Post Budget rate of CST

Post Budget rate of CST

Though the Hon'ble Finance Minister has announced reduction of Central Sales Tax Act (CST) from 3% to 2%, notification regarding the same has not been issued till today. So in such a situation, it is suggested that dealers should continue charging CST @ 3%. In case there is a notification on later date with retrospective effect, excess of 1% can be adjusted against future bills or as per discretion or settlement reached between the parties.

Trade Circular

CAs can audit; Sales Tax Lawyers can't: HC

In a decision that will affect the lawyers specialising in Sales Tax laws as well as former Sales Tax officers' who work as sales tax practitioners, Bombay High Court has held that only Chartered Accountants (CAs) can audit and certify accounts for traders.

Hitherto, traders had to hire only sales tax lawyers or former sales tax officers as advisors in tax matters. But a recent amendment to Maharashtra Value Added Tax Act made it mandatory for traders with sale of over Rs 40 lakhs to get their accounts audited and certified by a professional CA.

The amendment specifies that only a CA can audit the account. It allows lawyers and other sales tax practitioners to represent traders before sales tax commissioner and tribunals, but not to audit accounts.

Various organisations, including Bar Council of Maharashtra and Goa, the Sales Tax Practitioners Association of Maharashtra and Bombay Small Scale Industries Association moved High Court, claiming that this restraint violated right to equality enshrined in the Constitution.

Also, it would force traders to cough up extra money for engaging CAs, they contended. But division bench of Justices F I Rebello and R S Mohite rejected these arguments. "Auditing is a specialised job which can be undertaken by the person professionally competent and trained to audit," judges said, holding that advocates and other sales tax practitioners were not qualified for this job.

SOURCE

SEBI Circular on Mutual Fund Warning

Taking a note of the hasty and unintelligible manner in which the Mutual Fund advertisers warn about the market risks associated with Mutual Funds, the SEBI has issued a circular bearing no. SEBI/IMD/CIR No.12/118340/08 Dated 26.02.2008 setting guidelines for the manner in which such warning/message is to be conveyed.

The circular states that -

- The time for display of the standard warning be over a period of five seconds in case of audio advertisements and shall be read in an easily understandable manner.

- In case of audio visual advertisements the time for display and voice over of the standard warning be enhanced to five seconds.

All mutual funds are required to comply with the above requirements in letter and spirit.

So with effect from April 1, 2008, expect the statement - "Mutual Fund investments are subject to market risks, read the offer document carefully before investing" to be recited in an intelligible manner . This step of SEBI is definitely appreciable.

Taxation in IPR

“The Indian economy is overheated” says the Finance Minister. This comes as a prologue to the fact that the Government of India is bringing more and more sources under the taxation net or is tweaking the existing laws to levy taxes on a number of items/services/incomes, etc. This is being done through changes to existing laws or introduction of new sections in various acts like the Income Tax Act, Central Sales Tax Act, Value Added Tax Act, Profession Tax Act, Service Tax Act, etc. So in such a situation how can an upcoming sector like Intellectual Property Rights (IPR) be left out of purview of taxation?

Under the Intellectual Property Rights, the person assigning his rights to someone else earns an income in the form of Royalty. A person may also totally sell off his “trademark”, “patent”, “design” or “copyright” for a consideration.

TAXATION AND IPR –

1. Service Tax & IPR –

With effect from September 10, intellectual property services (other than copyrights) have been brought under the service tax net. According to the Revenue Department the definition of taxable services includes only such IPRs (except copyright) that are prescribed under law for the time being in force.

The Finance Ministry is of the view that the IPRs esp. Integrated circuits/undisclosed information would not be covered under the Taxable Services as these rights are not covered or prescribed under Indian Law.

Whether Payment of Royalty is a service ?

Payment of Royalty is not a service. It is rather a profit of the owner for permitting another to use his property. Hence payment of royalty should not be treated as a payment for service. IPR is in nature of property and the right to use IPR is a transaction in property and not consultancy or advice

Service Tax and Permanent transfer of IPR –

It has also been made clear by the Revenue Department that IPRs covered under Indian law in force at present alone, are chargeable to service tax. Further, permanent transfer of IPRs would not attract Service Tax because such transfer does not amount to rendering of service.

In cases where cess is levied under the Research and Development Cess Act, the Department has held that the cess amount so paid would be deductible from the total service tax payable.

Temporary transfer or permission to use or enjoy IPR can be classified as transfer of right to use goods, as it involves transfer of right to use movable property. Therefore, a tax on IPR is in pith and substance a tax on transfer of right to use IPR and not a tax on services.

Income Tax and IPR –

Earlier there was a lot of confusion over the provisions of Income Tax Act relating to Income Tax Act. However, over a period of time, various decisions given by the Tribunals, High Courts and Hon’ble Supreme Court and amendments to the Income Tax Act, the picture is quite clear now regarding transactions in IPR and its effect from Income Tax point of view

Purchase of Copyright – Capital or Revenue Expenditure -

Purchase of (c) is capital expenditure. Price paid for purchasing copyright of a book publisher and seller of books is capital expenditure – Hira Lal Phoolchand Vs. CIT [1947] 15 ITR 205 (All.)

Royalty for user of Trademark –
Royalty paid by the assessee for user of TM of another company is allowable as revenue expenditure. (CIT Vs. Raipur Manufacturing CO. [1996] 132 CTR (Guj.) 63

Expenditure on registration of Trademark -

Expenditure on registration of TM is not capital expenditure – The advantages derived by the owner of the TM by registration falls within the class of maintenance of the capital asset. The fact that a TM after regis. could be separately assigned and not as a part of the goodwill of the business only, does not also make the expenditure for registration a capital expenditure – CIT v. Finlay Mills Ltd. [1951] 20 ITR 475 (SC).

Deduction in repect of expenditure on acquisition of Patent -

As the term patent defined under the Patents Act 1970, only inventions can be patented and Beedi rolling or manufacturing, being not an invention, cannot be patented nor any patent right can be created therein. Therefore deduction cannot be claimed of expenditure on acquisition of patent or (c) in Beedi rolling or manufacturing in terms of Section 35A – CIT Vs. Mangalore Ganesh Beedi Works [2003] 128 Taxman 351/264 ITR 142 (Kar.).

Deductions U/s. 80O if the Income Tax Act -

From assessment year 2005 – 2006 and onwards no deduction shall be allowable in respect of income/royalty received from foreign enterprises in consideration for use outside India of any patent, invention, design or registered Trademark.

Conclusion –

Intellectual property laws in India are amongst the best in the world. The real problem is the implementation–the enforcement machinery is inadequate and the judicial process is slow.

So to improve this scenario, India will require great deal of political will, intellectual skill and administrative drill.

What is Sub Prime Lending

Meaning -

As the word "Sub" itself suggests -"less than ideal".

The term "subprime" refers to the credit status of the borrower, which is being less than ideal. Subprime lending is a general term that refers to the practice of making loans to borrowers who do not qualify for the best market interest rates because of their deficient credit history.

Why the risk -

Subprime lending is risky for both lenders and borrowers due to the combination of high interest rates, poor credit history, and adverse financial situations usually associated with subprime applicants.

Sub Prime Borrowers -

The sub prime borrowers have a weak credit history which includes - charge offs, payment delinquencies, bankruptcies, low debt to income ratio, etc.

Why the crises -

Subprime lending refers to the practice of offering loans to people who do not qualify for the normal loans. When it comes to approving a loan, banks take into account the repaying capacity of the borrower and his credit history. If a person is not credit worthy or is a defaulter elsewhere, he cannot be given a normal "prime loan". So as to target such persons, banks came up with a novel idea of "sub prime lending".

Here the risk is more for the bank. So to set off the higher risk, banks commanding a higher risk premium and hence the interest rate is also higher. As a result of higher interest rates, banks could earn more money then what they would have normally got if they had gone for "prime lending".

The subprime lending crisis began with a series of defaults by borrowers who were offered loans at higher interest rates because of their lower repayment capacity. First of all, the borrowers who were offered subprime mortgages had a poor credit history and then the higher interest rates charged only increased the burden on these borrowers and made it tougher for them to honour their mortgages, even if they had the intention to do so. This caused a series of defaults which is now commonly known as the subprime mortgage lending crisis.

Types -

Subprime mortgages and Sub Prime Credit Cards

Essay Sarbanes Oxley Act

Sarbanes-Oxley Act of 2002 is also known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly called SOX or Sarbox.

The act is called as Sarbanes-Oxley Act after sponsors Senator Paul Sarbanes and Representative Michael G. Oxley.

Reason behind the enactment -

Number of major corporate and accounting scandals which rocked the United States prompted the House to enact the law.The confidence of general public in the United States' securities market was shaken after the Enron, Peregrine System, Tyco Adelphia, Worldcom scandals. Not only these scandals cost the public billions of dollars but also negatively affected their faith in the United States Security Market.

Scope -

The legislation establishes new or enhanced standards for all U.S. public company boards, management, and public accounting firms. It does not apply to privately held companies.

The Act -

The Act contains 11 titles, or sections, ranging from additional Corporate Board responsibilities to criminal penalties, and requires the Securities and Exchange Commission (SEC) to implement rulings on requirements to comply with the new law.

The Act establishes a new quasi-public agency, the Public Company Accounting Oversight Board, or PCAOB, which is charged with overseeing, regulating, inspecting, and disciplining accounting firms in their roles as auditors of public companies. The Act also covers issues such as auditor independence, corporate governance, internal control assessment, and enhanced financial disclosure.

However, there is a heated debate on whether the benefits are comparable to the cost incurred in the implementation of the Act. Some feel that the legislation is necessary and will definitely help restoring public confidence in nation's capital market, will help control the corporate accouting and strengthen the accounting creditibility of public accounting firms and others.

The Detractors contend that SOX was an unnecessary and costly government intrusion into corporate management that places U.S. corporations at a competitive disadvantage vis-a-vis foreign firms.

The effect of SOX on non-US companies -

It is being argued that with a legislation like Sarbanes Oxley, business will shift from US to other countries where there is lesser interference by Authority.

SOX's effect on Non US cross listed Companies will be different depending on where such companies come from. If a company comes from a well regulated country, SOX will unnecessarily increase cost as such companies already comply with strict norms in their home country.

But Companies from not so well regulated countries will benefit as such companies will have to comply with requirements under the act and in turn which will enhance their creditibility and rating due to compliance of the act. But one must keep in mind that it is going to be too expensive for all companies to comply with the provisions of SOX.

Impact of SOX on the corporate IT department

The five areas and their impacts for the IT Department are as follows:

Risk Assessment - Before the necessary controls are implemented, IT management must assess and understand the areas of risk affecting the completeness and validity of the financial reports. They must examine how the company's systems are being used and the current level and accuracy of existing documentation.

Control Environment - environment factors include the integrity, ethical values and competence of the entity's people; management's philosophy and operating style; the way management assigns authority and responsibility, and organizes and develops its people; and the attention and direction provided by the board of directors.

Control Activities - Control activities are the policies and procedures that help ensure management directives are carried out. They help ensure that necessary actions are taken to address risks to achievement of the entity's objectives. Control activities occur throughout the organization, at all levels and in all functions. They include a range of activities as diverse as approvals, authorizations, verifications, reconciliations, reviews of operating performance, security of assets and segregation of duties. In an IT environment, control activities typically include IT general controls -- such as controls over program changes, access to programs, computer operations -- and application controls.

Monitoring - Auditing processes and schedules should be developed to address the high-risk areas within the IT organization. IT personnel should perform frequent internal audits. In addition, personnel from outside the IT organization should perform audits on a schedule that is appropriate to the level of risk. Management should clearly understand and be held responsible for the outcome of these audits.

Information and Communication - Without timely, accurate information, it will be difficult for IT management to proactively identify and address areas of risk. They will be unable to react to issues as they occur. IT management must demonstrate to company management an understanding of what needs to be done to comply with Sarbanes-Oxley and how to get there.

The Act

This article has been written from inputs gathered from different sources available on the Internet and in Print Media.

What is a Future Contract?

Let us start with Futures -

What is a futures contract?

Futures contract means an agreement to buy or sell the underlying security on a future date. Such agreements are legally binding in nature.

Specifications regarding the delivery, time and place of settlement, quantity, quality in case of commodities are decided beforehand in the contract itself. Futures can be settled by delivery of the underlying security - cash or asset as the case may be. E.g: In case of a commodity - by delivery of that commodity on which contract was made.

The date decided beforehand for settlement on which contract expires is called as "the expiry date of the contract".

Cash settlement means paying or receiving the difference between the price at which the contract was entered and the price of the underlying asset at the time of expiry of the contract.

As a result, a person may face profit or loss depending on the difference of price between period as mentioned above.