Sandeep Ahuja & Co.

Established in the year 1986, we are a leading chartered accountancy firm based in Delhi & NCR rendering comprehensive professional services which include statutory audit, internal audit, direct tax, transfer pricing, GST, bank audit, propriety audit, cost accounting, internal financial controls and risk advisory.

Saturday, May 17, 2014

COMPANIES ACT 2013 - RELATED PARTY TRANSACTIONS AND DISCLOSURE REQUIREMENTS

Related party relationships are a normal feature of commerce and business. Generally Business enterprises carry on some business activities through subsidiaries or associates also sometimes acquire interests in other enterprises for investment purposes or for trading reasons. Sometimes the investing enterprise exercises control or exercise significant influence on the financial and/or operating decisions of its investee.
The Companies Act, 2013 has made provisions to control related party transactions and to ensure that Directors who are in fiduciary position in the company sometimes siphon funds of the company for personal gains. Sometimes Directors divert funds of the company for personal benefit of directors through related party transactions.  Transactions with related parties are most common tool of 'tax management'. To control 'tax planning' through related party transactions there are certain provisions in Income Tax and Central Excise and Custom Laws.
RELATED PARTY
Sec 2(76) “related party”, with reference to a company, means—

(i) a director or his relative;

(ii) a key managerial personnel or his relative;

(iii) a firm, in which a director, manager or his relative is a partner;

(iv) a private company in which a director or manager is a member or director;

(v) a public company in which a director or manager is a director or holds along with his relatives, more than two per cent. of its paid-up share capital;

(vi) a body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;

(vii) any person on whose directions or instructions a director or manager is accustomed to act:

Provided that nothing in sub-clauses (vi) and (vii) shall apply to the directions or instructions given in a professional capacity;

(viii) any company which is—
(A) a holding, subsidiary or an associate company of such company; or
(B) a subsidiary of a holding company to which it is also a subsidiary;

(ix) such other person as may be prescribed;

Interested director or his relative
Section 2(49) “interested director” means a director who is in any way, whether by himself or through any of his relatives or firm, body corporate or other association of individuals in which he or any of his relatives is a partner, director or a member, interested in a contract or arrangement, or proposed contract or arrangement, entered into or to be entered into by or on behalf of a company.

A key managerial personnel
Section 2 (51) “key managerial personnel”, in relation to a company, means—
(i) the CEO or the managing director or the manager;
(ii) the company secretary;
(iii) the whole-time director;
(iv) the Chief Financial Officer; and
(v) such other officer as may be prescribed;
A  Relative
Section 2(77) ‘‘relative’’, with reference to any person, means  one who is related to
another, if—
(i) they are members of a Hindu Undivided Family;
(ii) they are husband and wife; or
(iii) one person is related to the other in such manner as may be prescribed;

Associated Company

Section 2(6) “associate company”, in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.
Explanation.—For the purposes of this clause, “significant influence” means control of at least twenty per cent. of total share capital, or of business decisions under an greement;

Control
Section 2(27) “control” shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders/ voting agreements or in any other manner;

“Office or place of profit”

          (a) the expression “office or place of profit” means any office or place—
(i) where such office or place is held by a director, if the director holding it receives from the company anything by way of remuneration over and above the remuneration to which he is entitled as director, by way of salary, fee, commission, perquisites or otherwise;

(ii) where such office or place is held by an individual other than a director or by any firm, private company or other body corporate, if the individual, firm, private company or body corporate holding it receives from the company anything by way of remuneration, salary, fee, commission, perquisites, any rent-free accommodation, or otherwise;

(b) the expression “arm’s length transaction” means a transaction between two related parties that is conducted as if they were unrelated, so that there is no conflict of interest.
Related party transactions

Tuesday, May 13, 2014

TDS Rate Chart for Assessment Year: 2015-16 Financial Year: 2014-15

TDS Rate Chart for Assessment Year: 2015-16 Financial Year: 2014-15
Particulars
Individual/HUF
Domestic Company/Firm
Criteria for deduction
Nature of Payments
Section Code
Rate
Rate
Payment in Excess of
1. Salary
192
As per the prescribed rates applicable to Individuals

2. Interest other than Interest on Securities
194A
10
10
Banking Rs. 10000/-p.a.
Others Rs 5000/-p.a.
3. Payment to Contractors
194C
1
2
Rs. 30,000/-per contract or
Rs. 75,000/- p.a.
4.1 Payment to Adverting/Sub Contractors
194C
1
2
Rs. 30,000/-per contract or
Rs. 75,000/- p.a.
5. Commission & Brokerage
194H
10
10
Rs. 5,000/-p.a.
7. Rent- Land & Building
194I
10
10

Rs. 1,80,000/-p.a.
7.1 Rent-Plant & Machinery
194I
2
2

Rs. 1,80,000/-p.a.
8. Professional Fees & Technical Services
194J
10
10
Rs. 30,000/-p.a.
9. Immovable Property other than Agricultural Land
194IA
1
1
Rs. 50,00,000/-
TCS Rate Chart for Assessment Year: 2015-16 Financial Year: 2014-15
Nature of goods

TCS Rate
Timber obtained by any mode other than under a Forest Lease
2.5%
Any other Forest produce not being forest timber or tendu leaves
2%
Scrap
1%
Parking Lot, Toll Plaza, Mining and Quarrying
2%
Bullion if consideration exceeds Rs. 2 Lakhs or jewellery, if consideration exceeds Rs. 5 Lakhs (and any amount is received in cash) (applicable from 1st July 2012)
1%

Contributed By : Ms Tanya Gagneja ( CA Article at Sandeep Ahuja & Co )


Saturday, May 10, 2014

CSR- Corporate Social Responsibility- Some Important Issues in Brief

With effect from April 1, 2014 under Section 135 and Schedule VII of the Companies Act 2013 read with the Companies (Corporate Social Responsibility Policy) Rules, 2014

1. Every company including a private limited , which either has
a)    a net worth of Rs 500 crore or
b)   a turnover of Rs 1,000 crore or
c)    net profit of Rs 5 crore,
needs to spend at least 2% of its average net profit for the immediately preceding three financial years on corporate social responsibility activities.

The CSR compliance obligations  are also applicable to :
a)    The holding and subsidiary companies ,(however it needs more clarification).
b)   Foreign companies whose branches or project offices in India fulfill the specified criteria.

2.The net worth, turnover and net profits : These are to be computed in terms of Section 198 of the 2013 Act as per the profit and loss statement prepared by the company in terms of Section 381 (1) (a) and Section 198 of the 2013 Act.
It is clarified that if net profits are computed under the Companies Act, 1956 they needn't be recomputed under the 2013 Act.
Net Profits for this purpose to exclude:
a. Profits from any overseas branch of the company, including those branches that are operated as a separate company.
 b. Dividends received from other companies in India which need to comply with the CSR obligations would not be included in the computation of net profits of a company.

3. CSR Activitities- Nature of :
The CSR activities must be with respect to any of the activities mentioned in Schedule VII of the 2013 Act and include :
      i.        Eradicating hunger, poverty and malnutrition, promoting preventive healthcare
     ii.        Promoting education and promoting gender equality
    iii.        Setting up homes for women, orphans and the senior citizens, measures for reducing inequalities faced by socially and economically backward groups
   iv.        Ensuring environmental sustainability and ecological balance
    v.        Animal welfare
   vi.        Protection of national heritage and art and culture
  vii.        Measures for the benefit of armed forces veterans, war widows and their dependents
 viii.        Training to promote rural, nationally recognized, Paralympic or Olympic sports
   ix.        Contribution to the prime minister's national relief fund or any other fund set up by the Central Government  for socio economic development and relief and welfare of  SC, ST, OBCs, minorities and women, contributions or funds provided to technology incubators located within academic institutions approved by the Central Government and
    x.        Rural development projects. 

4. Local Area Preference : For CSR activities to be undertaken, preference is to be given to local areas and the areas around where the company operates.

5. CSR activity does not cover for computing CSR expenditure:
a)    Expenditure for projects undertaken in the normal course of business
b)   Contribution to any political party and
c)    Activities out of  India.

6. CSR policy and CSR Committee : Under Section 135 of the 2013 Act to formulate and monitor the CSR policy of a company, a CSR Committee of the Board is to be constituted consisting  of minimum :
a) Three (3) directors, including an independent director.
b)  Two (2) Directors ( for unlisted public companies and private companies that are not required to appoint an independent director)
 
7
. A company can undertake its CSR activities through a registered trust or society, a company :
                      i.        Established by its holding, subsidiary or associate company or otherwise, provided that the company has specified the activities to be undertaken, the modalities for utilization of funds as well as the reporting and monitoring mechanism.
                     ii.        If such entity is not established by the company or its holding, subsidiary or associate company, such entity should have :
a) an established track record of three (3) years undertaking similar activities  and
b) the expenditure for such activities does not exceed 5% of the total CSR expenditure of the company in a single financial year.
 `iii. In collaboration with each other for jointly undertaking CSR activities, provided that each of the companies are able individually to report on such projects.


8. Board Report  Disclosure :The report of the Board of Directors need to include an annual report on the following in the format prescribed in the CSR Rules:
a)    a brief outline of the CSR policy
b)   the CSR activities of the company
c)    the composition of the CSR Committee,
d)    the average net profit for the last three financial years and
e)    the prescribed CSR expenditure.
f)     the reasons ,If the company has been unable to spend the minimum required on its CSR initiatives, for not doing so .

9. Web –Disclosure of CSR Policy: Where a company has a website, the CSR policy of the company would need to be disclosed on such website.

Company Law Matters Requiring Immediate Attention of the Management


You must be aware that the new Companies Act 2013 has come into force and has brought with itself a number of amendments that require urgent attention and compliance on part of the management. The following are a few matters requiring immediate attention to avoid penalties and prosecution under law.

        Important Changes

1.       Every company is mandatorily required to mention its Corporate Identification Number (CIN) along with registered office address on all letter heads, invoices and on all other official correspondence and publications. Additionally, contact details, email and website address, if any, must be incorporated in such documents from 1st April, 2014.
2.       The Companies (Acceptance of Deposit) Rules, 2014, applicable from 1st April 2014, prohibit bringing money into private limited companies from shareholders and directors’ relatives or friends as unsecured loan. All companies with such unsecured loans and deposits must refund these amounts immediately. Both Private and Limited companies can accept unsecured loan or deposit from Directors of the company provided further that such amount is not a borrowed amount.
3.       The Act has brought in the need to disclose all such amounts pending as unsecured loans from such persons to the ROC by 30th June, 2014. Such amounts must also be repaid with interest by 31st March, 2015.
4.       Private Limited Companies which have borrowed money in excess of their paid up capital and free reserves are required to pass a special resolution under which the members have to decide the limits up to which the company can borrow.
5.       Inter-corporate loans can be accepted from other bodies corporate and not from any other person. Associate firms cannot freely with or without interest transfer funds from one company to another. However, loan from a holding company to its subsidiary is allowed as inter-corporate loan.
6.       A company cannot advance any kind of loan/guarantee/security to any Director, Director of holding company, his partner, his relative, firm in which he or his relative is partner, private limited company in which he is Director or Member, or any bodies corporate whose 25% or more of total voting power or Board of Directors is controlled by him.

Other Procedural Changes

7.       A new format has been prescribed for maintaining the Register of Members. Companies are now required to mention PAN, Email ID and other particulars of the members besides particulars of share capital or debentures. This record is required to be updated by 30th September, 2014.
8.       One Person Company is a Private Company having only one Member and at least one Director. There is no compulsion on it to hold an AGM. Existing private companies with paid-up capital up to Rs 50 lakhs and turnover up to Rs 2 crores can be converted into OPC subject to fulfillment of all requirements with regard to conversion.

9.       The Annual Return of companies will contain the following additional details:
·         Remuneration of directors and key managerial personnel
·         Principal business activities
·         Particulars of its holding, subsidiary and associate companies
·         Details of Board meeting, shareholder meetings along with attendance details
·         Penalty or punishment imposed on the company, its directors or officers and details of compounding of offences
·         An extract of the Annual Return will form part of the Directors’ Report
10.   Annual Return of listed companies and of every company having paid-up capital of Rs.10 Crores or more or turnover of Rs.50 Crores or more are required to get certified the same from Practicing Company Secretary.
11.   A minimum 7 days’ notice must be given for all Board Meetings and the same should be either hand-delivered or sent by post, e-mail or fax. It must be noted that in case a particular mode has been prescribed by a Director, it should be sent to him in that mode.
12.   The Board Meeting can be convened through video conferencing. There are separate guidelines for video conferencing. For example, entry should be through a secured gateway and proceedings should be recorded and kept in safe custody.
13.   The draft minutes of the meeting shall be circulated among all the Directors within fifteen days of the meeting either in writing or in electronic mode.
14.   The office of a Director shall become vacant if he absents from all the meetings of Board of Directors held during a period of 12 months with or without seeking leave of absence or where he fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested.
15.   Discussion on matters relating to approval of annual accounts and approval of Directors’ Report shall have to be held in a physical meeting.
16.   The Directors’ Report shall contain additional information related to:
·         Inter-corporate loans
·         Related party contracts
·         Extracts of Annual Return
·         Risk Management
17.   Earlier, in case companies having paid up share capital of Rs. 1 crore or more wanted to enter into related party transactions, they had to obtain prior approval from the Central Government. In the new Act, this condition of prior approval has dispensed with and now the Companies are required to take permission of the Board provided the transactions are made on an arm’s length basis. The transitional exemption was just Rs. 5000 earlier, but has now been increased to Rs. 5 Lakhs in a year.
18.   If a company wishes to take up another business activity which is not included in its Main Objects, it will have to alter its Main Objects and include such activity under the head. The procedure of passing a resolution to carry out an activity as mentioned in the Other Objects without including it in the Main Objects will not suffice.

19.   Every company must have a Director who has stayed in India for a period of 182 days or more in the previous calendar year. For existing companies, such compliance must be made before 31st March, 2015.

  Contributed By MS Tanya Gagneja and Ms Puja Aggarwal




Friday, May 9, 2014

Highlights of the New Companies Act, 2013 Effective from 01.04.2014 - Part A

 Highlights of the New Companies Act, 2013 Effective from 01.04.2014 - Part A

S. No.
Particulars
New Provisions
1.
One Person Company(OPC)
a.       OPC means a company which only has one person as a member.
b.      It can have more than one Director. OPCs are exempted from many provisions of the Act.
2.
Key Managerial Personnel
(KMP)

Appointment of KMP includes:
a.       the Chief Executive Officer or the managing director or the manager.
b.      the company secretary.
c.       the whole- time director.
d.      the Chief Financial Officer.
e.      such other officer as may be prescribed.
This provision is applicable for Public Limited Companies having paid up capital more than 10 Crores.
Private Limited Companies are exempted from the appointment of KMPs
3.
Acceptance of Deposits
a.     The Private Limited Companies are allowed to accept deposits.
b.     However, borrowings from Directors and Promoters are not considered as Deposits subject to some conditions.
4.
Loan to Directors
This provision is now applicable to Private Companies also.
Giving loan to Directors or the companies in which there are same directors or shareholders is strictly prohibited under Section 185.
5.
Rotation of Statutory Auditors
a.       Rotation is required after transition period of 3 years.
b.      Following Companies are under the obligation to rotate the statutory auditors after 5 years or 10 years.
·         All unlisted public companies having paid up share capital of Rs 10 Crores or more
·         All private limited companies having paid up share capital of Rs 20 Crores or more
·         All companies having paid up share capital not more than mentioned (i) and (ii) above, but having public borrowings from financial institutions, banks or public deposits of Rs 50 crores or more.
6.
Other Specialized Services by Statutory Auditors.
The Statutory Auditor of the Company not to give following specialized services:
a.       Accounting and book keeping services.
b.      Internal audit.
c.       Design and implementation of any financial information system.
d.      Actuarial services.
e.      Investment advisory services
f.        Investment banking services.
g.       Rendering of outsourced financial services
h.      Management services
i.         Other services as may be prescribed.
7.
Borrowing
a.       If the total limit of loan exceeds paid up capital and free reserves then all companies pass special resolution for taking approval from shareholders.
b.      Now, this provision is applicable to Private companies also.
8.
Resident Director
Every Company shall have at least one director who has stayed in India for a period of not less than 180 days in the previous calendar year.
9.
Woman Director
The following class of Companies shall appoint at least one woman director:
a.       Every Listed company.
b.      Every Public Company:
·         Having paid-up share capital of Rs 100 Crore or more.
·         Turnover of Rs 300 Cr. or more.
10.
Consolidation of Accounts
Mandatory for :
-Subsidiary or Associate Companies.
11.
Corporate Social responsibility
An Indian Company have to spent 2% of the Average net profits of the last three financial year if it has:
·         Net Worth of Rs 500 Crores or
·         Turnover of Rs 1000 Crores or more or
·         Net profit of Rs 5 Crores or more
12.
Further issue of Shares
a.       Corresponds to Sec 81 of Companies Act, 1956 which was applicable to only Public Limited Companies.
b.      For any Increase of Subscribed Share Capital an offer to be made on Pro rata basis to all existing shareholders Otherwise Special Resolution will be required to approve the proposal in which Issue Price of Shares is subject to Valuation by a Registered Valuer
13.
Secretarial Audit
a.       It is compulsory only for Public Company:
·         Having Paid Capital more than 50 Crores.
·         Turnover 250 Crores or more.
b.      It is done by Practicing CS.
14.
Internal Audit
The following companies are required to appoint an internal auditor:
a.       every listed company
b.      every unlisted public company having
·      paid up share capital of Rs. 50 crore or more during the preceding FY; or
·      turnover of Rs. 200 crore or more during the preceding FY; or
·      outstanding loans or borrowings from banks or public financial institutions exceeding Rs. 100 crore or more at any point of time during the preceding FY; or
·      outstanding deposits of twenty five crore rupees or more at any point of time during the preceding FY
c.       every private company having
·     turnover of Rs. 200 crore or more during the preceding FY; or
·    outstanding loans or borrowings from banks or public financial institutions exceeding Rs. 100 crore at any point of time during the preceding FY
15.
Financial Statements
a. Financial Statements include :
·         A balance Sheet
·         A Profit & Loss A/c /an income & expenditure A/c
·         Cash Flow Statement
·         A Statement of Changes in equity
·         Any explanatory note annexed to, or forming part of ,any document referred to in sub clause (a) to sub clause (d)
b. All Companies are required to maintain the Financial Statements(expect OPC,small Company and dormant company which may not include the Cash Flow Statement)
16.
Financial Year
a.       Normally Period ending on 31st March every year.
b.      In case Company Incorporated on or after 1st day of January of a year ,the period ending on the 31st day of March of the following year for which the Financial Statement is made up. All companies are required to follow same Financial Year as per the above provisions.
c.       On an application to Tribunal & if Tribunal is satisfied then a Holding or a Subsidiary Company incorporated outside india which has to follow a different Financial Year for Consolidation of its accounts outside India may be allowed to follow any period as its Financial year  whether or not that period is a year.
17.
Fraud reporting
If any Fraud is noticed by the auditor which has been committed against by the company by the employees, he shall report the matters to the Central Government.
18.
Attending Board Meeting
Director has to attend at least one Board meeting, Non-Compliance of which shall lead to vacancy of his office.
19.
Appointment of Managing Director
a.     A Company can appoint a managing Director or whole time Director for a term not exceeding 5 years.
b.     No Re-appointment shall be made earlier than one year before the expiry of his term.
20.

Registered Valuers

a.       Valuation in respect of a property, stock, shares, debentures, securities, goodwill, net worth or assets of a company shall be valued by a person registered as a valuer.
b.      The Central Government shall maintain a register of valuers.
c.       The valuer shall be a person having such qualification and experience and registered as a valuer. 


Contributed By : Ms Tanya Gagneja