Q1:- Tax evasion is a menace to the people, economy and the country.

In the wake of recent Swiss bank account scandal give your views on the following: a. How does it affect the Indian economy and the growth prospects? b. Does black money cause Inflation? Ans: In view of the facts set out so far, it becomes necessary to look at the extent of compliance of tax laws in India. Though many estimates of black money have been coming forth, an attempt was made to determine the extent of tax evasion in the Mumbai Income Tax charge, which collected about 35% of the Income Tax collections of the country and 43% of the corporate tax collections. The study was made on the basis of results of the survey and search cases for all the years covered by such cases. It came to light that none of the taxpayers concerned declared for taxation purposes anything more than 25% of their true incomes after 1999. The figure arrived at was given to the press specifying the basis on which it was so calculated. Not a single protest was received from any of the taxpayer, including companies. The said figure was thereafter cited for some more time, and even thereafter no protest was received. There was, therefore, every reason to believe this estimate. However, there appears 10 to be higher tax evasion in the case of companies. Some of the companies have shown their entire capital as having come from the countries regarded as Tax Havens. Considering the extent of Indian monies stacked in Swiss Bank Accounts, and bank accounts of the developed countries, and comparing the same with the annual income tax collections of the Central Government, it appears that the real income admitted for taxation purposes is less than 25% . The extent of evasion appears to be very much higher in the case of companies as the companies have resorted to evolution of tax evasion devices in the accounts and such methods have not yet been properly investigated by the Income Tax Department. There are companies which have camouflaged their capital investments and shown it in the books as if it is explained capital for income tax purposes.

The Indian Scenario - Peculiar problems of tax evasion : It will be appropriate at this stage to highlight some of the key problems from the view point of computerization in India: (a) Investments in Real Estate: The one field where black monies have been invested on the largest scale is that of real estate properties. Lands were sold for only 20% of their real values and the balance 80% given in cash out of the tax evaded monies, ever since 1947. But later on when the tax rates were lowered to 30% for individuals and 35% for companies, the black portion got reduced to 40%. It may be a difficult task to trace such black transactions through the computer system, suggested for adoption on the U.S. pattern for India. But it is common knowledge that the black monies invested in land have been reinvested in bank accounts, shares and in other properties, apart from real estate property. It is now confirmed knowledge that in regard to buildings constructed, only 40% of the cost is shown to income tax. It is possible to detect such investment by analysis of the data obtained from the trade and industry governing commodities used for construction of buildings. Further, as all the transactions relating to sale of real estate properties are now recorded in computers maintained by the Registration Offices all over the country, and if the same data is brought on the computers of the Income Tax Department, it should be possible to know many owners of property who have not filed their tax returns at all so far. In India, there are only 3 corers of tax assesses at present, and thus a large number of people with taxable income have evidently chosen not to file income tax returns. (b) Gold and Jewellery Holdings: India is having the largest private holdings of gold and diamond jewellery among all the countries of the world. In the searches conducted by the Income Tax Department, huge unaccounted cash balances and gold and diamond jewellery have been found in the bank lockers maintained by tax payers in bogus names and in their own names. At current market rates, purchases of gold, silver and diamonds may now reach about Rs. 80,000 crores a year. Gold and diamond traders are

mostly keeping their transactions outside bank accounts. They are also giving vouchers to the effect that raw gold has been given by the customers, though; in fact, it would have come from the traders themselves. Therefore, it is necessary to introduce a law requiring them to transact only through bank cheques and issue computerized bills, to facilitate proper flow of information to the computer system of the tax department. (c) Shares, Mutual Funds, etc: There are vast investments in shares and debentures, travelers cheques, mutual funds and the primary bonds issued by the Reserve Bank of India. The data regarding company shares and other investments mentioned can be easily transferred to the computer system of the Income Tax Department. The Mumbai Stock Exchange is having a separate computer system with complete data on daily transactions and the Income Tax Department has so far not made use of such data. There is also the data generated in the computers of the organizations in charge of demat of shares. Like-wise, the data on post office savings and other accounts is easy to be brought on the computers of the tax department for verification with the individual returns, which are available with the Government itself. (d) Undisclosed Stock in-trade held by companies and traders: Many firms and individuals have also a tendency to keep undisclosed business assets like cars and private assets, unaccounted cash holdings etc., They have ability to give extensive bribes to protect business and other interests. All such practices would varnish once fear is caused among the tax payers about the use of computerized data for taxation purposes. (e) Benami Investments: Benami investments are typical of the Indian economy. Even big companies have indulged in such practices to impart total secrecy to their undisclosed accounts. It may be difficult to determine whether the investment found in the computers of the income tax department is benami or not, and benami shares will have to be traced

sometimes by extensive studies to be conducted by teams of revenue officers. This problem requires comprehensive study because it is peculiar to the Indian Taxation System. (f) Swiss Bank and other undisclosed bank accounts held abroad: Swiss Bank Accounts are shrouded in secrecy and hence no information will be available to the computer system of the Income Tax Department. The amounts in Swiss Bank Accounts, which are held in foreign currency, have been utilized by big companies and other taxpayers in India to import huge machineries at vastly under invoiced prices. Such practices enable payment of secret trade commissions in foreign currency and unaccounted funds in Indian currency to those contesting general elections. Several major companies have converted Swiss Account holdings into benami shares and debentures. The large amounts of Swiss Bank deposits have, thus, been utilized and every year, there are additions to the Swiss Bank Account holdings. b. Does black money cause Inflation? Ans: Illegally earned money is called black money. It is the result of hoarding, smuggling, tax evasion and dealing in immovable property for which the consideration is paid in black. It has been beyond the control of the Government. The black money has already created a serious problem in our country. The Indian economy stands badly shattered because of the huge amount of this tainted wealth lying in the coffers of the rich. It has given rise to parallel economy operating in the country. As a result, the prices continue to rise in spite of all government efforts to control them. The poor go on becoming poorer while the rich go on becoming richer. The gap between the haves and the have nots is widening every day. Black money is used by the rich in various evil activities. They use this money for corrupting and demoralizing social and political life. They display it in ostentatious living and wasteful luxuries. They bribe Government officers and lead them to corruption and dishonesty. They purchase political bosses and control the strings of the Government. Thus the entire social structure comes to be badly polluted.

It is difficult to form an exact idea of the amount of black money in circulation in the country. Searches and raids by Income Tax authorities are conducted from time to time. Such raids yield crores of rupees. But the people are, at times, cleverer than the Government. They seek the aid of the best legal brains and get the law twisted in their favour. Most of the offenders use all their money and influence and go scot free whenever they are caught. The Government has, at various times, announced some voluntary disclosure schemes for unearthing the black money. These schemes have proved successful to a very limited extent. What has come to the surface is believed only to be the tip of the huge iceberg lying hidden underneath. The 1997 Voluntary Disclosure Scheme announced by the Government of India unearthed a big amount of black money as the tax rate in this scheme had been reduced to thirty per cent. The black money, according to some reliable estimates has gone up to Rs. 10,000 crores in our country. It is to a great extent responsible for a great rise in prices because the purchasing power of the people has increased. People having black money are leading a life of luxury whereas the poor people are leadinng a miserable life. Some leading economists of the country have suggested stringent measures to the government to unearth black money but successive governments have been rejecting those measures. The vested interests always stand in the way of effective measures and get them diluted. The government of the day appears to be doing its best to unearth black money. A number of steps have been taken. Taxation structure and system have been made easier. At different times, the government has brought forward several schemes and asked the people to declare their wealth. There has been some success. A lot soil remains to be done. It must be clear to all that the nation cannot shut her eyes to this state of affairs. Smugglers and black-marketers can no longer be tolerated. They are striking at the very roots of our democratic structure. All steps to weed the black money out of circulation must be taken as early as possible. The government must come down with a heavy hand on smugglers, tax evaders, black-marketers and hoarders. Black money is a curse. It must be rooted out from public life.

Question.2:- Detail death cum retirement gratuity under Sec 17(1)iii of IT Act. Is commutation of pension a viable option in terms of tax planning? Ans: Death-cum-retirement gratuity or any other gratuity which is exempt to the extent specified from inclusion in computing the total income under clause (10) of Section 10. Any death-cum-retirement gratuity received under the revised Pension Rules of the Central Government or, as the case may be, the Central Civil Services (Pension) Rules, 1972, or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defense or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all-India services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority or any payment of retiring gratuity received under the Pension Code or Regulations applicable to the members of the defense service. Gratuity received in cases other than above on retirement, termination etc is exempt up to the limit as prescribed by the Board. Under the provisions of Section 10(10) of the IT Act, any death-cum-retirement gratuity of a government servant is completely exempt from income tax. However, in respect of private sector employees gratuity received on retirement or on becoming incapacitated or on termination or any gratuity received by his widow, children or dependants on his death is exempt subject to certain conditions. The maximum amount of exemption is Rs. 3,50,000;. Of course, this is further subject to certain other limits like the one half-month's salary for each year of completed service, calculated on the basis of average salary for the 10 months immediately preceding the year in which the gratuity is paid or 20 months' salary as calculated. Thus, the least of these items is exempt from income tax under Section 10(10). Any payment in commutation of pension received under the Civil Pension(Commutation) Rules of the Central Government or under any similar scheme applicable to the members of the civil services of the Union, or holders of civil posts/posts connected with defense, under the Union, or civil posts under a State, or to the members of the All India Services/Defense Services, or, to the employees of a local authority or a corporation established by a Central, State or Provincial Act, is exempt under sub-clause (i) of clause (10A) of Section 10. As regards payments in commutation of pension received under any scheme of any

other employer, exemption will be governed by the provisions of sub-clause (ii) of clause (10A) of section 10. Also, any payment in commutation of pension received from a Regimental Fund or Non-Public Fund established by the Armed Forces of the Union referred to in Section 10(23AAB) is exempt under sub-clause (iii) of clause (10A) of Section 10. The entire amount of any payment in commutation of pension by a government servant or any payment in commutation of pension from LIC [Get Quote] pension fund is exempt from income tax under Section 10(10A) of IT Act. However, in respect of private sector employees, only the following amount of commuted pension is exempt, namely: (a) Where the employee received any gratuity, the commuted value of one-third of the pension which he is normally entitled to receive; and (b) In any other case, the commuted value of half of such pension. It may be noted here that the monthly pension receivable by a pensioner is liable to full income tax like any other item of salary or income and no standard deduction is now available in respect of pension received by a tax payer.

Q3. Explain the essential conditions to be satisfied by a firm to be assessed as firm under Section 184. Answer: Position of Firm under the Income Tax Act Legally, a partnership firm does not have a separate entity from that of the partners constituting the firm as the partners are the owners of the firm. However, a firm is treated as a separate tax entity under the Income Tax Act. Salient features of the assessment of a firm are as under: 1. A firm is treated as a separate tax entity. 2. While computing the income of the firm under the head Profits and gains of business or profession, besides the deductions which are allowed u/ss 30 to 37, special deduction is allowed to the firm on account of remuneration to working partners and interest paid to the partners. However, it is subject to certain limits laid down u/s 40 (b). 3. Share of profit which a partner receives from the firm (after deduction of remuneration and interest allowable) shall be fully exempt in the hands of the partner. However, only that part of the interest and remuneration which was

allowed as a deduction to the firm shall be taxable in the hands of the partners in their individual assessment under the head profits and gains of business or profession. 4. The firm will be taxed at a flat rate of 30% plus education cess @ 3% plus for the financial year 2010-11. 5. The firm will be assessed as a firm provided conditions mentioned under Section 184 are satisfied. In case these conditions are not satisfied in a particular assessment year, the firm will be assessed as affirm, but no deduction by way of payment of interest, salary, bonus, commission or remuneration, by whatever name called, made to the partner, shall be allowed in computing the income chargeable under the head profits and gains of business or profession and such interest, salary, bonus, commission or remuneration shall not be chargeable to income tax in the hands of the partner. Assessment of firm From point (5) stated above, it can be concluded that for taxation purposes, a firm can be of two types: 1. Firm assessed as firm (provided conditions mentioned u/s 184 are satisfied).and the firm shall be eligible for deduction on account of interest, salary etc while computing its income under the head business and profession). However, it will be subject to the maximum of the limit specified under Section 40(b) 2. If the prescribed conditions are not satisfied, no deduction shall be allowed to the firm on account of such interest, salary, bonus etc. Essential conditions to be satisfied by a firm to be assessed as firm (Section 184) 1. In the first assessment year: The firm will be assessed as a firm, also known as Firm Assessed as Such (FAAS) if the following conditions are satisfied: (a) Partnership is evidenced by an instrument i.e. there is a written document giving the terms of partnership. (b) The individual share of the partners is specified in that instrument.

(c) Certified copy of partnership deed must be filed: A certified copy of the said instrument of partnership shall accompany the return of income in respect of the assessment year for which the assessment as a firm is first sought. Where certified copy is not filed with the return there is no provision for condonation of delay. However where the return itself is filed late then there is no problem if the certified copy is filed along with such return as the condition that it shall accompany the return of income is satisfied. Further Delhi ITAT in the case of Ishar Dass Sahini & Sons v CIT held that where uncertified Photostat copy of the instrument of partnership is submitted along with the return of income and the certified copy is produced at the time of assessment, it will satisfy this condition. 2. In the subsequent assessment years: If the above three conditions are satisfied the firm will be assessed as such (FAAS) in the first assessment year. Once the firm is assessed as firm for any assessment year, it shall be assessed in the same capacity for every subsequent year if there is no change in the constitution of the firm or the share of the partners. Where any such change had taken place in the previous year, the firm shall furnish a certified copy of the revised instrument of partnership along with the return of income for the assessment year relevant to such previous year. Read the box for some important points to be considered in this regard. Circumstance where the firm will be assessed as a firm but shall not be eligible for deduction on account of interest, salary, bonus, etc. [Section 184(5)] The firm will be assessed as a firm but shall not be eligible for any deduction on account of interest, salary and bonus etc if there is failure on the part of the firm as is mentioned in Section 144 (relating to Best Judgment Assessment) and where the firm does not comply with the three conditions mentioned under Section 184. Q.4:- List out the steps to compute total income. Ans: Step 1 Determination of residential status The residential status of a person has to be determined to ascertain which income is to be included in computing the total income. The residential statuses as per the Income tax

Act are shown below In the case of an individual, the duration for which he is present in India determines his residential status. Based on the time spent by him, he may be (a) resident and ordinarily resident, (b) resident but not ordinarily resident, or (c) non-resident. The residential status of a person determines the taxability of the income. For e.g., income earned outside India will not be taxable in the hands of a non-resident but will be taxable in case of a resident and ordinarily resident. Step 2 Classification of income under different heads The Act prescribes five heads of income. These are shown below HEADS OF INCOME SALARIES INCOME FROM PROFITS AND GAINS CAPITAL INCOME HOUSE PROPERTY OF BUSINESS OR GAINS FROM OTHER PROFESSION SOURCES These heads of income exhaust all possible types of income that can accrue to or be received by the tax payer. Salary, pension earned is taxable under the head Salaries. Rental income is taxable under the head Income from house property. Income derived from carrying on any business or profession is taxable under the head Profits and gains from business or profession. Profit from sale of a c apital asset (like land) is taxable under the head Capital Gains. The fifth head of income is the residuary head under which income taxable under the Act, but not falling under the first four heads, will be taxed. The tax payer has to classify the income earned under the relevant head of income. Step 3 - Exclusion of income not chargeable to tax There are certain incomes which are wholly exempt from income-tax e.g. agricultural income. These income have to be excluded and will not form part of Gross Total Income. Also, some incomes are partially exempt from income-tax e.g. House Rent Allowance, Education Allowance. These incomes are excluded only to the extent of the limits specified in the Act. The balance income over and above the prescribed exemption limits would enter computation of total income and have to be classified under the relevant head of income.

Step 4 - Computation of income under each head Income is to be computed in accordance with the provisions governing a particular head of income. Under each head of income, there is a charging section which defines the scope of income chargeable under that head. There are deductions and allowances prescribed under each head of income. For example, while calculating income from house property, municipal taxes and interest on loan are allowed as deduction. Similarly, deductions and allowances are prescribed under other heads of income. These deductions etc. have to be considered before arriving at the net income chargeable under each head Step 5 Clubbing of income of spouse, minor child etc. In case of individuals, income-tax is levied on a slab system on the total income. The tax system is progressive i.e. as the income increases, the applicable rate of tax increases. Some taxpayers in the higher income bracket have a tendency to divert some portion of their income to their spouse, minor child etc. to minimize their tax burden. In order to prevent such tax avoidance, clubbing provisions have been incorporated in the Act, under which income arising to certain persons (like spouse, minor child etc.) have to be included in the income of the person who has diverted his income for the purpose of computing tax liability. Step 6 Set-off or carry forward and set-off of losses An assessed may have different sources of income under the same head of income. He might have profit from one source and loss from the other. For instance, an assessed may have profit from his textile business and loss from his printing business. This loss can be set-off against the profits of textile business to arrive at the net income chargeable under the head Profits and gains of business or profession. Similarly, an assessed can have loss under one head of income, say, Income from house property and profits under another head of income, say, Profits and gains of business or profession. There are provisions in the Income-tax Act for allowing inter-head adjustment in certain cases. Further, losses which cannot be setoff in the current year due to inadequacy of eligible profits can be carried forward for set-off in the subsequent years as per the provisions contained in the Act.

Step 7 Computation of Gross Total Income. The final figures of income or loss under each head of income, after allowing the deductions, allowances and other adjustments, are then aggregated, after giving effect to the provisions for clubbing of income and set-off and carry forward of losses, to arrive at the gross total income. Step 8 Deductions from Gross Total Income There are deductions prescribed from Gross Total Income. These deductions are of three types. Step 9 Total income The income arrived at, after claiming the above deductions from the Gross Total Income is known as the Total Income. It is also called the Taxable Income. It should be rounded off to the nearest Rs. 10. The process of computation of total income is shown hereunder Step 10 Application of the rates of tax on the total income The rates of tax for the different classes of assesses are prescribed by the Annual Finance Act. Taxation For individuals, HUFs etc., there is a slab rate and basic exemption limit. At present, the basic exemption limit is Rs. 1,00,000 for individuals. This means that no tax is payable by individuals with total income of up to Rs. 1,00,000. Those individuals whose total income is more than Rs. 1,00,000 but less than Rs. 1,50,000 have to pay tax on their total income in excess of Rs. 1,00,000 @ 10% and so on. The highest rate is 30%, which is attracted in respect of income in excess of Rs. 2,50,000. For firms and companies, a flat rate of tax is prescribed. At present, the rate is 30% on the whole of their total income. The tax rates have to be applied on the total income to arrive at the income-tax liability. Step 11 Surcharge Surcharge is an additional tax payable over and above the income-tax. Surcharge is levied as a percentage of income-tax. At present, the rate of surcharge for firms and domestic companies is 10% and for foreign companies is 2.5%. For individuals, surcharge would be levied @10% only if their total income exceeds Rs. 10 lakhs.

Step 12 Education cess The income-tax, as increased by the surcharge, is to be further increased by an additional surcharge called education cess@2%. The Education cess on income-tax is for the purpose of providing universalized quality basic education. This is payable by all assesses who are liable to pay income-tax irrespective of their level of total income. Step 13 - Advance tax and tax deducted at source Although the tax liability of an assessee is determined only at the end of the year, tax is required to be paid in advance in certain installments on the basis of estimated income. In certain cases, tax is required to be deducted at source from the income by the payer at the rates prescribed in the Act. Such deduction should be made either at the time of accrual or at the time of payment, as prescribed by the Act. For example, in the case of salary income, the obligation of the employer to deduct tax at source arises only at the time of payment of salary to the employees. Such tax deducted at source has to be remitted to the credit of the Central Government through any branch of the RBI, SBI or any authorized bank. If any tax is still due on the basis of return of income, after adjusting advance tax and tax deducted at source, the assessee has to pay such tax (called self-assessment tax) at the time of filing of the return Taxation

Q5:- Detail the important provisions under Wealth tax Act. Ans: Wealth tax is not a very important or high revenue tax in view of various exemptions. Wealth tax is a socialistic tax. It is not on income but payable only because a person is wealthy. Wealth tax is payable on net wealth on valuation date. As per Section 2(q), valuation date is 31st March every year. It is payable by every individual, HUF and company. Tax rate is 1% on amount by which net wealth exceeds Rs 30 lakhs from AY 2010-11. (Till 31-3-2009, the limit was Rs 15 lakhs). No surcharge or education cess is payable.

No wealth-tax is chargeable in respect of net wealth of any company registered under section 25 of the Companies Act, 1956; any co-operative society; any social club; any political party; and a Mutual fund specified under section 10(23D) of the Income-tax Act [section 45] Net wealth = Value of assets [as defined in section 2(ea] plus deemed assets (as defined in section 4) less exempted assets (as defined in section 5), less debt owed [as defined in section 2(m)]. Debt should have been incurred in relation to the assets which are included in net wealth of assessee. Only debt owed on date of valuation is deductible. In case of residents of India, assets outside India (less corresponding debts) are also liable to wealth tax. In case of non-residents and foreign national, only assets located in India including deemed assets less corresponding debts are liable to wealth tax [section 6]. Net wealth in excess of Rs. 30,00,000 is chargeable to wealth-tax @ 1 per cent (on surcharge and education cess). Assessment year Assessment year means a period of 12 months commencing from the first day of April every year falling immediately after the valuation date [Section 2(d)] All.). 1-1 Assets Assets are defined in Section 2(ea) as follows. Guest house, residential house or commercial building - The following are treated as assets - (a) Any building or land appurtenant thereto whether used for commercial or residential purposes or for the purpose of guest house (b) A farm house situated within 25 kilometers from the local limits of any municipality (whether known as a municipality, municipal corporation, or by any other name) or a cantonment board [Section 2(ea)(i)] A residential house is not asset, if it is meant exclusively for residential purposes of employee who is in whole-time employment and the gross annual salary of such employee, officer or director is less than Rs. 5,00,000.

Any house (may be residential house or used for commercial purposes) which forms part of stock-in-trade of the assessee is not treated as asset. Any house which the assessee may occupy for the purposes of any business or profession carried on by him is not treated as asset. A residential property which is let out for a minimum period of 300 days in the previous year is not treated as an asset. Any property in the nature of commercial establishments or complex is not treated as an asset. Motor cars - Motor car is an asset, but not the following - (a) motor cars used by the assessee in the business of running them on hire (b) motor cars treated as stockintrade [Section 2(ea)(ii)]. In the case of a leasing company, motor car is an asset. Jewellery, bullion, utensils of gold, silver, etc. [Section 2(ea) (iii)] - Jewellery, bullion, furniture, utensils and any other article made wholly or partly of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals are treated as assets [Section 2(ea)(ii)] For this purpose, jewellery includes ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, and also precious or semi-precious stones, whether or not set in any furniture, utensils or other article or worked or sewn into any wearing apparel. Where any of the above assets (i.e., jewellery, bullion, utensils of gold, etc.) is used by an assessee as stock-in-trade, then such asset is not treated as assets under section 2(ea)(iii). Yachts, boats and aircrafts - Yachts, boats and aircrafts (other than those used by the assessee for commercial purposes) are treated as assets [Section 2(ea)(iv)] Urban land - Urban land is an asset [Section 2(ea)(v)] Urban land means land situated in the area which is comprised within the jurisdiction of a municipality and which has a population of not less than 10,000 according to the last preceding census. Land occupied by any building which has been constructed with the approval of the appropriate authority is not asset.

Any unused land held by the assessee for industrial purposes for a period of 2 years from the date of its acquisition by him is not an asset. Any land held by the assessee as stock-in-trade for a period of 10 years from the date of its acquisition by him is also not an asset. Cash in hand - In case of individual and HUF, cash in hand on the last moment of the valuation date in excess of Rs. 50,000 is an asset. In case of companies, any amount not recorded in books of account is asset [Section 2(ea)(vi)] 1-2 Deemed assets Often, a person transfers his assets in name of others to reduce his liability of wealth tax. To stop such tax avoidance, provision of deemed asset has been made. In computing the net wealth of an assessee, the following assets will be included as deemed assets u/s 4.

Assets transferred by one spouse to another - The asset is transferred by an individual after March 31, 1956 to his or her spouse, directly or indirectly, without adequate consideration or not in connection with an agreement to live apart will be deemed asset [Section 4(1)(a)(i)] If an asset is transferred by an individual to his/her spouse, under an agreement to live apart, the provisions of section 4(1)(a)(i) are not applicable. The expression to live apart is of wider connotation and even the voluntary agreements to live apart will fall within the exceptions of this sub-clause. Assets held by minor child - In computing the net wealth of an individual, there shall be included the value of assets which on the valuation date are held by a minor child (including step child/adopted child but not being a married daughter) of such individual [Section 4(1)(a)(ii)] The net wealth of minor child will be included in the net wealth of that parent whose net wealth [excluding the assets of minor child so includible under section 4(1)] is greater. Assets transferred to a person or an association of persons - An asset transferred by an individual after March 31, 1956 to a person or an association of person,

directly or indirectly, for the benefit of the transferor, his or her spouse, otherwise than for adequate consideration, is deemed asset of transferor [Section 4(1)(a)(iii)] Assets transferred under revocable transfers - The asset is transferred by an individual to a person or an association of person after March 31, 1956, under a revocable transfer is deemed asset of transferor [Section 4(1)(a)(iv)] Assets transferred to sons wife [Section 4(1)(a)(v)] - The asset transferred by an individual after May 31, 1973, to sons wife, directly or indirectly, without adequate consideration will be deemed asset of transferor [Section 4(1)(a)(iv)] Assets transferred for the benefit of sons wife - If the asset is transferred by an individual after May 31, 1973, to a person or an association of the immediate or deferred benefit of sons wife, whether directly or indirectly, without adequate consideration, it will be treated as deemed asset of the transferor [Section 4(1)(a)(vi)]. Interest of partner- Where the assessee (may or may not be an individual) is a partner in a firm or a member of an association of persons, the value of his interest in the assets of the firm or an association shall be included in the net wealth of the partner/member. For this purpose, interest of partner/member in the firm or association of persons should be determined in the manner laid down in Schedule III to the Wealth-tax Act [Section 4(1)(b)]. Admission of minor to benefits of the partnership firm - If a minor is admitted to the benefits of partnership in a firm, the value of his interest in the firm shall be included in the net wealth of parent of minor in accordance with the provisions of section 4(1)(a)(ii) [see para 546.2]. It will be determined in the manner specified in Schedule III. Conversion by an individual of his self-acquired property into joint family property If an individual is a member of a Hindu undivided family and he converts his separate property into property belonging to his Hindu undivided family, or if he transfers his separate property to his Hindu undivided family, directly or indirectly, without adequate consideration, the converted or transferred property shall be deemed to be the property of the individual and the value of such property is includible in his net wealth [Section 4(1A)]

If there was such transfer and if the converted or transferred property becomes the subject-matter of a total or a partial partition among the members of the family, the converted or transferred property or any part thereof, which is received by the spouse of the transferor, is deemed to be the asset of the transferor and is includible in his net wealth. Gifts by book entries - Where a gift of money from one person to another is made by means of entries in the books of account maintained by the person making the gift, or by an individual, or a Hindu undivided family, or a firm or an association of persons, or a body of individuals with whom he has business connection, the value of such gift will be included in the net wealth of the person making the gifts, unless he proves to the satisfaction of the Wealth-tax Officer that the money had actually been delivered to the other person at the time the entries were made [Section 4(5A)] Impartible estate - For the purpose of the Wealth-tax Act, the holder of an impartible estate shall be deemed to be the owner of all the properties comprised in the estate [Section 4(6)] Property held by a member of a housing society - Where the assessee is a member of a co-operative housing society and a building or part thereof is allotted or leased to him, the assessee is deemed to be the owner of such building and the value of such building is includible in computing his net wealth. In determining the value of such building, any outstanding instalments, payable by the assessee to the society towards the costs of such house, are deductible as debt owed by the assessee. The above rules are also applicable if the assessee is a member of a company or an association of persons [Section 4(7)] Property held by a person in part performance of a contract [Section 4(8)] - A person who is allowed to take or retain possession of any building or part thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882. Similarly, a person can acquire any rights, excluding any rights by way of a lease from month to month or for a period not exceeding one year, in or with respect to any building or part thereof, by virtue of transaction as is referred to in section 269UA(f) of the Income-tax Act. In above cases, the assets are taxable in the hands of beneficial owners, in the same manner in which they are taxed under the Income-tax Act :

1-3 Assets which are exempt from tax The following assets are exempt from wealth-tax, as per section 5. Property held under a trust - Any property held by an assessee under a trust or other legal obligation for any public purpose of charitable or religious nature in India is totally exempt from tax. [Section 5(i)]. Business assets held in trust, which are exempt - The following business assets held by as assessee under a trust for any public charitable/religious trust are exempt from tax (a) Where the business is carried on by a trust wholly for public religious purposes and the business consists of printing and publication of books or publication of books or the business is of a kind notified by the Central Government in this behalf in the Official Gazette (b) The business is carried on by an institution wholly for charitable purposes and the work in connection with the business is mainly carried on by the beneficiaries of the institution (c) The business is carried on by an institution, fund or trust specified in sections 10(23B) or 20(23C) of the Income-tax Act. Any other business assets of a public charitable/religious trust are not exempt. Coparcenary interest in a Hindu undivided family - If the assessee is a member of a Hindu undivided family, his interest in the family property is totally exempt from tax [Section 5(ii)]. Residential building of a former ruler - The value of any one building used for the residence by a former ruler of a princely State is totally exempt from tax [Section 5(iii)] Former rulers jewellery - Jewellery in possession of a former ruler of a princely State, not being his personal property which has been recognised as a heirloom is totally exempt from tax [Section 5(iv)] The jewellery shall be permanently kept in India and shall not be removed outside India except for a purpose and period approved by the Board. Reasonable steps shall be taken for keeping that jewellery substantially in its original shape.

Reasonable facilities shall be allowed to any officer of the Government, or authorised by the Board, to examine the jewellery as and when necessary. Assets belonging to the Indian repatriates - Assets (as given below) belonging to assessee who is a person of Indian origin or a citizen of India, who was ordinarily residing in a foreign country and who has returned to India with intention to permanently reside in India, is exempt. A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grand-parents, was born in undivided India. After his return to India, following shall not be chargeable to tax for seven successive assessment years (a) Moneys brought by him into India (b) Value of asset brought by him into India (c) Moneys standing to the credit of such person in a Non-resident (External) Account in any bank in India on the date of his return to India and (d) Value of assets acquired by him out of money referred to in (a) and (c) above within one year prior to the date of his return and at any time thereafter [Section 5(v)] One house or part of a house - In the case of an individual or a Hindu undivided family, a house or a part of house or a plot of land not exceeding 500 sq. meters in area is exempt. A house is qualified for exemption, regardless of the fact whether the house is self-occupied or let out. In case a house is owned by more than one person, exemption is available to each co-owner of the house [Section 5(vi)]

Q6- What is meant by Full value of consideration? How short term capital gains and long term capital gains are computed using full value of consideration? Ans: Full value of consideration means & includes the whole/complete sale price or exchange value or compensation including enhanced compensation received in respect of capital asset in transfer. The following points are important to note in relation to full value of consideration. The consideration may be in cash or kind. The consideration received in kind is valued at its fair market value. It may be received or receivable. The consideration must be actual irrespective of its adequacy. COST OF ACQUISITION Cost of Acquisition (COA) means any capital expense at the time of acquiring capital asset under transfer, i.e., to include the purchase price, expenses incurred up to acquiring date in the form of registration, storage etc. expenses incurred on completing transfer. In other words, cost of acquisition of an asset is the value for which it was acquired by the assessee. Expenses of capital nature for completing or acquiring the title are included in the cost of acquisition. Indexed Cost of Acquisition = COA X CII of Year of transfer CII of Year of acquisition The indices for the various previous years are given below: Sr. No. Fin. Year Cost inflation Index Sr. No. Fin. Year Cost inflation Index 1 1981-82 100 16 1996-97 305 2 1982-83 109 17 1997-98 331 3 1983-84 116 18 1998-99 351 4 1984-85 125 19 1999-2000 389 5 1985-86 133 20 2000-2001 406 6 1986-87 140 21 2001-2002 426 7 1987-88 150 22 2002-2003 447 8 1988-89 161 23 2003-2004 463

9 10 11 12 13 14 15

1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96

172 182 199 223 244 259 281

24 25 26 27

2004-2005 2005-2006 2006-2007 2007-2008

480 497 519 551

If capital assets were acquired before 1.4.81, the assesses has the option to have either actual cost of acquisition or fair market value as on 1.4.81 as the cost of acquisition. If assesses chooses the value as on 1.4.81 then the indexation will also be done as per the CII of 1981 and not as per the year of acquisition. COST OF IMPROVMENT Cost of improvement is the capital expenditure incurred by an assessee for making any addition or improvement in the capital asset. It also includes any expenditure incurred in protecting or curing the title. In other words, cost of improvement includes all those expenditures, which are incurred to increase the value of the capital asset. Indexed Cost of improvement = COA X CII of Year of transfer CII of Year of improvement Any cost of improvement incurred before 1st April 1981 is not considered or it is ignored. The reason behind it is that for carrying any improvement in asset before 1st April 1981, asset should have been purchased before 1st April 1981. If asset is purchased before 1st April we consider the fair market value. The fair market value of asset on 1st April 1981 will certainly include the improvement made in the asset.

Provisions for computation of Capital Gain Provisions under section 48 The income under the head Capital Gains shall be computed by deducting the following from the full value of the consideration received or accrued as a result of the transfer of the capital asset : Expenditure incurred wholly and exclusively in connection with such transfer. The cost of acquisition of the asset and the cost of any improvement thereto. Computation of Short Term Capital Gains From full value of consideration, deduct Expenditure incurred wholly and in exclusively Cost of acquisition Cost of any improvement of asset Computation of Long Term Capital Gains From full value of consideration, deduct Expenditure incurred wholly and in exclusively connection with the transfer Indexed cost of acquisition of asset Indexed cost of any improvement of asset

Q.1 Prepare a ready reckoner of various tax savings investment options covering Section C to U. According you what are the 5 best investment options under these sections. Ans: Reckoned of various tax savings investment options covering Section C to U:
Sl No Section Details of deductions General deduction for investment in Quantum Maximum Rs 1 ,00,000 is

PPF,PF,Life Insurance, ULIP, Stamp allowed. 1 80C duty on house, Fixed deposits for 5 years , bonds etc Investment need not be from taxable income. Deduction in case of contribution to pension fund. However, it should be 2 80CCC noted that surrender value or employer contribution is considered income. Deduction in respect to contribution to new pension scheme. Employees 3 80CCD of central and others are eligible. contribution to the maximum : 10 % of salary. It should be noted that as per section 80CCE , the maximum 4 amount of deduction which can be claimed in aggregate of 80C ,80CCC & 80CCD is Rs 1,00,0000 Medical insurance on self, spouse , children or parents 5 80D Extra Rs 15,000 for insurance on parents. IF parents are Rs 15,000 for self , spouse & children Maximum is sum of employers and employees Maximum is Rs 1,00,000

above 65 years, extra sum should be read as Rs 20,000

Thus maximum is RS 35,000 per annum

For maintenance including treatment or 7insurance the lives 6 80DD of physical disable dependent relatives For medical treatment of self or relatives suffering from specified 7 80DDB disease

Rs 50,000 . In case disability is severe , the amount is Rs 1,00,000.

Acutal amount paid to the extent of Rs 40,000. In case of patient being Sr Citizen , amount is Rs 60,000

For interest payment on loan taken for higher studies for self or 8 80E education of spouse or children

Actual amount paid as interest and start from the financial year in which he /she starts paying interest and runs till the interest is paid in full.

Donations to charitable institution 9 80G

100% or 50% of amount of donation made to 19 entities (National defense fund , Prime minister relief fund etc. )

For rent paid. 10 80GG

This is only for people not getting any House Rent Allowance. Maximum is Rs 2000 per month. Rule 11B is

method of computation. For donation to entities in scientific Only those tax payers who have research or rural development f 11 80GGA no business income can claim this deduction .Maximum is equivalent to 100 % of donation. 12 80GGC For contribution to political parties Allowed only to resident authors 13 80QQB for royalty income for books other than text book For income receipt as royalty on 14 80RRB patents of resident individuals whichever is less. Deduction in respect of permanent RS 50,000 which goes to Rs 15 80U physical disability including blindness to taxpayer 1,00,000 in case taxpayer is suffering from severe disability. Actual royalty or Rs 3,00,000 100 % of donations Royalty income or Rs 3,00,000 whichever is less.

Five best investment options 1.Provident fund: This is deducted compulsorily, and there is no running away from it! So, this has to be the first. Also, apart from saving tax now, it builds a long term, tax free retirement corpus for you. 2.Home loan principal: If you are paring the EMI for a home loan, this one is automatic too! So, it comes as a close second. 3.Life insurance premiums: Every earning person having dependents should have adequate life insurance coverage. Therefore, life insurance premium payments are the next.

4.Voluntary Provident Fund (VPF) / Public Provident Fund (PPF): If you think that the PF being deducted from your salary is not enough, you should invest some more in VPF, or in PPF. 5.Equity Linked Savings Scheme (ELSS): After the above, if you have not reached the limit of Rs. 1,00,000, then you should invest the remaining amount in Equity Linked Savings Scheme (ELSS). Equities provide the best, inflation-beating return in the long term, and should be a part of everyones portfolio. After all, what can be better than something that gives great return and helps save tax at the same time?

Q.2: Write short notes on (a) Profit in lieu of salary (b) Sec 80D Ans: (a) Profit in lieu of salary: Profit in lieu of salary is a part of salary income. It is included in gross salary and taxed accordingly. Profit in lieu of salary includes the following(a) Any compensation due to or received by a employee from his employer or former employer at or in connection with the termination of his employment or modification of the terms & conditions relating thereto is taxable as profit in lieu of salary after providing exemption u/s 10(10B) or 10(10C), if any. (b) Any payment (except to the extent it is specifically exempt u/s 10) due to or received by an employee from his employer or former employer or from a provident fund, or other fund which may otherwise be taxable as income from salary. (c) Payment from un-recognised provident fund or superannuation fund to the extent it does not consist of contribution by the employee or interest on employees contribution. (d) Any sum received under a keyman insurance policy including the sum allocated by way of bonus on such policy.

(e) Any amount received in lump sum or otherwise from any person prior to his joining employment or after cessation of employment with that person. (b) DEDUCTION IN RESPECT OF MEDICAL INSURANCE PREMIUM SEC 80D Conditions: 1. Payment shall be on account of insurance premium in respect of Medical Insurance (Not life insurance) 2. Payment shall be made by cheque. 3. Payment shall be out of income chargeable to tax. 4. Insurance scheme shall be framed by GIC and approved by the Central Government from A.Y. 2002-03 the amount deposited in any scheme of any other insurer who is approved by the Insurance Regulatory and Development Authority shall also be eligible for deduction. 5. Deduction can be claimed only by individual (in respect of policy taken on his health of his/her spouse, dependent parents, dependent children) and by the HUF (on the health of any member of such family). Quantum of deduction: The actual premium/premia paid during the tear, or Rs. 15000 whichever is less.

Q.3: Explain the tax provisions for new business in free trade zones. Ans: Income of newly established undertakings in free trade [Section 10A]

zones

General: A deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee. Essential conditions to claim deduction: the deduction shall apply to an undertaking which fulfills the following condition: i) It has begun or begins to manufacture or produce articles during the previous year, relevant to the assessment year a) 1981-82 or thereafter, in any free trade zone b) 1994-95 or thereafter, in nay electronic hardware technology park, or as the case may be, software technology park; or c) 2001-02 or there after in any Special Economic zone ii) It should not be formed by the splitting up or reconstruction of a business already in existence. iii) It should not be formed by the transfer of machinery or plant, previously used for any purpose, to a new business. iv) The sale proceeds of articles or things or computer software exported out of India should be received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months or, within such extended period as the competent authority may allow. v) The exemption shall not be admissible for any A.Y. 2001-02 or thereafter, unless the assessee furnishes in the prescribed form [Form No.65F] along with the return of income, the report of the chartered accountant certifying that the deduction has been correctly claimed as per provisions of this Section.

The expression Free Trade Zone means such areas as Kandla Free Trade Zone, Santa Cruz Electronics Export Processing Zone, Falta Export Processing Zone, Madras Export Processing Zone, Cochin Export Processing zone, Noida Export Processing Zone, or situated in an Electronic Hardware Technology Park or in a Software Technology Park. Period of tax holiday: The profits and gain from the exports of such undertaking shall not be included in the total income in respect of any ten consecutive assessment years beginning from the year in which the unit begins to manufacture or produce such article or things or computer software. No deduction under this Section shall be allowed for the Assessment year 2010-2011 and thereafter. Therefore, any unit set up after financial year 2000-2001 is be eligible to claim exemption for less number of years i.e. units set up in 2001-2002 can claim this deduction for 9 years, units set up in 2002-2003 can claim this deduction for 8 years and so on. In case of existing units which are already claiming this exemption, deduction is being allowed only for the unexpired period of the aforesaid 10 years. Q.4: Distinguish between amalgamation, merger, and demerger. What type of transaction is not treated as Amalgamation? PROCEDURE OF MERGER 1. Observing Memorandum of Association of Transferee Company. It has to be ensured that the objects of the MOA of the transferee company cover the objects of the Transferor Company or companies. If not then it will be necessary to follow the procedure for amendment of objects by passing a special resolution at an EGM convened for this purpose. It has been held by various decisions of the courts that there is no necessity to have special power in the object clause of the MOA of a company for its amalgamation with another company. It has been laid down that to amalgamate with another company is power of the company and not an object of the company. 2. Convening a Board Meeting

Board Meeting is to be convened and held to consider and approve in principle amalgamation and appoint an expert for valuation of shares to determine the share exchange ratio. Consequent upon finalization of scheme of amalgamation anther Board Meeting is to be held to approve the scheme. 3. Preparation of Valuation Report Chartered Accountants are requested to prepare a Valuation Report & the swap ratio for consideration by the Boards of both the companies and if necessary it may be prudent to obtain confirmation from merchant bankers on the valuation to be made by the Chartered Accountants. 4. Preparation of scheme of amalgamation or merger Auditors, legal advisors and Practicing Company Secretary of both the companies must interact with each other and should report the result of their interaction to their respective BOD. The Boards of the involved Companies should discuss and determine details of the proposed scheme of amalgamation and merger. The draft of the scheme finally prepared by the Boards of both the companies should be exchanged and discussed in their respective Board meetings. After such meetings a final draft scheme will emerge. Contents of Amalgamation scheme 1. Transfer date: This is a cut off date from which all the movable and immovable properties including all rights, powers, privileges of every kind, nature and description of the transferor company shall be transferred or deemed to be transferred without any further act, deed or thing to the transferee company. 2. Effective date:

This is the date on which the transfer and vesting of the undertaking of the Transferor company shall take effect i.e. all the requisite approvals would have been obtained. The scheme should suitably provide for: 1. Brief details of transferor and transferee companies 2. Appointed date 3. Main terms of transfer of assets and liabilities from transferor to transferee. 4. Effective date of the scheme 5. Details of happenings and consequences of the scheme coming into effect on effective date 6. The terms of carrying on the business activities by transferor between appointed date and effective date 7. Details of Share capital of transferor and transferee company 8. Proposed share exchange ratio, conditions attached thereto fractional certificates to be issued to Transferee Company, approvals and consent required etc. 9. Conditions about payment of dividend, ranking of equity shares, prorata dividend declaration and distribution. 10. Status of employees of transferor companies and various schemes or funds created for their benefit from the effective date 11. Agreement between transferor and transferee companies towards making applications/petitions under sec.391 and 394 and other provisions to the respective High Courts 12. Impact of various provisions covering income tax dues, contingencies and other accounting entries deserving

attention. 13. Statement to bear costs, expenses etc. in connection with the scheme by transferee company 14. Qualifications attached to the scheme requiring various approvals and sanctions. 15. Enhancement of borrowing limit of the transferee company upon the scheme coming into effect 16. Surrender of shares by Shareholders of Transferor Company for exchange into new share certificates. 5. Approvals of scheme Approvals of BOD, Stock Exchanges, Share holders, creditors, financial institutions, Land holders, high courts and RBI are required. 6. Application to High Court seeking direction to hold meetings Rule 67 of the Companies (court) Rules, 1959 lays down that an application under section 391(1) of the Companies Act, 1956 for an order seeking direction for convening meetings of creditors and/or members or any class of them shall be by way of judges summons supported by an affidavit. A copy of the proposed scheme should be annexed to the affidavit as an exhibit thereto. The summons should be moved ex parte in Form no.33 of the Companies (court) Rules, 1959. The affidavit in support of the application should be in Form No. 34. 7. Jurisdiction of High Court Joint application or separate applications should be moved to the High Court having jurisdiction over the state in which registered offices of the companies are situated.

8. Obtaining order of the court for holding class meetings. On receiving a petition the court may order meetings of the members/creditors to be called, held and conducted in such manner as the court directs. Once the ordered meetings are duly convened, held and conducted and the scheme is approved by the prescribed majority in value of the members/creditors, the court is bound to sanction scheme. Notice of the meeting(s) should be in Form no.36 must be sent by the person authorized by the court at their last known addresses at least 21 clear days before the day fixed for the meeting. The notice must be accompanied by a copy of the scheme for the proposed compromise or arrangement. 9. Notice by advertisement Where the court has directed that the notice of the meetings should also be given by newspaper, advertisements, and such notices are required to be given in the prescribed Form no. 38 and published once in an English newspaper and once in the regional language of the state in which the registered office of the company is situated. 10. Convening of General Meeting At the General meeting convened by the High Court resolution will be passed approving the scheme of amalgamation with such modification as may be proposed and agreed to at the meeting. The resolution relating to the approval of amalgamation has to be approved by a majority of members representing 3/4th in value of the creditors or class of creditors or members or class of members as the case may be present and voting either in person or by proxy. The minutes of the meeting should be finalized in consultation with the Chairman of the meeting and should be signed by him once it is finalized and approved. Copies of

such minutes are required to be furnished to the Stock Exchange in terms of the Listing Agreement.

11. Reporting of the results The Chairman of the meeting will submit report of the meeting indicating the results to the concerned High Court in Form no.39 within 7 days of the conclusion of the meeting. The Report must state: a) The no. of creditors/members or class of creditors/members who were present at the meeting and who voted. b) Their individual values and the way they voted 12. Petition to court for confirmation of scheme When the scheme is agreed to, with or without modification a petition must be made to the court for confirmation of the scheme on the Form no.40 The court also directs that notices of petition be sent to the concerned Regional Director, ROC and the official liquidator. On hearing the petition the court shall fix the date of hearing and it shall be published in the same newspaper in which notice of the meetings was advertised or in such other papers, not less than 10 days before the date of hearing. 13. Obtaining order of the court sanctioning the scheme An order of the court on summons for directions should be obtained which will be in obtained which will be in Form no.41. 14. Filing of copy of courts order with ROC A certified copy of the order passed by the court under

both the section 391(3) and 394(3) is required to be filed with concerned ROC in E-form no.21. If default is made in complying with this sub-section the company and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees. According to sub-section (3) of section 391 the court order shall not have effect unless a certified copy of the order has been filed with the Registrar. 15. Transfer of the Assets & Liabilities Section-394(2) vests power in the High Court to order for the transfer of any property or liabilities from Transferor Company to Transferee Company. In pursuance of and by virtue of such order such properties and liabilities of the transferor shall automatically stand transferred to transferee company without any further act or deed from the date the Courts Order is filed with ROC. 16. Allotment of Shares to Shareholders of Transferor Company Pursuant to the sanctioned scheme of amalgamation, the share-holders of the Transferor company are entitled to get shares in the transferee company in the Exchange ratio provided under the said scheme. There are three different situations in which allotment could be given effect:i) Where Transferor Company is not a listed company, the formalities prescribed under listing agreement do not exist and the allotment could take place without setting the record date or giving any advance notice to shareholders except asking them to surrender their old share certificates for exchange by the new ones;

ii) The second situation will emerge different where transferor company is a listed company. In this case, the stock exchange is to be intimated of the record date by giving at least 42 days notice or such notice as provided in the listing agreement ; iii) The third situation is where allotment to Non-Resident Indians is involved and permission of Reserve Bank of India is necessary. The allotment will take place only on receipt of RBI permission. In this connection refer to Regulations7, 9 & 10B of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 as and where applicable. Having made the allotment, the transferee company is required to file with ROC with return of allotment in Form No-2 appended to the Companies (Central Governments) General Rules and Forms within 30 days from the date of allotment in terms of Sec-75 of the Act. Transferee Company shall having issued the new share certificates in lieu of and in exchange of old ones, surrendered by transferors shareholders should make necessary entries in the register of members and index of members for the shares so allotted in terms of Sec-150 and 151 respectively of the Companies Act,1

17. Listing of the Shares at Stock Exchange After the amalgamation is effected, the company which takes over the assets and liabilities of the transferor company should apply to the stock exchanges where its securities

are listed, for listing the new shares allotted to the shareholders of the transferor company.

18. Court order to be annexed to Memorandum of Transferee Company It is the mandatory requirement vide Sec-391(4) of the Companies Act, 1956 that after the certified copy of the Courts Order sanctioning the scheme of amalgamation is filed with Registrar, it should be annexed to every copy of the Memorandum issued by the transferee company. Failure to comply with requirement renders the company and its officers liable to punishment. 19. Preservation of Books & Papers of Amalgamated Company Sec-396A of the Act requires that the books and papers of the amalgamated Company should be preserved and not be disposed of without prior permission of the Central Government. 20. The Post Merger Secretarial Obligations

There are various formalities to be complied with after amalgamation of the companies is given effect to and allotment of shares to the shareholders of the transferor Company is over. These formalities include filing of the returns with Registrar of Companies, transfer of investments of transferor company in; the name of the transferee, intimating banks and financial institutions, creditors and debtors about the transfer of the transferor companys assets and liabilities in the name of the transferee company, transfer of employees, gratuity, PF and

Pension funds etc.

21.

Withdrawal of the Scheme not permissible

Once the scheme for merger has been approved by requisite majority of Shareholders and creditors, the scheme cannot be with-drawn by subsequent meeting of shareholders by passing Resolution for withdrawal of the petition submitted to the court U/s391 for sanctioning the scheme. PROCEDURE OF DEMERGER The procedure is as follows: 1. Incorporate the company which will be the Resulting Company. 2. Frame a scheme of Demerger 3. File a Judges Summons in the High Court praying for an Order convening separate meetings of the Creditors, Share-holders, or any class of them. Each such Judges summons must be supported by an Affidavit and a copy of the Scheme must be annexed to the Affidavit. If all the Creditors agree to the Scheme, the meeting may be dispensed with. In the case of a Demerger, it would not be possible to dispense with a meeting of the share-holders, since under Section 293 (1)(a) of the Companies Act, a general meeting of the share-holders would be essential before any such Demerger can take place. 4. Notice of the meeting must be given to the Creditors and /or members and sent individually to each Share-holder/Creditor. Each notice must be accompanied by a copy of the scheme, explanatory statement as required by Section 393 of the Companies Act and a proxy form. 5. The notice of meeting must be advertised in such

newspapers and in such manner as the judge may direct. The Advertisement must take place at least 21 clear days before the date of the meeting,i.e. 21 days notice must be given excluding the date of advertising of the notice and the date of the meeting. 6. The Chairman of the meeting or other person directed to issue the Advertisement and notices must file an Affidavit not less than 7 days before the date of the meeting showing that the directions reg: issue of notices and advertisements have been duly complied with. 7. On the date of the meeting, the decisions of the meetings must be ascertained only be taking a poll. 8. The Chairman of each meeting must file a report in the Court within that time fixed by the Judge or where no time has been fixed, within 7 days after the conclusion of the meeting. The report must state accurately the number of creditors or class of creditors or number of members or class of members as the case may be who were present and who voted at the meeting either in person or by proxy, their individual values and the way they voted. The report shall be in Form 39 annexed to the Companies (Court) Rules, 1959. 9. Where the proposed Demerger is approved by the various meetings with or without modification, the company must present the petition to the Court, for confirmation of the Demerger within 7 days of the filing of the Chairman's Report. 10. The Court shall fix a date for hearing of the Petition and direct advertising in the same newspapers in which the notices of the meetings were advertised or in such other papers as the Court might direct. The notice must be given not less than 10 days before the date of the hearing. 11. If the Court sanctions the Demerger, it may give

such directions as it considers necessary for the proper working of the Demerger. The certified copy of the Order must be filed within 14 days from the date of the Order or such other time, as may be fixed by the Court. 12. Applications for Orders in connection with the Demerger or for any variation, etc. shall be made under Section 394 by Judges Summons supported by an Affidavit for directions as to the proceedings to be taken. Notice of the summons shall be given in such manner and to such person as the Court may direct. On hearing the Summons, the Court may make such Order or Directions as may be necessary. 13. The Company or any Creditor or Member thereof may at any time after the passing of the Order sanctioning Demerger, apply to the Court for determination of any question relating to the working of the compromise or arrangement. Notices and Advertisements shall be as the Court may direct. The Court may pass such Orders, give such Directions as it may think necessary