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Dear Members, Wish you all a Happy and Prosperous New Year. The Month of December was filled with bubbling activities. We inaugurated our prestigious Platinum Chambers and Platinum Jubilee Celebrations. We rededicate ourselves and pledge our loyalty and gratitude to our founding fathers of this great Institution. Survival of 75 years is a great achievement for any organization. It had many ups and downs in marching towards Platinum Jubilee. In 1979, the Society had a set back. It was only due to the best efforts of Mr. M.R. Narayanan and Mr. R. Balakrishnan the Society was revived. Then came Sri. D. Rangaswamy to carry the mantle and conducted Golden and Diamond Jubilees. Till entering the Central Council, Mr. R. Balakrishnan gave a helping hand as Vice President to restore the old glory along with Sri. D. Rangaswamy. The demise of Sri. D. Rangaswamy was a set back to us. However the subsequent Presidents ran the Society with a steady phase to carry on the activities. The Platinum Jubilee year saw a remarkable change and took it to a new peak. The inauguration of our Platinum Chambers by CA T.N. Manoharan, President of ICAI (and our past Joint Secretary) would be remembered for ever. The support given by our members (both in terms of contributions made and physical efforts put) to acquire our own premises was something amazing and to be proud of. Still if you have not contributed you may do so to build up corpus for our Academy for Education, Research and Training. th


The attendance on 10 and 11 Dec. functions was overwhelming. I seek your co-operation and support for our Mega Conference to be held on 9th and 10th February 2007. In recognition of his long association and total involvement in the activities of the Society, Sri G. Narayanasawamy, Past President, was presented with a citation and was made Patron of the Society on the occasion of the Platinum Jubilee Celebrations. I express my gratitude to those who sent in contributions and advertisements for the celebrations. We have taken in 62 members during the calendar year 2006. It is not enough. I request that each one of you should bring in at least one active member before 31st March 2007.

President’s Message & Editorial


Secretary’s Report


A Dream Comes True


Classification of Business...


A Good Beginning...


Sense and Sensitivity... Whither?


Election Counting Process


TN VAT & Stop Press


EDITORIAL BOARD Editor-in-chief P.S. Prabhakar President & Ex-officio member K. Ananthachari Secretary & Ex-officio member S. Ramakrishnan Members R. Balakrishnan R. Sivakumar Sripriya Kumar

EDITORIAL Hello, friends! A year since the launch of “Auditor” has gone by. It has indeed been a satisfying journey so far, though we also realise that we have miles and miles to go. Society’s vibrancy has been felt in ample measure in the past one year, with the ever-energetic President Sri KA, at the helm, ably assisted by a motivated team. Before I go in to the editorial content proper, let me acknowledge with gratitude, that the Society’s Executive Committe in general, and the members of the editorial board, in particular, had indeed given me a good amount of freedom in my job, which enabled me to by and large stick to the agenda that we set for ourselves in the i n a u g u r a l i s s u e. We r e c e i v e d h o n e s t appreciation from many quarters and more i m p o r t a n t l y, w e a l s o r e c e i v e d s i n c e r e suggestions for improvements from many


senior members, to all of whom we owe our thanks. You are having the first issue of the second year in your hands. “Auditor” has swelled in size this time around essentially due to our desire to bring to the members the photographic memories of the delightful functions we had in two successive days, one the inauguration of Society’s own premises and the other, the inauguration of the Platinum Jubilee Celebrations. (It will go on ‘diet’ again!). Please do not mind the seemingly larger number of photos. They are there because of the inherent importance of the incidents. Believe me, none of those who appear in the photos nurse any electoral ambitions! Ms. Sripriya Kumar, the ebullient addition in the editorial board, came out with an evocative write-up on the twin functions, which you will see in this issue.

An excellent piece of write-up was found by me in the Internet on the issue of the sprouting SEZs (Special Economic Zones) and I sincerely felt that this was something our members should have the benefit of reading. The editor made a few changes in the article and gave the caption that it has. Well, with the tax audits and time barring assessments behind us, the members of our fraternity are looking for a period of slight relaxation. The New Year is going to dawn with an international conference slated during the 2nd week of January, hosted by ICAI, which is likely to be a mega event. Our Society’s Platinum Jubilee Conference is slated for early February. Rarely do we have the combination of good opportunity of knowledge acquisition and a relaxed time span. All of us should make good use of this. We were not able to conduct the ‘interaction with the contestants of central council Continued on next page...

Auditor January – February 2007

SECRETARY’S REPORT This one Sunday morning I won’t forget for sometime to come. I am referring to the inauguration of our own premises on 11th December. As members of various generations walked in, one did become nostalgic. After a healthy breakfast, Shri TN Manoharan dedicated the new premises. Shri R Balakrishnan requested Shri R Ranga Rao to take an impromptu class to all about the principles of Double Entry in real life. There were endless photosessions, bonhomie and camradiere that


prevailed all over. At the brief meeting which followed, our President, who is normally stoic became emotional which only reflected his painstaking efforts to see through the project. The next day, 12th December, when the Platinum Jubilee was inaugurated, it resembled a family wedding as many who had come the previous day turned in all finery. It was a trip down the memory lane for the lucky ones who had participated in Golden and Diamond Jubilee functions. The function was full of humour, banter and wise words as is characteristic of Society of Auditors. The evening rounded up with soulful music and sumptuous dinner. Well, it is imperative to look forward too. We are precisely doing that by

‘joke away’ the embarassment of having to stand on roads, braving the dust and the notmembers’, as announced in our last issue due so-gentle chiding of the traffic police personnel. to the code of conduct guidelines of the It was certainly not looking very honourable. institute. Our apologies. Talking of elections, the Again, on the subject of elections - your editor 15th and 16th December, were the days of had the first-hand experience of watching the polling at our Institute. All those who have counting process at Delhi. You will find an been talking and listening about ‘profession in article on the same in this issue. the cross roads’ in seminars and conferences, had a literal and practical experience of it. Let me end this month’s edit, with a personal Many of our members were feebly trying to note of thanks to Sri Ananthachari and Sri R

hosting a Platinum Jubilee Conference on 9th and 10th February, 2007 apart from customary inauguration of our study circle meeting in third week of January. We are also contemplating some programmes for students, residential course for members, training in speialised areas and a possible tie up with local study centre of ICAI to enable our members to get that much sought after CPE credits. To do this and much more we need Vitamin M which I am sure our members and well wishers will replenish. So, let us all march together to the Centenary of first Registered Accounting body of the country. – S. Ramakrishnan Balakrishnan, who, realising that I was otherwise occupied, took away a substantial portion of my editorial responsibilities in this issue. So, if you see a qualitative leap ahead in this issue, do not worry, I will level it the next time! With my very best wishes for a very happy, prosperous, healthy and peaceful 2007. – P.S. PRABHAKAR


OFFICE OF THE COMPTROLLER AND AUDITOR GENERAL OF INDIA 10, Bahadur Shah Zafar Ali Marg, New Delhi - 110 002

Empanelment of Chartered Accountant firms for the year 2007-2008 and 2008-2009 Applications are invited online only from the firms of Chartered Accountants who are desirous of being empanelled with this office for the year 2007-2008 and 2008-2009 for appointment as auditors of Government Companies / Corporations. The firms which were empanelled for 2005-07 will have to apply afresh for being empanelled. The format of application along-with the detailed instructions regarding the documents to be furnished will be available on our website: The online applications will be accepted from 2nd January 2007 to 17th February only. The last date for the receipt of related documents in this office is 28th February 2007. Though the empanelment will be for a period of two years i.e. 2007-2008 and 2008-2009, the continuance of empanelment for the second year 2008-2009 would be subject to updating of the data by the CA firms concerned who will have to send the related documents for the year 2008-2009 by a date to be specified in December 2007. Sd/(A.K. AWASTHI) davp 4013(3)2006 Director General (Commercial) Auditor January – February 2007




Elected to the Council of the ICAI for 2007-2010 Shri K. Raghu* Shri G. Ramaswamy* Shri S. Santhanakrishnan* Shri J. Venkateswarulu Shri V. Murali* Shri Shantilal Daga Shri S. Gopalakrishnan* Shri V.C. James *Our members.


Rs. S. Gopalakrishnan (PWC) Well Wisher S. Neelakantan (CNGSN) R. Bupathy V.R. Cecil Joseph A.F. Fernandez (Nagercoil) V. Ramachandran Nathans Charitable Trust (Pichaikutty) K.P. Muralidharan M. Paniappan R. Subburathinam K. Rajagopalan O.K. Umamaheswara Rao

1,00,001 25,000 25,000 15,000 10,101 10,000 10,000 10,000 5,001 5,000 5,000 2,000 1,000

Third Instalment R. Balakrishnan (Total Rs. 30,606) P.R. Venkatachalam (Total Rs. 23,000)

5,000 3,000

SOCIETY OF AUDITORS proudly announce

THE PLATINUM JUBILEE CONFERENCE on 9th&10th February 2007, at Hotel Savera, Chennai Leading personalities from all over India participate. A unique event to remember. Don’t miss it. Enrol Today! 3

Auditor January – February 2007

Basics of Classification of Business Transactions – A Teacher’s Perspective Shri R. Ranga Rao, B.Com., F.C.A. Book keeping is recording of financial transactions/data relating to a business operations in a significant and orderly m a n n e r. B u s i n e s s transactions are classified into three categories “PERSONAL,” “REAL” & “NOMINAL” accounts. I am trying to explain here what could be the basis by which such classifications would have been made. To e x p l a i n l e t u s a s s u m e t h a t a n individual “Mr A” carries on a business a betel nut shop. To carry on the business he contributes capital, he needs a place, may be own premises or a rented place, an air conditioner for the business premises, some furniture, cup boards/shelves to keep the goods for resale, lighting facility, employ people to assist him in carrying on the business, open bank account, purchase goods from suppliers, sell goods to customers for cash / credit, buy a vehicle for his business, allow discount to customers on collection, pay salary to employees, and so on. In the process you may notice that the business deals with various items. Such items may be classified into two categories. Viz (1) ITEMS HAVING LIFE AND (2) ITEMS WHICH DO NOT HAVE LIFE. Examples of ITEMS HAVING LIFE customers, suppliers, who are human beings, who are creation of God; a Company, a Bank, etc who get life on being incorporated under respective laws (because they are managed by human beings). Examples of ITEMS WHICH DO NOT HAVE LIFE Cash, Furniture, Vehicle, Building, Machinery, etc. With the above two categories, ITEMS H AV I N G L I F E a r e c l a s s i f i e d a s PERSONAL ACCOUNTS and ITEMS WHICH DO NOT HAVE LIFE are classified as IMPERSONAL ACCOUNTS. On a further analysis of the IMPERSONAL ACCOUNTS you may

Auditor January – February 2007

find that the business which deals with items which do not have life (viz. Impersonal Accounts) there are certain ITEMS WHICH CAN BE SEEN and certain ITEMS WHICH CANNOT BE SEEN. Examples of ITEMS WHICH DO NOT HAVE LIFE BUT CAN BE SEEN Cash, Furniture, Building, Machinery, etc. Examples of ITEMS WHICH DO NOT HAVE LIFE BUT CANNOT BE SEEN Rent, Discount, Salary, Interest. What is rent or salary - it s understood, you cannot see rent or salary, Salary paid in cash to the employee the cash given is only a mode of payment - Cash you can see but that is not the case with salary. Salary is only understood. Similarly what is discount or interest they are only understood but CANNOT BE SEEN. Thus under IMPERSONAL ACCOUNTS: (1) ITEMS WHICH DO NOT HAVE LIFE BUT CAN BE SEEN since they are real is classified as REAL ACCOUNTS and

(2) ITEMS WHICH DO NOT HAVE LIFE BUT CANNOT BE SEEN since they are not real and only FICTITIOUS are classified as NOMINAL ACCOUNTS. Thus the Business transactions are classified under three categories viz “PERSONAL,” “REAL” AND “NOMINAL” ACCOUNTS. To test the above reasoning for classification a small question “what happens when a donkey is bought by the business? Can we classify the donkey under PERSONAL accounts because it has life as explained above. You are aware we classify the donkey (viz animal ) under REAL accounts. This is where we have to go back to our good old days and realize why our teacher calls the students by the name of that animal when the students do not apply their minds (viz the sixth sense). At times even the shareholders of a company have also made remarks when things are not

being done in a proper way by the Directors “whether the BOARD consist of human beings (persons) or donkeys (animals)?” Hence one has to understand that once the human being could/does not use his sixth sense he is as good as “A DEAD PERSON”. Thus a donkey bought by the business, being animal, does not have the sixth sense and therefore it is an ITEM WHICH DOES NOT HAVE LIFE. Accordingly it cannot be classified under PERSONAL ACCOUNTS but will be under IMPERSONAL ACCOUNTS. Since it can be seen, the DONKEY will be classified under REAL ACCOUNTS. The above is only a loud thinking of how the classification of “PERSONAL,” “REAL” AND “NOMINAL” Accounts could have been developed in business transaction. NOTE: The above is the gist of the “Class” taken by the author on the date of inauguration of the Building of the Society of Auditors. As mentioned in the Secretary’s Report, Shri Ranga Rao was responding to a request for a ‘class’ on the rudimentary aspects of accounting. He was aware that he was speaking to the Veteran accountants who decided to ‘behave’ (for once!) as students who were getting intro into accounting. The author is a practising Chartered Accountant and faculty member of ICAI since 1967. – Editor 4

Report by Sripriya Kumar (The Master of Ceremonies), in her unique style The year 2006 has been a year of intense and interesting action. CA TN Manoharan took over as the President of the ICAI, Shri K. Ananthachari took over as the President of the SOA, the ICA course is being reformatted. (Yes! again!). Elections to our ICAI have grown bigger and better, and ofcourse India is still shining! This is the Platinum Jubilee year of the Society of Auditors and we got off to a flying start on the 10th and 11th of December. Old Society... New Look! First things first. We at the SOA have fulfilled our dream. We have bought our pwn premises in the heart of the city at Luz, Mylapore. The interiors of this 1600 sq.ft. of space can easily match, if not better some of the best designed

offices in the city. Well! Isn’t that a great start! CA TN Monoharan, accompanied by the First Lady, inaugurated this premises on 10th December and reitereated the need for organizations such as the SOA (he affectionately acknowledges the SOA s the brother of the ICAI) to

Old is Gold, Platinum for now... Diamond forever...

enable and enhance the activities of the ICAI. Shri K. Ananthachari displayed inexhaustible reserves of personal energy in making this happen and may well be nominated for the “Fund Raiser of the Year Award”. God Bless!! Bigger, Better, Smarter The Platinum Jubilee Committee chaired by Shri G. Narayanaswamy and assisted by Shri R. Balakrishnan

conceived an inaugural event at Hotel Savera on Dec. 11, 2006. This flawlessly executed event was done with an objective to recollect the journey that was as well to reiterate the continued presence of the SOA as a meaningful organisation in service of its members.

Shri K Ananthachari delivered a spiritd inaugural address. That he charges his actions with his spirit was evident from the passion that he showed to make the twin delights happen (the building and the Platinum Jubilee). He recollected the Golden Jubilee celebrations and he encouraged the team to deliver a truly sterling performance for the Centenary celebrations which he said, are just 25 years away. An Unhurried Voyage retold Shri R Sivakumar (new, improved, younger look with highly stylised spectacles) recalled the story of the 75 years at SOA, from the days of inception, till now. Golden Memories

Deep thoughts, intense affections for the SOA and gentle humour. Who else could have been a better Chief Guest than our Justice TNC Rangarajan? He recollected his association with the SOA and mentioned that although he was a lawyer, he had attended every one of the Study Circle mettings that happened when he was in

Auditor January – February 2007

focus. And no, he was not a fellow Chartered Accountant. Multidisciplinary practice and networking is the new watch word now and the SOA could not have been more contemporary. A coup of sorts

Chennai. He made an outsanding speech that was laced with brilliant wit and anecdotes. We were somewhat overawed to see him combine his powerful intellect with a sense of humility, warmth and understand presence, a rarity these days. (He was amongst the first to arrive and was waiting for the rest of us). Ring in the New We are in the Knowledge Era. It was only apt that we had a new

SOA holds the distinction of the only organisation that has been graced by the President of the ICAI five times in a year (2006). No prizes for guessing. CA TN s p u r r e d t h e n e w p r e m i s e M a n o h a r a n w a s a p a s t J o i n t acquisition as well as the Platinum Secretary of the SOA and is very Jubilee inauguration. The pleasure supportive of the activities of the of the conferment truly belonged SOA. Manoharan’s address was the to the SOA. Can’t but eulogise right mix of nostalgia, information, with the Thirukkural - “Magan appreciation and advice. He had Thanthaikku Attrum Uthavi....” the audience in splits when he The evening ended with a vote of described Mr. G Narayanaswamy’s thanks by Ramakrishnan. At the sense of humour. end of his speech, one could not After his speech, two points help thinking that Chartered emerged. One, TN Manoharan has Accountants in the SOA seemed to a s u b t l e y e t t e r r i f i c s e n s e o f be endowed with a much better humour. Two, all lawyers (Justice TNC and TNM are laywers) have an amazing reportoire of anecdotes. The SOA was honored It was a great moment when the SOA honoured 23 of our senior members (past seventy years of age). For those few minutes, time stood still and the atmosphere was completely charged by recipients who were thrilled to be there.

gen professional M r. Lakshminarayanan - President and CEO of Cognizant Technologies to deliver the Platinum Jubilee Address. His speech focused on the key attributes of successfully managed corporations - tone at the top, robust corporate governance, extensive process automation and a strong customer

Auditor November - December 2006

The Patron... the Pillar In recognition of his outstanding contribution to the SOA, Mr. G Narayanaswamy was conferred the status of a patron member. His acceptance speech was short and elegant, his razor sharp mind and quick wit unfettered by age. His unstinting support and motivation (carrots mostly, but sticks as well)

sense of humour and laughed a lot more often. One thing clearly emerged; speaker after speaker recollected fond memories of several elders of the profession and the rich legacy they left behind. ‘Entharo Mahanubhavulu, Anthariki Vandanamu’.


uditors Honours Sen ior A f o y t Memb o ci e S ers e in Th


Shri N.C. Sundararajan

Shri P. Srinivasan

Shri T.R. Rajaram

Shri S. Rajarathnam

Shri T.R.K. Tawker

Shri G.V. Raman

Shri N.R. Rajagopalan

Shri V. Pichaikutty

Shri V. Jagadeesan

Shri P.N. Balasubramanian

Shri M. Viswanathan

Shri A. Srinivasan

Shri S.L. Ramachandran Shri D. Atchutha Chetty

Shri D. Sampathkumar

Shri N. Srinivasan

Shri G.N. Ananthacharya

Shri Y. Sathyamurthy


Shri G. Narayanaswamy Shri P.R. Venkatachalam Auditor January – February 2007

SENSE AND SENSITIVITY – WHITHER? It took nearly 15 years of India’s first Home Minister Sardar Patel to ensure that the 554 princely estates scattered throughout the country finally integrate with the new nation. Some 45 years later, and in the 60th year of India’s Independence, almost an equal number of princely estates are once again being carved out. However, today, a new breed of Maharaja is all set to grab the crown. The only difference being that the new princely estates comes within the gambit of a strange sound acronym – SEZ - meaning Special Economic Zones. As the name suggests, thee cut out zones will have a special status, very special indeed. Except for floating its own currency, these zones would operate more or less like a princely estate, and would even have special courts to try the economic offences. Doling out state largesse in the name of ‘production incentives’ - no, it is not fair to dub these as subsidies - these SEZ will primarily be duty-free zones. Complete exemption from excise duty, custom duty, sales tax, octroi, mandi tax, turnover tax, as well as income tax holiday for ten years are some of the inducements. Also spelled out are provisions for 100 per cent foreign direct investment, exemption on income tax on infrastructure capital fund and individual investment, and an assurance of round-theclock electricity and water supply. The SEZ promoters have also been given a waiver from carrying out an Environment Impact Assessment. Permitted to indulge in commodity hedging, external commercial borrowing up to US$ 500 million without any maturity restrictions, freedom to bring in export proceeds without any time limit and make foreign investments from it, exemption from interest rate on import finance, and setting up offshore banking units with income tax exemption for three years and subsequently 50 per cent tax for another two years are some of the financial enticements. And if the new Maharaja were to sub-contract production to local manufacturers outside the princely estates, there would be duty drawbacks, exemption from state levies and income tax benefits. All these exemptions will mean a revenue loss of more than Rupees 1.75 lakh crore Auditor November - December 2006

(Rs. 1,750 billion) to the state exchequer after five years. Although this staggering amount is enough to feed the country’s 320 million people who go to bed on a hungry stomach for a number of years, or provide guaranteed employment to at least two members of each of the rural families for the next five years, this is a ‘small price’ that the nation must pay to keep the royalty tag for the rich and beautiful. In a way, what is being considered as a revenue loss is in reality, like the Privy Purse for the new Maharajas. (The Privy Purse was a grant given to the princely states after India’s Independence in 1947. As part of the process of accession to the Indian Union, the Privy Purse were accorded in terms of measurement of the revenue and potential of the merging states.

Doling out state largesse in the name of ‘production incentives’ - no, it is not fair to dub these as subsidies - these SEZ will primarily be duty-free zones. Complete exemption from excise duty, custom duty, sales tax, octroi, mandi tax, turnover tax, as well as income tax holiday for ten years are some of the inducements. These Privy Purse, provided to some 400 princely rulers, were abolished by the then Prime Minister Mrs. Indira Gandhi in 1969.) Legally authorized to disallow any inspection, search or seizure without prior permission and with sanction to operate its own private security system, these princely estates, for all practical purposes will be autonomous. They enjoy the confidence of the both, yes, both, the ruling and opposition coalition, making the political backing is complete! No wonder, the State governments are letting no stone unturned to acquire agricultural land and offer it on a platter. With promises of ‘the right kind of environment’ many chief ministers are waiting with garlands in hand. Take for instance the Haryana Chief Minister who had specially flown to Mumbai to invite a top industrialist. Gujarat government had sent a team abroad to invite investments for SEZ. The Orissa government is moving a step ahead. It is seeking amendment to the Scheduled Area Tribal Immovable Property Act thereby allowing outsiders to come and

buy the tribal land. Given a chance, the central and state governments would do anything to handover the prime land to industrialists – Tatas, Ambanis, Mittals, and the likes. You may call it ‘the biggest land-grab of the country’ or term it as ‘open-loot’, the powers that be are simply not deterred. Prime Minister repeatedly says that the SEZ are the need of the day. Therefore it is no surprise that agricultural land, which is a scarce commodity, is suddenly available in abundance, sadly though not for the proposes intended. Unmindful of the fact that the per capita land holding is already at an abysmally low of 0.25 acre, the government is using the draconian Land Acquisition Act 1854 to further purchase any land that it set its eyes on. In the first phase of clearances accorded by the government, a total of 1.25 lakh hectares of prime agricultural land are in the process of being acquired. In the second phase too, almost an equal area would be obtained. In Punjab, where almost the entire state is irrigated, SEZs are being set up on prime agriculture land, where the government is even using repressive techniques to browbeat the agitating farmers. Although rules forbid acquiring more than 10 per cent of the double-cropped area for setting up SEZ, the fact remains a majority of the princely estates are coming up on fertile land. Even in Himachal Pradesh, where the average farm size is about 0.4 hectares, the government is keen to convert 35,000 hectares in the Kangra valley into SEZ. One of the biggest SEZ is coming up near Mumbai. Spread over 14,000 hectares, it is coming up predominantly on double-cropped land. The Mukesh Ambani group has already acquired 9,000 acres of land in Jamnagar for its petro-product SEZ. It plans ultimately to increase the size of the product to 10,000 acres and convert it into a multi-product SEZ. With provisions for owning 65 per cent more land than required, the government has provided the ‘developers’ of SEZ an environment to build supermarkets, malls, restaurants, recreation parks and so on essentially given permission for building small princely estates. Out of 1.25 lakh hectares allocated so far to SEZ, nearly 31,250 hectares can be used for real estate 8

development. The real estate firms are reasons. Now let us examine the ground obviously elated. realities. It was at the beginning of this Another major SEZ proposed in Jhajjar century that some 75 lakh people, more than adjoining New Delhi is spread across 10,000 the population of Switzerland, had applied for hectares and is again gobbling double- a mere 28,000 lowly paid jobs in the Indian cropped land. Interestingly, both these SEZ, Railways. For a country, which is on a fast proposed to occupy a landmass larger than track information highway, this does not the suburb of Gurgaon, are yet to be mean anything significant except for officially approved. In Mangalore, one of the statistics. Even if you were to employ five promoters is the government-owned ONGC lakh out of these 75 lakh, isn’t that a mere and 2,200 hectares of double- and even drop in the ocean? Millions of assured jobs triple-cropped land is being acquired for can be created if the total amount of revenue loss Rs. 1.75 lakh crore- and the several setting up an SEZ. times higher public sector investment to Take the case of Tata Steel promoted Gopalpur SEZ in Orissa. Originally acquired follow, is used for employment generation. by the state government for a paltry sum, land was handed over to Tatas for a steel plant. When the plant did not come up, and the farmers demanded the land to be returned, the company promptly proposed to convert this land into an SEZ. Korean steel giant Posco, which is also setting up a steel unit in Orissa, was provided with 1,600 hectares of land and exclusive access to an iron ore mine despite massive protests by farmers. Posco now wants this land to be converted into an SEZ and the state government is willing. In another bizarre example, the CPM government in West Bengal has acquired some 400 hectares of fertile land for the Tatas to set up an automobile factory at Singur near Kolkata. Technically speaking Singur is not an SEZ, but what makes the deal politically, significant is that the State government has actually acquired the land at cost of Rs. 140 crore. It has been made available to Tatas for a mere Rs. 20 crore, which is one-seventh of the cost price. Even that can be treated as a loan for 5 years. Ironically, while the poor rural women in selfhelp groups (SHGs) in West Bengal pay a minimum annual interest rate of 24 per cent for micro-credit, Tatas will be charged a nominal rate of 0.1 per cent for macro-credit. That Madam Mamata reduced this as a mere political stunt is another facet of this sad story. The setting up of the princely estates is being primarily justified on account of employment generation. The premise is that it will create 5 lakh job opportunities. Does this kind of employment generation mean anything for India? This question has been conveniently ducked and for obvious


82,000 agricultural labourers’ households will lose Rs. 67-crore in wages. And put together, the total loss of income to the farming and the farm worker families is to the tune of Rs. 212 crore a year.

Food security too is no longer the national priority. Otherwise, no sensible government would have at any cost tinkered with the country’s dwindling ability to produce food for its own population. The conservative estimate shows that the nation will suffer a loss of Rs. 250 to 400 crores from the reduction in area under cultivation of food grains alone. Foodgrain production is expected to drop by at least 4 to 5 lakh With such large-scale diversion of land the tonnes a year. Who cares, but? first and foremost impact will be through The tall promises of employment generation displacements. Our estimates show that are naturally, without any accountability. In close to 1.14 lakh farming households (each fact, the Ministry of Commerce has no true household has an average comprising five basis for telling us how many jobs will be members) and an additional 82,000 farm created. It is merely a guesstimate. And, if worker families who are dependent upon the past experience is any indication, we these farms for their livelihoods, will be have the case of Pepsico’s entry into Punjab displaced. In other words, at least 10 lakh in the 1980s. the multinational giant promised to create 50,000 jobs. In reply to a 1991 parliamentary question, the Ministry of Food security too is no longer the Food Processing in acknowledged that the national priority. Otherwise, no company had created only 482 jobs, of sensible government would have at which 210 were unskilled workers. any cost tinkered with the country’s In China, from where India drew inspiration, dwindling ability to produce food for only six SEZ - at Shenzhen, Shantou, its own population. Xiamen, Zhuhai, Hainan and Pudong - have been set up so far. These economic zones, people (twice the number of jobs that SEZ all in public sector, came after a lot of debate promise to create) who primarily depend and deliberation, and all of them are situated upon agriculture for their survival will face along the coast. Faced with shrinking eviction. Now let us take a stock at the cultivable land, the Chinese SEZ have come annual loss in income for those displaced. As up only in wastelands. In India, all these per the latest report of the National Sample norms have been thrown to the wind. Survey Organisation (NSSO-2005), the It is therefore a free for all activity. If you can average income of a farming household mobilize political support by hook or by crook stands at Rs. 2,115 per month (income from you can be rest assured that you are on the cultivation - Rs. 969, farming of animals - Rs. right path to royalty. Whether you finally 91, wages - Rs. 819, and non-farm business deliver what you promise is something that - Rs. 236). Of these, income from the first you can leave it to the highly paid two sources (Rs. 1,060) will be immediately consultants to take care of. Where in the lost. Therefore, each farming will lose Rs. world will you find a pliable government and 12,720 every year. The total loss of annual a supporting bureaucracy like India that income for the 1.14 lakh displaced farm helps you to not only identify the place families works out to Rs. 145 crores. where you want to set up your princely A s p e r t h e N a t i o n a l R u r a l L a b o u r estate but also provide you all the necessary Commission, an average agricultural worker sops, support and protection. Whoever said gets 159 days of work in a year, and as per India is a poor country? We are becoming NSSO (2005), the average daily wage of poor only in sense and sensitivity. agricultural labour in rural areas is around – Devinder Sharma Rs. 51. Considering this, the estimated Auditor January – February 2007

ELECTION COUNTING PROCESS AT ICAI AN EXPERIENCE OF ENDURANCE AND ELUCIDATION P.S. PRABHAKAR I had the painful pleasure of enduring the institute's election counting process at the Andhra School, New Delhi in the last week of December, 2006, during which period the Southern region's ballot boxes were opened and counted. Though the merciless winter of Delhi was keeping the outside temperature around the single digits (Celsius), inside the centre, things were hotting up (in all senses of the term) by the hour!

internet connectivity, Bluetooth in one ear and netphone earpiece on the other, was feverishly updating his excel sheets with the latest figures and was e-mailing them to friends across the nation, without looking a wee bit tired. Indeed, it was fun and thrill to watch all the excitement.

the same is continuing, without any application of mind. Be that as it may, is it also not possible for a candidate (taking the above example), to rope in just a gung-ho committed 2000 out of the 18000 voters, to cast their first preferences to him and find his way to the council even though the other 16000 would not have given him ANY preference? Again a theoretical but yet a possibility? Is this, by any stretch of argument, reasonable or democratic? To say that in practice it may not happen is amateurish. The fact that the system has an in-built and palpable unreasonableness is without doubt.

Relentlessly and with dogged determination, the counting team pursued with the distribution of the I thought I should share some of the experiences as surplus votes of the two quota candidates and then, on well as my thoughts on the process as well as the very the elimination of the bottom ranking candidates. (That edifice on which our electoral system operates. it was pitch dark outside at 7 am, with the thick fog However, let me begin by complimenting the excellent resulting in zero visibility making it impossible for any work that is being done by the team, very ably headed one to leave the premises is another reason for the by Mr Kartikeyan of ICAI. Days and days of continuous 'might-as-well-continue' decision!). After almost a Again the system of marking preferences loses all its hours with no sleep or rest, their resilience, patience marathon 50 hours nonstop exercise, at about 5 p.m on value in most cases. For example, in the case of an and thoroughness are seen to be believed. Not once the 31st evening, we got to know the results. While elimination candidate who might have got huge they showed any slight signs of irritation or frustration. most of us left the counting centre, the team was still second and third preferences from a candidate who All the clarifications sought were patiently given and slogging with the formalities. gets eliminated subsequent to him, such preferences all the expressed apprehensions were taken duly note become completely worthless. Similarly, if a voter casts That a mere 13000 plus votes could take so much time of. When the boxes were opened, booth by booth, the Candidate X his fourth preference, if his first two enthusiastic officer in charge was even announcing the for counting was because and only because of our preferences become quota candidates and the third places with commentaries laced with apt adjectives adoption of the very peculiar 'single transferable ballot preference gets eliminated early in the race, the such as “this is from Bangalore, the IT icon of India”, system' where the voters are expected to mark Candidate X becomes his First preference in complete “next is of Coimbatore, the textile centre of South preferences in the ballot papers for the multiple distortion of the voter's intentions. One can go on India”, (in the lotto game style) much to the listing the fallacies like this. That this system has appreciation of all present. The arrangements made for survived so long is possibly because it has remained the timely snacks, tea, food were simply impeccable The way in which the votes largely un-understood, unexplained and therefore un and the hospitality astounding. Hats off to the ICAI! were distributed in deference questioned. Trust me, 9 out of 10 members of our th

It was almost 3'o clock on the afternoon of 30 Dec, 2006, (after they were done with the postal ballots, which was in itself a painfully slow process), that the ballot boxes began to be unsealed and opened up for the purpose of tallying the ballot papers for with the numbers provided by the returning officers. The process went on till about 9.30 p.m, when only they could provide the first count of votes polled. Then the process of checking the validity of votes polled was done, rather elaborately and only at about 1.30 a.m on the st 31 , they came up with the final figures of valid votes (both postal and polled) and the quota fixation as 1475 for CC and 830 for RC. (When Mr Kartikeyan showed us the invalid ballots, for a few minutes we all stood in shame and silence, baffled by the manner in which some of the ballots were marked by the supposedly 'literate' members. It is per fec tly understandable if one does not understand the process of the election, which is per se complicated, but if people can't even cast their votes properly and that actually about 250 ballots can become invalid, it is indeed a sad commentary). Suddenly, there was an air of excitement and even those whose eyes looked so tired, became fully awake when the actual candidate-wise counting began. The numbered trays began getting their fodder - some with lightening speed, some steadily and some with pathetic pace. The colors of the faces of the candidates' representatives began changing rapidly too. It was well past 4 in the wee hours of the last day of 2006, the first trends began to emerge and at about 5 a.m, the first round results were announced. Cellphones never ceased their r(s)inging. Results were being flashed in realtime. Uttamchand, who had set up a complete ecentre, with all gadgets like his laptop, printer, wireless

to the preferences reminded of a traditional indoor game that used to be played in the South, called Pallankuzhi.

profession have little idea of the intricacies of the system. ( The balance of 10% also might have understood in various shades of grey!)

The best and the simplest system would be to adopt a Weighted Average system by which the preferences would be given appropriate weights and the required no. of candidates with the maximum number of points candidates. This time, for the Central Council (from the should be elected. So, if there are 8 preferences to be Southern Region), it was about 16 contestants for eight marked for as many candidates to be elected, the first vacancies. The way in which the votes were distributed preference should be multiplied by 8, second by 7, third in deference to the preferences reminded of a by 6 and so on. (Any higher preference than eighth traditional indoor game that used to be played in the should be disregarded). This way, no preference given South, called Pallankuzhi. by any member can and will go waste and the results There are many who extol the virtues of this system will also be completely reflective of voters' intentions. and even argue that there could be no better system Besides, the valuable resources of the Institute need than this where you have to choose multiple not be put under so much of strain for over a fortnight. candidates. However, to my simple mind this system If we go and tell the outside world that we, the suffers from maladies and smacks of absolute premier accounting body, take almost 20 days to count unreasonableness as also hardly reflective of the voters' just about 60 to 70 thousands of votes to elect some intentions. Let me proceed to make my point good. First 30 and odd members, in a method the effectiveness of the determination of quota. It is said that the total which we may hardly be able to defend, we may well number of valid votes polled will be divided by the become a laughing stock. number of candidates to be elected plus one. That is, in After all, we have to be conscious of the fact that it is our region's case, where 8 central council candidates are in our country, we boast of the largest democracy and to be elected, the total number of valid votes will be when 30 to 40 crores of people go to the general polls, divided by 9 to arrive at the quota. In this method, if we are able to churn out the results in a matter of a the total number of valid votes were, say, 18000 and few hours. Well, people may say that the system in hence the quota would be 2000, is it not technically general elections is a simple majority and that ours is a (and theoretically) possible for 9 candidates to get the lot complicated. However, it seems to me that ours is quota @ 2000 each? In such a case, will those 9 people complicated not by default but by design and it is (as against 8 vacancies) be declared elected? I think perhaps time that the leadership of the profession that there is an inherent fallacy here. It appears that makes introspection and bring in the required reforms. the original formula must have been different and On the other hand, if we choose to be the slave of a somewhere down it must have got corrupted and that monster that we ourselves created, who can help us?

TAMIL NADU VALUE ADDED TAX The 47 year old enactment, The Tamil Nadu General Sales Tax Act was given a farewell on December 31, 2006. The rising Sun of January 1, 2007, welcomed the new tax legislation, The Tamil Nadu Value Added Tax. Whether one likes it or not, it is there and one has to live with it, is the reply of every consultant. Tax was collected at single point under the TNGST, the TN-VAT aims at equitable distribution of tax i.e tax at every point of sale. Interestingly Tamil Nadu had this system about few decades ago and the very same Government in power had replaced it then with the single point tax. Every person who is dealing in goods shall come within the ambit of T N - VAT p r o v i d e d h i s t u r n o v e r exceeded Rs. 10 lakhs. Till the turnover of Rs.10 lakhs a dealer is not liable to pay any tax. However, where a dealer has made an interstate sale or purchased imported goods this exemption is not available.

Under the TN-VAT there are only three rates of tax viz., 1%, 4% and 12.5%. A dealer with a turnover of Rs.50 lakhs can opt for compounding scheme by paying 0.5% on Rs. 50 lakhs. Th e i m p o r ta n t c h a n g e fr o m th e erstwhile TNGST is the system of availing set-off of the tax already paid on purchases against tax payable on sale. Set-off will not be available for dealers availing the turnover based exemption and those dealers who are opting for the compounding method. Registration procedure has been simplified and made one time. The yearly ritual of renewal is buried for good. On filing of application for registration TIN number is allotted which has to be quoted in the sale invoice. The existing dealers by this time would have downloaded the TIN number from the site Tax invoice with TIN number and amount of tax is the document based on which a dealer will be able to take s e t - o ff . H e n c e f o r t h , a l l T N - VAT

dealers will have to issue tax invoice for sales within and outside the State. Purchases from outside the State and tax paid on the same will be not be eligible for set-off. Sale outside the State will continue to be taxed at 4% under the CST Act. Stock transfers outside the State will attract a 4% reversal, on par with the rate of CST. It is expected that the rate of CST will come down by April 1, 2007. Phasing out CST in full is the only answer to complete transformation to VAT. On January 1, 2007 two countries, Bulgaria and Romania joined the European Union and the man made customs barrier was abolished. When two different countries can unite under a single tax regime is it not possible in a single country? Geographical infirmities notwithstanding, the time is ripe for unifying the tax laws and the tax system in the Country. – Article by an eminent Chartered Accountant

STOP PRESS! CAPITAL GAINS BONDS NOTIFIED Investors sitting on capital gains from the sale of long-term capital assets can breathe a little easier. The government has authorised the issue of Rs 3,500 crore worth of additional bonds by the Rural Electrification Corporation (REC) during the period from December 26, 2006, to March 31, 2007. To be issued under section 54EC of Income-Tax Act, 1961, these bonds provide tax exemption on capital gains if the proceeds from the transfer of a long-term capital asset are invested in them. A government notification issued on December 22, 2006, allows REC to issue additional bonds for Rs 3,500 crore, but not everybody can benefit from them. Among those excluded are people who have already made investments upto Rs 50 lakh in the bonds of REC or NHAI, which were notified on June 29, 2006. They cannot invest in the new REC series. All gains up to Sep. 30, 2006, can be invested upto March, 2007.

REVENUE DEPT TO SET UP CELL TO MONITOR SEZs December, 28th 2006: Fearing a Rs 1-lakh crore revenue loss on account of sops given to special economic zones (SEZs) in the next five years, the revenue department is setting up a special cell to monitor them. The cell, which will have officers from both the Central Board of Direct Taxes and the Central Board of Excise and Customs, will vet the proposals before they are taken up for approval by the Board of Approval (BoA) for SEZs. The cell would be represented at the BoA meeting. It would also deal with all other matters coming up during the setting up of the SEZs including procedures, rules and regulations. Sources said since the core concern of both the boards is to save revenue, a need was felt to cut down on multiplicity of approach and evolve a central body to deal with all issues related to SEZs. The cell would also be the single-point of reference for field formations for clarification on all issues including direct and indirect taxes. It would be housed under the Directorate General of Export Promotion. The government has received over 650 SEZ proposals so far. Of these, 237 have been granted approval and are spread over 17 states and 2 union territories. A total of 51 SEZs have been notified so far.

SHRI ASHOK KUMBHAT PASSES AWAY At a time of going to press, we have received the sorrowful information that Shri Ashok Kumbhat, Past President of our Institute breathed his last on 2nd January 2007. We pray to the Almighty for his soul to rest in peace and offer our sincere condolences to the bereaved family and friends.

O ff i c e - b e a r e r s w i s h & d r a o B l a i you al itor d E la e Th HAPPY NEW YEAR

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