The Hindu Business Line : Auditor versus audit committee chairman

WHEN at an annual general meeting (AGM) both the chairman of the audit committee and the statutory auditor intervene on a financial matter, whose view would prevail?

Sadhna Mirchandani, New Delhi

The law arms the two functionaries with same powers. In my view, the law must be amended to restore the pride of position to the statutory auditor who can be counted upon to be a little more independent than the chairman of the audit committee who after all is one of the directors.

Audit committees have not brought about any significant improvement in accounts and financial disclosures precisely because they are drawn from the very same boards whose actions they are supposed to oversee. Instead of reposing faith in such an innately prejudiced body, efforts must be made to secure more independence for the statutory auditor and making him more accountable.

Expense disallowance

DOES the new clause (a) of Section 40 disallow all expenses from which tax has not been deducted?

S. Hariharan, Salem

There are two criteria. Payments to non-residents for whatever purpose would pass muster only if tax has been deducted. But payments to residents have been slightly coddled. Only interest, commission, brokerage, fees for professional or technical services and payments to contractors attract the taxman's wrath if tax is not deducted at source. There is no reason why other expenses should not have been targeted. Salaries and rents are significant omissions.

FBT flak

THE recent CBDT circular on fringe benefit tax (FBT) has been drawing flak. What precisely are the reasons?

T. A. Sarangan, Chennnai

You may refer to the Taxation page of Business Line dated September 3, 2005. It carries illumining articles on the issue. Briefly, the CBDT as well as the Finance Minister have gone beyond the rationale for FBT. This tax was introduced to bring into the tax net expenses which were admittedly incurred for the benefit of employees but which defied taxation because of a lack of mechanism apportioning the benefit to individual employees.

The Finance Minister thus cut the Gordian knot by targeting the company instead. While this flies against the face of a cardinal principle of income-tax, that the ultimate beneficiary should be taxed, what has worsened matters is the new regime going off at a tangent — for example, where is the personal element in advertising. How do employees stand to benefit by ad spends? And the FBT regime targets ad spends among others.

Premia payment

IS PREMIUM paid for the benefit of one's spouse eligible for tax benefit under Section 80CCC?

K. P. Jaya, email

No. Unlike Section 80C and its predecessor Section 88, which while granting tax benefit for life insurance premia countenance such premia in respect of self, spouse and children, Section 80CCC allows the tax benefit only if the premium for pension was paid for one's own benefit. This may not be apparent on reading sub-section (1) but becomes so when one goes to sub-section (2) in the context of tax being imposed when money is received back from the insurance company — the reference is to assessee's account which presupposes payment of premia, too, being for the benefit of the assessee.

Laws compared

A COMPARISON between Section 302 of the Sarbenes Oxley Act and Section 292 A of the Companies Act reveals that while as per the former a company's management with the participation of the principal executive and financial officers (the certifying officers) is required to make quarterly and annual certifications with respect to the company's internal control over financial reporting, as per the latter, the auditors, the internal auditor, if any, and the director-in-charge of finance shall attend and participate at audit committee meetings but they shall not have the right to vote.

The audit committee should have discussions with the auditors periodically about internal control systems the scope of audit, including the observations of the auditors, and review the half-yearly and annual financial statements before submission to the board and also ensure compliance of internal control systems. My query is whether our law read with clause 49 of the Listing Agreement is consistent with that prevailing in the US.

Ganapathy Ramesh, email

Clause 49 and Section 292A need harmonising. The ideal scenario would of course be when there is a single code for corporate governance. Section 292A says on matters financial, the decision of the audit committee would be binding on the board. This conveys the impression that the audit committee would be a sort of super board breathing down the necks of lesser mortals which would hardly be conducive for friction-free functioning of the board and the audit committee.

The two should not be cast in an adversarial role. At any rate there is hardly anything that goes on in a company that does not have a bearing on company's finances. In that case, the way Section 292A is worded, the audit committee would have the final say on all matters and in the process relegate the board to a secondary status. The cynical view that is doing the rounds is audit committee is a farce being a creature of the promoters and those in saddle. Be that as it may, there is a crying need for providing a wholesome and integrated code on corporate governance.

(ASK! Send in your queries to ask@thehindu.co.in)

S. Murlidharan

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