-residents cannot be brought to tax until and unless there is a PE in India.

2. The Appellate Tribunal further bserved that , as regards the payment made by Gemini International Tours and Travels is concerned, we find that the agent receives the clients and leave them in the resorts or hotels for which he is paid commission. The nature of the activity of the agent at Maldives is only to facilitate the movements of the tourists of the assessee within the country of Maldives and to see that no inconvenience is caused to them. He is not entitled to take any decision as regards the destination of the tourists or with regard to their stay and accommodation. Therefore, services rendered by him also cannot be said to be technical services u/s 9(1)(vii) of the Income-tax Act. If the said services cannot be termed as technical services, then the payment made to the agent can only be considered as his business income which can be taxed in India only if he has a PE in India.

VII. Payment of Commission to Foreign Agents – Section 40(a)(ia) – Services reduced outside India – Mere payment into bank accounts of agents in India may not attract provisions of Section 40(a)(ia) – Held : In assessee’s favourACIT vs . Avon Organics Ltd. [2012] 28 taxmann.com 170 (Hyd.)

Facts1. The assessee was engaged in manufacturing and sale of chemicals and bulk drugs. During course of assessment proceedings, the Assessing Officer noted that the assessee had claimed expenditure of ` 16.81 lakh towards payment of commission to foreign agents but no tax had been deducted at source.

2. The assessee was asked to explain as to why commission payment should not be

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disallowed under section 40(a)(i) since no tax had been deducted at source on the payment made.

3. The assessee explained that export commission was paid to foreign agents for the services rendered by them in connection with effectuating exports sales and the payments were made directly to the bank account of the agent through telegraphic transfer ; that as the foreign agents operated in their respective countries and no part of the income arose in India, tax was not required to be deducted at source on the payments made to the foreign agents.

4. The Assessing Officer re jected the contention of the assessee by observing that non-residents were paid by way of telegraphic transfer obtained from banks at Hyderabad and, therefore, the banks acted as agents of non-resident and received the payment on their behalf in India. Accordingly, the Assessing Officer held that the commission paid was deemed to have been received in India.

5. The Assessing Officer further held that remittance towards commission to a bank in India coupled with the fact that the credits towards commission was made in the books of account of the assessee maintained in India would make the commission liable to tax in India as per section 5(2)(a). On appeal by the assessee, the Commissioner (Appeals) reversed the holding of the Assessing Officer and deleted the addition made under section 40(a)(i).

DecisionThe Tribunal held in favour of the assessee as follows:

1. The A.O. has come to the conclusion that the commission payments were deemed to have been received in India only because the telegraphic transfer of the remittances towards commission was made from a bank in India. Apart from these things, the A.O. has got no other material on record to show that the foreign agents either rendered any services in India or have any permanent establishment in India. Only because the remittances towards commission were telegraphically transferred to the foreign agents from the banks in Hyderabad will not lead to the inference that the income to the foreign agents accrued or arose in India in terms of section 5(2)(a).

2. As per sect ion 9, the basic cr i teria provided in the section is about accrual of or arising of income in India by virtue of connection with the property in India or control or management vested in India. Unless these conditions were satisfied, it cannot be held that income has accrued or arisen in India. Section 195 has to be read along with charging sections 4, 5 and 9. The provisions contained under section 195 were not meant that the moment there is a remittance, the obligation to deduct TDS automatically arise. Considering the fact that the Assessing Officer has not brought any material on record to show that the foreign agents have rendered any part of the services in India or have a permanent establishment and business connection in India, it cannot be said that any part of the commission payment made to them accrued or arisen in India requiring deduction of tax under section 195(1). Accordingly the finding of the Commissioner (Appeals) that no disallowance under section 40(a)(i) could be made is agreed with.

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INDIRECT TAXES – Central Excise and Customs – Case Law Update


INDIRECT TAXES Central Excise and Customs – Case Law Update

CA. Hasmukh Kamdar

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CENVAT Credit Ajinkya Enterprises vs. Commissioner of Central Excise, Pune – III – [2013 (288) E.L.T. 247 (Tri. – Mumbai)]

The facts in this case are as follows:

The appellants receive HR/CR coils falling under Tariff I tem No. 7208 38 40 under the cover of duty paying documents and duty paid thereon is taken as credit of CENVAT.

The said coils are subjected to the process of de-coi l ing and cutt ing & sl i t t ing as per the drawing and design supplied by the customer, s i tuated in SEZ area and thereafter, the same are subjected to the process of pickling and oiling before the same are supplied to the said SEZ Unit . Over and above, sheet metal parts are also manufactured.

Various show cause notices were issued proposing to deny the credit of CENVAT on the ground that the aforesaid activity undertaken by the appellants did not amount to manufacture. For the said reasons, rebate of duty paid on the goods supplied to SEZ unit was also denied.

After adjudication the demands were confirmed. The Appellants have preferred the appeals before CESTAT.

A. On behalf of the appellants i t was submitted that:

(1) The appellants have been persistently in correspondence with the Department requesting to finally clarify whether the composite activity of de-coiling and cutting & slitting, pickling and oiling, amounted to manufacture or not. The C.B.E & C vide Circular No. 584/21/2001-CX dated 7-9-2001, had clarified that slitting of HR/CR coils and steel sheets in to strips amounted to manufacture. This Circular was withdrawn by C.B.E. & C. Vide i ts Circular No. 811/8/2005-CX dated 2-3-2005 in view of Delhi HC judgment in Faridabad Iron & Steel Traders Association [2004 (178) E.L.T. 1099 (Del.)]

The said Circular however does not refer the addit ional process l ike pickl ing, oi l ing, etc . The appellants submitted that in spite of repeated requests the Department did not issue any clarification in response to their representations and hence, their paying of duty on the final products and taking credit was proper and legal.

(2) It was only on 14-1-2010, C.B.E. & C vide its Circular No. 911/1/2010-CX, dated 14-1-2010 clarified as under:



(i) In cases where the process undertaken by an assessee indisputably does not amount to manufacture, the department should inform the assessee about the correct legal position and advise him not to pay duty and not to avail credit on inputs.

(ii) If the assessee has already paid duty, and in a situation where there is no manufacture as held by the Courts subsequently, and facts of the case are covered by the provisions of section 5B of the Central Excise Act, 1944, the assessee is at liberty to approach the Central Govt. for issue of appropriate notification for regularisation of the CENVAT credit availed.”

(iii) C.B.E. & C. Vide i ts Circular No. 927/17/2010-CX- dated 24-6-2010, first time clarified that mere undertaking the process of oiling and pickling as preparatory steps do not amount to manufacture. Further on 24-6-2010 the Department clarified to the Appellants that the process of cutting of HR/CR coils of iron or non-alloy steel in to sheets or slitting into strips of lesser width; or slitting of sheets in to strips will not amount to manufacture and therefore the products are not required to pay the C. Excise duty.”

It was submitted that in view of the above facts, at least, till 14-1-2010, the payment of duty and taking credit by appellant was proper and legal. The period involved in the present case is March, 2005 to August, 2007.

(3) The appellants further submitted that they had the following legal alternatives:

(i) Since the Appellants are manufacturing press metal parts and also undertaking the aforesaid disputed activity, inputs

being common, the appellant’s case would be covered by sub-rule (5) of Rule 3 of CCR, 2004 whereunder, the appellants were required to pay duty equal to credit taken and clear such inputs (steel sheets duly pickled and oi led) under the cover of Central Excise invoices. In the present case, the appellants have paid duty more than the credit taken and cleared such goods under the cover of Central Excise invoices and hence, their case is covered under Rule 3(5) of CCR.

(ii) Rule 16 of CER, 2002 permits taking credit of duty paid on the goods brought to any factory for being re-made, ref ined, recondit ioned or for any other reason, treating the same as inputs under the CENVAT Credit Rules, 2002 and uti l ise this credit according to the said rules. If the activity to which the goods are subjected before being removed does not amount to manufacturer , the manufacturer shall pay an amount equal to the CENVAT credit taken. In the instant case, assuming that said act ivity is not amounting to manufacture, the appellants were required to pay duty equal to credit taken and they have paid duty more than the credit taken and hence, their case is covered.

(iii) The next alternative could have been, to apply for and obtain the dealer’s registrat ion and issue Cenvatable invoices in favour of the customers by the appellant. In the instant case, when the dispute arose, the appellants applied for and were issued dealers registration in December, 2008.

(4) That prohibit ion from payment of duty contained under sub-sect ion (1A)

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to section 5A of Central Excise Act, 1944, brought on statute book from 13-5-2005, would apply only to cases where goods are exempted under Notification issued under section 5A(1) and such exemption is granted absolutely. The said barring provision would not apply to the dispute of excisability or otherwise.

(5) It was contended that when duty paid at the time of clearance is equal to or higher than the credit availed, the same is to be treated as reversal of credit and hence, no further reversal of credit required. Reliance was placed on the following judgments.

i. Crompton Greaves Ltd. – 2008 (230) E.L.T. 488 (T)

ii Vickers Systems International Ltd. – 2008 (229) E.L.T. 298 (T) = 2008 (10) S.T.R. 378 (T)

iii. PSL Holdings Ltd – 2003 (156) E.L.T. 602 (T)

iv. Shetron Ltd. – 2001 (135) E.L.T 736 (T)

(6) Once duty on the f inal products has been accepted by the Dept. credit is not deniable, even i f the act ivity does not amount to manufacture, based on the following judgments.

(7) That is view of the fact that , s ince the entire dispute relates to supply of goods to SEZ unit, even if the activity is not amounting to manufacture, credit of CENVAT on inputs is admissible.

B. On the other Department rel ied on the reasoning of the Orders of Lower Authorities, as summarised below.

(i) That when payment of duty is without authority of law, question of allowing credit on inputs does not arise.

(ii) That pickling and oiling process did not amount to manufacture.

(iii) That Tribunal in Resistance Al loys ( I ) Ltd. reported in 1996 (84) E.L.T. 507 (T) and P.V. Sanghvi reported in 2004 (171) E.L.T. 24 (T) has held that process of picking and annealing etc., being processes preparatory to cold drawing process, would not amount to manufacture.

(iv) That C.B.E & C. Circular No. 831/8/2006-CX, dated 26-7-2006 would substantiate that how Govt. issues Notifications for regularising the credit and in the absence of such Notification in the present case. Credit is not admissible.

(v) That Apex Court in Metlex ( I ) Pvt Ltd. reported in 2004 (165) E.L.T 129 (S.C.) in Para 9 has held that “but merely because a party mistakenly files a Classification List does not mean that he has paid duty, if in law, he is not bound to pay duty. If there is no manufacture then the mere fact that a Classification List has been filed would not make them liable to pay duty.”

(vi) That the Rule of equity can be applied only by High Court/Supreme Court and cannot be exercised by Tribunal.

C. In rejoinder, on behalf of the Appellant it was submitted:

(i) That the issue in Velere Power India Pvt . Ltd. (supra) was whether duty equal to CENVAT taken is to be paid under Rule 3(5) of CCR, or duty on transaction value is payable when the activity undertaken did not amount to manufacture. Rather in that case, differential duty was demanded, as

ML-479



the assessee therein had paid less duty by paying duty on transaction value while the credit on inputs was higher. As against, in the present case, duty paid by appellants is higher than the credit taken. Therefore the ratio of that judgment would not have any relevance.

(ii) That the ratio in P.V. Sanghvi (supra) does not apply, as, in that case the issue as to whether mere process of pickling and annealing would amount to manufacture or not was decided, while in the present case, a composite process of de-coiling, cutting & slitting, pickl ing and oi l ing process were undertaken and in spite of repeated representations, Dept clarified only on 24-6-2010.

(iii) That the issue in Metlex (I) Pvt. Ltd. (supra), was whether assessee is barred from taking a plea of not amounting to manufacture when they had paid duty on the mistaken belief of activity amounting to manufacture and the Supreme Court permitted to take the plea and hence, would not be relevant.

(iv) That judgments directly on the issue which are not challenged by the Dept. the same would have binding effect.

D. It was noted by the Hon'ble Tribunal that the undisputed fact in this case is that the appellants are engaged in the activity of de-coiling of HR/CR coil, cutting and slitting thereof into specific sizes as per design of their buyer and carrying out pickling and oiling thereon. It is held by various judicial pronouncements that activity of de-coiling of HR/CR coils, cutting and slitting thereof into specific sizes and carrying out pickling and oi l ing thereon does not amount to

manufacture. Therefore, the issue before us is that whether the CENVAT credit taken by the appellants on HR/CR Coils which were cleared by them on payment of duty, after the process of de-coiling, cutting and slitting into specific sizes and thereafter carrying out pickling and oiling is required to be reversed or not.

The Department view is that as per law, the appellants were required not to take CENVAT credit on these goods i.e. HR/CR coils as their activity does not amount to manufacture. Therefore, the CENVAT credit taken by them is wrong and in that event, they are required to reverse the CENVAT credit . The duty was paid without any authority of law. Therefore, the question of allowing the credit on input dose not arise. He relies on the decision of Velere Power India Pvt. Ltd. (supra), wherein it was held by this Tribunal that CENVAT Credit was taken wrongly and duty equal to CENVAT credit is required to be paid under Rule 3(5) of CENVAT Credit Rules when the activity does not amount to manufacture. In that case the assessee took the credit on the inputs and after processing of inputs, the final products were cleared on lower value. The activity did not amount to manufacture but the duty was paid less at the time of clearance of the goods at lower value although the CENVAT credit was taken more than the duty paid. Therefore, differential duty was asked to be paid. In the present case, the appellants have paid more duty than the credit availed. Therefore, the decision of Velere Power India (supra) is not relevant to facts of this case.

In case of Metlex (I) Pvt. Ltd. (supra), the facts are that the assessee wrongly fi led their classification list on the ground that their activity amounts to manufacture and paid duty thereon. The Hon’ble Apex Court held that held that the assessee is not barred from taking the plea of their activities not

ML-480



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amounting to manufacture when they have paid the duty on mistaken belief that their activity amounts to manufacture. Therefore, the said decision is also not relevant to facts of this case.

As per Circular dated 7-9-2001, the activity of slitting of HR/CR coils into strips was amounted to manufacture. The said Circular was withdrawn on 2-3-2005. Thereafter , the appellants sought clarification through various letters to the department to clarify whether the composite activity of de-coiling of HR/CR coils, cutting, and slitting into specific sizes and thereafter pickling and oiling amounting to manufacture or not. That was clarified only on 24-6-2010. In the case of Resistance Alloys (supra) and P. V. Sanghvi (supra), it is held that process of pickling and oiling would not amount to manufacture, but in this case, the appellants were undertaking composite act ivity of de-coiling of HR/CR coils, thereafter cutting and slitting into specific sizes and after that pickling and oiling took place, which was clarified by the department only on 24-6-2010 saying that the said activity does not amount to manufacture.

Further, i t is the admitted fact that the appellants are the manufacture of excisable goods also. Therefore, as per Rule 3(5) of the CENVAT Credit Rules, 2004, i f the activity in question of the appellants does not amount to manufacture, the appellants are required to pay duty equal to credit taken on clearance of such inputs under cover of Central Excise invoices. As in this case, the activity of the appellants does not amount to manufacture, therefore, these inputs are cleared as such. In that event, as per Rule 3(5) of CENVAT Credit Rules, 2004 the appellants are required to pay duty equal to the credit taken thereon and the appellants have paid duty more than the credit availed.

The Hon’ble Tribunal referred to several cases cited by the appellants, wherein it was held that when duty paid at the time of clearance equals to or higher than the credit availed the same is to be treated as reversal of credit, and no further reversal of credit is required. Reference was also made o cases where it has been held that once duty on final products has been accepted by the department in the case, CENVAT Credit cannot be denied even if the activity does not amount to manufacture.

It was held that that the appellants are not required to reverse the credit. Accordingly, the appeals were allowed with consequential relief.

�

ML-481

INDIRECT TAXES – VAT Update


INDIRECT TAXES VAT Update

Nikita Badheka, Advocate & Notary

A) Notification regarding Tax Collection at Source by certain Authorities under section 31A of MVAT Act

This section empowers the State Government to require any person, local body or authorities or agencies under the Central Government or State Government, who auctions the rights of Excavation of sand within their jurisdiction to collect the amount as provided in the notification towards liability of Sales Tax to be incurred on sale of sand by Auction Purchaser, on auction of sand. By virtue of this powers the State Government has notified certain class of authorities having jurisdiction of the area to collect from the successful bidders in addition to the amount fixed for the auction of sand, an amount at the rate specified in the Schedule appended towards the liability of Sales Tax to be incurred by the purchasing dealer on sale of such goods. (VAT 1512/CR149/Taxation 1 dt. 2-2-2013) The class of authorities notified for this purpose are District Collector or Cantonment Boards or any other authorities under the State Government or Central Government. The amount to be collected by such authorities from the successful bidders is 10% of the auction amount.

Q�� {>�<>�C & D

<^� Q��|{��*+*}~�\��]*^~��!��=*��$�}��Z��>�#�*}

All the amendments under this Notification are made effective from 1-4-2013 except where ��

Amendment to Schedule A – Tax free goodsB.1 Entry 4(c) (ii) referred to Rice bran as an exclusion from exemption. This exclusion entry is deleted. Entry C-49 of rice bran is also deleted. Therefore rice bran will be exempt under the main entry 4(C) of Schedule A.

B.2 The exemption period for following three entries in Schedule A are extended up to 31-3-2014

B.2 (1) Entry 9A (a) Paddy, rice, wheat and pulses in whole

grain, split or broken form;

]�^�� Z�!�� !� ��maida, rawa and suji whether sold singly or in mixed form;

]�^�� Z�!��!�� !� ��sold singly and not mixed with flour of

ML-482



other pulses or cereals, sold during the period from 1-4-2013 to 31-3-2014.

B.2 (2) Entry 51 During the period from 1st April, 2013 to 31st March, 2014

i) Papad except when served for consumption

ii) Gur

iii) Chillies, turmeric and tamarind whole, powdered or separated but excluding chilly seed and tamarind seed when sold in separated form;

iv) Coriander seeds, fenugreek and parsley (suva) whole or powdered;

v) Coconut in shell and separated kernel of coconut, other than copra.

vi) Solapuri chaddars;

vii) Towels;

viii) Wet dates.

B.2 (3) Sch. A Entry 59 Raisins and currants sold during the period starting on the 1st April, 2013 to 31st March, 2014.

The goods covered by all the above three entries would be exempt for further one year.

B.3 New entry 27A is introduced. Hand pumps used for pumping water will be tax free w.e.f. 1-4-2013

B.4 Entry 36 is substituted as follows : Following goods shall be tax free w.e.f. 1-4-2013

1. Judicial, non-judicial stamp paper, court fees stamps , when sold by Government treasury or authorised vendors

2. Postal items like envelopes, post card, etc. when sold by Government

3. Philatelic material such as postal stamps, postal envelopes, stationery, pigeonogram, ��<��

B.5 (1) Entry 46A is deleted The following goods will not be tax free w.e.f. 1-4-2013

(a) Unmanufactured tobacco covered under Tariff Heading No. 2401 of the Central Excise Tariff Act, 1985 (5 of 1986)

(b) Biris covered under Tariff item No. 24031031, 24031039, 24031090 of the Central Excise Tariff Act, 1985 (5 of 1986).

B.5(2) Entry 12 is amended and 14 is introduced in Schedule D – The new entry of Schedule D are as follows :

"12 Tobacco, manufactured tobacco and products thereof but

Excluding, –

(a) Beedi and unmanufactured tobacco whether sold under brand name or not;

(b) Cigar and cigarettes to which entry 14 of this Schedule applies…. (20%)

After entry 13, the following entry shall be added, namely :

“14. Cigar and cigarettes……. (25%)

B.5(3) The effect of two amendments is that Beedi and unmanufactured tobacco whether sold under brand name or not, would now be subjected to 12.5% under Schedule entry E-1.

B.6 New entry 62 is added in Schedule A. “Water meters sold to Local Bodies” are tax free w.e.f. 1-4-2013.

�� <��Rate of Tax for Schedule Entries B.1 & B.2 is enhanced to 1.1% up to 31-3-2014. No change is made in rate of Tax of Schedule entries B.3 & B.4 is amended so on to levy tax on diamond at 1.1% up to 31-3-2014

C.1 Entry B-1 read as follows:

�}�� !��

ML-483


The Chamber's Journal April 2013 �*�#

precious stones, semi-precious stones, diamonds or pearls whether real or cultured and to which entry 105 in Schedule ‘C’ does not apply”.

New exclusion to this entry is added i.e., “Industrial goods and industrial tools to which new entry 53A of Schedule “C” applies “

New entry 53A of Schedule “C” applies to industrial goods and industrial tools sold during the period starting on or after the 1st April, 2013 and ending on the 31st March, 2014. The rate of tax on industrial goods and industrial tool is 5% w.e.f. 1-4-2013.

C.2 Sch. B.2 – In Entry no change is made except rate of tax enhanced to 1.1% up to 31-3-2014. It reads as follows:

"Precious metals that is to say Gold, Silver Platinum. Osmium, Palladium, Rhodium, Ruthenium and alloys of any of them.

Explanation: For the purpose of this entry, an alloy of precious metal means a precious metal ��

C.3 Notification for diamond dt. 4th April: @�� @��}��{§{�¥\��_]�^�� {�$

�� $�� divided into two sub-entries. Entry B refers to:-

“3. Precious stones, semi precious stones 1% and pearls whether real or cultured but excluding those to which entry 3A of this Schedule applies, when sold on or after the 1st April, 2013.”

“3.A. Diamonds:

(a) When sold during the period 1.1% starting on or after the 1st April, 2013 and ending on the 31st March, 2014;

(b) When sold on or after the 1% 1st April, 2014

As a result of this the diamond alone would be subject to 1.1% from 1-4-2013 to 31-3-2014. The rest of the precious stones will continue to be taxed at 1%.

D) Schedule C amendmentsD.1 Entry C-3 –“Paver blocks” are excluded from the entry relating to bricks . They will now be subjected to 12.5 % w.e.f. 1-4-2013.

D.2 From Schedule C entry 12 sub-entry (b) is deleted………… Sub-entry (b) referred to Beedi: Beedi leaves will be taxed at 5% and Beedi will now be taxed at 12.5%.

D.3 Entry C-29 – refers to Drugs and Medicines. This Entry had only one exclusion i.e. mosquitoes repellent in any form. One more exclusion is added to this Schedule Entry i.e products capable or being used as cosmetics, shampoos. The cosmetics and shampoos are excluded from here, and would now be covered by Schedule E1 subject to 12.5%.

D.4 New entry 31A is introduced as follows:

Excavators covered under Tariff Heading No. 8429 52 05%”; of the Central Excise Tariff Act, 1985 (5 of 1986) and are not liable for registration under the Motor Vehicles Act, 1988 (5 of 1988). The rate of tax is 5%.

D.5 Following two entries are deleted, “C-42 ��!�� !��!�� sold separately would be subject to 12.5%.

D.6 C-53A – discussed in Sch B – Amendments.

D.7 C-107(11)(g) is deleted therefore powders, tablets, cubes, crystals and other solids or liquids from which non-alcoholic beverages and soups are prepared would be subjected to 12.5% as covered by E.1.

D.8 The time limit for Sch. 108(1)(b) referred to tea in leaf or powder form including instant tea is extended up to 31st March, 2014. Therefore this product would be subjected to 12.5% up to 31st March, 2014.

ML-484



E) Amendments to various other ��

E.1 Vide�@�� @��}��{§{�¥\��_]|^�/ Taxation 1 :- Under Sch entry A.2 the State is empowered to notify aids and implements used by handicapped persons. By virtue of this �� aids and implements. Such watches would now be exempt w.e.f. 1st April, 2013.

E.2 Under Entry C-101(a) the State Government is empowered to notify the fabric and sugar which would be subjected to 5%. By virtue of this power in the Schedule dated 17th March, 2010, the following entries are added by @�� @��}��{§{�¥\��_]�^¥�� {��$�$|�{�� 30th March, 2013.

“9 Textile articles of a kind suitable for industrial use:

5901 Textile fabrics coated with gum or amylaceous substances, of a kind used for the outer covers of books or the like; tracing cloth, prepared painting canvas; buckram and similar stiffened textile fabrics of a kind used for hat foundations.

5902 Tyre cord fabric of high tenacity yarn of nylon or other polyamides, polysters or viscose rayon.

5903 Textile fabrics, impregnated, coated, covered or laminated with plastics, other than those of heading 5902.”

As result of this, this products would no more be tax free w.e.f. 1-4-2013.

��@�� |§��"��|��¨�� was given to textile processors. The Works Contractor executing the contract for executing a contract for processing the textiles are exempt subject to condition specified therein. One of the condition is that the processed textiles are covered under description of goods provided in ��!��"��}�>�� are not disturbed by this amendment. The

product which were earlier covered by ADE continues to be covered under the same.

E.3 Sch. C-101(b) refers to varieties of textiles �� time to time. Notification under this Schedule Entry is amended as follows dt. 30-3-2013 No/ VAT/ 1513/C.R 46(4)/ Taxation 1 dt. 30-3-2013 issued.

The following amendments are effective from 30-3-2013.

In the Schedule appended to the said @��

(1) For entry 22, the following entry shall be substituted, namely:

“22 5907 Textile fabrics otherwise impregnated, coated or covered; painted canvas being theatrical scenery, studio back-cloths or the like”;

(2) Entries 23, 24 and 25 shall be deleted – Entry 22 now include all items earlier stated in this entry.

(3) After entry 30, the following entry shall be added, namely:

“31 Textile articles of a kind suitable for industrial use, other than cotton and manmade fabric covered under the Notification, Finance Department, No. VAT. 1510/CR-474/Taxation-1, dated the 17th March, 2010 issued under sub-entry (a) of .entry 101 of Schedule “C” appended to the Maharashtra Value Added Tax Act, 2002 (Mah. IX of 2005).

5901 Textile fabrics coated with gum or amylaceous substances, of a kind used for the outer covers of books or the like; tracing cloth; prepared painting canvas; buckram and similar stiffened textile fabrics of a kind used for hat foundations.

5902 Tyre cord fabric of high tenacity yarn of nylon or other polyamides, polysters or viscose rayon.

ML-485


The Chamber's Journal April 2013 �*��

5903 Textile fabrics, impregnated, coated, covered or laminated with plastics, other than those of heading 5902.”

Entry 23, 24 and 25 are deleted as entry 22 now covers main entry 59 07.

E.4 Entry C-107 (8) refers to medical devices and implants as may be notified. Automated implantable cardiac defribillators (AICD) is ��!�� !�� now be 5% w.e.f. subject to VAT 1-4-2013 vide @�� @��}��{§{�¥\��_]§^¥�� ${�dt. 30-3-2013.

E.5 Under section 42 the Government is empowered to provide composition scheme for �� !��@�� @��{§�§¥\��{�§¥Taxation 1 a serial No 4 provides composition scheme for dealers in Second hand motor vehicles, in this Serial No. 4 at all the places after motor vehicles the word “ Or Tractors” are inserted by notification dt. VAT 1513/CR 46(6)/Taxation-1 dt. 30-3-2013. As a result of this dealers in Second Hand Tractors would also be eligible for benefit of composition scheme for calculating the tax at 12.5% on 15% of the sale price of tractors.

F) Other proposed amendment as per State Finance Minister budget speech. Please await for exact ��!��<�

F.1 To allow the dealers to file single revise return for the entire year if any discrepancies are pointed out in the Audit by the Accountant or in the business audit conducted by the Sales Tax Department.

F.2 To simplify the procedure for cancellation of Unilateral Assessment after the Defaulter has ��!��³"�� |�]{^µ

F.3 � ��/��!��

F.4 To allow the appearance of Company Secretary before the Sales Tax Authority.

F.5 To waive the recovery of Sales Tax dues up to ` 100 in a Financial year.

F.6 To enable the Government to waive partly �� !��!�� !�� !��

F.7 To recover directly by serving demand notice for additional tax liability pointed out by Chartered Accountant or Cost Accountant in the Audit report which is accepted by the dealer.

F.8 The adjustment of refund for one year up to ` 5 lakhs to be allowed in the subsequent year.

F.9 The admissible part-refund to be granted within 3 months of the due date for filing of audit report in Form 704 after preliminary ��

F.10 Early grant of refund to mega projects eligible for industrial promotion subsidy and to dealers whose interstate sales in the previous year is in excess of 50% of the total turnover.

F.11 No set off on the VAT paid on purchase of passenger vehicle even to the dealers giving the vehicles on lease.

F.12 Sugarcane purchase tax to be increased from 3% to 5% and the Tax Collection on Sugarcane purchase tax to be increased from 50 paise per kilogram to 1 rupee per kilogram. The increase would be effective only for 1 year.

F.13 The tax on weekly lottery would be ` 60,000/-.

The tax on fortnightly lottery scheme or any other lottery scheme for week and fortnight will be ` 1,25,000/-.

The tax on the monthly lottery scheme or the lottery scheme of any duration exceeding fortnight will be ` 2,50,000/-.

Tax on Bumper Lottery Scheme will be ` 12 lakh.

ML-486


The Chamber's Journal April 2013 *�+�

�^� {��<��{��If Financial Institution is one of the parties to instrument or right is created in favour of Financial Institution, the liability to pay proper stamp duty shall be on financial institution concerned. The provision is proposed to made to round up the stamp duty to the next 100 rupees and the fraction of less than ` 50. A conveyance deed executed ��!�� to sell as a deemed conveyance shall be treated as supplementary documents and duty of ` 100 only will be charged. Uniform Stamp duty of 0.25% of some of rent payable for the period of agreement – An amount of non-refundable deposit an interest calculated @ 10% at refundable deposit will be charged throughout the state.

H) Amendment to State Excise �� >��Z%��<��

The minimum rate of excise duty on Country liquor is increased to 110 per proof litre instead

of 95 per proof litre. Minimum excise duty on IMFL increased to 300 from ` 240/- per proof litre. Fermented strong beer would be subjected to excise duty of ` 60 per bulk litres or 200% of manufacturing cost which ever is higher. Export fee on IMFL with MRP of less than 500 is increased from ` 1 to ` 3 per bulk litre. IMFL having MRP of 500 or more would attract export fees of ` 10 per bulk litre.

I. Notification under CST Act exempting Interstate Sale of furnishing cloth covered by C-101

By notification issued under section 8(5) of Central Sales Tax Act. The tax payable on interstate sale of furnishing cloth notified under C-101 of MVAT Act is exempt w.e.f. 30th March, 2013.

(Notification No. CST.1413/ CR 48/Taxation-1 dt. 30th March, 2013).

�

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ML-487

INDIRECT TAXES – Service Tax : Case Law Update


INDIRECT TAXES Service Tax – Case Law Update

CA. Bharat Shemlani

1. Services

Rent-a-Cab Service

1.1 Shree Gayatri Tourist Bus Service vs. CCE, Vadodara 2013 (29) STR 499 (Tri.-Ahmd.)

The appellant in this case had contract with client inter alia stipulating that, (i) vehicles were required for transportation of personnel and delegates of client, under their instructions/directions, (ii) vehicles may have to move on official duty to outstation, depending upon exigencies of client work, for which no other extra charges was to be paid, (iii) vehicle would be provided normally for 12 hours duty in a day, (iv) hiring charges are to be calculated for actual number of working days on pro rata basis, (v) maintenance, behaviour, discipline of driver was responsibility of assessee, (vi) for maintaining, refuelling, repair etc. of vehicle no extra charges was to be paid , (vii) asseseee was required to �� <��!�� !� ��the vehicle, and at end of the month, submit bills to client along with copies thereof, (viii) assessee was to be paid minimum fix charges per vehicle per month. The department wanted to levy service tax on service provided under Rent-a-Cab Service. The Tribunal on the basis of facts and contracts held that, vehicles were not rented to client and therefore not liable to service tax under Rent-a-Cab Service.

Clearing & Forwarding Agent Service

1.2 CCE, Delhi vs. D. R. Polymers 2013 (29) STR 536 (Tri. -Del.)

When the arrangement between the service provider and the principal being for causing sale on behalf of the principal and not for dispatching the goods as per directions of the principal and the service provider himself issued the invoices, no liability on the service provider is attracted to pay service tax under C&F Agents Service.

Banking & Other Financial Service

1.3 CCE vs. Federal Bank Ltd. 2013 (29) STR 554 (Ker.)

The High Court in this case held that, since cash management services (Collection of telephone bills) have been specifically excluded from purview from Banking & Other Financial Service until 31-5-2007, same cannot be made liable to service tax under any other taxable service including Business Auxiliary Service.

Stock Brokers Service

1.4 LSE Securities Ltd. vs. CCE, Ludhiana 2013 (29) STR 591 (Tri.-Del.)

The Tribunal in this case held that, clause (a) of explanation to section 67 of FA, 1994 stipulates that aggregate of commission or brokerage charged by broker on sale or purchase of securities including commission or brokerage

ML-488



paid by the stock broker to any sub-broker is liable to service tax. It cannot be expanded to levy tax on receipt by implication or inference. Turnover charges, Stamp duty, BSE Charges, SEBI fees and Demat charges collected by the appellant cannot be included in assessable value to be taxed on the ground that, they were received by stock broker. These are not commission or brokerage. They are recoveries from investors to make payment to respective authorities in accordance with statutory provisions of Indian Stamp Act, 1899 and SEBI guidelines.

Section 67 providing for valuation cannot be expanded to have artificial measure of levy bringing a receipt by implication or inference running counter to charging provision. It is the intrinsic value of service which should be taxed without any hypothetical rule of computation of value of taxable service.

2. Interest/Penalties/Others

2.1 Larsen & Toubro Ltd. vs. UOI 2013 (29) STR 449 (Bom.)

The Bombay High Court on CBEC Circular No. 967/1/2013 dated 1-1-2013 with regard to recovery of dues, held that, if failure of Appellate Authorities to dispose of appeal or stay is not due to default of assessee or their dilatory tactics, to initiate recovery by coercive measure in meantime, unjustified, arbitrary, travesty of justice and violative of Article 14 of Constitution of India. It is penalty on assessee for inability of judicial/quasi-judicial authority to dispose of stay application within thirty days period. Fact that, thirty days period was allowed �� Commissioner (Appeals)/CESTAT may not be able to decide on stay application within that period.

It is further held that, the said Circular is in terrorem. It deprives assessee even a reasonable time to exercise remedy provided to them under law of moving, as the case may be, CESTAT, High Court or Supreme Court, apply for stay

and waiver of pre-deposit. Also, there is no ~!�� following order-in-appeal where period of limitation has been laid down for challenging it.

2.2 Delhi Chartered Accountants Society (Regd.) vs. UOI 2013 (29) STR 461 (Del.)

The Delhi High Court in this case held that, CBEC Circular Nos. 154/5/2012-ST dated 28-3-2012 and 158/9/2012-ST dated 8-5-2012, prescribing for eight specified services, levy of enhanced rate of 12% in respect of invoices issued on or before 31-3-2012 but payment was received thereafter, on ground that point of taxation was date of payment, were liable to be quashed as they were contrary to Finance Act, 1994 and Point of Taxation Rules, 2011 (POTR, 2011).

It is further held that, Circular No. 158/9/2012-ST is erroneous in prescribing that eight specified services, including services of Chartered Accountant, if payment is received/made after 1-4-2012, needs to pay 12% since new rule 7 of POTR, 2011 does not cover services earlier referred to in Rule 7(c) of POTR, 2011 existed up to 31-3-2012. These kind of situations are governed by rule 4(a)(ii) of POTR, 2011, which is continued after 1-4-2012, and prescribes that, where service has been provided and invoice has been issued prior to change in effective rate of tax, but payment is received thereafter, the date of issuance of invoice is deemed to be date on which service was rendered.

2.3 CST, Ahmedabad vs. Sun-N-Step Club Ltd. 2013 (29) STR 521 (Tri.-Ahmd.)

The assessee in this case claimed refund of service tax paid erroneously on entry fee received from non-members, by working backwards from gross fee. The Tribunal observed that, in invoices they had not charged service tax and the lower authorities found that, the assessee was not liable to service tax on non-members under Club & Association Service. In that view it is held that, assessee is entitled to

ML-489



refund and there could be no unjust enrichment, �� !��total consideration received.

2.4 Wipro Ltd. vs. UOI 2013 (29) STR 545 (Del.)

The High Court in this case held that, filing of declaration for claiming rebate under @�� @��{|¥|��§$"��of service is not such a non-compliance as to disentitle exporter from rebate. Nature of service is such that they are rendered seamlessly, on continuous basis without any commencement or �� !�� requirement “prior” to date of export, except for description of service.

It is further held that, service tax and cess paid on cost of providing Call Centre/business process outsourcing service is eligible for rebate under Rule 5 of ESR, 2005.

It is also held that, conditions imposed by �� !�� with and if it is impossible of compliance, then there is no purpose behind it.

3. CENVAT Credit

3.1 CCCE&ST, Hyderabad vs. Aster Teleservices (P) Ltd. 2013 (29) STR 475 (Tri.-Bang.)

The Tribunal in this case held that, the assessee being liable to pay service tax on GTA service, he was doing so as an output service and therefore he was entitled utilize Cenvat credit for payment of such tax. It is also held that, there is no legal bar on utilization of Cenvat credit for the purpose of payment of Service Tax on GTA service by the deemed service provider thereof.

3.2 Hindustan Zinc Ltd. vs. CCE, Jaipur – I 2013 (29) STR 492 (Tri-Del.)

The Tribunal in this case allowed CENVAT credit of service tax paid on Rent-a-Cab Service availed in bringing employees to the factory and dropping them back and in relation to

ambulance service, however not allowed Rent-a-Cab Service availed in transportation of employee’s children to school/tuition centres. Further, penalty is waived as the issue regarding admissibility of the credit is related to interpretation of the provisions of CCR, 2004.

3.3 Pearl Insulations Pvt. Ltd. vs. CCE Bengaluru 2013 (29) STR 640 (Tri.-Bang.)

The department in this case demanded interest on wrongly availed CENVAT credit, though the appellant reversed the same without utilization. The Tribunal held that, section 11AB of CEA, 1944 has to be read down to mean that interest liability arises when wrongly availed credit has been utilised and not when only availed.

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ML-490

CORPORATE LAWS – Company Law Update


Janak C. Pandya, Company Secretary

CORPORATE LAWSCompany Law Update

Case Law No. 1[2013] 177 Comp Cas 1 (Cal.) – In the Calcutta High Court – Bhagyraaj Vyapaar P. Ltd. and Others vs. Regional Director, Ministry of Corporate Affairs, Eastern Region, Kolkata.

Section 237 of the Companies Act, 1956 was not to direct the Central Government to conduct investigation but to declare that the affairs of the company ought to be investigated upon. However, once such declaration is made, then the same needs to be taken to a logical conclusion.

Brief factsThis appeal is filed before the bench by the appellant against the order of a learned single judge on petition for scheme of amalgamation filed by four petitioner companies.

Originally, the scheme of amalgamation (“Scheme”) under the provisions of the Companies Act, 1956 ]�}�� ̂��!�� have also applied for dispensing with the meeting of the share holders being common/interrelated. The Hon'ble Single Judge has considered the prayer, �� the wishes of all share holders. After satisfying that all share holders have agreed for the Scheme, he has allowed the prayer for dispensing the share �� =�� approval of Scheme, the Regional Director, Ministry of Corporate Affairs, Kolkatta (“R.D”) has objected the same as mentioned below:

�� !�� its objection on the share premium amount shown by two transferor companies in their balance sheet. It has contended that these two companies have not provided any details as to how the shares have been issued with premium. R. D has also mentioned that information on valuation report for exchange ratios, shareholding pattern, etc., were also not provided.

On direction from court, RD has filed one more supplementary affidavit. In the said affidavit, it has submitted that petitioner companies have not yet furnished any reply to various clarifications asked for. It has also submitted those letters sent to these companies which were returned with certain invisible postal remarks. R.D has prayed to the court to give direction to the petitioner companies to provide such information.

On several reminders by the R.D, petitioner companies have not provided such information. On final hearing, the submission made from the petitioner companies was that these are the routine exercise under the Act.

Court was not satisfied with the submission and directed the investigation to be conducted by the Directorate of Revenue Intelligence. (“DRI”).

The petitioner companies have filed a revision application before this bench questioning the authority and propriety and competence of the learned judge giving such direction.

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The argument argued that upon filing of the Scheme, court was to either sanction the Scheme or reject it. The company judge is not competent enough to direct the Central Government to carry on investigation and that too by a named agency.

The bench has disposed of the appeal by making �� !�� with the Scheme on merits and is not entitled to avoid on one or other plea. The court has sent the matter to single judge to decide.

When matter came for hearing before single judge, the petitioner companies have expressed their desire to withdraw the petition and same was accepted by the single judge with the cost to be paid to the R.D. Further, it has also restrained the petitioners ��< ��!�� single judge also directed under section 237 of the Act to the Central Government to continue with its investigation.

Against the above order of a single judge, the petitioner companies have preferred this appeal before this bench. The court has stayed the operation of the order of single judge. On the order of court restraining the companies not to file any ��!��!��!��of the appellant lawyer stated that the client will not suppress the order of this court in case any subsequent scheme is filed. The bench has also allowed the Central Government to continue with �� !��!�� Z!��the observation of a single judge.

At the time of final hearing, from appellant side, the written argument was submitted which was already orally argued earlier. The court felt that this written submission was not asked for as they have already heard the oral arguments. However, court has considered the said written statement which submits as follows:

a. Under section 391 of the Act, court has to either sanction the scheme of amalgamation �� !�� ~�� !��has no power to direct any investigation and that too by named agency.

b. Direction for investigation under sections 235 to 240A of the Act can be made upon any application made before the court. Court must form an opinion that there is sufficient evidence to do so and can only direct the Central Government to conduct the investigation but cannot specify the name of agency.

c. The reference to rule 11(a)(9) of the Companies (Court) Rules, 1959 (“Rules”) made which provides that order under section 237 for investigation can be made !�� 4��$�§��

d. On objection of issuance of shares at a premium and share exchange ratio, it was submitted that same is not prohibited under the law and same is under the control of the companies and wishes of its share holders. Various documents including income tax assessment orders were placed before the court.

e. It was also submitted that on same day, when single judge passed order, two other schemes with similar objections were approved. Various judgments were cited in support of arguments.

On reply, the C.G has submitted that the shares were issued at a high premium with low authorised capital which is disproportionate. It was further submitted that due to this, duty which C.G is entitled for increase in authorised capital was evaded. Thus, the duty is evaded by issuing shares at a premium. It was also contended that petitioners have not replied to the queries raised. However, C.G was unable to assist the court on what was found in investigation as directed by the court at initial stage.

Court noted that in earlier judgment, while accepting the investigation, court has relied on judgment in Sreemanchunder Dey vs. Gopaulchjunder Chuckerbutty (11 M.I.A. 28 (PC), Vinay Metal Printers P. Ltd. in re [1996] 87 Comp Cas 266 (AP) and Ushacomm India P. Ltd in re [2006] 2 CHN 473. However, various other judgments cited by the

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appellant as to power of court under section 237 were now considered by the court. The court has also noted the submission by the appellant that under section 237, before making any order for investigation, court has to prima facie form an opinion of any irregularity.

Based on above, court has noted that followings are the objection of the applicant from the earlier order.

a. For petition, even though dismissed, cost is awarded to the C. G.

b. Restrain from making any further application ��

c. Even though, petition was dismissed, investigation to continue and

d. Said investigation was under section 237 of the Act.

Judgments and reasoningThe court has accepted the appeal partially. Court has allowed the cost to be paid to the C.G. Court has also set aside the restraint on petitioners for moving any identical petition of five years. However, the said application must contain the sequence of details in disposal of this appeal. Further, it would also annex all orders of the single judge and division bench of this proceeding. Court has declared that C. G may carry out investigation and would be free to choose agency, however it is not mandate upon C. G to carry out the same.

On cost to be paid, it was observed that C. G was dragged to court on various occasions including in appeal. Thus even though petition was dismissed, cost needs to be paid to C. G.

On investigation, court has observed that decision of this bench allowing the same was not challenged before the apex court and hence same direction ��

On section 237 of the Act, court has considered various judgments as relied upon by the appellant. The observation of the apex court in Needle Industries (India) Ltd. vs. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743; AIR 1981 SC 1298 on court discretion for investigation to be exercised on

appropriate material. It also observed that an illegal ��!�� !��bundle of facts would indicate a �� intention to justify the investigation. The judgment in Safia Usman vs. Union of India [2001] 1 Comp LJ 121; [2002] 110 Comp Cas 710 also referred where in section 237 was interpreted and observed that said provision was not to direct the C. G to conduct investigation but to declare that the affairs of the company ought to be investigated upon. Court has also observed that once investigation is in order, even though the petition is withdrawn, the same must come to a logical conclusion.

On naming the agency, court has accepted that single judge should not have named the agency and C.G is authorised to choose its own agency for investigation.

Case Law No. 2[2013] 177 Comp Cas 43 (CLB.) – Before the Company Law Board – Mumbai Bench – Shravan Kumar Patel vs. Mohanlal Hargovinddas Bidi Udyog P. Ltd.

Company Law Board has inherent power to ��%�� %�� '�� '�relief granted are based on fabricated documents or obtained through fraud.

Brief facts The Company Law Board (“CLB”) has made this �� as the facts of both the petitions are common. In said petition, petitioner has prayed for condonation of �� ~� ��

In the original company petition, the petitioner has asked for inspection of various documents related to �� !��/��$��}��others. The CLB vide its order has allowed the same with a time limit. The petitioner could not complete the inspection within the time prescribed and did not file any application for condonation of delay in filing the rejoinder. However, the respondent contended that CLB has rejected the said application

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for inspection of records, which was refuted by the petitioner and hence he is entitled for inspection and filed new application. CLB has passed the order directing the respondent company to produce the documents and give inspection of the same. The respondent company has given only partial inspection, which was brought to the notice of the \[��4!�� !��also not provided. Thus, respondent continuously defaulted in providing inspection of documents as �� !��!��

Subsequently, petitioner has received response from the respondent stating that all documents were provided for inspection and also attached the CLB order, which petitioner has contended that he never received such order even though all earlier orders were sent by CLB to them. It was also contended that in the last hearing, the petitioner’s advocate was not aware of any reference by CLB that it is last �� ~� ��!��~� ��

Petioner has contended that as per Company Law Board Regulation (“Regulation”) 29(4), an order of bench must be provided to parties free of cost. The statement of respondent that all documents were given for inspection was contested and revised application now filed for condoning the delay in �� ~� �� same. The respondent did not respond to the said application, but subsequently when it was pointed out that as per records and correspondence, false statements were made by the respondent as they had filed reply which was after the time period given.

The petitioner had also drawn the attention to regulations 43 and 44 which states that CLB has inherent power to enlarge time period for doing �� !��!��original time has already expired. The Supreme Court judgment in Smt. Periyakkal vs. Smt. Dakshyani [1983] 2 SCC 127; AIR 1983 SC 428 was referred. Also, in Kapra Mazdoor Ekta Union vs. Birla Cotton Spinning and Weaving Mills Ltd. [2005] 13 SCC 777, ��!��!�� $~!� � ��!�� can do so but in doing so commits a procedural

illegality which goes to the root of the matter then the power of procedural review may be invoked. In another case, Supreme Court has observed that as per the provisions contained in Order 8, rule 1 of ��\��\ � ��¤��!��{��¨�� statement within 90 days are not directory in nature and it is open to court to condone the delay on �!�� !��

Respondent has contended that CLB cannot modify its earlier order and has no power to recall its order. It was contended that CLB has no powers either for modifying or reviewing its order. The only option for petitioner is to file application under section 10F with the High Court for setting aside the CLB order. Reliance was placed on judgment in Shree Cement Ltd. vs. Power Grid Corporation Ltd. [1998] 93 Comp Cas 854 (CLB) in which it was observed that ��!�� §��|�� even though these regulations were in book, we cannot exercise a power of review and same is not an inherent power. Other judgments by Supreme Court in Patel Narshi Thakershi vs. Pradyumansinghji Arjunsinghji, AIR 1970 SC 1273 and Goplakrishna Sengupta vs. Hindustan Construction Co. [2002] 112 Comp Cas 166 (CLB). It was also submitted that as per Supreme Court, in the case of State of Punjab vs. Darshan Singh, AIR 2003 SC 4179 after passing the judgment, decree or order, the same becomes ��!�~��!��!�� except by the means of review.

Judgments and reasoningCLB has allowed the petition and condoned the delay in filing rejoinder as well as extended the time. CLB has also directed the respondents to provide inspection of the remaining documents. CLB has observed that CLB’s earlier order were based on false and misleading statements filed by the respondent. CLB also noted that it has inherent power to review its own order in case the finding and the relief granted are based on fabricated documents or obtained through fraud. CLB also noted that respondent has not provided all documents for inspection and has not disclosed the same before CLB.

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OTHER LAWS – FEMA Update


OTHER LAWSFEMA Update

CA. Mayur Nayak, CA. Natwar Thakrar & CA. Pankaj Bhuta

In this article, we have discussed recent changes to 4>�}��!��!��/�@�� RBI Circulars:

A. NOTIFICATIONS1) FEM (Transfer or Issue of Security by a Person Resident Outside India) (Fifth Amendment) Regulations, 2012RBI vide this Notification has made amendments in the Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India) ��!�� |��]@�� @��4>�}�|�¥|��$RB dated 3rd May, 2000) to give effect to directions issued vide�}¤�]�/�^�"�� \ ��!��@��{��{§$�$|�{{�These amendments are pertaining to foreign investment in India and shall be deemed to have �� {§$�$|�{{��*��+�<�+� �*��{�|='$��'�^�^'>�'�

2) FEM (Export of Goods and Services) (Amendment) Regulations, 2012 RBI vide this Notification has made amendments in the Foreign Exchange Management (Export of #��"�� ^��!�� |��]@�� @��4>�}�|�¥|��$��|��^��give effect to directions issued vide AP (DIR) Series \ ��!��@��¨{��|{$|$|�{|�

These amendments are pertaining to export of goods and services and shall come in to force from |{$|$|�{|�

�*��+�<�+� �*��{�|='��'�^�^'>�'�

3) FEM (Transfer of Issue of Security by a Person Resident Outside India) (Seventh Amendment) Regulations, 2012RBI vide this Notification has made amendments in the Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside /�� ^��!�� |��]@�� @��4>�}��|�¥|��$��|��^�� directions issued vide�}¤�]�/�^�"�� \ ��!��@��{_��||$¨$|�{|�

These amendments are pertaining to foreign investment in India and shall come in to force from {$¨$|�{|�

�*��+�<�+� �*��{�|='��''^�>^'>�'�

4) FEM (Transfer or Issue of Any Foreign Security) (Fourth Amendment) Regulations, 2012RBI vide this Notification has made amendments in the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, |��]@�� @��4>�}�{|�¥��$|��

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�!��|��^�� !��vide �� !��$�� |_� �}"%�� ~�@+�� !+@<��@� *��

��^$^'>��'�� |_� �}"%�� ~�@+�� !+@<��@� *��

'�^�^'>�'�$�� |_� �}"%�� ~�@+�� !+@<��@� *�� '��

�^�^'>�'�� |_� �}"%�� ~�@+�� !+@<��@� *�� '��

�'^�^'>�'�These amendments are pertaining to outbound investments and shall be deemed to have come in �� !�� *��+�<�+� �*��{�|='��''^��^'>�'�

5) FEM (Borrowing or Lending in Foreign Exchange) (Amendment) Regulations, 2013RBI vide this Notification has made amendments in the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 ]@�� @��4>�}��¥|��$��2000) to give effect to directions issued vide AP (DIR) "�� \ ��!��@��¨��§$�$|�{��These amendments are pertaining to ECBs and shall be deemed to have come in to force from the date of �� !�� =�� #�£��*��+�<�+� �*��{�|='��^'^'>�$�

B. CIRCULARS1) Risk Management and Inter-Bank Dealings�^� /��}�¤��]�/�^�"�� \ ��!��

@��|��}�� |�� open exchange position and the aggregate gap limits was required to be approved �� <�� 4!�� }�� /� ��the aforesaid circular provided the detail guidelines for the Foreign Exchange Exposure [ � ��}!��

b) In view of the various developments in the ��<��!�� of Reserve Bank of India, representatives of selected banks and the Foreign Exchange

Dealers Association of India (FEDAI) deliberated the various issues involved in the guidelines relating to the Foreign Exchange Exposure Limits of Authorised Dealers and concluded to revise the existing guidelines on calculation of the Foreign Exchange Exposure Limits of the Authorised �� ! �� }�� !��

c) Further, RBI has now decided to withdraw the restrictions placed on open positions limit of the Authorised Dealers involving Rupee as one of the currencies, (on both overnight and ��$�� ̂vide AP (DIR) Series \ ��!��@��§¨��{§��|�{{��Consequently, the instructions issued vide AP (DIR)�"�� \ ��!��@��{|��|{��|�{|��}¤�]�IR)�"�� \ ��!��@��{��{��!��|�{|��

d) However, RBI has clarified that until further review, the following instructions as issued vide AP (DIR^�"�� \ ��!��@��{|��|{��|�{|�� !�� effective:i) The positions in the exchanges (both

Futures and Options) cannot be ��¥��!��< �� =�\��<�� $��positions initiated in the exchanges �� ! ��¥��

ii) The position limit for the trading �� }�� \��$/� ��<�� the exchanges for trading Currency Futures and Options shall be US$ {�� {§� �� outstanding open interest, whichever ��

�|_��}"%��~�@+��!+@<��@�*��@<�X�'>�$�

2) External Commercial Borrowings (ECB) Policy – Corporates under Investigationa) As per the extant guidelines, corporates that

are under investigation by any law enforcing

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agencies like the Directorate of Enforcement ]��>^��>\��!��!�� !��}��!��such corporates for ECB is examined by the ��<�!��!��

b) RBI has now decided to permit all entities to avail of ECBs under the automatic route as per the current norms, notwithstanding �� ¥��~!� �� ¥�� !��~!� ��!��!�� ¥��~!� �� ¥��Accordingly, in case of all applications where the borrowing entity has indicated about the �� ¥��~!� �� ¥�appeals, Authorised Dealers while approving the proposal have to intimate the concerned agencies by endorsing the copy of the ��!�� followed by the Reserve Bank of India also � �� !��

�^� �� >\��! �� }��other aspects of the ECB policy, under the Automatic route such as amount of ECB, �� $!��$ �$�� !� �� >\�� !��

�|_��}"%��~�@+��!+@<��@�*��@<�X�'>�$�

(This step taken by RBI will speed up the process of accessing ECBs by entities under investigation by any law enforcing agencies and at the same time ��!� ��<�� ^�

3) “Write-off” of unrealized export bills – Export of Goods and Services – �� a) As per the extant guidelines, exporters were

� �� $��AD Category – I banks have been permitted ��!�� $��

��!�~�� !��

b) With a view to further simplify and liberalise the procedure and for providing greater flexibility to all exporters as well as the }!�� £��<��/��decided to effect the following liberalisation �� $��!�� ]�!�~�� !�� regarding surrender of incentives prior to �� $��!�� }¤�]�/�^�"�� \ ��!��@��||��!��|�{�^�

] ^� "�� $�� §¶ exporter (other than Status Holder Exporter)

] ^� "�� $��"��!�� {�¶� Holder Exporters

] ^� *�� $��}!�� {�¶� Dealer banks

� ¶�� !� �� !��

c) The above limits will be related to total export proceeds realised during the previous calendar year and will be cumulatively ��

�^� �� $�� !�~��following conditions:

�� !�� outstanding for more than one year;

�� "�� !�� furnished in support of the exporter having made all efforts to realise the dues;

�� !��!��noted categories:

«� �� !�� been declared insolvent and a certificate from the official

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liquidator indicating that there is no possibility of recovery of export proceeds has been produced;

«� ��auctioned or destroyed by ��¤��¥�\!��¥��authorities in the importing country;

«� �� !�� !��represents the balance due in a case settled through the intervention of the Indian Embassy, Foreign Chamber of Commerce or similar Organisation;

«� �� !�� !��represents the undrawn balance of an export bill (not exceeding {�� !�^�remaining outstanding and �!��!��!�� £��despite all efforts made by the exporter;

«� �� legal action would be disproportionate to the unrealised amount of the export bill or where the exporter even after winning the Court case against the overseas buyer could not execute the Court decree due to reasons beyond his control;

«� � �� difference between the letter of credit value and actual export value or between the provisional and the actual freight charges but the amount has remained unrealised consequent on dishonour of the bills by the overseas buyer and there are no ��

�� !��proportionate export incentives (for the cases not covered under AP ]�/�^�"�� \ ��!��@��!��||�|�{�^� �� AD Category – I banks should obtain documents evidencing surrender of export incentives availed of before permitting the relevant bills to be � ��

�� /�� $��should submit to the concerned AD bank, a Chartered Accountant’s certificate, indicating the export realisation in the preceding calendar ��!�� $��already availed of during the year, if ��#��¥�"�4�@�� @�� !��commodity exported, country of ��\}�� !�� availed of by the exporter have been �!��

e) However, the following would not qualify for ��

�� >�� !�� the overseas buyer has deposited the value of export in local currency but the amount has not been allowed to be repatriated by the central banking �!�� !��

�� #��¥�"�4�� !��investigation by agencies like, Enforcement Directorate, Directorate of Revenue Intelligence, Central �!��!��/�� !�� !�~�� ¥�� ! ��

f) The respective AD banks would have to forward a statement in Form EBW, in the

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enclosed format, to the Regional Office of ��<�!��~!� �� !�� $��!�� !��

g) RBI has advised AD banks to put in place a system under which their internal inspectors or auditors (including external auditors appointed by authorised dealers) should ��!��<�¥��<�� $��!��

h) Cases not covered by the said circular, would have to be referred to the concerned Regional =��<��/��

|_��}"%��~�@+��!+@<��@�*��'��@<�X�'>�$

�| �+��@� ��<� �� @��+��@+��^�\\��+�+��@��@�+�@��@��<@+��\�@��@�+<��@�� <+��Q�@��@��Q�� +��\�@�<�� @�Q�@��

4) Money Transfer Service Scheme – Revised Guidelines�^� /�� !�� $!��

with overseas principals are permitted to !��<�� $�� transfer activities in India under the Money ��"�� @�� !��|��

b) RBI has now revised these MTSS Guidelines in consultation with the Government of India and the revised MTSS Guidelines are given in ��}��$/�� !��

c) These guidelines would also be applicable ��+�� +� to all sub agents of the Indian Agents under MTSS and it will be the sole responsibility of the APs (Indian Agents) to ensure that their sub agents also adhere to ��! ��

�|_��}"%��~�@+��!+@<��@�*��'��@<�X�'>�$�

5) Maintenance of Collateral by Foreign Institutional Investors (FIIs) for transactions in the cash and F&O segments�^� }��"��!��§��4�� >��

Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, notified vide�@�� @��4>�}�|�¥|��$��|��from time to time, FIIs had been allowed to offer permitted securities as collateral to the recognised Stock Exchanges in India for specified transactions in exchange traded ��

b) In consultation with the Government of India and the Securities and Exchange Board of India (SEBI), RBI has now decided to permit FIIs to use, in addition to already permitted collaterals:

«� �� as collateral in the cash segment; and

«� #��!� � ��bonds as collaterals in the F&O ��

c) The operational guidelines in this regard will �� !��">�/��

d) With the proposed changes coming in to effect, henceforth, FIIs will be eligible ��!� � ��¥��bonds (acquired by FIIs in accordance with �� "��!��§��@�� @��4>�}�|��|��^��foreign sovereign securities with AAA ratings ��4ª=��

�|_��}"%��~�@+��!+@<��@�*��>��@<�X�'>�$�

�#�+�� <+@<��@� �� +�� @�� <�� +��\\�<��+ ��'>�$�

�

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BEST OF THE REST


Ajay Singh & Suchitra Kamble, Advocates

BEST OF THE REST

1. Will – Essential – Revocability of Will during lifetime of testator – Distinguishes Will from gift – Document having characteristic of Will and gift – Needs to be registered. Registration Act, 1908 sec. 17Suit was instituted by the parties for partition and separate possession of various items of properties. The trial court passed a preliminary decree giving various directions including the issue whether recitals related to 3 acre 40 cents property, discloses a testamentary disposition or a settlement creating vested rights in favour of the plaintiffs and defendants though possession and enjoyment stood deferred until the death of the executants. The trial court held that the same has the characteristics of a testamentary disposition, therefore not available for partition. The plaintiff took up the matter in appeal which was allowed. It was also held that the assignment deed, executed by one of the executants and later by 3rd defendant was not binding on plaintiffs. The defendant then filed second appeal before the High Court. The High Court affirmed the judgment of the lower Appellate Court. The High Court took the view that disposition with regard to the above mentioned item was not ambulatory in quality or revocable in character during the lifetime of the executants and held that the disposition of the plaint relevant item is a settlement though

possession and enjoyment were deferred. It was held that the executants had no right of disposal of that item and hence the transfer in favour of defendant no. 3 and the subsequent assignment in favour of defendant no. 4 were invalid. Aggrieved by the same, the appeals were preferred by the plaintiffs.

The Supreme Court held that Will is an instrument whereunder a person makes a disposition of his properties to take effect after his death and which is in its own nature ambulatory and revocable during his lifetime. It has three essentials.

(1) It must be a legal declaration of the testator’s intention; (2) That declaration must be with respect to his property; and (3) the desire of the testator that the said declaration should be effectuated after his death.

The essential quality of testamentary disposition is ambulatoriness of revocability during the executants lifetime. Such a document is dependent upon executants death for its vigour and effect. In the case of a Will, the crucial circumstances is the existence of a provision disposing of or distributing the property of the testator to take effect on his death. On the other hand, in case of a gift, the provision becomes operative immediately and a transfer in praesenti is intended and comes into effect. A Will is, therefore, revocable because no interest is

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intended to pass during the lifetime of the owner of the property. In the case of gift, it comes in to operation immediately. The nomenclature given by the parties to the transaction in question is not decisive. A Will need not be necessarily registered. The mere registration of ‘Will’ will not render the document a settlement. In other words, the real and the only reliable test for the purpose of finding out whether the document constitutes a Will or a gift is to find out as to what exactly is the disposition which the document has made, whether it has transferred any interest in praesenti in favour of the settlees or it intended to transfer interest in favour of the settlees only on the death of the settlors.

In a composite document, which has the characteristics of a Will as well as a gift, it may be necessary to have that document registered otherwise that part of the document which has the effect of a gift cannot be given effect to. Therefore, it is not unusual to register a composite document which has the characteristics of a gift as well as Will. Consequently, the mere registration of document cannot have any determining effect in arriving at a conclusion that it is not a Will. A ‘Will’ need not necessarily be registered. But the fact of registration of a ‘Will’ will not render the document a settlement. The appeal was allowed and the judgment and decree of the trial court was restored.

Mathai Samuel & Ors. vs. Eapen Eapen (Dead) by LRs. & Ors. AIR 2013 Supreme Court 532

2. Expression ‘widow’ – Meaning – Hindu Succession Act enacted subsequent to enactment of Hindu Marriage Act – Word ‘widow’ mentioned among Class-I heirs is lady who was validly married under provisions of Hindu Marriage Act and who has acquired status of widow by virtue of death of her husband – Hindu Marriage Act secs. 5 and 11

��! ��}��!��¥��@ ��aged 45 years, against Laxmibai wife of @ ��_��! �� @ �� [�� /�� @ ��@ �� _${{$|�� !��the suit for partition and separate possession of her half share in the suit schedule properties, on the ground that both the widows have inherited his estate equally. After service of summons, the defendant filed her written statement. She contended that age of the plaintiff is shown as 45 years. It means that the plaintiff is born ��{�§_�� !�"!�� }��second wife cannot claim any property of the ��@ ��! �� Hindu Succession Act and as well as section 9 of CPC and therefore, the question of effecting a partition would not arise. The Trial Court held �� {�]{^�� !�"!�� }��{�§_�categorically contemplates that the widow and if there are more widows than one, then all the widows together take one share in accordance with the rules enshrined in the Hindu Succession Act. Therefore, he was of the view that the suit is maintainable and plaintiff is entitled to her share in the suit schedule properties in terms of the Hindu Succession Act. Aggrieved by the said order passed by the trial court, the defendant has preferred the revision petition before the High Court.

The High Court held that Hindu Succession Act came to be enacted subsequent to enactment of Hindu Marriage Act. The Hindu Marriage Act exclusively deals with the law relating to the marriages. Succession Act deals with the right to the property. Therefore, in the absence of any express words in Succession Act, relationship of husband and wife, concept of marriage, legitimate and illegitimate children born out of such marriage, voidness of marriage have to be gathered from provisions of Hindu Marriage Act. Therefore, when Class I heir includes a widow, it means woman whose husband is dead

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and who has not married again, wife means woman married to a man. Without marriage there cannot be widow. That marriage should be valid marriage under law. Therefore, word widow mentioned among Class I heirs is lady who was validly married under the provisions of Hindu Marriage Act and who has acquired the status of widow by virtue of death of her husband. If her marriage with person is void under law, on his death she would not get status �� !��\��$/��"��!�� !�"!�� }��{�§_��{�� S. 10 refers to ‘if there are more widows than one, all the widows together shall take one share”, is when the Hindu Succession Act came in to force, as there was no prohibition for Hindu marrying more than one wife, it is possible that a male had married and was having more than one wife. After coming in to force of the Act, the Hindu male dies leaving behind two wives whose marriage was valid before coming into operation of the act, it was provided that those wives will take one share of her husband’s estate under S. 8 of the Act. Under the Hindu male marriage Act, the Parliament declared that if a person marries during the subsistence of an earlier marriage i.e. a person who marries while he has spouse living at the time of the marriage and such marriage is solemnized after the commencement of this Act, it shall be null and void and provisions of Ss. 494 and 495 of Indian Penal Code applies to such marriage and is punishable under the Hindu Marriage Act. Certainly, the Parliament had no intention of conferring any right on the wife who is a party to the offence of bigamy and gave her a share in the property of her deceased husband. Any such interpretation to the provisions of the Hindu Succession Act would nullify the object with which the Hindu Marriage Act was enacted. In other words, it runs counter to the concepts of the bigamy being punishable and the marriage being void; which the Parliament wanted to eradicate by legislation.

Where plaintiff second wife was born only after 1955 Act came in to force and opposite party

was married earlier to her, plaintiff’s marriage with deceased was null and void and she did not get the status of a wife. Therefore, she did not get the status of a widow so as to get the ��!��"��{��}��"�� to seek partition and separate possession of her alleged half share against the second wife. She is not “heir” under the Hindu Succession Act.

Laxmibai vs. Ansuya AIR 2013 Karnataka 24

3. Attachment of compensation amount – Recovery of dues to Bank – Clauses (a) and (b) of S. 52-A of L.A. Act exempts compensation awarded under Act from attachment – Order of Collector attaching acquisition compensation against recovery due to bank improper – Income-tax Act, 1961, Sch. 2, R. 27. Recovery of Debts Due to Banks and Financial Institutions Act, 1993, S. 25The land of the petitioner was acquired by the State of Punjab for establishment of Engineering College at Bathinda. Against the award of compensation by the State Government, the concerned landowners including the petitioner filed a reference under section 18 of the Land Acquisition Act, 1894 before the District Judge, Bathinda and thereafter regular first appeal before the High Court. The said appeal was disposed of by enhancing the amount of compensation from `�{|��¥$�� ` {§��¥$�� !��!��¤�� @�� @�� §� ��<� �� !� �� @��|�� entire compensation amount payable to the �� !��!��|��|��"��!�� /��$��}��{�_{�� /�� !��directed that the said amount be deposited with ��@��|�� !��@��§��

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@�� /��!��!��@��3 issued a notice to the Petitioner. According to the Petitioner, the compensation payable to him for the land under reference was not liable to be attached in view of clause (a) of section 52A of the Act. The Petitioner made a representation ��@��of enhanced compensation to the Petitioner, ��¤�� ~�� @��|�� @��|�

�� \�!��!��]�^��"��§|$}�of Act provides that no compensation which is awarded or awardable, before it is actually paid to person entitled to receive the same shall be liable to seizure, attachment or sequestration ��\�!��\��!��]�^��"��§|$}�governs cases in respect of any land which is not liable under the law for the time being in force to attachment or sale in execution of a decree or order of any Court. The expression “in respect of any land which is not liable under the law for the time being to attachment or sale in execution of a decree or order of any Court” apply only to clause (b) as it is preceded by the words “before or after it is actually paid to the person”. In case it governs both the clauses, i.e. clause (a) and clause (b), then clause (a) would be rendered otiose. Clause (a) refers to an eventuality before the compensation awarded or awardable is actually paid whereas clause (b) covers cases before or after making of payment in respect of the land which is exempted from ��¤�� "��§|$}��the compensation awarded under the Act from attachment therefore order of Collector attaching compensation payable to party and directing to deposit the entire amount of compensation payable to him for adjustment against the recovery due to bank would be improper.

�� @��|� ��

the amount of compensation payable to the petitioner and directed to release the said amount as per the law.

Dilbhajan Singh vs. State of Punjab and Ors. AIR 2013 Punjab and Haryana 1

4. Probate – Revocation of – Locus Standi third party, had acquired property at an auction sale – Third party would thus have locus standi to seek revocation of probate. Succession Act, S. 263George Alexander Chambers (G. A. Chambers) married thrice. He amassed huge wealth particularly in Zamin Pallavaram. He founded Chrome Leather Company Limited. Huge track of property formed part of this company. While alive, he executed a Will in favour of his third wife Ida L. Chambers, whereunder, he had bequeathed considerable extent of property. He was not alive to witness the fight between his third wife and a son born to him through his another wife. But, to buy peace, there was compromise between them.

Thereafter, Mrs. Ida executed a Will. It appears that Chrome Leather Company Limited raised loans with Central Bank of India. The Company fell into huge arrears, naturally, the Bank enforced the mortgage. The property was brought to sale. It was purchased by a third party, namely, the appellant, at the auction. Subsequently, one George Joseph Chambers emerged. He claimed himself a son of Kelland Huxford Chambers, who is son of Ethel Mary \�� #��}��Chambers. George Joseph Chambers claimed himself an heir to late G. A. Chambers, exactly as his grandson. Thereafter, Mrs. Ida died issueless. The Administrator General sought for probating her Will. Letters of Administration was granted. George Joseph Chambers filed application to revoke it. However it was dismissed by the Single Judge. George Joseph Chambers passed ��·��

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herein, claiming himself as his Power Agent as ��!�� =�¤��the Will. The will was probated.

Chrome Leather Company Limited, a third party �� <��"��~�� !��{�� application seeking similar relief. The Single Judge allowed application on the ground that they have established a just cause and also �� >�� ]�^�� |_��Indian Succession Act, 1925 held that the power of attorney adopted certain fraudulent activities. However, the application filed by the present appellant has been dismissed on the ground that he has no caveatable interest and he has no locus standi to seek a remedy. As against the dismissal of application in O.P. which has been filed to revoke the order probating the Will of late George Joseph Chambers, this appeal has been directed by Chrome Leather Company Ltd., a third party.

Assailing the said order, the counsel for the appellant contended that already the High court cancelled the legal heir certificate granted to George Joseph Chambers. In Division Bench of High Court dubbed George Joseph Chambers and his Power agent as land grabbers. On the ��\�!��would contend that since the application filed by 4th respondent and her children has been allowed, the order probating the Will has been revoked and nothing survives for the present appellant to seek further relief. There cannot be double orders cancelling the very same order probating the Will.

The High Court held that the appellant acquired the property, exactly, Chrome Leather Company Limited in the auction purchase. This property is also included in the Will of late George Joseph Chambers. That Will has been probated at the instance of the probate petitioner Q. Dawson, the {��\�!��!��what exactly the property available. For instance, if a property included in the Will has already been disposed of, the buyer of the property, even

the person who lent money on the property, a mortgager will have right to oppose probating the Will and also seek revocation of the order probating the Will.

The Court further held that the sppellant has acquired the property at an auction sale. The appellant has an interest in the property. Thus, the appellant has a caveatable interest to seek revocation of the order probating the Will of late George Joseph Chambers. But, this aspect has not been properly considered by the Learned Single Judge. Thus the appellant will have locus standi to seek remedy. The relief sought for by the appellant, viz., revocation of the probate, as rightly submitted by counsel for the 1st respondent, has been achieved in the application filed by Saroj and ors. But, observations made by the Single judge, against the appellant will cause havoc. Thus in the facts and circumstances the original petition has to be treated as Testamentary Original Suit and directed the Learned Single Judge to dispose of the same on merits and in accordance with law. The Appeal was disposed of.

Chrome Leather Company Ltd. vs. Q. Dawson & Ors. AIR 2013 Madras 5

5. Compensation towards deprivation of electricity – Validity – Claimant was deprived of electricity by Bihar State Electricity Board for several years – Bihar Human Rights Commission granted compensation for loss, harassment and mental agony �� <�� Protection of Human Rights Act, 1994, S. 12The Bihar State Electricity Board, Patna which is a Transmission and Distributing Licensee under the Electricity Act, 2003, has approached the High Court by filing the writ application, questioning the validity and legality of the order passed by the Learned Chairperson, Bihar

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�!�� \�� ¤��the Chairman of Board has been directed to pay a sum of ` 1 lakh as compensation to ��@��|� �� month, holding that electricity is an absolute ��! �� @��2 was deprived of by the Board for several years. From the facts incorporated in the order passed by learned Chairperson, Bihar Human � �� \�� ¤�� @��|��\�� claiming compensation for loss, harassment ��!�� Board alleging that in spite of directions issued by the For a under the Consumer Protection Act, the Board was not restoring his electricity connection and he was without connection after its unauthorised disconnection.

��@��|��!��!�� __��for domestic consumption. A portion of the house was let out to the tenant in the year 1992. As per the case of the Board, an inspection Team ��!��{��_�� __��There was another inspection which led to the discovery of 23.81 KW load. The case of Board is that during the inspection the connected load was found to be more than sanctioned load, the bill of `��¨¨�� the consumer failed to deposit the bill amount, his line was disconnected. Simultaneously �� @�� |� �� Consumer Forum, Patna under the Consumer ¤�� }�� District Forum allowed the application which was upheld by the State Commission. In spite of the decision of the District Forum holding ��@��|� � �� sum of `�{�§��|��!�� second inspection, the electric connection was not restored., forcing him to file an execution

��!�� |��\��!��¤�� }��/��!�� Commission that out of misconception of the fact that a sum of `�{�§��|�� !�� 4��!�� @��|��deposit the amount in order to buy peace and get the connection restored after payment of �� !��@��|�� to have again paid that amount but the electric connection was not restored. In the meanwhile, ��!��\�!��@��2 of the charge of theft in a Court Trial and held the tenant liable for the same. After the verdict of Dhanapur Trial Court, the electricity bill was bifurcated and accordingly it was served on the tenant.

�� @��|��!�� \�� that the electric connection was not being restored in spite of adjudication by statutory for a under the Consumer Protection Act. During the pendency of the complaint before the State �!�� \�� }��@��|�� 15 years because of some misdeeds of the tenant. On the basis of the facts of the learned \�� !�� \�� Patna came to the conclusion that there was absolutely no justification to keep the dispute alive after the decision of the State Commission and held that the electricity was an absolute requirement of life and therefore right relating to life which is the asset of the human rights �� @��|��entitled for compensation and directed the Board to pay a sum of ` One lakh to the applicant. The High Court upheld the observations of the State �!�� \�� ¤��

�+�@�~��{��<�@+<+�Q��@��@��+��\�<�@�vs. Bihar State Human Rights Commission through its Secretary AIR 2013 Patna 11.

��

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TAX ARTICLES FOR YOUR REFERENCE


Kishor Vanjara, Tax Consultant

Topic Author Magazine Volume Page

Articles published in Taxman, Current Tax Report (CTR), The Tax Referencer (TTR), Income Tax Review (I. T. Review), The Bombay Chartered Accountant Journal (BCAJ), The Chartered Accountant (CAJ), The Chamber's Journal (C J), All India Federation of Tax Practitioners Journal (AIFTPJ), Economic Times, SEBI and Corporate Laws (S & Co Laws), Company Case and Times of India for the period Feb. to March 2013 has been arranged and indexed topic-wise.


'A' Accounting Standards / Accounts Consolidated Financial Statements vs. Companies Bill Dolphy D'Souza BCAJ 44-B/Part 6 83 Comparison of Financial Statements prepared as per Abhay S. Nagale & CAJ 61 / No. 9 1406 International Financial Reporting Standards and Indian GAAP Varadraj Bapat Proposed Tax Accounting Standards – Sandeep Ladda & Taxman 213 75 Does it bring simplicity? Nirav Shah & Anand Patel Appeals Monetary Limits for Filing Departmental Appeals in Income Tax Raghav Kumar Bajaj CAJ 61 / No. 9 1443 Power of Commissioners (Appeals) to stay demand �� @��¤�� /�� §{� �� Assessment / Reassessment Income-tax assessment of non-resident oil and natural gas Tarun Jain ITR 350 77 exploration companies? Reopening of assessment vis-à-vis Finance Minster's Assurance Tarun Jain ITR 350 12 and CBDT Instruction

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Sec. 143(3) versus s. 115JB – The plight of AO Minu Agarwal CTR 255 1 Income-tax law does not mandate how taxpayers ��!��!�� !� �� @��¤�� \�� |§_� �§ Audit �� }�� "�� ¤�!�� "� �� \}�� _{�¥�@�� {�{|� Norms Restructuring of Advances Chinmay Goswami CAJ 61 / No. 9 1418 Interpretational Issues in Bank Audit M. Naganathan & CAJ 61 / No. 9 1424 P. S. Narasimhan Overview of Bank Branch Audit Shriniwas Y. Joshi CAJ 61 / No. 8 1254 Treasury Audit Approach – Change with the Tide Akeel Master & CAJ 61 / No. 8 1258 Ashwin Suvarna Long Form Audit Report Abhay V. Kamat CAJ 61 / No. 8 1262 Audit of Advances Ismail B. Sonawalla CAJ 61 / No. 8 1267 Audit of NPA Vipul K. Choksi CAJ 61 / No. 8 1279 Disclosures in Financial Statements of a Bank Sandeep D. Welling CAJ 61 / No. 8 1287 Conducting Branch Audit in CBS Environment Nitant P. Trilokekar CAJ 61 / No. 8 1275 'B' Business Expenditure Applicability of s. 14A to income covered by deductions R. Raghunathan CTR 255 30 under Chapter VIA Explanation to s. 37(1) of the IT Act, 1961 T. N. Pandey CTR 255 53 Section 14A and its Applicability to cases of Stock-in-trade Pradip Kapasi & BCAJ 44-B/Part 6 33 Gautam Nayak & Ankit Virendra & Sudha Shah

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Status of a broken contract in claiming deduction Minu Agarwal CTR 256 17 Black Money Tax evasion and black money – Ethical dimensions Anil Kumar Jain CTR 255 37 'C' Company / Corporate Law Comparative study of changes made in Companies Bill, 2012 Amit Baxi TTR 129 69 vis-à-vis Companies Bill, 2011 Regulation of Number of Subsidiary Companies under T. N. Pandey TTR 129 111 The Companies Bill, 2012 (As Passed by Lok Sabha) Even a Director of Public Limited Company can be Krishan Malhotra & Taxman 212 91 held liable for recovery of tax dues of the company Vinayak Srivastava Demerger – Some critical aspects of company and income tax laws K. R. Chandratre CTR 255 65 Jurisdiction of Company Law Board : Intent expressed in articles Sahil Arora, Ivan & Company 177 27 of association Aanchal Basur Cases Compromise/Arrangement by Company under Sections Arundhati Kulshreshtha TTR 129 43 391-394 of the Companies Act – Effects on Pending Criminal Cases Change of Name of Company – How Affects K. R. Chandratre TTR 129 85 Nominee Director's Liability for a Company Offences K. R. Chandratre TTR 129 14 Company Law Settlement Scheme An aid for defaulting companies : Company Law Anushree Agrawal Company 177 34 Settlement Scheme Cases Companies Bill, 2012 Companies Bill, 2012 (As passed by Lok Sabha) provides T. N. Pandey S & Co Law 117 57 share holders exit option in cases of misuse of corporates funds � �� !�� !�� Companies Bill, 2012 N. Sridharan S & Co Law 117 60 Companies Bill, 2012 – A Brief Analysis K. Balasubramanian S & Co Law 117 89

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Companies Bill – Thrust on Promoting Good Corporate K. S. Ravichandran C J I / No. 5 13 Governance Practices Incorporation of various companies under Companies Bill, 2012 Kaushik Jhaveri C J I / No. 5 18 Issue of Securities through IPO and Private Mahavir Lunawat C J I / No. 5 25 ¤��" �� !��\�� |�{|� Companies Bill, 2012 – Accounts and Audit Provisions P. N. Shah C J I / No. 5 32 Mergers and Amalgamations : The stance of the Harshita Srivastava & C J I / No. 5 41Companies Bill, 2012 Alap Yadav Class Action & Corporate Governance Vaidhyanadhan Iyer C J I / No. 5 46 Role of NCLT under the Companies Bill, 2012 S. D. Israni C J I / No. 5 54 Initiatives to check corporate frauds in the Companies Bill, 2012 T. N. Pandey S & Co Law 118 35 (as passed by Lok Sabha) A welcome move Companies Bill, 2012 v. Companies Act, 1956 – Provisions relating Abhishek Goyal S & Co Law 118 53 to acceptance of deposit by companies Competition (Amendment) Bill, 2012 Competition (Amendment) Bill, 2012 – A Brief Analysis M. A. Abhijnan S & Co Law 117 106 Corruption I Hope the Tea is Hot Hardayal Singh BCAJ 44-B/Part 5 106 Capital Gains Does sale of self-generated 'copyrights' invite capital gains tax? T. N. Pandey ITR 350 33 Is goodwill received by a retiring partner taxable as capital gain? O. P. Srivastava ITR 350 58 When tax planning goes haywire T. C. A. Sangeetha CTR 255 27 'D' Direct Taxes Code @��$�� !��\�}�� ¤��}�� /�� §�� { Dishonoured cheque Dishonoured cheque – Authorised signatory to go through trial in Gopal Nathani Company 176 41 all situations – No safeguards Cases ML-511




Deduction Judicial boost for housing projects T. C. A. Sangeetha CTR 256 1 Dividend Deemed dividend when advances are given on quid pro quo basis R. Raghunathan CTR 256 43 Duty Evasion Attempted duty evasion of over ` 50 lakh made non-bailable Siddhartha Times of 04/03/2013 15 India 'E' Export ��\��[�� @��¤�� |{�� _� 'F' Finance Bill, 2013 An overview of the Finance Bill, 2013 Jayant Gokhale C J I / No. 6 21 Rates of Taxes Mohan S. Phadke C J I / No. 6 26 Amendments related to Immovable Properties Apurva R. Shah C J I / No. 6 31 Amendments related to Non-residents and GAAR Part-I Mayur B. Nayak C J I / No. 6 34 Amendments related to Non-residents and GAAR Part-II Natwar Thakrar C J I / No. 6 40 Amendments relating to Securities Bhavesh Vora C J I / No. 6 45 Buy-back of Unlisted shares Yogesh Thar C J I / No. 6 51 Amendments related to Procedures – Part-I Ketan Vajani C J I / No. 6 55 Amendments related to Procedures – Part-II Mandar Vaidya C J I / No. 6 61 Exemptions and Deductions – Part-I Paras K. Savla C J I / No. 6 64 Exemptions and Deductions – Part-II Shailesh Bandi C J I / No. 6 69 Investment Allowance – Section 32AC Ashok L. Sharma C J I / No. 6 73 Budget changes amendments in Service Tax by Finance Bill, 2013 Rajkamal Shah C J I / No. 6 75

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Service Tax Voluntary Compliance Encouragement Scheme, 2013 Naresh K. Sheth C J I / No. 6 79 Taxation of Securitisation Trusts N. M. Ranka AIFTP 15/ No.12 13 Journal Commodities Transaction Tax & Taxation of Nikhil Ranjan AIFTP 15/ No.12 15 Commodity Derivatives Journal �� \�� "�� }/4�¤� {§¥�@��{|� |�� Journal Tax on dividends, royalty and technical services Paresh P. Shah AIFTP 15/ No.12 22 fees in the case of foreign companies Journal Investment Allowance Harish N. Motiwalla AIFTP 15/ No.12 25 Journal Purchase and Sale of Immovable Property Narayan P. Jain AIFTP 15/ No.12 29 Journal Buy back of unlisted shares – Anomalies and Potholes Anant N. Pai AIFTP 15/ No.12 32 Journal Keyman Insurance Policy Sameer Dalal AIFTP 15/ No.12 37 Journal �� \�� }��}�� !��!��[�� }~��" �� }/4�¤� {§¥�@��{|� �� Journal Decisions Overrules S. N. Divatia AIFTP 15/ No.12 40 Journal Central Excise Hasmukh Kamdar AIFTP 15/ No.12 47 Journal Voluntary Compliance Encouragement Scheme, 2013 Rajkamal Shah AIFTP 15/ No.12 50 Journal Love you like I hate you Sudhir Kapadia ET 02/03/2013 8 The Saint Thiruvalluar Quote that FM missed Bibek Debroy ET 02/03/2013 8

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Direct cash transfer, GST can aid consolidation Bharat Iyer ET 02/03/2013 4 PC gives with one hand, takes with other Shankar Raghuraman TOI 02/03/2013 17 �� |�{�${�� !��"!�� ª�}~ ��@�� =/� �|¥��¥|�{�� {� Budget as breaking news Dipavkar Gupta TOI 02/03/2013 18 Given poortrack records, Infra Bonds may prove to be duds Yashodhare Dasgupta ET 04/03/2013 8 Clarity an Tax status welcome, but reforms Biswajeet Baruah & ET 04/03/2013 11 key to rally : FIIs Reena Zachariah No serious measures to boost individual savings Dhirendra Kumar ET 04/03/2013 13So, we should pray now ? Harish Salve ET 04/03/2013 16 Here's how the rich can enjoy FM's new taxes Jaithirth Rao ET 04/03/2013 16 Investors can gain from tweaked RGESS Partha Sinha TOI 05/03/2013 15 Don’t meddle in Mauritius Hema Ramakrishnan ET 05/03/2013 14 It's time to shift your money to long-term bond funds & FD's Nikhil Walavalkar ET 05/03/2013 11 Budgeting lessons from the budget Uma Shashikant TOI 11/07/2012 20 Get ready to pay 1% TDS on ` §��<��Z��!�� <��" <�� >�� {�¥��¥|�{�� {� Vocational Training Fees to be taxed from April Vikas Dhoot ET 3/21/2013 12 Round up of Changes to Income-tax Act, 1961 Relatable to Domestic Taxpayer V. K. Subramani TTR 130 244 TDS vis-à-vis Finance Bill, 2013 Nisha Bhandari TTR 130 248 Investment Allowance to Manufacturing Companies Making High Value Investment in Plant and Machinery- Arundhati Kulshreshtha TTR 130 252 Welcome Proposal in Finance Bill, 2013 Higher tax for super rich – Whether worthwhile Minu Agarwal CTR 256 33

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Tax fatigue – steps to assure the feelings of tax payers through Budget for 2013-14 G. Lakshminarasimhan CTR 256 25 Budget-2013 Indian Super-rich Need not Oppose Paying Capacity-Based Taxes T. N. Pandey Taxman 213 1 Salient features of the Finance Bill, 2013 S. K. Tyagi ITR 351 61 What the budget could have done? S. Rajaratnam ITR 351 41 Finance Act, 2012 Share premium in Excess of Fair Market Value Deemed as Income : Thakur Repudaman CAJ 61 / No. 9 1433 Insertion of Section 56(2)(viib) by Finance Act, 2012 w.e.f. 1-4-2013

Exemption from Service Tax on Education Related Services under T. N. Pandey CAJ 61 / No. 9 1438 the Comprehensive Scheme of Taxation by Finance Act, 2012 Needs to be Widened ��+��;�< /�}��!��4��@��4� �� !<��¤�� |{|� ¨�� expenditure for non-employees like entertainment, sales promotion, etc Firm Can a Firm be a Member of a Company K. R. Chandratre TTR 129 125 'G' GST GST : Federal Flexibility is key Jaideep Mishra ET 2/6/2013 16 'I' International Taxation Taxability of Capital Gains in India in Respect of Transfer Mayur Nayak & BCAJ 44-B/Part 6 39 of Shares of a Non-resident Entity Holding Shares of an Tarunkumar G. Singhal Indian Company, between Two Non-Residents in a & Anil D. Doshi Tax Treaty Situation Protocol to India-UK Tax Treaty – Impact Analysis Pranav Raval & BCAJ 44-B/Part 5 10 Kunal Mehta Taxation of Long Term Capital Gains on Mayur Nayak & BCAJ 44-B/Part 5 37 Transfer of Unlisted Securities Tarunkumar G. Singhal & Anil D. Doshi ML-515




Where Transfer Pricing Provisions are Applicable then no Income Dhinal Ashvinbhai Shah CAJ 61 / No. 9 1449 is Chargeable to Tax – Recent Rulings Analysed Electronic Commerce & Principle of Service PE in the P. Sri Sudha CAJ 61 / No. 9 1453 International Tax Law Mutual Agreement Procedure Hemali Deepak Thakkar CAJ 61 / No. 9 1462 I-T can proble shell deal for transfer pricing violations M. Padmakshan & ET 2/25/2013 7 R. Sriram GAAR-An Indian and international persepctive Sumit Singh Bagri & Taxman 212 30 Uzma Naseem IPR Laws Copyright – The Need for Registration? Aditya Thakkar BCAJ 44-B/Part 6 67 Inheritance Tax Insurers see windfall in possible estate tax Maulik Vyas & ET 2/5/2013 16 Shilpy Sinha Estate Duty : Sword of Damecles over India Ketan Dalal ET 6/2/2013 17 Investor Protection Investor Protection – Present scenario Kiran Mukadam S & Co Law 117 44 Interpretation The literal rule revisited S. Narayanan CTR 255 57 Income Earnest money forfeited – Whether can be taxed as income T. N. Pandey CTR 256 5 'K' K Y C Update KYC to track your investments Partha Singha TOI 2/19/2013 15 'L' Long-Term Gain Use double indexation to reduce tax outgo on debt fund returns Prashant Mahesh ET 12/03/2013 12 Utilisation of long-term capital gains, some suggestions J. C. Agarwal ITR 351 46

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'M' Mutuality Interest from bank deposits whether exempt under mutuality R. Raghunathan CTR 255 84 doctrine 'N' NRI NRI investments in Securities of Indian companies Hanumanth A. Satwik Company 176 48 Cases Nomination or Abomination Stand at the door of SEBI with a cheque in hand : Abhinav Kumar & S & Co Law 117 27 An analysis of consent order mechanism Prashant Pranjal Regulation of combinations : Issues and appraisal Vipan Kumar S & Co Law 117 36 'O' Overseas Investment Insight into Overseas Investment (Reserve Bank) Directions, 2012 Shilpi Jain S & Co Law 118 8 'P' Personal Don't base your investment decisious on sharp stock Prashant Mahesh ET 2/4/2013 13price movements

Tax-free bonds are your best bet before rates fall Nikhil Walavalkar ET 2/5/2013 15 Is your credit card at risk? Namrata Dadwal TOI 04/03/2013 16 Time to review your portfolio Sanket Dhanorkar TOI 11/07/2012 20 Pre-Budget Govt. relooks at Excise, Service Tax exemptions Deepshikha Sikarwar ET 2/4/2013 15 Mutual Fund route is the safest to enter Rajiv Gandhi Scheme Prashant Mahesh ET 2/11/2013 15 Maybe we can budget for a New Pension Scheme Dhirendra Kumar ET 2/11/2013 15 Investing in SIPs: Facts and Fiction Uma Shashikant TOI 2/11/2013 16 Gain from fall in interest rates Sanket Dhanorkar TOI 2/11/2013 16

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Taxing the super-rich more doesn't make sense Krishnamurthy ET 2/16/2013 10 Subramanian Penalty �!�� /��/��¤�\��!�� #��@�� /�� §�� ¨� A landmark judgment from the Apex Court on penalty or concealment of income V. Pattabhiraman Taxman 212 27 Disclosure without paying tax – Whether beyond the reach of concealment penalty Minu Agarwal CTR 256 54 Penalty on undisclosed income found during search K. Kumar ITR 351 56 section 271AAB analysed Presumptive Scheme Fees for technical service – Whether it is fair to provide concessional Gopal Nathani Taxman 213 65 ��!�� !�$�� $�� 'R' Recovery Tax, interest and penalty T. C. A. Ramanujam CTR 255 51 Recovery of tax pending stay application – A draconian directive Bakul B. Mody BCAJ 44-B/Part 5 14 Refund Does s. 237 contemplate a refund assessment Minu Agarwal CTR 255 25 Looking for your I T Refunds? Pradeep Thakur TOI 02/03/2013 17 Return Withdrawal of claim by letter – Not a case of revised return Gopal Nathani ITR 350 66 Events occurring after the end of account year vis-à-vis revised V. K. Subramani Taxman 212 9 return �� Judicial resentment for consecutive amendments Minu Agarwal CTR 255 49

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'S' Service Tax Deduction of Tax by Service Receiver from payment made to Satya Dev Purohit TTR 129 20 service provider Competence of Service Tax Provider to pay service tax which the P. Kamalakar TTR 129 48 receiver is liable to under reverse charge mechanism Taxability of Security Services under nagative list regime K. Sriraman TTR 129 129 Taxability of Tour and Travelling services under negative list regime K. P. Srinath TTR 129 114 Service Tax on Educational Services Nirbhay Singh TTR 129 156 Job Work Activities and Manufacturing Activities – R. Srinivasan TTR 129 72 Taxability under Negative List Regime Taxability of Renting of Motor Vehicles for Carrying Passengers P. Kamalakar TTR 129 90 Concept of bundled services under the new service taxation scheme from 1st July, 2012 T. N. Pandey CTR 255 14 Exemption on input services to exporters Sanjiv Agarwal CTR 255 46 Important High Court Ruling : Recovery Proceedings Puloma Dalal & BCAJ 44-B/Part 6 49 Pending Stay Application Bakul B. Mody Taxability of Sub-Contracted Services Puloma Dalal & BCAJ 44-B/Part 5 43 Bakul B. Mody Recovery of non-stayed indirect tax demands Sanjiv Agarwal CTR 256 11 Service tax on supply of free services and goods Sanjiv Agarwal CTR 256 52 Service of Notice High Court holds that service of notice through speed post is V. Pattabhiraman Taxman 213 4valid in law

Securities Law SEBI Investment Advisers Regulations – Formal Birth of a Jayant M. Thakur BCAJ 44-B/Part 6 59New Profession

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US Decision Giving Relief to Satyam Directors – Implications for Jayant M. Thakur BCAJ 44-B/Part 5 61 Independent Directors in India SEBI Takeover Code – Genesis, Evolution and Analysis S. S. Agarwal TTR 129 149 Sahara India Real Estate Corporation Limited v. Securities and Lopamudra Dasgupta S & Co Law 118 43 Exchange Board of India : Increasing paradigm of SEBI & Shambhavi Salary Housing perquisites for high salaried employees – Delhi High T. C. A. Ramanujam CTR 256 30 Court solves the puzzle 'T' Tax Free Income 7 ways to earn Tax-Free Income Babar Zaidi TOI 2/25/2013 18 Tax Planning Tax Planning must account for retirement and inheritance Rahul Jyothi Kumaran TOI 3/26/2013 17 Start planning taxes early to reap best returns Partha Sinha TOI 3/26/2013 17 The Banking Laws (Amendment) Act, 2012 The Banking Laws (Amendment) Act, 2012 – Salient Features Abhishek Goyal S & Co Law 118 4 TDS Are liable to TDS? Payments to authors for articles T. N. Pandey ITR 350 69 "TDS liability spread up on whole of the sale consideration Amit Agarwal & Taxman 212 5 and not just limited to the amount of estimated capital Alok Pareek gains on sale of immovable property ……" TDS on commission paid to Foreign Agents – Divergent views Raghav Kumar Bajaj Taxman 212 109 'V' VAT Pre-determined Sale vis-à-vis Exempted Sale u/s 6(2) G. G. Goyal & BCAJ 44-B/Part 6 53 of CST Act – Controversy Settled C. B. Thakar "Goods/Sales Return" – Scope G. G. Goyal & BCAJ 44-B/Part 5 53 C B Thakar


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ECONOMY & FINANCE


CA. Rajaram Ajgaonkar

ECONOMY AND FINANCE

The month of March brought lot of positive news from the US economy and that improved the global sentiment. The weakening of the Japanese currency increased the growth prospects of that economy and added to the positive sentiment. These two positive developments were in a way dampened by the negative sentiment created by Italy and Cyprus. Italy was downgraded. Its economy slipped into recession and the bond yield in the economy surged. Thereafter, banking crisis developed in Cyprus and suddenly banks in the country came to a verge of collapse. Cyprus issue gave a shock to the Euro Zone which was trying to come out of debt crisis in many of its member countries. The development badly affected the sentiment. For bailing out Cyprus it was proposed to forfeit portion of deposits with the banks of its customers popularly called as ‘hair cut’. This was a harsh measure on the depositors and was not taken lightly by domestic as well as foreign depositors in the banks. It hit hard to the Cypriots who had deposited their hard earned money in the local banks. Though Cyprus is small and the crisis may not affect the overall European economy in a substantial way, it has badly affected the sentiment. This has again proved that the recovery of global economy is not going to be smooth and pains are likely to keep on emerging from various corners of the world which may keep on dampening the positive sentiments generated by hard efforts of many government and Central Banks.

EMERGING CONCERNS

The positive sentiments in the US markets gave a dream run to the stock market in the US and Standard and Poor-500 Index crossed its all time high achieved in 2007. Though there are talks of ending the quantitative easing by FED, the US stock markets have shown resilience. The upward movement has been stiff and sharp it kept many of the experts guessing. Now there is talk that investors may have overreacted to the positive news in the US economy. Therefore, caution can prevail for some time in the US stock markets.

Due to the continuing problems in the region, the Euro Zone remains in an unenviable position. There are looming risks but no visibility of positivity for the Euro Zone. The region needs to avoid defaults by its member country at any cost, to avoid deterioration of sentiments not only in the region but even across the world. It is essential that the perception of the world about the immediate prospects of the region should remain positive. The recovery of the region remains uncertain and even if it happens it will be painfully ��!�� ! �<��countries in the region will not only have to face their own battles but the stronger ones will also have to face the battles of their neighbours as well.

The Yen has depreciated over the last few months and has surprisingly continued its weakness. This has become positive news for the Japanese economy which has suddenly started smelling

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ECONOMY & FINANCE


growth opportunity as their products are becoming competitive for export. The Japanese stock market has gained more than 30% over the last few months on the back of this currency weakness. This has given a reason for suspicion to many experts as to whether the weakness is orchested and some countries are becoming vocal about their allegation of currency manipulation. However, nothing is decisively proved as of now and therefore, there is a possibility that Yen may continue to remain weak and Japan may come out of decade of slow growth and economic stagnation.

Chinese economy has continued its manufacturing as well as service growth. The economy is expanding well and inflation though moving upward is under control. China remains to be in an enviable position due to its continuous high growth. China was able to recover out of the global slowdown and its current growth rate is much superior than most of the countries in the world and also compared to other Greek countries who continue to struggle to improve their growth rate. China will continue to help the world to show a decent growth number over the next few years.

Though the month of March was overall quite positive for many economies across the world, it was not great for the Indian economy. Though the budget was considered to be positive and probably a balance one by many experts, the sentiments have deteriorated thereafter in the Indian economy over the last one month. Unfortunately statistical data published in the month was pointing at a slow down in spite of the efforts made by the Government to reign the falling growth. The trade deficit is increasing and it has reached an alarming level of 6.7% which needs to be immediately addressed. The slowing of economy has suddenly affected the sentiment and has increased the risk perception in the economy. Risk aversion has increased due to economic as well as political uncertainty. This has slowed down the investment in the economy. Though there were lot of talks about the thrust to infrastructure sector in India and the people had great hopes about the same, the things are not working out

as per the expectation. The sector is plagued by the internal as well as external problems such as domestic scams affecting the allocation of resources weakness, high interest rates and weakening of Indian currency increasing the input cost. The inability of the Government to quickly response to the situation has added risk as well as losses to the sector and the investments in the varied desired sector has slowed down. This may result in slowing down of the growth of the infrastructure which will surely hinder the economic growth of the country. The corrective steps are needed urgently and for that purpose, Government needs to act boldly. If it is not done in time, the country �� level.

In the recent months, the political climate in the country has deteriorated and the uncertainty has increased. This has affected the reform process and even the development momentum in the country. It has also affected the Indian stock market and the overall investment climate. Urgent corrective steps are needed to overcome this uncertainty as further inaction can push the economy to a growth rate of lower than 5%.

Though the expectations were high at the beginning of March, the stock markets in India have not performed well in the month. In spite of continues inflow of funds from the FIIs’ and improvement in the global economic sentiments, the uncertainty continues in the minds of the Indian investors. The domestic industry is not performing as well as expected thereby increasing the risk. Though there are talks of recovery, the published data points otherwise. Many investors are taking wait and watch approach which has made the Indian stock market lack lustre with negative bias. The expectation regarding the �� /�� !��!��investors are expecting the corporate results of the fourth quarter of 2012-13 lesser than satisfactory. Due to FII fund flow, the large caps blue chips stocks are holding on but the story of midcap and small cap is quite discouraging. Investors need to be cautious while making new investments

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ECONOMY & FINANCE


and wait and watch approach may give them better opportunity. The future remains bright but patience may be needed currently. Fortunately for many conservative investors, interest rates have not come down as expected. In its mid quarter review, RBI has reduced the Indicative Interest rates (Repo) by quarter of a per cent. However, there is no cut in CRR and as a result there is not much of change in the interest structure in the country. Interest rates are likely to go down by over 2% in the next couple of years but it is difficult to predict when and how fast �� the bank have been steady, but it is not certain how long they will remain so. Private lenders are able to extract good rates from the borrowers due to low liquidity and high demand for funds. Slowing of working capital cycle in the business has added to the crunch of liquidity. Low liquidity and high interest rate has affected small businesses and banks have become cautious. The resultant shortage of funds will keep the lending rate high. The sale of property remains sluggish over the last few months and so are the prices. There was a hope for revival but it does not seem to be materialising as the interest rate continues to remain high and taxation structure remains quite stiff. The proposed insertion of 43CA in the budget will not encourage the sector. It will affect the flexibility of the builders to compensate the owners and tenants with constructed property at the reduced rate in exchange of their rights. This may result in increasing cost of construction and will exert pressure on the sector. Further, the property prices may remain steady irrespective of the demand due to increased cost structure. This situation is not encouraging and it can skew the property prices from area to area. The increased cost and reduce credit availability has made the sector suffer. The sector may continue to suffer in spite of political patronage. Though the prices of residential and commercial properties may stagnate, land prices may continue to increase. The demand for land remains high and it may continue to remain so as it is one of the safe venues for parking unaccounted money. Land will continue

to remain in demand and the investors in land can reap good appreciation in the years to come. [�� Z�� deteriorating value of rupee will keep the prices of land steady.

The demand for gold, silver and precious stones has become sluggish and there is no immediate hope of its revival. It may remain sluggish for some time and unless the rupee depreciates. The demand for gold has slowed down across the world due to better economic conditions and that may affect the Indian prices as well. Investors investing in this venue need to remain cautious �� !��Possibility of easing of price also cannot be ruled out.

Indian currencies remains volatile and it seems to have developed negative bias especially in �� !��!�� /�� on structured imbalance caused by high need of import of petroleum products and tradition of collecting and hoarding of gold as investment by Indian households. The Government is trying to cool the demand for gold by increasing import duty but that has risk of triggering smuggling. For correcting the imbalance the Government will need to take harsh steps and import of lower priority goods will need to be reduced. Export needs to be incentivised and some sops have to be given to the exporter to make exports cost effective. The Government has only a limited choice. If the �!��!�� !��will depreciate further. There is a eminent risk of rupee depreciating in the short as well as long run.

The investment climate in India has become a murky over the last few months. In spite of great hopes, the uncertainty remains high and the direction of the economy is not very clear. For the next few months, unless the reform process resumes there is a risk of drying down the FII inflow and the stock market may slip. Investors need to remain cautious and take restless risk for some more months. Better opportunity may emerge after a few months.

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YOUR QUESTIONS AND OUR ANSWERS


V. H. Patil, Advocate

YOUR QUESTIONS & OUR ANSWERS

Facts & QueryQ.1 If you run an establishment where payments for sales are received via credit cards and the Banks are entitled to a charge for facilitating the said payments. The banks withhold the charge and pay the balance sale proceeds to the Merchant every payment cycle and no TDS is done on the bank charges so levied – on the ground that it’s like an interest paid to a bank and is exempt from TDS u/s. 194A. Is this view correct or should these payments be treated as commission and TDS must be withheld u/s. 194H?Ans. The charge of the Bank is for providing a facility for payment through credit cards and the same is not for giving any loan and as such, such charges cannot be considered as interest charges and as such, such bank charges cannot be considered as interest payment and as such S.194A cannot be invoked for TDS purposes.Q.2 As per list of suspicious dealers put up by the VAT authorities on its website and also forwarded to the Assessing Officer of the �� the following additions in the assessment order;a) The peak credit in the account of these

suppliersb) The total purchases made from these

suppliers u/s. 40A(3) on the premise that purchases are made in cash.

Can he make additions of an amount exceeding the amount of purchases made from these parties?

Ans. To start with, on the facts of the case it being only an information received from VAT authorities, the ITO cannot make the proposed additions. The querist must ask the ITO to summon all these creditors for examination. However, in no case, he can make both these proposed additions. The total of these purchases will cover the peak credit and as such if total sales are added, no further addition can be made.In my opinion, at the highest, the ITO can only add the peak of these credits and he cannot add total of the purchases.Q.3 An owner of land has entered into an Agreement for transfer of Development Rights in Financial Year 2012-13 and as per the agreement he will be entitled to 20% of the gross sales revenues as and when the amount is received by the developer. The project will be completely executed by the buyer. The project is likely to be completed after 4 years and the sales will also be realised over the period of 4 years. Will the amount be assessable as business income or capital gain on sale of land in the hands of owner of the land.Ans. The land owner has not entered into a joint development agreement with the builder/developer. He has only sold his development rights in the land owned by him. Right to develop a property is itself a property and a transfer of such rights, amounts to a transfer of property leading to capital gain and as such the sale price of such right will attract capital gain and it will not be a business income.

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THE CHAMBER NEWS


Hitesh R. Shah & Paras Savla, Hon. Jt. Secretaries

THE CHAMBER NEWS

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Through this column, we communicate with you about, and keep you abreast with, the events and the happenings that take place at the CTC. The events that have taken place after the previous issue of the Income Tax Review from 8th March, 2013 till 15th April, 2013 and also some of the important future events which are as under –

1. PAST EVENTS1 ALLIED LAWS COMMITTEE

Workshop on “Statutory Audits of Bank Branches and Practical Issues” was held on 21st March, 2013 where CA Vipul Choksi addressed the members on the subject “Prudential Norms and LFAR” and CA Hemant Parab addressed the members on the subject “Audit Programme for Bank Branch Audit”.

2 DIRECT TAXES COMMITTEE

a. The Workshop on Finance Bill, 2013 (Direct Taxes Provisions) jointly with WIRC of ICAI was held on 9th March, 2013. The Workshop was chaired by CA Kishore Karia and was addressed by CA Gautam Nayak and CA Yogesh Thar.

b. The Committee announced “Second Essay Competition-2013” for students of Law & Article Trainees pursuing CA Course. We have received 32 essays for the competition.

3. INDIRECT TAXES COMMITTEE

a. The ongoing sessions of the Workshop on MVAT & Service Tax jointly with AIFTP (WZ), BCAS, MCTC and STPAM was held on 16th and 30th March, 2013. The Workshop was addressed by CA Sujata Rangnekar, CA Manish Gadia and Ms Nikita Badheka, Advocate.

b. The Workshop on Finance Bill, 2013 (Indirect Taxes Provisions) jointly with WIRC of ICAI was held on 9th March, 2013. The Workshop was addressed by CA A. R. Krishnan and Shri Vipin Jain, Advocate.

c. The Workshop on “Filing of Returns under Service Tax” jointly with The Bombay Chartered Accountants’ Society was held on 6th & 9th April, 2013 where CA Parag Mehta addressed the members on the subject “Interactive session on issues relating to Revised ST-3 Form”.

4. INTERNATIONAL TAXATION COMMITTEE

The ongoing sessions of 3rd Intensive Study Course on Transfer Pricing (Including Domestic Transfer Pricing) was held on 16th, 23rd & 30th March, 2013 and 6th April, 2013.

THE CHAMBER NEWS


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5. MEMBERSHIP & EOP COMMITTEE

The Committee organised Seminar on “Direct Taxes” on 16th March, 2013 jointly with Jalgaon Branch of WIRC of ICAI. The Seminar was addressed by Shri Ajay Singh, Advocate, CA Reepal Tralshawala, and Shri Vipul Joshi, Advocate

Self Awareness Series was held on 9th April, 2013 on the subject “Change Management and Strategic Decision making: Lessons from Krushna’s Life” The meeting was addressed by CA Hitendra B. Gandhi.

6. STUDY CIRCLE & STUDY GROUP COMMITTEE

The Study Circle Meeting was held on 11th March, 2013 on the subject “Finance Bill, 2013”, where CA P.N. Shah chaired the meeting and CA N.C. Hegde led the discussion.

II. FUTURE EVENTS

1. ALLIED LAWS COMMITTEE

Study Circle Meeting is scheduled on 16th April, 2013 on the Subject “‘FEMA provisions in respect to Inbound and Outbound Investments in Real Estate”. The meeting will be addressed by Shri D.T. Khilnani.

2. DIRECT TAXES COMMITTEE

Intensive Study Group Meeting is scheduled on 18th April, 2013 on the subject “‘Recent Important Decisions under Direct Taxes”. The meeting will be addressed by CA. Jagdish Punjabi.

3. INTERNATIONAL TAXATION COMMITTEE

a. Publication on INTERNATIONAL TAXATION – A Compendium

The Committee has come out with a publication of 4 volume set on “International Taxation – A Compendium”. The Special Pre-Publication price for 4 volume set for members is ` 3500/-.

b. The 7th Residential Conference on International Taxation – 2013 will be held on 20th June to 23rd June, 2013 at The Golden Palms Hotel & Spa, Bengaluru. The Conference will be �� !�� /��

4. JOURNAL COMMITTEE

The Committee has planned to bring Special Story “The Maharashtra Cooperative Housing Society – Part-II” in the forthcoming issue for the month of May, 2013.

5. MEMBERSHIP & EOP COMMITTEE:

"��<�� <�� aware about the activities of stock exchange, its role in today’s market and do’s & don’ts of share market, with a view to help the students the half day Students Workshop is organised on 24th May, 2013 at National Stock Exchange, BKC.

6. RESIDENTIAL REFRESHER COURSE & PUBLIC RELATIONS COMMITTEE

The Chamber is going to launch its revamped website and E-Journal on Friday, 19th April, 2013, the auspicious day of Ram Navami. The RRC & PR Committee jointly with the Membership & EOP Committee and Journal Committee has planned a Musical Orchestra show at the Mysore Association Hall, Matunga (Central) from 7.00 p.m. onwards for CTC members, their family and friends.

THE CHAMBER NEWS


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7. STUDY CIRCLE & STUDY GROUP COMMITTEE

a. Study Group Meeting is scheduled on 22nd April, 2013 on the Subject “‘Recent Decisions under Direct Taxes”. The meeting will be led by Shri Keshav Bhujle, Advocate.

�� "�!��\ �� !��|§��}�� |�{��"!�~��*�� !��and Tax credits in relation to e-filing of Tax Returns”. The meeting will be led by CA Mahendra Sanghvi.

8. RENEWAL NOTICE – 2013-2014

The renewal fees for Annual Membership, Subscription of IT Review, Study Group and Study Circles �� =��"!�� |�{�${��!��{��}�� |�{��

The details of the Fees are as under:

FEES SERVICE TAX TOTAL

1. Membership Renewal Fees (for 1 year) ` 1,300/- ` 161/- ` 1,461/- 2 The Chamber’s Journal Subscription ` 550/- – ` 550/- (Life Members)3 The Chamber’s Journal Subscription ` 1,000/ - – (Non-Members) 4 Associate Membership ` 2,000/- ` 247/- ` 2,247/-5 Student Membership Fees ` 250/- ` 31/- ` 281/- 6. Study Group (Direct Taxes) ` 1,250/- ` 155/- ` 1,405/- 7. Study Circle (Indirect Taxes) ` 700/- ` 87/- ` 787/- 8. Study Circle (International Tax) ` 1,000/- ` 124/- ` 1,124/- 9. Study Circle (Allied Laws) ` 700/- ` 87/- ` 787/-10. Study Circle (Direct Taxes) ` 700/- ` 87/- ` 787/- 11. Study Circles ` 1,000/- ` 124/- ` 1,124/-

(Direct Tax & Allied Laws Combined) 12. Self Awareness Series ` 350/- ` 43/- ` 393/- 13. Intensive Study Group on Direct Tax ` 1,000/- ` 124/- ` 1,124/-

(*) The amount of Service Tax and Cess may change if there is change in the rate.

9. PUBLICATIONS FOR SALE

36TH RESIDENTIAL REFRESHER COURSE held on 21-24 February, 2013 COURSE MATERIAL – ` 225/-.

(For Enrollment and further details of all the Future Events, please refer to the April, 2013 issue of CITC News or visit the website www.citcindia.org)

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THE CHAMBER NEWS


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INTERNATIONAL TAXATION COMMITTEE3rd Intensive Study Course on Transfer Pricing (including Domestic Transfer Pricing)

24 Sessions – 48 Hours held on 16th & 17th February, 2013; 16th, 23rd & 30th March, 2013 and 6th April, 2013 at Terrace Hall, West End Hotel.

CA Yatin Desai, Vice President, addressing the delegates. Seen from L to R : CA Hinesh Doshi, Chairman, CA Vispi T. Patel, Faculty, Mr. R. S. Upadhyaya, Commissioner of Income-tax (Appeals), CA Naresh Ajwani, Course Co-ordinator.

CA Hinesh Doshi, Chairman, welcoming the delegates. Seen from L to R : CA Vispi T. Patel,

Faculty, Mr. R. S. Upadhyaya, Commissioner of Income-tax

(Appeals) Mumbai, CA Yatin Desai, Vice President,

CA Naresh Ajwani, Course Co-ordinator.

Mr. R. S. Upadhyaya, Commissioner of Income-tax (Appeals) Mumbai delivering keynote address. Seen from L to R : CA Hinesh Doshi, Chairman, CA Vispi T. Patel, Faculty, CA Yatin Desai, Vice President, CA Naresh Ajwani, Course Co-ordinator.

Faculties at the Course

CA Vispi T. Patel CA Vaishali Mane CA Vishwanath Kane CA Umang Someshwar

CA Jiger Saiya

The Chamber's Journal April 2013 207�ML-529

Faculties at the Course

CA Vineet Chhabra CA Gaurav Shah CA Maulik Doshi CA Freddy Daruwala CA Samir Gandhi

CA Manisha Gupta CA Waman Kale CA Darpan Mehta Mr. Ameya Kunte CA Karishma Phatarphekar

Mr. Ajit Kumar Jain CA Sanjay Kapadia Mr. Gaurav Agarwal CA Sudhir Nayak CA Milind Kothari

CA Bipin Pawar

CA Hasnain Shroff

CA Vispi T. Patel, moderator replying to the queries at the session of panel discussion. Seen from L to R : CA Hinesh Doshi, Chairman, CA Sanjay Tolia, Panellist, Mr. C. S. Gulati, Panellist, CA Yatin Desai, Vice President, CA Rohan Phatarphekar, Panellist and CA Naresh Ajwani, Course Co-ordinator.


INTERNATIONAL TAXATION COMMITTEE3rd Intensive Study Course on Transfer Pricing (including Domestic Transfer Pricing)

24 Sessions – 48 Hours held on 16th & 17th February, 2013; 16th, 23rd & 30th March, 2013 and 6th April, 2013 at Terrace Hall, West End Hotel.

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INDIRECT TAXES COMMITTEEThe Workshop on MVAT & Service Tax jointly with STPAM, BCAS, AIFTP (WZ) and MCTC

on 6th, 15th & 29th December, 2012, 19th January, 2013, 2nd, 9th, 16th, 23rd & 26th February, 2013 and 2nd, 16th & 30th March, 2013.

CA Manoj Shah, President, CTC welcoming the delegates at the 1st session of MVAT & Service Tax. Seen from L to R: CA Deepak Shah, President, BCAS, CA Pranav Kapadia, Convenor.

CA Sunil Gabhawalla CA Naresh Sheth CA Deepak Thakkar CA Bharat Shemlani CA Vikram Mehta

CA Ashit Shah CA Rajiv Luthia Vinayak Patkar Advocate

Dinesh Tambde Advocate

Naresh Thacker Advocate

Deepak Bapat Advocate

Ashvin AcharyaAdvocate

C. B. Thakar Advocate

Nikita Badheka Advocate

CA Sujata Rangnekar

CA Manish Gadia

The Chamber's Journal April 2013 ML-531 209�

UNION BUDGET – 2013 – AN ANALYSIS

MEMBERSHIP & EOP COMMITTEESelf Awareness Series held on 9th April, 2013 on the subject

“Changes Management and Strategic Decision making : Lessons from Krushna’s Life”.

CA Hitendra B. Gandhi addressing the members.


Faculties at the Public Meeting on “Union Budget” on Direct Tax and Service Tax jointly with Ghatkopar CA Study Circle, Forum of Free Enterprises and other

organisations held on 3rd March, 2013.

ALLIED LAWS COMMITTEEWorkshop on Statutory Audit of Bank Branches and Practical Issues

held on 21st March, 2013 at CTC Conference Room

CA Vipul Choksi addressing the delegates

on the subject “Prudential Norms and LFAR”.

CA Hemant Parab addressing the delegates on the subject “Audit Programme for Bank Branch Audit”.

�210 ML-532

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the chamber's journal april 2013

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