Applicability of the Companies Act 2013 to Auditors Report to FY 2014-15 and Onwards

Dear Members,
As you are aware, the Ministry of Corporate Affairs, on 26
th
March 2014 notified a majority of the
remaining sections of the Companies Act 2013, including sections 139 to 148, relating to audits
and auditors. The Act is stated to be effective from 1
st
April, 2014.
Queries are being raised by a number of members as to whether any auditor's report of a
company being signed on or after 01
st
April, 2014 would be in accordance with the requirements
of section 143 of the Companies Act 2013.
In this context, it may be noted that the Ministry of Corporate Affairs (MCA) has, on 04
th
April
2014, vide its General Circular No. 08/2014,clarified that the financial statements (and documents
required to be attached thereto), auditor's report and Board's report in respect of financial years
that commenced earlier than 01
st
April, 2014 shall be governed by the relevant
provisions/Schedules/rules of the Companies Act 1956. This MCA Circular can be seen at
URL http://www.mca.gov.in/Ministry/pdf/General_Circular_8_2014.pdf.
Therefore, it is clear from MCA's aforesaid General Circular that the auditor's report of a company
pertaining to any financial year commencing on or before 31
st
march 2014 , would be in
accordance with the requirements of the Companies Act 1956 even if that financial year ends
after 01
st
April 2014.For example, where the financial year of a company is 01
st
January 2014 to
31
st
December 2014, the statutory auditor's report signed therefor would be in accordance with
the requirements of the Companies Act, 1956.
As a corollary to MCA's General Circular, it appears that the provisions of the 2013 Act would
apply only to the financial years commencing on or after 01
st
April 2014.Thus, for example, the
statutory auditor's report signed in respect of the financial year of the company ended 31
st
March
2015 would need to be issued in accordance with the provisions of the Companies Act 2013.
Regards
(CA ABHIJIT BANDYOPADHYAY)
Chairman, Auditing & Assurance Standards Board
Key Highlights of Proposed Direct Tax Code 2013
In this article, author attempts to explain key insights of Direct Tax Code 2013, comparing with DTC 2010 and Income Tax
ct, 1!"1, where#er re$uired% &or any $ueries, author can 'e reached at garimamittal@live.i
Introduction:
The Indian (o#ernment un#eiled theDirect Tax Code )*DTC+, 200! along with a discussion paper for pu'lic comments to
replace the Income Tax ct, 1!"1 and the -ealth Tax ct, 1!./ in ugust 200!% 0owe#er, in ugust 2010, (o#ernment
ta'led re#isedDTC 2010 in 1ok 2a'ha which was then referred to the 2tanding Committee on &inance for its re#iew and
comments and the same su'mitted its report to 3arliament on 4arch 2012% The &inance 4inister now released DTC,
2013 for pu'lic discussion on 1
st
pril 2015%
Key Highlights!
s per news report, out of 1!0 recommendations made 'y Committee, the &inance 4inister accepted 1.3 either wholly or
with partial modification% The new tax code is meant to create an efficient direct tax system 'y replacing the archaic
Income Tax ct%
Personal Income Tax:
"aisig of #xemptio limit to "s 3 la$h ot accepta%le! Though the standing committee of finance recommended
raising the income tax exemption limit to 6s 3 lakh, re#ised tax sla's forpersonal income tax and remo#al of cess not
accepted 'y &inance 4inister as it would result inhuge re#enue loss of around 6s, "0,000 crores%
'olition of 2ecurities Transaction Tax not accepta'le ! This recommendation is not accepta'le as rate of tax already
'een reduced significantly in &inance ct 2013%
0igher Tax 6ate, 3.7 for indi#iduals 809& ha#ing income exceeding 6s 10 crore: -ith a #iew to maintain o#erall
progressi#ity in le#y of income;tax, the re#ised Code pro#ides for a fourth sla' for indi#iduals, 09&s and artificial <udicial
persons%
Interest deduction on loan for self occupied property: &or the purpose of deduction in respect of loan taken for self
occupied house property, the loan gi#en 'y employer should also $ualify for this concession%
Corporate Tax :
Minimum Alternative Tax (MAT): 4T is le#ied if the tax lia'ility under the regular pro#isions is lower than 1=%.7 of
'ook profits )after prescri'ed additions8 deletions,% DTC 2013 proposes to le#y 4T >1=%.7 as compared to 207 in DTC
2010% The pro#isions of 4T applica'le to Insurance, ?anking and @lectricity companies as well% 0owe#er, income
from life insurance companies'usiness is not co#ered under 4T pro#isions under DTC 2013%
DTC 2013 proposes to introduce the concept of lternate 4inimum Tax )4T, applica'le to firm in line with existing
pro#isions under the ct% 4T is le#ied >1=%.7 if tax lia'ility under the regular pro#isions is less than 1=%.7 of ad<usted
total income%
s far as carry forward of 4T credit is concerned, DTC 2013 propose to allow 4T credit for 10 years as compared to
1. years prescri'ed under DTC 2010%
2ource 6ule -idened
The Income;tax ct, 1!"1 pro#ides for the taxation of interest paya'le 'y the non;resident in respect of de't incurred and
used for the purpose of 'usiness carried on 'y non;resident in India%
DTC 2013 expanded the scope of the a'o#e mentioned pro#ision to include interest paya'le 'y the non resident in
respect of de't incurred and used for the purpose of earning any income from any source in India%
Analysis: DTC 2013 proposal extended the scope of taxa'ility of income in India%
(eneral nti;#oidance 6ules )*(6+,: (6 were originally introduced in DTC 200!% 2u'se$uently, (6 has 'een
included in the ct with certain modifications%
(A) Impermissible Arrangement:
9nder the &come Tax 'ct( 1)*1( the entire arrangement may 'e declared as impermissi'le arrangement e#en if a part
of arrangement is impermissi'le arrangement%
The +tadig Committee of ,iace had proposed that only such part of the arrangement would 'e in#oked which is
pro#ed as *impermissi'le+ and not whole of it%
DTC 2013 proposed that entire arrangement may 'e declared as impermissi'le arrangement e#en if a part of
arrangement is impermissi'le arrangement%
(B) Onus of proof
The +tadig Committee of ,iace had recommended that the onus of proof should rest on the tax authority in#oking
the pro#ision of (6%
DTC 2013 proposes to rest the onus of proof on the taxpayers%
Indirect Transfer Af Capital sset:
DTC 2013 proposed that in case of indirect transfer of asset situated in India if 207 of the total assets of company are
located in India, then the income arising from such transaction will 'e taxed in India%
Analysis: This mo#e seems aimed at making sure India to get its due when foreign companies 'uy sell su'sidiaries or
units that are 'ased in India &or instance, Bodafone which enters India in 200/#ia 0utchison -hampoa deal, is contesting
a tax 'ill of a'out 112 'illion rupees relating to ac$uisition% The Indian 2upreme Court ruled in 2012 that Bodafone was not
lia'le to pay any tax o#er the transaction 'ut the go#ernment changed the rules allowing it to make retroacti#e tax claims
on completed deals% %
s per DTC 2010, indirect transfer should 'e taxed in India if the companies in#ol#ed should ha#e at least .07 of their
assets located in the country% nalyCing the same, .07 threshold is too high, there could 'e situation that a company has
33%337 assets in three countries 'ut it will not get taxed anywhere% Contrary in DTC 2013, companies with as little as
207 of their glo'al assets in India could find themsel#es facing tax 'ills in deals in#ol#ing their domestic units under
changes done in DTC 2010%
Do Deduction of Corporate 2ocial 6esponsi'ility)*C26+, @xpenditure in ?ackward 6egions and Districts:
s per Compaies 'ct( 2013, e#ery company on fulfilment of certain conditions is re$uired to incur expenditure on C26%
There is o specific provisio to allow such expenditure either in the Income Tax ct, 1!"1 or DTC 2010%
DTC 2013 does not pro#ide for allowa'ility of C26 expenditure% The we'site of income tax department, i%e%
www%incometaxindia%go#%in , pro#ides a rational that C26 expenditure cannot 'e allowed as a 'usiness deduction as it is
an application of income% &urther, allowing the same would imply that the go#ernment would 'e contri'uting 183 of this
expenditure, as re#enue foregone%
dditional tax on recipient of di#idend exceeding 1 crore rupees
DTC 2013 proposed to le#y of 107 additional di#idend distri'ution tax on the resident taxpayers if the total di#idend in
recipients hands exceeds 6s 1 crore%
Analysis: 9nder Income Tax ct, 1!"1 and also in DTC 2010, the di#idend distri'ution tax is to 'e le#ied at 1.7 tax rate%
This fa#ours high net worth taxpayers who pays only fraction of their earnings as tax on their in#estments in the capital
market% The draft DTC 2013 proposed to remo#e this analogy%
3lace of @ffecti#e 4anagement
DTC 2013 pro#ided that a foreign company is considered to 'e resident in India if its 3lace of @ffecti#e management at
any time in the year is in India% The term *3lace of @ffecti#e management+ is defined as the place where key management
and commercial decisions that are necessary for the conduct of 'usiness of an entity as a whole are in su'stance made%
The definition of 3lace of effecti#e management has 'een changed from DTC 200! E DTC 2010% This change is in line
with the 2tanding Committee of &inance recommendation that the term *executi#e directors+, and *officers+ may 'e
remo#ed from the definition of 3lace of @ffecti#e management and the definition should 'e more o'<ecti#e and in line with
internationally accepted standards%
0owe#er, under the Income Tax ct, 1!"1, foreign company is treated as resident in India only when its place of control
and management of its affairs is situated wholly in India%
6eduction of weighted deduction for scientific research as compared to DTC 2010:
DTC 2013 pro#ides for weighted deduction of 1.07 for in;house scientific research as compared to 2007 in DTC 2010
and also pro#ides for weighted deduction of 12.7 to donor on any donation made 'y it to the specific institution to 'e
utilised 'y them in scientific research in DTC 2013 as compared to 1/.7 in DTC 2010%
DTC 2013 does not pro#ide for 2ettlement Commission machinery as it has not achie#ed its intended purpose of early
settlement of cases and additional re#enue realiCation%
Conclusion:
The DTC 2013 drafted keeping in mind the pre#ailing ct, DTC 2010 and the loopholes which existed in the ct% The
proposed direct tax code pro#ides 'etter and more efficient tax structure 'y eliminating E reducing loopholes pre#ailing at
present in economy% 6eaders re$uested to note that DTC 2013 proposed lots of recommendations and the highlights
mentioned is an inclusi#e list of the same% &or reading the full context of proposed Direct Tax Code 2013, readers
re$uested to please #isit the income tax we'site%