| FinMin notifies FII- friendly GAAR |
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New Delhi, 26 September The finance ministry has notified the muchawaited General AntiAvoidance Rules ( GAAR), which would only apply to arrangements over ₹ 3 crore from 2015- 16 or assessment year 2016- 17. This was also the recommendation of the Parthasarathi Shome committee. Experts say stock markets will have a lot to cheer, as the government has accepted the committee's recommendation that foreign institutional investors ( FIIs) not seeking benefits under double taxation avoidance agreements (DTAA) will escape GAAR. "Similarly, investment in participatory notes will not be subjected to GAAR," said N C Hegde, partner, Deloitte Haskins & Sells. However, experts expressed concern at some provisions such as invoking GAAR from assessment year 2016- 17 even if investments were made prior to August 2010. According to Hegde, GAAR was originally expected to come from 2010 along with the Direct Taxes Code ( DTC). Hence industry was worried that investments made since 2010 would also invoke GAAR. The rules say any income from transfer of investments made before August 30, 2010, would not come under GAAR. However, the rules also say GAAR would apply to any arrangement, irrespective of the date on which it has been entered into, if the tax benefit is obtained from April 1, 2015. It means if investors come under DTAA from April 1, 2015, their arrangements could come under GAAR even if entered into before August 1, 2010, Hegde said. " Though there seems to be an intention to grandfather investments made before August 31, 2010, the exemption is not very happily worded. Further, the exemption will not apply once GAAR is effective from April 1, 2015 ( financial year), negating the exemption significantly." Grandfathering is a provision to apply old rules till a specified date, while new rules are announced. Rahul Garg, direct tax leader with PwC India, said the benefit of grandfathering has been limited — first to investments made before August 2010 and secondly only for benefit up to March 31, 2015. The Shome committee had said that the rules which are specified in special antiavoidance agreements should override GAAR, Hegde said. "However, this does not find mention in the rules." GAAR was one of the measures proposed by the government that drew flak from foreign investors. After Pranab Mukherjee left the North Block to become President, the government appointed a committee under Shome to review the GAAR. FIIs not seeking benefit under DTAA, participatory notes spared; experts concerned at grandfathering rules |GAAR aims to check tax evasion |To come into effect by April 1, 2015 |Applicable to entities availing tax benefit of at least ₹ 3 crore |Was originally expected to come from 2010 along with the Direct Taxes Code |Does not apply to investment in participatory notes LESS TAXING |
| Did you know? 10 facts about Deloitte's FT audit |
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W hen did Deloitte submit its audit report? On May 30, nearly two months before the NSEL crisis broke out.
What are the key statements made by Deloitte? The Big 4 firm has issued a certificate of compliance of conditions of corporate governance, and independent auditor's reports accompanied by an annexure on standalone and consolidated financial statements. It certified these statements presented " a true and fair view" of the company's affairs ( balance sheet), profit ( profit and loss account) and cash flow ( cash flow statement). Did Deloitte make any qualifications in its report? No, there were no qualifications in the report on both stand- alone and consolidated statements. There were a couple of matters that were "emphasised".
Who signed these reports? Deloitte's partner Rajesh K Hiranandani. A senior chartered accountant, Hiranandani has in the past audited several large companies such as M& M, Sun Pharma and India Infoline.
How much did Deloitte charge? It charged ₹ 28 lakh for the statutory audit. However, it earned ₹ 23.9 lakh more from FTIL. It earned ₹ 8 lakh on taxation matters and ₹ 15.25 lakh "for other services".
What did Deloitte do this week? On September 23, Deloitte informed FTIL the audit report dated May 30 could not be relied on. The company in turn told exchanges it was deferring three key resolutions slotted for the annual general meeting on September 25.
Why did Deloitte make this statement? Two events preceded the move. One is described in FTIL's statement to exchanges as " communication of management of NSEL and statutory auditors of NSEL on the financial statements of NSEL". Some reports have interpreted this as withdrawal of the audit report by the NSEL auditor as well. Secondly, the move came a day after the Mayaram panel submitted its report. Something adverse in this report could also have triggered the Deloitte move.
Did Deloitte withdraw its audit report? No. Under the guidance note published by the ICAI, an auditor cannot withdraw a report once published. However, he can revise it. What is the procedure for preventing reliance on the audit report already issued? The auditor can take steps to prevent reliance when the management neither agrees to a revision of financial statements nor extends cooperation. The auditor would notify those persons ultimately responsible for the overall direction of the entity that action will be taken to prevent future reliance on the report. The steps that can appropriately be taken will depend upon the degree of certainty of the auditors knowledge. What steps should the auditor take according to the ICAI? a) Notify the client that the audit report must no longer be associated with the financial statements; ( b) Notify regulatory agencies having jurisdiction over the client that the audit report should not longer be relied on; ( c) Making an appropriate statement at the annual general meeting, if requested by the chairman. Deloitte complied with clause ( a). It did not do so for (c). Did it notified regulatory agencies as given in clause ( b), it does not wish to say. Source: FTIL annual report, www. icai. org, exchange statements On September 24, a day before its annual general meeting, Financial Technologies ( FTIL) told exchanges that key resolutions were deferred. One reason given was that Deloitte Haskins & Sells had some reservations about its audit following the crisis at NSEL, an FTIL subsidiary. Business Standard answers some key questions. |
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