Weekly Round-up on Tax and Corporate Laws | 21st to 27th March 2022

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 21st to 27th March 2022, namely:

(a) Snippets of changes made in the Finance Bill, 2022 as passed by the Lok Sabha

(b) CA/CS/CWA Bill: Parliamentary panel mulls for setting up of Accounting Institute similar to IIM, IIT

(c) RBI lays down a framework for geo-tagging of physical payment system touch points

(d) E-mails or written submissions to be considered as sufficient opportunity of being heard provided during the pandemic: HC

(e) Section 188 and Regulation 23 of LODR do not prohibit a related party from voting for recalling a resolution passed by Co.

(f) Audit Trail feature in the accounting software of companies is mandatory with effect from 01-04-2022

1. Snippets of changes made in Finance Bill, 2022 as passed by the Lok Sabha

The Lok Sabha has passed the Finance Bill 2022 on March 25, 2022 [‘Finance Bill (Lok Sabha)’]. The Bill has been passed with more than 35 changes in the Finance Bill as introduced on 1st February 2022. New amendments have been made, and some proposed amendments have been removed or modified.

A snippet of all the changes made in the Finance Bill, 2022 as passed by the Lok Sabha viz-a-viz the Finance Bill, 2022 is presented below:

(a) Loss from one Virtual Digital Asset (VDA) cannot be set-off against income from another VDA;

(b) Definition of ‘transfer’ shall apply even if VDA is not held as a capital asset;

(c) Section 115BBH to override all other provisions to tax income from transfer of VDA at 30%;

(d) Computation provision of section 115BBH would not fail even if there is no cost of acquisition of VDA;

(e) Deductor to ensure that tax is deducted under section 194S where consideration for VDA is in-kind;

(f) Transaction in VDA can attract TDS under other provisions even if tax has been deducted under section 194S;

(g) Restriction on filing of updated return in case of search, survey or requisition;

(h) Return of loss filed under section 139(3) can also be updated;

(i) It will be mandatory to file an updated return of the subsequent year to adjust the carried forward losses, depreciation or MAT/AMT credit;

(j) Income to be recomputed due to disallowance of surcharge/cess.

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2. CA/CS/CWA Bill: Parliamentary panel mulls for setting up of Accounting Institute alike IIM IIT

Background

The Government had introduced the Chartered Accountants, the Cost and Works Accountants and Company Secretaries (Amendment) Bill, 2021 (‘Bill’) in the Lok Sabha on 17th December 2021. The purpose of the Bill is to amend the existing legislation governing these professional bodies – the Institute of Chartered Accountants of India (ICAI), Institute of Company Secretaries of India (ICSI), and Institutes of Cost Accountants of India (ICoAI). The objective of the amendment is to align the existing legislature with the changing scenario and bring more transparency.

On 22nd December 2021, the Bill was referred to the standing committee for their examination, based upon the representation of the various stakeholders, i.e. Ministry of Corporate Affairs (MCA)/ICAI/ICSI & ICoAI. The committee tabled its report before the Lok Sabha in March 2022.

The committee, in its report, has shared its views on the proposed Bill. The committee also proposed setting up Institutes of Accounting (IA) similar to IITs and IIMs to end the monopoly of the professional bodies.

(a) Setting up of Institutes of Accounting (IA) similar to IITs and IIMs

During the examination of the Bill, the standing committee observed that the qualification and licensing of accountants in advanced countries like the US, UK, and Canada are done by multiple bodies. The situation in India is precisely the reverse, where one institute has a statutory monopoly over the whole profession. This leads to lesser scope for improving the quality and competency of the profession. The committee felt that multiple bodies on the lines of the advanced countries are required to promote healthy competition and to raise the standard and quality of audit and accounting. The committee further stated that this would also improve the credibility of the financial reporting. Based on the above, the committee recommended that the Government should consider setting up of Institutes of Accounting (IIA) similar to IITs and IIMs for further development of the accounting and finance profession in the country.

(b) Proposed features of Indian Institute of Accounting (IIA)

The report of the committee includes suggestions made by an Independent witness on the establishment of the IIA. This proposal is for establishing a string of IIA that will raise the standards of accounting education and offer competition to the Institute of Chartered Accountants of India. Some suggestions of the committee are mentioned below:

(1) Statutory Body: The IIAs will be statutory bodies established by a Central law similar to IITs and IIMs and will be set up in different parts of India.

(2) Governing Board: Each IIA will have a board of governors consisting of experts and government officers from various ministries like the Ministry of Finance, Education, and the Ministry of Corporate Affairs. The Board will have fully functional, financial, and administrative autonomy for its efficient functioning. The chairman and the members will be eminent persons from business, public administration, accountancy, finance, academia, and so on, and they must be free from conflict of interest of any kind.

(3) Admission through National Entrance Test: Admission will be through a national entrance test after secondary schooling under the National Educational Policy 2020.

(4) Course curriculum: Each IIA will have an Academic Council that will develop the curriculum. The undergraduate curriculum will have financial and cost accounting, auditing, tax, law, business strategy, organisational behaviour, management, governance and public administration, technology, data science, psychology and other fields.

(5) Five-year undergrad programme & PhD programmes to be offered: IIAs will start with a five-year undergraduate programme in accounting. In overtime, they will develop post-graduate programmes in specialized areas such as forensic accounting, business analytics, cyber security, valuation, international tax, and other relevant fields. Once these programmes stabilize, they will develop PhD programmes.

(6) Research Driven: IIAs will be research-driven. They will support research and publications efforts by their faculty generously.

(7) Tie–up with educational Institutions: IIAs will work closely with national and regional educational institutions such as the Indian Institutes of Management, the Indian Institutes of Technology, the National Law Universities, and other universities and institutions.

(8) Global Outlook: From the beginning, IIAs will have an international outlook. They should have students from all over the world, including from developing countries. They should aim to get the best faculty from around the world.

(9) Economical pricing of Courses: They should price their education reasonably and provide liberal financial aid to needy students.

(10) Dual Degrees: Those who qualify in the undergraduate programme will be given two degrees, a Bachelor of Accounting and a Bachelor of Business. This will provide them with a choice of the stream they want to go.

(11) Issue of Certificate of Practice (COP): Those who qualify will be given a license to practice similar to CAs. The license-holders will be called Certified Professional Accountants (CPAs). They will be required to register themselves with a Central Licensing Authority (such as NFRA), which will handle their disciplinary matters.

The committee further clarified that this proposal visualizes the IIAs as academic institutions that educate licensed professionals similar to AIIMS, PGI, JIPMER, National Law Schools, and so on. In contrast, the Institute of Chartered Accountants of India will be a professional certification agency, much the same way it is now.

The committee viewed that the establishment of the IIA would further raise the standards of accounting and auditing and will lead to more transparent financial reporting. The features as outlined by the committee in its report are only suggestive in nature.

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3. RBI lays down a framework for geo-tagging of physical payment system touch points
Introduction

RBI vide. Circular No. RBI/2021-22/187 CO.DPSS.OVRST.No.S1738/06-08-018/2021-2022, dated, 25-03-2022 has prescribed a framework for geo-tagging of physical payment system touch points deployed by banks/non-banks. The framework has been issued under Section 10(2) read with Section 18 of Payment and Settlement Systems Act, 2007.

Background

The vision of RBI in laying out the framework is to deepen digital payments and provide inclusive access to all citizens of the country, irrespective of their location or digital literacy. RBI viewed that it is imperative that a robust payment acceptance infrastructure with multiple types of touch points exists across the length and breadth of the country and is available and accessible at all times.

RBI emphasised that capturing the accurate location of existing payment system touch points/acceptance infrastructure is essential to upscaling and chalking out intervention strategies. This requirement can be effectively facilitated by geo-tagging of payment touch points. This write-up aims to discuss the key highlights of the framework in details.

All banks/Non-bank PSOs shall maintain a register with the accurate location of all payment touch points across the country, which includes the following:

(1) Merchant related information- This information includes the general details of the merchant such as name, merchant ID, merchant category, merchant contact details, payment information etc., as well as location details such as merchant address, state, district, revenue centre, pin code, population group, post office, tier etc.

(2) Payment acceptance infrastructure details – These include general details of payment touch point such as type of terminal, sub-type, terminal ID, operating status etc. as well as location details of payment touch point such as a terminal address, state, district, revenue centre, pin code, post office population group, tier etc.

All banks / Non-bank PSOs shall submit report on payment touch points to the Reserve Bank through the Centralised Information Management System (CIMS) of RBI. Banks/Non-bank PSOs shall report information in .txt/CSV file format

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4. E-mails or written submissions to be considered as sufficient opportunity of being heard provided during the pandemic: HC

The Madhya Pradesh High Court has recently held that if the right to represent in a situation of COVID-19 pandemic is given by way of e-mails/written submissions, then it would be considered as a sufficient opportunity of being heard provided. This ruling is given in the case of Sai Rubber Works v. State of Madhya Pradesh.

Facts

The petitioner-manufacturer was engaged in the supply of goods to various states. The tax invoice was erroneously generated in the name of the wrong unit, and there was an error in the e-way bill. The goods and vehicle were detained on the ground as the place of supply mentioned were different from the actual place of the receiver. The department alleged suppression of sales and seized goods and vehicle. The appeal was filed, but it was dismissed on the grounds of delay and on merits. It filed a writ petition and submitted that the error that the petitioner made at the time of generation of the e-way bill was a procedural mistake, and it was done without fraudulent intent or gross negligence. It also submitted that the appellate authority did not provide an opportunity of a personal hearing to the petitioner and passed the impugned order in violation of the principle of natural justice.

High Court

The High Court observed that the pre-decisional hearing was afforded to the petitioner and a written submission was filed for perusal and record purposes. The right to represent in a situation of COVID-19 pandemic was given by way of e-mails/written submissions. Since the opportunity of hearing in times of COVID-19 was complied with and the conclusion on tax evasion was reached after considering pleadings and submissions raised by the petitioner, it should be regarded as that order was passed after providing sufficient opportunity of hearing. Thus, it would not be considered as a suitable case to invoke the writ jurisdiction of the High Court. Therefore, the petition was to be dismissed.

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5. Section 188 and Regulation 23 of LODR do not prohibit a related party from voting for recalling a resolution passed by Co.

In this significant ruling in the matter of R.T. Agro (P.) Ltd. v. Securities and Exchange Board of India [2022] 136 taxmann.com 133 (SAT – Mumbai), the SAT held that Section 188 and Regulation 23 of LODR do not prohibit a related party from voting for recalling a resolution passed by Co.

Brief Facts

The appellants proposed to enter into a transaction with ‘Neelkanth Realtors Pvt. Ltd.’ for the purchase of residential space. The proposal was treated as a material-related party transaction given clause 49 of the Listing Agreement, and, accordingly, such a proposal was required to be approved by the shareholders of the company.

A special resolution was approved by R.T. Exports Ltd. concerning an MoU with Neelkanth Realtors Pvt. Ltd. In terms of section 188 of the Companies Act, 2013, the related parties abstained from voting on the special resolution.

Thereafter, an EGM was held for rescinding the resolution in which related party entities voted. Prior to voting, the related party entities took opinion from a company law expert who opined that related party entities could cast their votes in view of the fact that section 188 of the Companies Act only prescribed that related parties shall not participate in the voting process only for entering into a related party transaction and not for rescinding a related party transaction.

A complaint was filed before the SEBI alleging that the appellants had violated regulation 23 of the LODR Regulations. The Adjudicating Officer after considering the replies found that the appellants being related party entities, have violated Regulation 23 of the LODR Regulations and, accordingly, imposed a penalty of Rs. 5 lakhs on each of the appellants. The appellants, being aggrieved by the order, filed the present appeal.

Question that arose before SAT

The question that arose for consideration before the Appellate Tribunal was whether the appellants were justified in voting for rescinding the resolution in spite of being related party entities?

SAT Rulling

The SAT observed that, from a perusal of Section 188 of the Companies Act, it was clear that no member of the company shall vote on such resolution to approve any contract or arrangement which may be entered into by the company if such member is a related party.

The SAT held that Section 188 of the Companies Act as well as Regulation 23 of the LODR does not prohibit related party entities from voting for recalling/rescinding resolution, which was passed earlier by the company.

In the absence of any such prohibition, it was open to the appellants to participate in the resolution of 16th December 2016. The bar under Section 188 and Regulation 23(7) of the LODR Regulations is that no related party can vote to approve any contract or arrangement in which he is a related party.

Quashing the impugned order, SAT held that the appellants did not commit any violation. The SAT held that Adjudicating Officer committed an error in holding that appellant had violated regulation 23 of the LODR Regulations.

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6. Audit Trail feature in the accounting software of companies is mandatory with effect from 01-04-2022

The Ministry of Corporate Affairs (MCA), by virtue of Notification No. G.S.R. 205(E) dated 24th March 2021, requires the companies to use the accounting software having an audit trail feature for each and every transaction, creating an edit log of each change made in books of account along with the date when such changes were made and ensuring that the audit trail cannot be disabled.

Later on, the applicability of such amendment was deferred for one year vide Notification No. G.S.R. 247(E), dated 1st April 2021. Therefore, the amendment is now effective from the financial year commencing on or after 1st April 2022.

The existence of such a feature in the accounting software will bring more transparency to the disclosures of the annual report of a company. This will also bring Stress-free audit, easy error-correcting, and thereby saving time and also preventing fraud.

Also, MCA vide Notification No. G.S.R 206(E), dated 24th March 2021 relating to Companies (Audit and Auditors) Amendment Rules 2021, requires the auditors of the company to report on whether the company has used such accounting software that has a feature of recording audit trail.

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