Guide to understand an Offer Document 

This sub‐section attempts to inform the structure of presentation of the content in an offer document. The basic objective is to help the reader to navigate through the content of an offer document.

(a) Cover Page

Under this head full contact details of the Issuer Company, lead managers and registrars, the nature, number, price and amount of instruments offered and issue size, and the particulars regarding listing. Other details such as Credit Rating, IPO Grading, risks in relation to the first issue, etc are also disclosed if applicable. 

(b) Risk Factors

Under this head the management of the issuer company gives its view on the Internal and external risks envisaged by the company and the proposals, if any, to address such risks. The company also makes a note on the forward looking statements. This information is disclosed in the initial pages of the document and also in the abridged prospectus. It is generally advised that the investors should go through all the risk factors of the company before making an investment decision. 

(c) Introduction

Under this head a summary of the industry in which the issuer company operates, the business of the Issuer Company, offering details in brief, summary of consolidated financial statements and other data relating to general information about the company, the merchant bankers and their responsibilities, the details of brokers/syndicate members to the Issue, credit rating (in case of debt issue), debenture trustees (in case of debt issue), monitoring agency, book building process in brief, IPO Grading in case of First Issue of Equity capital and details of underwriting Agreements are given. Important details of capital structure, objects of the offering, funds requirement, funding plan, schedule of implementation, funds deployed, sources of financing of funds already deployed, sources of financing for the balance fund requirement, interim use of funds, basic terms of issue, basis for issue price, tax benefits are also covered.

(d) About us

Under this head a review of the details of business of the company, business strategy, competitive strengths, insurance, industry‐regulation (if applicable), history and corporate structure, main objects, subsidiary details, management and board of directors, compensation, corporate governance, related party transactions, exchange rates, currency of presentation and dividend policy are given.

(e) Financial Statements

Under this head financial statement and restatement as per the requirement of the Guidelines and differences between any other accounting policies and the Indian Accounting Policies (if the Company has presented its Financial Statements also as per either US GAAP/IFRS) are presented. 

(f) Legal and other information

Under this head outstanding litigations and material developments, litigations involving the company, the promoters of the company, its subsidiaries, and group companies are disclosed. Also material developments since the last balance sheet date, government approvals/licensing arrangements, investment approvals (FIPB/RBI etc.), technical approvals, and indebtedness, etc. are disclosed.

(g) Other regulatory and statutory disclosures

Under this head, authority for the Issue, prohibition by SEBI, eligibility of the company to enter the capital market, disclaimer statement by the issuer and the lead manager, disclaimer in respect of jurisdiction, distribution of information to investors, disclaimer clause of the stock exchanges, listing, impersonation, minimum subscription, letters of allotment or refund orders, consents, expert opinion, changes in the auditors in the last 3 years, expenses of the issue, fees payable to the intermediaries involved in the issue process, details of all the previous issues, all outstanding instruments, commission and brokerage on, previous issues, capitalization of reserves or profits, option to subscribe in the issue, purchase of property, revaluation of assets, classes of shares, stock market data for equity shares of the company, promise vis‐à‐vis performance in the past issues and mechanism for redressal of investor grievances is disclosed.

(h) Offering information

Under this head Terms of the Issue, ranking of equity shares, mode of payment of dividend, face value and issue price, rights of the equity shareholder, market lot, nomination facility to investor, issue procedure, book building procedure in details along with the process of making an application, signing of underwriting agreement and filing of prospectus with SEBI/ROC, announcement of statutory advertisement, issuance of confirmation of allocation note("can") and allotment in the issue, designated date, general instructions, instructions for completing the bid form, payment instructions, submission of bid form, other instructions, disposal of application and application moneys, , interest on refund of excess bid amount, basis of allotment or allocation, method of proportionate allotment, dispatch of refund orders, communications, undertaking by the company, utilization of issue proceeds, restrictions on foreign ownership of Indian securities, are disclosed. 

(i) Other Information

This covers description of equity shares and terms of the Articles of Association, material contracts and documents for inspection, declaration, definitions and abbreviations, etc.

Investment in public Issues/ rights issues 

(a) Where can I get application forms for applying/ bidding for the shares?

Application forms for applying/bidding for shares are available with all syndicate members, collection centers, the brokers to the issue and the bankers to the issue. In case you intend to apply through new process introduced by SEBI i.e. APPLICATIONS SUPPORTED BY BLOCKED AMOOUNT (ASBA), you may get the ASBA application forms form the Self Certified Syndicate Banks. For more details on “ASBA process” please refer to the “FAQs on ASBA”

(b) Whom should I approach if the information disclosed in the offer document appears to be factually incorrect? 

The document is prepared by Merchant Banker(s), registered with SEBI. They are required to do the due diligence while preparing an offer document. The draft offer document submitted to SEBI is put on website for public comments. In case, you find any instance of misinformation/ lack of information, you may send your complaint to Lead Manager to the issue and/ or to SEBI, at this address: Securities & Exchange Board of India, C4 A, G Block, Bandra Kurla Complex, Bandra (E), Mumbai‐ 400051. 

(c) Is it compulsory for me to have a Demat Account? 

As per the requirement, all the public issues of size in excess of Rs.10 crore, are to made compulsorily in demat mode. Thus, if you intend to apply for an issue that is being made in a compulsory demat mode, you are required to have a demat account and also have the responsibility to put the correct DP ID and Client ID details in the bid/application forms. You can also refer to FAQs relating to demat available in the URL http://investor.sebi.gov.in/faq/dematfaq.html in the Investor Education section of the SEBI website.

(d) Is it compulsory to have PAN? 

Yes, it is compulsory to have PAN. Any investor who wants to invest in an issue should have a PAN which is required to be mentioned in the application form. It is to be distinctly understood that the photocopy of the PAN is not required to be attached along with the application form at the time of making an application.  

(e) For how many days an issue is required to be kept open? 

The period for which an issue is required to be kept open is:

For Fixed price public issues: 3‐10 working days

For Book built public issues:  3‐7 working days extendable by 3 days in case of a revision in the price band

For Rights issues:    15‐30 days. 

(f) When do I get the allotment/ refund of shares? 

For Fixed price public issues:  30 days of the closure of the issue

For Book built public issues:  15 days of the closure of the issue

For Rights issues:    15 days of the closure of the issue 

(g) How can I know about the demand for an issue at any point of time?

The status of bidding in a book built issue is available on the website of BSE/NSE on a consolidated basis. The data regarding bids is also available investor category wise. After the price has been determined on the basis of bidding, the public advertisement containing, inter alia, the price as well as a table showing the number of securities and the amount payable by an investor, based on the price determined, is issued. However, in case of a fixed price issue, information is available only after the closure of the issue through a public advertisement, issued within 10 days of dispatch of the certificates of allotment/ refund orders. 

(h) How will I get my refund in an issue? 

You can get refunds in an issue through various modes viz. registered/ordinary post, Direct Credit, RTGS (Real Time Gross Settlement), ECS (Electronic Clearing Service) and NEFT (National Electronic Funds Transfer). As stated above, if you are residing in one of the 68 centers as specified by Reserve Bank of India, then you will get refunds through ECS only except where you are otherwise disclosed eligible under Direct Credit and RTGS. If you are residing at any other center, then you will continue to get refunds through registered/ordinary post. You are therefore advised to read the instructions given in the prospectus/ abridged prospectus/ application form about centers. For more details, you may read subsection on “Electronic Clearing Scheme for Refunds”. 

(i) When will the shares allotted to me get listed? 

In book built public issue the listing of shares will be done within 3 weeks after the closure of the issue. In case of fixed price public issue, it will be done within 37 days after closure of the issue. 

(j) How will I know which issues are coming to the market? 

The information about the forthcoming issues may be obtained from the websites of Stock Exchanges. Further the issuer coming with an issue is required to give issue advertisements in an English national Daily with wide circulation, one Hindi national newspaper and a regional language newspaper with wide circulation at the place where the registered office of the issuer is situated.

(k) Where to I get the copies of the offer document? 

The soft copies of the offer documents are put up on the website of Merchant banker and on the website of SEBI under Reports/Documents section [http://www.sebi.gov.in/Index.jsp?contentDisp= Section&sec_id=5 ]. Copies of the offer documents in hard form may be obtained from the merchant banker or office of SEBI, SEBI Bhawan, Plot No. C4‐A “G” Block, BKC, Bandra (E), Mumbai ‐ 400051 on a payment of Rs 100 through Demand Draft.

(l) How do I find the status of offer documents filed by issuers with SEBI?

SEBI updates the processing status of offer documents on its website every week under the section http://www.sebi.gov.in/Index.jsp?contentDisp=PrimaryMarket in SEBI website. The draft offer documents are put up on the website under Reports/Documents section. The final offer documents that are filed with SEBI/ROC are also put up for information under the same section. 

(m) Whom do I approach if I have grievances in respect of non receipt of shares, delay in refund etc.? 

You can approach the compliance officer of the issue, whose name and contact number is mentioned on the cover page of the Offer Document. You can also address your complaints to SEBI at the following address: Office of Investor Assistance & Education, Securities & Exchange Board of India, C4A, G Block, Bandra Kurla Complex, Bandra (E), Mumbai‐ 400051.

Understanding Book Building 

(a) What is book Building?

Book building is a process of price discovery. The issuer discloses a price band or floor price before opening of the issue of the securities offered. On the basis of the demands received at various price levels within the price band specified by the issuer, Book Running Lead Manager (BRLM) in close consultation with the issuer arrives at a price at which the security offered by the issuer, can be issued. 

(b) What is a price band? 

The price band is a band of price within which investors can bid. The spread between the floor and the cap of the price band shall not be more than 20%. The price band can be revised. If revised, the bidding period shall be extended for a further period of three days, subject to the total bidding period not exceeding thirteen days. 

(c) How does Book Building work? 

Book building is a process of price discovery. A floor price or price band within which the bids can move is disclosed at least two working days before opening of the issue in case of an IPO and atleast one day before opening of the issue in case of an FPO. The applicants bid for the shares quoting the price and the quantity that they would like to bid at. After the bidding process is complete, the ‘cut‐off’ price is arrived at based on the demand of securities. The basis of Allotment is then finalized and allotment/refund is undertaken. The final prospectus with all the details including the final issue price and the issue size is filed with ROC, thus completing the issue process. Only the retail investors have the option of bidding at ‘cut‐off’.

(d) How does “cut‐off” option works for investors?

“Cut‐off” option is available for only retail individual investors i.e investors who are applying for securities worth up to Rs 1,00,000/‐ only. Such investors are required to tick the cut‐off option which indicates their willingness to subscribe to shares at any price discovered within the price band. Unlike price bids (where a specific price is indicated) which can be invalid, if price indicated by applicant is lower than the price discovered, the cut‐off bids always remain valid for the purpose of allotment

(e) Can I change/revise my bid? 

Yes, you can change or revise the quantity or price in the bid using the form for changing/revising the bid that is available along with the application form. However, the entire process of changing or revising the bids shall be completed within the date of closure of the issue. 

(f) Can I cancel my Bid? 

Yes, you can cancel your bid anytime before the finalization of the basis of allotment by approaching/ writing/ making an application to the registrar to the issue.

(g) What proof can I request from a trading member or a syndicate member for entering bids?

The syndicate member returns the counterfoil with the signature, date and stamp of the syndicate member. You can retain this as a sufficient proof that the bids have been accepted by the trading / syndicate member for uploading on the terminal.

fair to none unfair to all god bless accountants/auditors

LARGE Indian companies could likely report a sharp fall in the valuation of their assets as new accounting norms prompt these firms to reassess the fair value of their units, a mandatory condition under globalised reporting standards.
    Adoption of the International Financial Reporting Standards, or IFRS, a modern accounting system that Indian companies have to migrate to from next year, could see local firms publicly admit to any erosion in the value of their subsidiaries or other assets — like Vodafone, which recently shaved off $3.2 billion (about Rs 14,600 crore) from its Indian unit due to adverse market conditions.
    Such instances may also be found in Indian companies that had acquired large foreign firms in the past three to four years as the global economic situation took a toll on most of these companies.
    Companies like Tata Steel, Tata Motors and Hindalco which acquired big companies overseas through borrowed funds, paid additional amounts above the enterprise value for the goodwill of the foreign firms, which typically reflects the extra amount for synergy benefits, research and development and other off-balance sheet items.
    These acquisitions have suffered a drop in their values due to the economic crisis. Such drop in values will now have to be reported by the companies and charged to their profit and loss accounts, which implies a run on their profitability, say auditors who deal with the financial statements of large Indian companies.
    “Under IFRS, companies have to do an impairment test annually to determine what is the fair value of their business today, compared to the price at which it was acquired. If there is a fall, it is charged to the profit and loss account,” says Jamil Khatri, an executive director with global consultancy KPMG.
    Apart from direct loss in business, companies also suffer from a loss in intangibles such as R&D, intellectual property, loyal customers and customer relations. The modern accounting norms also find it impossible to value such items.
    “It’s high time people realise that valuation of companies have shifted out of the tangibles. Testing the valuation of intangibles is different under IFRS-3. Even Western companies are grappling with the concept and it’s already showing in the way Vodafone wrote down the valuation of its Indian subsidiary,” says Unni Krishnan, MD of Brand Finance, a brand evaluation consultancy.
    While Indian accounting norms have also pressed for reporting such impairment, many Indian companies typically took refuge under a small provision in the Companies Act that allows such change in valuations to be adjusted against reserves. “Also, boards of many companies need to take a call on whether any drop in valuations is typical to that industry,” says KH Viswanathan, an executive director with audit firm RSM Astute.
    Shareholders and investors in Indian companies are yet to know that there are differences between IFRS and Indian accounting norms. The Indian norms permit reversal of impairment of goodwill when certain conditions are met. This is not there under IFRS. There is also a difference in the types of assets to be tested, with the Indian GAAP including all intangible assets with a useful life of more than 10 years. Under IFRS, only intangible assets with indefinite useful life are taken.
    However, it also needs to be mentioned that impairment charges do not necessarily mean a cash drain. It is only a fallout of stringent accounting rules, say auditors.

Core Principles of Reassessment under the Income Tax Act with Summary of Important Case Laws

I. Recording of reasons

1. Recording of reasons is a condition precedent to invoke jurisdiction under section 147/148. CIT vs. Rajindra Rosin & Turpentine Industries. (2008) 305 ITR 161 (Punj. & Har.)

2. Language of section 148(2) does not permit recording of reasons between date of issuance of notice and service of notice, words used by provisions in no uncertain terms require recording of reasons before issuing any notice.

Rajoo Engineers vs. Dy. CIT (2008) 218 CTR (Guj.) 53

II. Notice — Return under protest

3. When a notice under section 148 of the Income-tax Act, 1961, is issued, the proper course of action for the notice is to file the return and, if he so desires, to seek reasons for issuing the notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the notice is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order.

GKN Driveshafts (India) Ltd. vs. ITO & Ors. (2003) 259 ITR 19 (SC).

III. Reasons – Recorded to be supplied

4. Reasons for notice must be given and objections of assessee must be considered. Allana Cold Storage vs. ITO (2006) 287 ITR 1 (Bom.)

5. Assessee is entitled to be supplied with the reasons in the event he challenges the notice for reassessment; assessee is not estopped from challenging the impugned notice after having submitted to the jurisdiction of the officer by filing returns.

Berger Paints India Ltd vs. ACIT & Ors (2004) 266 ITR 462 (Cal)

6. If assessing officer rejects objections filed to notice under section 148 he shall not proceed further in matter for a period of four weeks from date of receipt of service of said order on objections, on assessee.

Asian Paints Ltd. vs. Dy. CIT (2008) 296 ITR 90 (Bom.)

7. Reassessment framed by the assessing officer without disposing of the primary objection raised by the assessee to the issue of reassessment notice issued by him was liable to be quashed.

MCM Exports vs. Dy CIT (2009) 23 DTR 356 (Guj).

8. Notices issued under sections 142(1) and 143 (3) without disposing of the objections raised in response to the reasons recorded held to be invalid.

Premier Ltd vs. Dy CIT WPNo 2340 dt 22-10-2008 (Bom)

IV. Issue of notice by successor

9. Assessing officer recording reasons for assessment and assessing officer issuing notice under section 148 must be the same person. Successor assessing officer cannot issue notice under section 148 on the basis of reasons recorded by predecessor assessing officer. Notice issued invalid and deserves to be quashed.

Hynoup Food and Oil Industries Ltd. vs. ACIT (2008) 307 ITR 115 (Guj.)

10.  The notice prescribed by section 148 cannot be regarded as a mere procedural requirement. It is only if the said notice is served on the assessee that the ITO would be justified in taking proceedings against the assessee. If no notice is issued or if the notice issued is shown to be invalid, then the proceedings taken by the ITO would be illegal and void.

• Y. Narayan Chetty vs. ITO (1959) 35 ITR 388 (SC),
• CIT vs. Thayaballi Mulla Jeevaji Kapasi (1967) 66 ITR 147 (SC)
• CIT vs. Kurban Hussain Ibrahimji Mithiborwala (1971) 82 ITR 821 (SC)

1. Where notice was not sent by registered post nor served upon assessee in any other manner whatsoever, proceedings for assessment were void.

CIT vs. Harish J. Punjabi (2008) 297 ITR 424 (Del.)

12. Time limit for issue of notice- s. 143(2)

When period for issue of under section 143(2) not expired, reassessment held to be invalid. CIT vs. Qatalys Software Technologies Ltd (2009) 308 ITR 249 (Mad).

VI. Reasons – Non-application of mind

13. A.O. having communicated to the auditor that a certain decision of a High Court did not apply to the facts of the petitioner case but later rejected the objections raised by the petitioner to the notice u/s. 148 taking a contrary view without giving any reasons as to why he has departed from the earlier view that the decision was not applicable there was total non-application of mind on the part of the AO, impugned communication is set aside and the matter is remanded back to the AO for de nevo consideration.

Asian Cerc Information Services (P) Ltd vs. ITO (2007) 293 ITR 271 (Bom)

VII. Approval and Sanction

14.  The court held that, it is not only the formation of the required belief by the Income Tax Officer to take recourse to assessment or reassessment but he is further statutorily required to record his reasons and must necessarily obtain sanction of the Commissioner or the Board as the case may be.

• Chhugmal Rajpal vs. S.P. Chaliha (1971) 79 ITR 603 (SC)
• Johari Lal (Huf) vs. CIT (1973) 88 ITR 439 (SC)

15.  CIT having mechanically granted approval for reopening of assessment without application of mind, the same is invalid and not sustainable.

• German Remedies Ltd. vs. Dy. CIT (2006) 287 ITR 494 (Bom)
• United Electrical Company (P) Ltd. vs. CIT & Ors (2002) 258 ITR 317 (Del)

VIII. Disclosure of Primary Facts

16. Statement of unconnected person

In the absence of any material before the AO a statement by an unconnected person did not constitute reason to believe that assessee income had escaped assessment especially when the assessee had produced all the material and relevant facts and therefore the reassessment proceedings could not be sustained.

• Praful Chunilal Patel vs. M.J. Makwana, ACIT (1999) 236 ITR 832 (Guj)
• JCIT & Ors vs. George Williamson (Aassam) Ltd. (2002) 258 ITR 126 (Guj)

IX. Re-opening beyond 4 years bad in Law

17. Jashan Textiles Mills P. Ltd. vs. DCIT (2006) 284 ITR 542 (Bom)

18.  Assessee having fully and truly disclosed all the material facts necessary for the assessment as required by the AO the precondition for invoking the proviso to S. 147 was not satisfied and therefore AO acted wholly without jurisdiction in issuing notice u/s. 148 beyond four years period mentioned in S. 147.

Wel Intertrade (P) Ltd. & Anr. vs. ITO (2009) 308 ITR 22

19.  Tribunal having concluded that all the material facts were fully and truly disclosed by the assessee at the time of original assessment, invocation of provisions of S. 147 after the expiry of four years from the end of the relevant asst. year was not valid.

CIT vs. Kapil Dev (2009) 177 Taxman 6 (Del)

G.N. Shavo (Wine) (P) Ltd. vs. ITO & Anr (2003) 260 ITR 513 (Cal)

20.  AO who allowed assessee is claim for deduction under S. 80HHD was well above of the primary facts and therefore assessments could not be reopened after the expiry of four years on the ground that income had escaped assessment on account of excessive relief u/s. 80HHD.

Sita World Travels (India) Ltd vs. CIT (2005) 274 ITR 186 (Del)

21.  Assessee having made full disclosure of material facts in the return which was accompanied by several enclosures, assessment could not be reopened beyond four years from the end of the relevant asst. year for the reason that certain income has been wrongly assessed under the head ‘Capital gains’ instead of ‘Profits and gains’ of business or profession.

Gujarat Fluorochemicals Ltd. vs. DCIT (2008) 15 DTR (Guj)

22.  A.O. having accepted the claim of the assessee for deduction u/s. 80-O on the basis of details furnished by the assessee it cannot be said that the assessee had not made full and true disclosures of all material facts for claiming deduction and therefore, notices u/s. 148 issued after expiry of 4 years from the end of relevant asst. year were wholly illegal and without jurisdiction.

Universal Subscription Agency (P) Ltd. vs. Jt. Comm. of Income Tax (2007) 293 ITR 244 (All)

23.  There was no failure on the part of assessee to disclose a material fact where rateable value of the property was enhanced by the Municipal Corporation after assessment for assessment year 1991–92 to 1993-94 had been computed, hence reopening of assessment after expiry of four years from the end of relevant assessment year was barred by the Proviso to S. 147.

CIT vs. Tirathram Ahuja (HUF) (2008) 6 DTR (Del) 335.

24. There being no whisper in the reasons supplied to assessee that income escaped assessment by reason of assessee’s failure to make a full and true disclosure of all material facts necessary for assessment, notice u/s. 148 issued beyond four years from the end of relevant asst. year was barred by limitation under proviso to S. 147, hence without jurisdiction.

Haryana Acrylic Manufacturing Co. vs. CIT and Anr (2009) 308 ITR 38 (Del.)

X. Reassessment with in four years

25. An assessment order passed after detailed discussion cannot be reopened within a period of 4 years unless the AO has reason to believe due to some inherent defect in the assessment.

Techspan India (P) Ltd & Anr vs. ITO (2006) 283 ITR 212 (Del) German Remedies Ltd vs. DCIT & Ors. (2006) 285 ITR 26 (Bom)

XI. Reassessment – Change of opinion

26.  Amendment as per Direct Tax Laws (Amendment) Act, 1989 w.e.f. April 1, 1989 as also of sec. 148 to 152 have been elaborated in Circular No. 549, dated October 31, 1989. A perusal of clause 7.2 of the said circular makes it clear that the amendments had been carried out only with a view to allay fears t that the omission of the expression reason to believe” from sec. 147 would give arbitrary power to AO to reopen past assessments on a mere change of opinion i.e. a more change of opinion cannot form basis for reopening a completed assessment.

CIT vs. Kelvinator of India Ltd. (2002) 256 ITR 1 (Del) (FB)

27.  Assessee having already filed his objections to the impugned notice u/s. 148 contending that it is a case of change of opinion and the issuance of notice was not justified, without making out a case of lack of jurisdiction the objections are to be considered by the competent authority and not in writ proceeding.

Jagdish Prashad Gupta vs. JCIT & Anr. (2006) 283 ITR 585 (Del)

28.  Issue regarding addition of amount of deferred taxation for computing book profits u/s. 1 15JB having been raised by the AO at the time of original assessment u/s. 143(3) and no addition having been made by AO on the account on being satisfied with the explanation of the assessee reopening of assessment on the very same issue suffered from change of opinion in the absence of any fresh material hence invalid.

M.J. Pharmaceuticals Ltd. vs. CIT (2008) 297 ITR 119 (Bom)

29.  In determining whether commencement of reassessment proceedings was valid it has only to be seen whether there was prima facie some material on the basis of which the department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage.

Raymond Woollen Mills Ltd. vs. Income Tax Officer and Others (1999) 236 ITR 34 (S.C.)

30.  Points not decided while passing assessment order under section 143(3) not a case of change of opinion. Assessment reopened validly.

Yuvraj vs. Union of India (Bom.) (2009) 315 ITR 84.

31.  Change of opinion, bad in law

CIT vs. Former Finance (2003) 264 ITR 566 (SC)

XII. Reason to believe — Satisfaction.

31. Reopening is not permissible on borrowed satisfaction of another Assessing Officer. CIT vs. Shree Rajasthan Syntex Ltd. (2009) 212 Taxation 275 (Raj.)

XIII. Audit objection

32. AO having granted benefit of S. 72A to the assessee in respect of unabsorbed depreciation of the amalgamating company after the assessee had furnished the relevant particulars and the AO was satisfied about the eligibility of the assessee for the benefit of S. 72A are not applicable to the facts of the case amounted to a case of change of opinion and, therefore, reassessment proceedings cannot be sustained.

Stock Exchange Ahmedabad vs. ACIT (1997) 227 ITR 906 (Guj) Apollo Hospital Enterprises Ltd. vs. ACIT (2006) 287 ITR 25 (Mad.)

33. AO having reopened the assessment at the benefit of the Audit department while disagreeing with the later objection and without entertaining his own belief that the income of the assessee had escaped assessment on the ground that assessee had claimed loss on the basis of erroneous computation as indicated by the audit party reopening is not sustainable, notice u/s. 148 quashed.

Rajesh Jhaveri Stock Brokers (P) Ltd. vs. ACIT (2006) 284 ITR 593 (Guj)

34.  AO having communicated to the auditor that a certain decision of a HC did not apply to the facts of the petitioners case but later rejected the objections raised by the petitioner to the notice u/s. 148 taking a contrary view without giving any reason as to why he has departed from the earlier view that the decision was not applicable, there was total non-application of mind on the part of AO; matter remanded back to AO for de novo consideration.

Asian Cerc Information Services (P) Ltd vs. ITO (2007) 293 ITR 271 (Bom)

35.  Reassessment was not valid as the AO held no belief on his own at any point of time that income of assessee had escaped assessment on account of erroneous computation of benefit u/s 80HHC and was constrained to issue notice only on the basis of audit object.

Adani Exports vs. DCIT (1999) 240 ITR 224 (Guj)

1. 36. Audit Objection cannot be the basis for reopening of assessment to income tax by the revenue. Indian & Eastern Newspaper Society vs. CIT (1979) 119 ITR 996 (SC).

37.  AO having allowed assessee’s claim for depreciation in the regular assessment and reopened the assessment pursuant to audit objection, it cannot be said that he had formed his own opinion that the income had escaped assessment, and the reopening being based on mere change of opinion, same was not valid.

IL & FS Investment Managers Ltd. vs. ITO & Ors (2008) 298 ITR 32 (Bom) Vijaykumar M. Hirakhanwala (HUF) vs. ITO & Ors (2006) 287 ITR 443 (Bom)

XIV. Reasons to believe – Survey subsequent

38. Detection of excess stock or unaccounted expenditure as renovation of business premises at the time of survey u/s. 133A in a subsequent year, could not constitute reason to believe that such discrepancies existed in earlier years also and, therefore, reopening of assessments for those years on the basis of aforesaid reason to believe was not valid.

CIT vs. Gupta Abhushan (P) Ltd. (2008) 16 DTR (Del) 76

XV. Reassessment – Interpretation of High Court decision

39. Reopening of assessment on the basis of wrong interpretation of High Court decision was invalid. Assam Co. Ltd vs. UOI & Ors (2005) 275 ITR 609 (Gau)

XVI. Supreme Court decision cannot be the basis

40. The ITO cannot seek to reopen an assessment under section 147 on the basis of the Supreme Court decision in a case where assessee had disclosed all material facts.

Indra Co. Ltd. v. ITO (1971) 80 ITR 559 (Cal.)

XVII. Ignorance of board circular is not sufficient

41. The mere fact that the ITO was not aware of the circular of the board is not sufficient to reopen the assessment. Dr. H. Habicht v. Makhija (1985) 154 ITR 552 (Bom.)

XVIII. Notice – 143 (2).

42. Proceeding u/s. 147 cannot be initiated once return is filed by the assessee and no assessment is finalized by AO; since inquiries had been initiated u/s. 143(2) it became mandatory that they should have culminated in an order u/s. 143(3).

KLM Royal Dutch Airlines vs. ACIT (2007) 292 ITR 49 (Del)

43. Notice u/s. 143(2) cannot be issued after the expiry of 12 months from the end of the month in which the return was furnished reopening of assessment without any fresh material and without assigning any reason cannot be sustained.

Bapalal & Co. Exports vs. JCIT (2007) 289 ITR 37 (Mad)

XIX. Intimation – Section 143(1)

44. So long as the ingredients of section 147 are fulfilled, Assessing Officer is free to initiate proceeding under section 147 even where intimation under section 143(1) has been issued; as intimation under section 143(1)(a) is not assessment there is no question of treating reassessment in such a case as based on change of opinion.

Asstt. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 291 ITR 500 (SC)

XX. Reassessment – Valuation report

1. AO had no jurisdiction to reopen the concluded assessments on the strength of valuation report of valuation officer obtained subsequently and that too not in exercise of powers u/s. 55A impugned notices under S. 148 quashed.

Prakash Chand vs. Dy. CIT & Ors (2004) 269 ITR 260 (MP)

1. Assessing Authority having made a detailed enquiry before making the assessment of the petitioner u/s. 143(3) the impugned notice u/s. 148 was issued only on the basis of change of opinion and was therefore, invalid, notice was also illegal on the ground that it was based on the valuation report of cost of construction.

Girdhar Gopal Gulati vs. UOI (2004) 269 ITR 45 (All)

47.  Mere DVO’s report cannot constitute reason to believe that income has escaped assessment for the purpose of initiating reassessment and therefore Tribunal was justified on holding that the reassessment proceedings initiated on the basis of DVO’s report were invalid ab initio, more so when it has found that the DVO’s report suffers from various defects and mistakes.

CIT vs. Smt. Meena Devi Mansinghka (2008) 303 ITR 351

1. Reference to the valuation officer only in the course of the assessment. Reopening on the basis of valuation report not valid.

Manjusha Estate Pvt. Ltd. v ITO (2009) 314 ITR 263 (Guj).

1. Where apart from the valuation report which was relied upon by the ITO there was no material before him to come to the prima facie conclusion that the assessee had received the higher consideration than what had been stated in the sale deed, reassessment would not be justified.

ITO vs. Santosh Kumar Dalmia (1994) 208 ITR 337 (Cal.) XXI. Rectification

50.  Dept. having taken one of the two possible views in the matter of calculation of deduction u/ss. 10B and 80HHE assessment cannot be reopened by taking the other view more so when the CIT (A) has already quashed the rectification u/s. 154 which was made on the very same ground.

Western Outdoor Interactive (P) Ltd. vs. A.K. Phute, ITO & Ors (2006) 286 ITR 620 (Bom)

1. Allowance u/s. 80HHC having been granted by the ITO in rectification proceedings the remedy against lay with the dept. either u/s. 154 or S. 263 and not S. 147 further reassessment having been made on a date earlier than fixed same was bad. Alternative remedy was no bar for the maintainability of writ in such circumstances.

Smt. Jamila Ansari vs. ITO & Anr (1997) 225 ITR 490 (Addl)

1. Rectification proceedings initiated and dropped

i)  Dept. having taken one of the two possible views in the matter of calculation of deduction u/ss. 10B and 80HHE assessment cannot be reopened by taking the other view, more so when the CIT(A) has already quashed the rectification u/s. 154 which was made on the very same ground.

Western Outdoor Interactive (P) Ltd. vs. ITO (2006) 286 ITR 620 (Bom)

ii)  Rectification and reassessment due to audit objection on interpretation law, cannot be the basis for reopening of assessment.

CIT vs. Lucas T.V.S. Ltd. (2001) 249 ITR 306 (SC)

XXII. Direction of the Higher Authorities

53.  Revisional authority having directed the AO to adjudicate specific issues which were addressed and examined by him, assessment made by the AO on a higher total income by assuming more powers than that of the revisional authority is patently illegal and without jurisdiction.

N. Seetharaman vs. CIT (2008) 298 ITR 210 (Mad)

54.  The assessing officer for the assessment year 2000-0 1 recorded a specific note in the assessment order which indicated that the assessment order was passed under the dictates of the Commissioner. The Supreme Court in the challenge to the reopening for the same assessment year held that the assessment order passed on the dictates of the higher authority being wholly without jurisdiction, was a nullity. Therefore with a view to complete the justice to the parties, the Supreme Court directed that the assessment proceedings should be gone through again.

CIT vs. Greenworld Corporation (2009) 314 ITR 81 (SC).

XXIII. Amendment of Laws

55. No notice u/s. 148 having been served on the assessee prior to re-opening of assessment, assessment made u/s. 147 was bad in law; argument based on S. 292BB was not sustainable on the facts of the case.

CIT vs. Mani Kakkar (2009) 18 DTR (Del) 145

XXIV. Cases where full disclosures are not made

56. AO having accepted the claims of the assessee for deduction u/s. 80-O on the basis of details furnished by the assessee, it cannot be said that the assessee had not made full and true disclosure of all material facts for claiming deduction and therefore notice u/s. 148 issued after expiry of 4 years from the end of relevant assessment years were wholly illegal and without jurisdiction.

Universal Subscription Agency (P) Ltd vs. JCIT (2007) 293 ITR 244 (All)

XXV. Information

57. Information for reassessment should be based upon good faith and not mere pretence or purely subjective satisfaction.

S. Narayanappa vs. CIT (1967) 63 ITR 219 (SC) Culcutta Discount Co. vs. ITO (1961) 59 (SC) 41 ITR 191.

XXVI. Discloure in balance sheet

58. Disclosure in balance sheet also amounts to disclosure.

CIT vs. Corporation Bank Ltd. (2002) 254 ITR 791 (SC)

XXVII. Jurisdiction — Second Appeal

59. Jurisdiction can be challenged in Second Appeal.

Investment Corpn. Ltd. vs. CIT (1992) 194 ITR 548 (Bom) (556) N. Nagaganath Iyer vs. CIT (1996) 60 ITR 647 (Bom) (655)

1. 60. Appeal was pending before ITAT and the matter was subject matter of appeal before CIT (A). Metroauto Corpn vs. ITO (2006) 286 ITR 618 (Bom)

Note: Provisio to section 147 was inserted by the Finance Act, 2008, w.e.f. 1-4-2008

1. Dealing with the powers of 263, the court held that when the Commissioner (A) passes the order the entire order of AO, merges with the order of CIT (A), hence 263 cannot be initiated in respect of any other issue. The same principle will apply to reassessment under section 147 of the Act.

CIT vs. P. Munercherjii and Co. (1987) 167 ITR 671 (Bom.)

XXVIII. Scope of Powers

62.  Since the proceedings under section 147 are for the benefit of the revenue and in the assessee, and are aimed at gathering the escaped income of the revenue and an assessee and are aimed at gathering the escaped income of an assessee the same cannot be allowed to be converted as revisional or review proceedings at the instance of the assessee, thereby making the machinery workable.

CIT vs. Sun Engineering Works (P.) Ltd. (1992) 198 ITR 297 (SC)

1. Proceeding under section 147 are for the benefit of the revenue and not the assessee and hence the assessee cannot form the be permitted to convert the reassessment proceedings as his appeal or revision in disguise and seek relief in respect of items earlier rejected, or claim relief in respect of items not claimed in the original assessment proceedings unless relatable to the escaped income and reagitate concluded matters. Allowance of such a claim in respect of escaped assessment in the case of reassessment has to be limited to the extent to which they reduce the income to that originally assessed. Income for the purpose of reassessment cannot be reduced beyond the income originally assessed.

K Sudhakar S. Shanbhag vs. ITO (2000) 241 ITR 865 (Bom.)

1. Statements by the third party cannot form the basis

A mere confessional statement by the third party (who is the lender of the assessee) that he was the mere name lender and that all his transactions of loans were bogus, without naming the assessee as one who had obtained bogus loans, would not be sufficient to hold that the assessee’s income had escaped assessment

S.P. Agarwalla Alias Sukhdeo Prasad Agarwalla vs. ITO (1983) 140 ITR 1010 (Cal)

65.  Assessing Officer cannot launch an inquiry on grounds not covered in reassessment notice. Where the Assessing Officer initiated proceedings for reassessment on the only ground that the assessee had claimed excess depreciation by adopting a higher rate as against the normal rate, he would not be justified in launching inquiry into issues which were not connected with the claim for depreciation. A letter issued to the assessee requiring the assessee to furnish information on issues in respect of which there was no allegation of any escapement or under assessment of income either in the reasons recorded or during the course of proceedings under the section would tantamount to reviewing the whole assessment which is not permissible. The letter was therefore vacated.

Vipin Khanna vs. CIT (2001) 251 ITR 782 (Del.)

XXIX. Block Assessment

66. Re-opening of assessment of a particular assessment year which was included in the block period — block assessment held to be invalid being barred by limitation. Merely because block assessment is time barred, the department cannot have reasons to believe that income has escaped assessment. And assessment for a particular year cannot be re-opened on that ground.

Smt. Mira Ananta Naik (2009) 183 Taxman 40 (Bom.)

67. From reading of clause (d) of the explanation one can clearly visualize a prohibition on determination of loss for the first time in a proceeding under section 147 on the basis of a return of loss filed in pursuance of a notice under section 148.

Koppind (P.) Ltd. vs. CIT (1994) 207 ITR 228 (Cal)

XXXI.    Reassessment in pursuance of an order/direction

68. The assessment or reassessment made by virtue of an order has to be confined to item in respect of which such finding or direction is given, it is not open to the AO to deal with other item of escaped income.

CIT vs. Moduri RajaiahGari Kishtaiah (1980) 123 ITR 494 (AP).

69.  As regards persons other than the assessee, who are not intimately connected with the assessee, no valid finding or direction can be given at all against them.

CIT vs. Omkarmal Meghraj (H.U.F.) (1974) 93 ITR 233 (SC) (240) CIT vs. S. Raghubir Singh Trust (1980) 123 ITR 438 (SC)

70. Direction to make an assessment or reassessment which has became time barred is not valid. K.M. Sharma vs. ITO (2002) 254 ITR (SC).

71. Remarks that reassessment proceedings could be taken. Not a finding or direction within meaning of section 150. Approval of Commissioner not obtained before issue of notice of reassessment — notice not valid.

Lotus Investments Ltd. vs. Asst. CIT (2007) 288 ITR 459 (Bom).

XXXII. Appeal

72.           In appeal against the order under section 147, the Deputy Commissioner (Appeals) cannot enhance the
assessment by adding new items of escaped income.

CIT vs. Shapoorji Pallonji Mistry (1962) 44 ITR 891 (SC).

XXXIII. Order set aside by the Commissioner

73. When the assessment is set aside by the commissioner under section 263, no fresh order was passed, issue cannot be said to be escaped assessment, hence the reassessment notice held to be bad in law, void ab initio and illegal.

Ador Technopark Ltd. vs. DCIT (2004) 271 ITR 50 (Bom.)

XXXIV. Writ

74. A writ petition would be maintainable to challenge invocation of proceedings for reassessment even though it was open to the assessee to challenge the same before the assessing officer during assessment as also challenge the same before the Appellate authorities after the reassessment proceedings were completed.

Calcutta Discount Co. Ltd. vs. ITO (1961) 41 ITR 191 (SC).

75. Writ petition challenging reassessment can not be thrown out at the threshold on the ground that it is not maintainable.

Techspan India (P) Ltd vs. ITO (2006) 283 ITR 212 (Delhi).

Read more: http://www.taxguru.in/income-tax-case-laws/core-principles-of-reassessment-under-the-income-tax-act-with-summary-of-important-case-laws.html#ixzz0p1KFecfF

How to study in less time

Plz DONT MIND his ENGLISH

HOW TO STUDY MORE IN LESS TIME

 

 

Exams are near and still syllabus is not completed. What to do? Many students think about it and spend lot of energy and time to find a solution of this. But if isn’t there any way to save time. Because sometime there are only small things which we ignore, yet they are very important in saving time. Some tricks which I got from some time management lectures and some are developed by me are here to share with all.  But I must tell you some of tricks are rude still very important for exam time. So let’s start with first thing

-Starting of every work is difficult rather than finishing it.  So first of all start to take first step of every decision.

-Think on paper. Writing things down minimizes confusion and stress. Write down your goals. Many times when we are studying we take three or four subjects at once.  But what we found one subject in which we are best is taking much time because we got pleasure to do that and in which we should concentrate get less time.  Make schedule of subjects more boring subject should get more time to study. You can categorize your to do list into A, B and C priorities.

-Create a short-task list — This is for beginners of time schedule.  I have seen many time management techniques which tell you to make time table.  But in practical when you follow you will find big gaps in it sometime for one hour.  Because in beginning it is difficult to control it so my personal view to note things that could be done in ten minutes or less. By practice it you can make big tasks list.

-Create a 10-20 minute file. Most people have at least twice a day when an unexpected 20- minute gap comes up. When those gaps happen, knock out some of your to-do list.

-See at your desk. Can you find all papers or books easily? Is there no waste paper, magazine, CD or filled rough pads? Ask yourself, “What is the worst thing that could happen if I throw this away?” Most of the time, you can live with your answer, so start filling that wastebasket!

- A place for everything and everything in its place. It still works! Searching for your stapler, calculator, note pad or pen is a time-waster, creating stress and frustration.  You would think where last time you left the thing.  Proper way is put things where there you need them most.

- When people arrive to interrupt, meet them at the door. Yes, you read right meet them at the door and talk outside your study room. It is exam time and you don’t want to waste your time in meetings. I know this is against social life culture but there is a great goal to achieve. After exam you can meet them properly and don’t forget to send them sweets after clearing exams.

-Stand up! When someone shows up unannounced, keep standing until you decide if you want the conversation to continue. Standing is not comfortable for most people and the length of most interruptions is in direct proportion to the comfort level of the interrupter.

-Don’t try to solve other people’s problems. You may be empathetic to their situation, but if you spend your time solving their problems, Surprise! Their next problem will become yours, too! The best thing you can do is help others learn how to solve their own problems.

-Give yourself a break! You can accomplish 60-minutes’ worth of interrupted work in just 20 minutes of non-interrupted work. Is there a better investment of your time? Get your rest. If you’re tired, you’re usually slower, rework more and end up even more exhausted. Take care of yourself.

-Always keep a pocket diary and pen with you.  Sometime when there is a problem in study you got answer in spare time, when you are not studying. Note down that at once otherwise when you will see the problem the answer will be washed off from your mind.

-Keep a record of who calls, how often and why? If several calls could be consolidated into one, negotiate with the caller to limit the number of calls.

Want to attack procrastination? Write down your goals twice a day. You’ll become more focused on getting the important things done.

So what are you waiting for start reading and manage time for more time for reading.

Scholarship/Stipend received EXEMPT u/s10(16): Dr. Rahul Tugnait v.ITO

CASE LAW DETAILS

Decided by: ITAT, CHANDIGARH BENCH `SME-B’, In The case of: Dr. Rahul Tugnait v.ITO, appeal No. :ITA NO. 197/CHD/2008, Decided on: JUNE 30, 2008

RELEVENT PARAGRAPH

5. Even if this appeal is viewed with angle of section 15 of the Act, which speaks about chargeability of salary. Section 15 of the Act is reproduced- herewith:-

“The following income shall be chargeable to income tax under the head “Salaries”-

a). any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not;

b). any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer through not due or before it became due to him;

c). any arrears of salary paid or allowed to him in T7Te previous year by or on behalf of an employer or a former employer, if not charged to income tax for any earlier previous year.

[Explanation 1} For the removal of doubts, it is hereby declared that where any salary paid in advance is included in the total income of any person for any previous year it shall not be included again in the total income of the person when thesalary becomes due.

[Explanation 2] Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as “salary” for the purposes of this section.

For getting salary normally there must be employee – employer or master – servant/agent relationship. The distinction between a servant or as agent can be summarized as under:-

i. Generally a master can tell his servant what to do and how to do and how to do it.

ii. Generally a principle cannot tell his agent how to carry out his instructions;

iii. A servant is under more complete control than an agent;

i. Generally a master can tell his servant what to do and how to do and how to do it.

ii. Generally a principle cannot tell his agent how to carry out his instructions.

iii. A servant is under more complete control than an agent;

iv. Generally, a servant is a person who not only receives instructions from his master but is subject to his master’s right is control instructions but is generally free to carry out those instructions according to his own direction.

v. Generally a servant qua servant has no authority to make contracts on behalf contracts on behalf of his principal.

vi. Generally an agent is paid commission upon effecting the result which he has been instructed by his principal to achieve.

vii. Generally a servant is paid wages or salary.

For ascertaining whether a person is a servant or an agent, a rough and ready test is whether under the terms of his employment the employer exercises a supervisory control in respect of the work entrusted to the person. Aservant acts under the direct control/supervisory control or supervision of the principal, though he is bound to exercise his authority in accordance with all lawful orders and instructions which may be given to him form time to time by his principal/controller/supervisor. But this test is not universal in its application and does not determine in every case, having regard to the nature of employment, that he is aservant. A person who is engaged to manage a business may be a servant or an agent according to the nature of his service and the authority of his employment. Generally if may be possible to say that the greater the amount of direct control over the person employed, the stronger is the conclusion the possibility of the services rendered being in the nature of principal and agent. It is not possible to lay down any precise rule to distinguish one kind of employment from the other. The nature of the particular business and the nature of the duties of the employee will require to be considered in each case in order to arrive at a conclusion as to whether the person employed is aservant or an agent. In each case the principle for ascertaining remains the same.

Section 16 of the Act speaks about deduction from salaries whereas section 17 speaks about “salary”, “perquisite” and “profits in lieu of salary” etc. A conjoint reading of section, 15, 16 and 17 nowhere includes scholarship/ stipend which have been mentioned in section 10(16) of the Act. Therefore, it can be said that the stipend/scholarship has been specifically precluded from the mischief of sub clause (1) & (2) of section 17 of the Act.

If the aforesaid sections are analyzed by keeping them in juxtaposition, with the terms and conditions used in the bond, it can be said that it is neither asalary /wages nor perquisite. Even the Hon’ble Calcutta High Court in the case of CIT v. Jnan Parkesh Ghosh [62 Taxman 151 (Cal)] went to the extent that the professionals rendering the incidental services are not servants. Our above view is further forttfied by the following decision:-

i. Lakshimnarayana Ram Gopal & Son Ltd vs. State [25 ITR 449 (SC)]

ii. Ramprasad v. CIT [86 ITR 122 (SC)].

iii. Piyare Lal Adishwar Lal v. CIT [40 ITR 70 (SC)]

Therefore, unless and until a master servant relation is brought on record by the revenue, suggesting that the assessee is an employee of the college, the stand of the revenue cannot remain on its legs.

We are also tempting to reproduce some of the relevant portion with regard to section 10(16) from the commentary of Acharya Shuklendra:

“Scholarships granted to meet the cost of education [cl.(16)] – Clause (16) exempts the /scholarships granted to meet the cost of education. Where the assesses receives a trainee stipend from a U.S. Hospital to aim him in his pursuit of study and research and not for Hospital to aid him in his pursuit of study and research and not for services rendered and the services, if any are only incidental to the course of practical training, such a stipend would be ascholarship and would be exempt under cI.(16). In fact, this clause recognizes statutorily the departmental instructions issued in this behalf under the 1922 Act.

(i) Concept of scholarship and extent of exemption – By scholarship as ordinarily understood, we mean anything which makes education free of charge, or at a confessional rate of fees. In section 10(16) however, scholarship is not used in that sense of something in educational opportunity which is given free. The basic postulate of a scholarship in cIause (1.6) is that it is an income receipt. Nevertheless, it is excluded from the total income by being brought under section 10. The view of the Income tax statute of a “Scholarship” , therefore, differs from the popular of dictionary view of a “Scholarship” . Whereas under the popular view, scholarship is education made available gratis, the sense in which the same expression is used in the Income tax Act is positive payment made to a scholar for pursuit of his education. The considerations which make up the concept of a “Scholarship for meeting the cost of education” in s. 10(16} are that the payment is intended to be an income receipt in the hands of the scholar and that whatever is paid is intended to meet the cost of education of the recipient. Since the purpose of the payment is to meet the cost of education, the question whether the quantum of payment is adequate or inadequate, or, is or is not in excess of the requirements are all beside the point. It is enough if the whole object of the payment is to meet the cost of education of a person and no further enquiry is called for in order toe exclude the amount form the taxable income u/s 10(16). If the payment is only for the cost of education the fact that the recipient does not spend the whole of the amount or saves something out of it or utilizes it for other purposes would not detract from the character of the payment being one forscholarship . Circulars issued by the Central Board have also proceeded on a liberal understanding of the provisions of s. 10(16). Accordingly, where a professor of mathematics is granted a grant-in-aid by a foreign university for doing advanced research in the filed of mathematics, the amount of granl-in aid would bescholarship under cl(16), and exempt even if a part or it had been utilized for the purposes of maintaining wife and children. The discretionaryscholarship granted by the employer to the children of employees cannot be treated as a perquisile in the hands of children of employees because no right is created in their favour. Even if such scholarship is regarded as a perquisite, it would be exempt under clause (16) in the hands of the recipient. However, an amount paid to the assessee in the for services as an intern in a medical hospital, where service as an intern is necessary for a person who joins a medical school, cannot be regarded as ascholarship so as to qualify for exemption under this clause”.

(ii) Instances of scholarships: – The following are the instances of scholarships exempt under clause (16) as recognized by the department.

[1] Annual allowance granted to retiring research scientists by CSIR, New Delhi

[2] Stipend of research fellowships for working under the National Commission for the compilation of History of Scientists in India under the auspices of National Institute of Scientists of India

[3] Fulbright grants described as ‘maintenance allowance’ given to Fulbright students.

[4] Fulbright grant described as `maintenance allowance “given to American tutors prosecuting studies in India.

[5] Junior/Senior fellowships awarded by the Department of Atomic Energy.

[6] Financial assistance to teachers in the universities for undertaking research of learned work in science subjects and humanities.

[7] Maintenance allowance granted to foreign trainees under the scheme of the International Association for the exchange of students for Technical Experience.

[8] Research fellowship in engineering, technology, humanities and science subject

[9] Junior and Senior research fellowships awarded by CSIR.

[10] National research fellowship and fellowships to German nationals awarded by the Ministry of Education.

Viewed from aforesaid different angles and facts of the present appeal. It can be said that the scholarship/ stipend received by a student from College/Govt for pursuing higher studies, cannot be termed as salary. Therefore, this appeal of the assessee is allowed.

NGO Formation

This is reproduction of the mail i received from very famous corporate guru and motivational expert Mr.Shiv Kedia

NGO Formation

A Non Governmental Organization is perceived to be an association of persons or a body of individuals. An association of persons with non-profit motive may be registered under any of the following Indian Acts:

As a Charitable Trust

As a Society registered under the Societies Registration Act

As a Company licensed under section 25 of the Companies Act

Procedures of Formation:

Trust: "Trust" is defined as an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner or declared and accepted by him for the benefit of another, or of another and the owner.

A Trust may be created by any language sufficient to know the intention and no technical words are necessary. A trust deed, generally, incorporates the following:

i. The name(s) of the author(s)/settlor(s) of the trust;

ii. The name(s) of the trustee(s);

iii. The name(s) if any, of the beneficiary/ies or whether it shall be the public at large;

iv. The name by which the trust shall be known;

v. The name where its principal and/or other offices shall be situate;

vi. The property that shall devolve upon the trustee(s) under the trust for the benefit of the beneficiary/ies;

vii. An intention to divest the trust property upon the trustee(s);

viii. The objects of the trust;

ix. The procedure for appointment, removal or replacement of a trustee. Their rights, duties and powers etc;

x. The rights and duties of the beneficiary/ies;

xi. The mode and method of determination of the trust.

A charitable trust is not required to obtain registration under the Indian Registration Act.

Society: A society may be defined as a company or an association of persons united together by mutual consent to deliberate, determine and act jointly for same common purpose. Minimum seven persons, eligible to enter into a contract, can form society. When an NGO is constituted as a society, it is required to be registered under the Societies Registration Act, 1860.

The chief advantage of forming a society are that it gives a corporate appearance to the organization, and provides greater flexibility as it is easier to amend the memorandum and bye laws of the society than in case of trust, terms of which are strictly manifested in the trust deed. However, formation of a society requires more procedural formalities than in case of a trust.

A Society for its inception requires:-

I. Memorandum of Association, and

II. Rules and Regulations

For the purpose of registration, following documents are required to be filed with the registrar of Societies:

a) Covering letter requesting for registration stating in the body of the letter various documents annexed to it. The letter is to be signed by all the subscribers to the memorandum or by a person duly authorised by all of them to sign on their behalf.

b) Memorandum of Association, in duplicate neatly typed and pages serially numbered.

c) Rules and Regulations/Bye-Laws, in duplicate, certified by at least three members of the governing body.

d) An affidavit of the president/Secretary of the society, on a non-judicial stamp paper of prescribed value, stating the relationship between the subscribers, duly attested by an oath commissioner, notary public or 1st class magistrate.

e) Documentary proof such as house tax receipt, rent receipt in respect of premises shown as registered office of the society or no objection certificate from the landlord of the premises.

f) An authority duly signed by all members of the managing committee.

g) A declaration by the members of the managing committee that the funds of the society shall be used only for the purpose of furthering the aims and objects of the society.

Company: Under Section 25 of the company's act, an association formed or to be formed:

a) For the purposes of promoting commerce, art, science, religion, charity to any other useful object

b) With intention to apply its profits or other income for promoting its objects, and 

c) Which prohibits payment of any dividend to its members,

Is permitted to be incorporated without addition of the word "Limited" or "Private Limited". Procedure for applying is same as applicable in the case of all companies.

If the registrar is satisfied that all formalities have been complied with, he will issue a certificate of incorporation from which date the company comes into existence.

Note: An association already registered as a company, may also apply for a licence u/s 25.

INCOME TAX EXEMPTION FOR NGO

TRUSTS:

Under section 11(1)(a) to (c), income derived from property held under trust is exempt if the following conditions are satisfied:

a) The property should be held under trust wholly for charitable or religious purposes.

b) Income from such property should be applied to charitable or religious purposes. (Exemption is available to the extent of such application)

c) Income should be applied in India

d) At least 85% of the income derived from property held under trust, should be applied to charitable or religious purposes in the relevant previous year in order to claim full tax exemption.

Note :

The assessee is to apply for registration in Form No. 10A in duplicate before the expiry of 1 year from the creation of trust.

Under Section 11(4) property held under trust includes a business undertaking held under trust.

Any voluntary contribution received by a trust or institution is exempt if (a) the trust is created wholly for charitable purposes and (b) contribution is not made with a specific direction that it shall form part of the corpus of the trust.

SOCIETY:

Societies are taxable in the status of AOP and different rates of tax are applicable to the income of an AOP in different circumstances:

A. Individual shares of members in AOP are not determinate:

i. Where the total income of any member of the AOP is taxable at a rate higher than the maximum marginal rate-Rate of tax is such higher rate. 

ii. Otherwise-30% 

B. Individual shares of members in AOP are determinate:

i. If total income of any member is not higher than Rs 50000/- (excluding share from AOP) and no member is taxable higher than 30%- Rate of tax on total income of AOP is the rate applicable to individuals. 

ii. If total income of any member is higher than Rs 50000/- (excluding share from AOP) and no member is taxable higher than 30%- Rate of tax is 30% 

iii. If any member is taxed higher than 30%, then (a) Tax on the portion of total income of AOP that is relatable to the share of such member is levied at such rate higher than the 30%, (b) tax on the balance total income will be 30%. 

TAX EXEMPTION FOR NOTIFIED CHARITABLE SOCIETIES U/s 10(23C) (iv) and (v)

Any income of any institution established for charitable purposes is exempt. For getting exemption under these clauses, following requirement must be completed:

i. Making an application in Form No. 56 

ii. Applying its income or accumulating it for application, wholly & exclusively to its objects;

iii. Notice of accumulation u/s 11(2) will have to be given to the assessing officer in Form No. 10

Operational Requirements For A Society

An annual list of members of the management committee shall be filed to Registrar of society within 30 days of the AGM. However if no AGM is held for any reason as per society Registration Act 1860, section whatsoever, than an annual list of members of the managing Committee as on 31st December each year shall be submitted to the office of the Registrar of societies. Non submission of the list attracts a financial liability of Rs.50/- for the list of each year

Once in every year a list of the office bearers and members of the Governing Body shall be filled with the Register of Societies, N.C.T of Delhi as required under Section 4 of The Societies Registration Act 1860 and applicable to the National Territory of Delhi.

Minutes

A : Governing Body Meetings

There shall be minimum four meetings of the Governing Body each calendar year, i.e. one meeting in every three calendar months.

B : Annual General Meetings

There shall be minimum one Annual General Meeting (AGM) of all the Members of the Society every year. 

The AGM can be held at any time between April 1 to December 31 after the end of the financial year each year.

1 - Adoption of Annual Accounts.

2 - Admission/Resignation/ other matters of the members of the society.

3 - Investment of funds of the society.

4 - IAppointment of the members of Governing Body on every expiry of its tenure

C : Extra Ordinary Annual General Meetings

For any urgent or emergent matter like Admission/Resignation/Death of the Member / Change of Name/change of address /change of objectives /change of Rules & Regulation or any other major issue of the society.

Notice & Quorum

A Governing Body Notice

Minimum 10 days clear notice or as per Rules & Regulation of the society and the quorum shall be 1/3rd members of the Governing Body or as per Rules & Regulation.

B :Annual General Meetings

Minimum 21 days clear notice or as per Rules & Regulation of the society and the quorum shall be 3/5th members of the General Body or as per Rules & Regulation.

C :Extra Ordinary Annual General Meetings

Minimum 10 days clear notice or as per Rules & Regulation of the society and the quorum shall be 3/5th members of the Governing Body or as per Rules & Regulation.

Register Of Members

The Society shall maintain at its registered office a register or its members and shall enter therein the following particulars:

1 - IThe names & addresses of the members.

2 - IThe date on which the member was admitted.

3 - IThe date on which a member ceased to be a member.

4 - IParticulars of Admission fees received.

5 - IParticulars of Annual Subscription received.

6 - IAny other information required from time to time.

Election

The General Body in its meeting shall elect all the office bearers after Five years or as per Rules & Regulation of the society by show or by secret ballot papers as required. The Quorum of the General Body shall be 2/3rd members of the Governing Body present or as per Rules & Regulation of the society.

Admission To Membership Of The Society:

A member shall fill the membership form to become a member of the society. The Membership shall be initially dealt with in 2 meetings of the Management Committee, One accepting it and the second confirming it, all the members of the society added/left during the year are to be discussed in the AGM also. A Register of member of the society has also to be maintained.

Calender Year:

The financial year of the Society shall start from the 1st day of April and end on the 31st day of March in the following year.

Financial Year

The accounts of the Society shall be audited at least once in a year by a qualified firm of Chartered Accountant appointed by the Governing Body.

Amendment

Any amendment in the Memorandum of Association and rules and regulation will be carried out in accordance with the section 12 & 12A of the Societies of Registration Act, 1860, as applicable to the National Capital Territory of Delhi.

Documents for amendments

Amended Copy of MOA & R.R of the Society in duplicate.

Copies of Special Resolution in duplicate (General Body).

Copies of Notice in duplicate.

Copies of Minute of Society Governing Body).

List of Governing Body. f. Copy of Comparative List of Amendment.

Copy of Election proceedings with Notice. h. Proof of Notice received.

Copies of application form for new membership.

Copies of resignation letter. k. Annual List of Governing Body (Sec.4).

N.O.C. from owner of the new registered office of the Society.

Ownership proof of new registered office of the Society. n. 'No Dispute' affidavit from President.