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April 24, 2013

What's west bengal chit fund scam

First of all, the West Bengal “chit funds” are not chit funds at all. Chit funds are a different structure altogether. Chit funds are mutual credit groups where money circulates among the group members, and the monthly contributions of the chit members are received circularly by one of the members who bids for the same at the highest interest rate or lowest “net present value”. Chit funds are perfectly legal, if they are registered under the Chit Funds Act, 1982, and run under the provisions of the law. The several names that keep popping up in West Bengal are not chit funds—these are collective investment schemes  or public deposit schemes which on the face of it do not fall under any law, as they are structured so as to be neither a “public deposit” nor a “collective investment scheme”. But that facial structure is so gullible that any regulatory investigation may easily expose that these schemes were effectively nothing but public deposit schemes.

The common thread in these fund schemes is that the flow of new ‘depositors’ must keep coming in, because the only source from which maturing deposits could be serviced is by inflows from new depositors. Money is initially raised at hefty interest rates, and with attractive periodic prizes, gifts, gala parties, and so on. The agents who mobilise the deposits are given hefty commissions, because the structure essentially relies on a highly incentivised structure of brokers or agents, who reach right to the doors of the depositors to collect deposits. The cost of interest, plus the agency commissions, the luxurious spendings on so-called depositor prizes, and add to all this the lavish remunerations of the promoters themselves—all adds to a huge cost of interest, say, about 25% to 30%, which no lawful business may produce. It is not that these promoters are blue-eyed investors who know tricks of investing—so, they end up investing money in illiquid properties, resorts or hotels.
Now, the only way to keep servicing investors is that new depositors must flow in, so that old depositors can be repaid. That is, the base of the depositor pyramid has to continue to expand so that those up in pyramid can be paid—this is what Ponzi schemes are all about.  This is what we call “tiger riding”.
Soon, the ride comes to and, and guess what happens at the end of any tiger ride! In the process, thousands of gullible investors have lost their life savings.
As hundreds of crores are raised though tens of thousands of agents, surely enough the exercise is not invisible to the regulatory eye. The massive money which is raised, irrespective of the label, surely shows somewhere on the balance sheet of the company, which is filed regularly with the MCA (ministry of corporate affairs). The primary recipient of the information about these companies is the MCA, and surprisingly, it is the MCA which is the least proactive in the entire process of bringing these perpetrators to regulatory focus, sooner before tonnes of money vanish.
No, it certainly is not the lack of laws that allows these scamsters to rob people of hard-earned money. It is clearly an implementation issue.

April 17, 2013

Taxability of Gift

What is a gift?

Section 122 of TP Act defines gift as a transfer of certain moveable or immovable property made by a person called donor to another person called donee. Transfer of property in gifts must be made voluntarily without any consideration by the donor and accepted by donee during the life time of the donor.  For a gift to be valid both donor and donee must have capacity to contract. A gift can be made to a minor although he can not enter into a contract but it has to be accepted by a guardian on behalf of minor.

The essentials of a valid gift can be summarized as follows:

a) There must be a transfer of property either movable or immovable by donor to donee.

b) Donee must accept the gift during the life time of the donor to give validity to the gift. Similarly if the donee dies before acceptance, the gift is void.

c) It must be a voluntary act without any consideration and not by any court order or settlement.

d) Gift of movable property can be effected by a simple delivery while gift of immovable properly must be made by a registered instrument in due compliance of Indian stamp Act and Registration Act .The gift deed must be signed by the donor and accepted by donee in the presence of at least  two witnesses.

e) Gift of future property is void as identifiable property does not exist.

f) Gift given to several persons will be valid provided it is accepted by all. If it is not accepted any one person amongst the group, then gift of such portion which reflects interest of that person in that property will be void.
Can a Gift be revoked?

As already stated, gift is a voluntary transfer of property and without consideration. As such it is normally not revoked. However if it is agreed between the donor and the donee about revocation subject to happening of an event, it can be revoked just like a contract. Such revocation must be subject to happening of a specified event which can not be influenced by the donor, other wise it will not be in the nature of a gift. For e.g, If  a donor gives Rs.10 lakhs and reserves a right to take back Rs.1 lakh and it is accepted by the donor then the gift of Rs.1 lakh is void while the gift of 9 lakhs is valid.

What are the formalities for registration of gift deed?

As per Section 17(a) and section 28 of Registration Act, 1908 instruments involving gift of immovable properties must be compulsorily registered. While registering the gift deed the following points must be kept in mind.

1. Deed must be executed on a non judicial stamp paper of requisite value applicable in the state where the  deed is executed and the property is situate

2. Stamp duty at the applicable rate must be paid. In some states the rate of stamp duty varies for gifts between near relatives and gifts to third parties i.e., other than near relatives. In some states lesser stamp duty is fixed for gift deed amongst the near relatives. While in the case of gifts to third parties fixed percentage of market vale is payable as stamp duty.

3. Following documents must be presented to the registration authority in whose jurisdiction the immovable property  is situated:-

a. Copy of Gift-deed executed by both donor and donee.

b. Photographs of donor and donee PAN numbers of donor and donee

c. Submit a declaration as to the particulars of immovable property and its present market value

d. Record of rights/Title deeds which show the prima facie ownership of the donor.

e. Map of agricultural land or other land and buildings,

f.  Affidavit stating that Registration of this document does not violate the notifications issued under Section 22A of the Registration Act, 1908.

However it is recommended to get gift of movable properties registered as well to establish the identity and intention. 

What precautions are to be taken for availing benefit under Income Tax Act? 

Gift deed with full details of property gifted must be executed to establish the bonafides of it. Gifts are generally taxed in the hands of the recipient(individual or HUF) unless they are specifically exempt under the Income Tax Act. Gifts

1) Received from certain relatives (The list includes   Parents, Parents siblings and their spouse, Siblings, Spouse of siblings, Daughter and son, Spouse of daughter and son, Spouse, Spouse’s parents, Spouse‘s siblings and their respective spouse in the case of an individual) are not taxable.

2) Besides this, the following amounts are exempt from tax u/s 56

a.  Gifts received  under   a will  or as inheritance

b.  Gifts received at the time of wedding

If the gifts do not fall in the above category and the amount received is more than Rupees   50, 000/- in a year then it is taxable as income from other sources in the hands of the recipient.

Is there any format for gift deed?    

There is no prescribed format. But the essentials of valid gift must be reflected in the format, namely the names of donor and donee, properties gifted, signatures of donor, acceptance of gift by donee in the presence of two witnesses. A simple format is suggested below.

KNOW ALL MEN BY THESE PRESENTS that I,__________ S/o _________________resident of _________________, gift  voluntarily, the following properties  to Mr.________ /Mrs____________/trust /company/ hereinafter referred to as "the donee") absolutely for his/her /its sole use and benefit  forever.

I further declare that *donee is related  to me as  _____________ 

i)  Market value of the property is Rs._______ and stamp duty paid is Rs.___
ii) the said gift has been accepted by the donee

Description of property
Amount in Rs.
Movable properties xxxxx

Immovable property situated at _________ purchased from xxxxx previous seller/ inherited from _____xxxx
Current market value
* Applicable if donee is related

IN WITNESS WHEREOF, I have executed this deed this __ day of  ____, 2013.

(Signature of donor)
I/We ___________, accept the above gift.

Signature of Donee 
Witness no.1 _______Witness no.2___________

This deed of gift is made on this 24th Day of October 2007 at Bangalore.
By Smt. ______________ aged about 74 years permanently residing at ____________________(‘Donor’)
In favour of
Sri__________S/o _____________ aged about 25 years permanently residing at ___________ (‘Donee’)

1. That this day I _________ ‘the donor’ has gifted a sum of Rs.2,00,000.00 (Rupees Two lakhs only) to ‘Donee’ hereinabove by way of cash as gift.
2. That the said gift was made by me out of my self acquired and self earned income / assets and none of my successors / heirs shall ever dispute or call in question the said gift made by me to the said _________.
3. That the said gift was made by me unconditionally, without any expectation, whatsoever, in return from the said __________.
4. That I shall have no right, title, claim, and interest or demand whatsoever on the said gift in future and the said ___________ shall use the gifted amount in the way he thinks fit for.

5. That I ‘the Donor’ shall have no right over the gifted amount. Further, I also declare that the amount gifted and any accretion thereon shall be the individual property of ________.
6. That I ‘the Donor’ declares that I have made this declaration in sound health and perfect mental condition and this gift is an irrevocable gift.
7. In witness where of Donor and Donee has put their signature to the said deed as a token of their acceptance on the day month and year mentioned first above before the attesting witness.


I Sri.___________S/o __________ aged about 25 years permanently residing at ________________ hereby confirm that I have accepted the above gift as stated above.


Chartered Accountant Life Insurance Agency

Can a member act as an Insurance Agent and arrange business for Insurance Company?

No. Members are permitted to render Insurance Financial Advisory services. It is not permissible to the members to do any kind of marketing and business procurement for any insurance company. There services should remain limited to professional services in the form of advisory and consultancy services.

Sub: Clarification regarding Inclusion of "Insurance Financial Advisory Services under the Insurance Regulatory & Development Authority Act, 1999, including Insurance Brokerage" in the definition of "Management Consultancy & Other Services"

The attention of the members is drawn to the Announcement published in the January 2005 issue of the Journal at page 935 as well as hosted in the website regarding inclusion of "Insurance Financial Advisory Services under the Insurance Regulatory & Development Authority Act, 1999, including Insurance Brokerage" in the definition of "Management Consultancy and Other Services" as appearing at pages 8-10 of Code of Ethics, January 2001 edition.
In this regard, it may be clarified that as per the decision of the Council, a member is permitted to render Insurance Financial Advisory Services as prescribed under "The Insurance Regulatory and Development Authority (Insurance Brokers) Regulations, 2002" only in Corporate form. Further, the members are required to comply with the conditions prescribed by the Insurance Regulatory & Development Authority and the conditions to be prescribed by The Institute of Chartered Accountants of India.
It may also be clarified that the members are not permitted to do any work relating to insurance agency as prescribed under "Insurance Regulatory and Development Authority (Licencing of Insurance Agents) Regulations, 2000" and "Insurance Regulatory and Development Authority (Licencing of Corporate Agents) Regulations, 2002", either individually or in partnership/proprietorship form or in corporate form.
The existing position regarding allowing members generally to hold life insurance agency licence for limited purpose of getting renewal commission, still hold good as provided in the Appendix (9) to the Chartered Accountants Regulations, 1988 (2002 edition).

By holding insurance agency the member can be held guilty under following schedules:-

Part I Clause 6
solicits clients or professional work either directly or indirectly by circular, advertisement, personal communication or interview or by any other means;
Part I Clause 7
advertises his professional attainments or services, or uses any designation or expressions other than chartered accountant on professional documents, visiting cards, letter heads or sign boards, unless it be a degree of a University established by law in India or recognised by the Central Government
Part I Clause 11
engages in any business or occupation other than the profession of chartered accountants unless permitted by the Council so to engage: