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Friday, April 13, 2012
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  • The Kerala High Court held that religious  teaching in a seminary is education and seminary  is therefore an 'educational institution' entitled for exemption under section 10(23C)(iiiad).
  • The Punjab & Haryana High Court held that  where assessee-society devoted solely for education purposes for last 18 years, it could not be denied exemption under section 10(23C)(vi) on ground that it was making profits.
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  • The Delhi ITAT bench held that payment received by assessee, an insurance broking firm of UK, from Indian Insurance Companies for advising them about selection of re insurer in international market cannot be treated as fees for technical services.
  • The Karnataka High Court held that consideration paid for transfer of right to use software/computer programme is royalty under section 9
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The government has allowed a local drug maker to make and sell a patented cancer drug at a fraction of the price charged by Germany's Bayer AG, setting a precedent for more such efforts by Indian firms and heightening the global pharmaceutical industry's anxiety over the use of the controversial compulsory licensing provision. Ruled compulsory licensing which is allowing a generic drug maker to make and sell a low cost version of a patented drug in India under certain conditions, without the consent of the patent holder, by paying royalty.
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The Reserve Bank of India (RBI) has directed NBFCs (Non-Banking Financial Companies) not to give loans exceeding 60 per cent of the value of the gold jewellery pledged with them. NBFCs (Non-Banking Financial Companies) primarily engaged in lending against gold jewellery have been asked not to grant any advance against bullion/primary gold and gold coins. RBI (Reserve Bank of India) said NBFCs (Non-Banking Financial Companies) primarily engaged in lending against gold jewellery (such loans comprising 50 per cent or more of their financial  assets) will be required to maintain a minimum Tier-l capital of 12 per cent by April 1, 2014.
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State Bank of India (SBI), Bank of Baroda, Bank of India, and Union Bank of India formally launched debit cards based on the indigenously developed RuPay payment platform. The RuPay branded debit cards will be accepted at all 91,000 ATMs and over six lakh point of sale (POS) terminals in the country. In due course, these cards would be accepted on Internet and also at ATMs/ point of sale (POS) terminals abroad.
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A major outcome of the fourth BRICS summit was the signing of an agreement on providing credit facility in local currencies. This would seek to reduce the demand for fully convertible currencies for trade transactions among BRICS countries - Brazil, Russia, India, China and South Africa.  Prime Minister Manmohan Singh has said that all the nations have agreed to examine in greater detail a proposal to set up a BRICS-led South-South Development Bank, funded and managed by the BRICS and other developing countries. He also said that the five BRICS countries had directed their respective finance ministers to set up a joint working group for an in-depth analysis of the proposal. The issues such as easier business visas must be prioritised. As large trading countries, BRICS have a strong interest in removing barriers to trade and investment flows and avoiding protectionist measures.
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The Finance Bill 2012 was presented in the Lok Sabha recently and is under consideration of the Parliament. A very heated debate is happening on several new provisions and issues arising there from.

Vodafone Controversy

The Govt. wanted to tax the capital Gain on sale of telecom business of HUTCH in India to Vodafone by transfer of share holding in a holding company outside India. The Vodafone case, based on the current law has already been upheld in favour of Vodafone by the Hon'ble Supreme Court and even the review petition has been rejected. There are proposals to make clarification amendments with retrospective effective from 1.4.1962 in various sections of the Income Tax Act to establish that source country has taxation right on the gains derived of offshore transactions where the value is attributable to the underlying assets situated in that country. Validation clause is also being introduced to ensure pursuing the Vodafone case once the Bill is passed.

The retrospective amendment is being questioned by number of tax analysts and foreign investors. They are alleging that rules of the game should not be amended  retrospectively. In our view, the Government of India is fully justified in ensuring that the income earned in India or valuation increase of business or assets in India is taxed in India as income and / or capital gain and any device or methodology or structure designed to defeat or circumvent the basic intent of law cannot be supported at macro level. It is clear that Hutch made a substantial gain from sale of its telecom business to Vodafone. In such a situation the government is seeking  payment of tax on actual capital gain as the real purpose of the transaction was transfer of telecom business in India.

In case the laws are being interpreted or misinterpreted in a manner so as to defeat the very objective or intent of the tax legislation, the government is fully justified in bringing out a retrospective amendment.

Anti avoidance laws

The General Anti Avoidance rule (GAAR), domestic transfer pricing, amendment in section 68 seeking source of the source and taxation of the share premium, where it is not supported by fair value are amendments in the right direction, to plug the various loop holes in the tax laws. In a large number of developed countries, the interpretation of tax statue is being done on the basis of the intent and object of the legislator.India can consider the laws relating to interpretation of tax statutes to be modified appropriately to address this basic concern of the government.

Corruption a Serious Concern

The honest tax payers are seriously concerned about the genuenity of interpretation and harassment at the assessment level due to wide spread corruption. It is suggested that the personal interaction between the assessee and the tax officials can be reduced to the large extent and for reviews, scrutiny and assessment greater use of electronic mode may be resoted to. The persons  initiating such communication from the department should be unknown to the assessee and should be at substantial
distance. In case of dissatisfaction at the end of the assessee, the draft assessment order itself should be subject to judicial scrutiny and right of being heard by a panel. The proceeding of this panel can be fully recorded and only reasoned order can be given, which are transparent and subject to public / media scrutiny. It is very important to nail down the corruption in the tax  department, in case we want fair treatment from the assessee and with the assessee. It is also important to  ensure that the tax rate is further cut, at the higher bracket, so as to ensure almost full compliance by India Inc. We must also appreciate a positive amendment to reduce penalty in case of disclosure of undisclosed income at the time of search. This will pave the way for reducing corruption. In fact we need to achieve, at the earliest the position that personal privacy of assessee is not disturbed by survey, search and raids.

Introduction of Excise and TCS on gold

There is a substantial risk to all investors at these price levels. A major contributor in increase in prices is special demand of gold arising out of Euro Zone crisis, very heavy import of gold by India (in excess of US$ 40 million per annum). The  speculative activities in gold and silver derivatives have added fuel to the fire. Gold and silver have been traditionally considered as one of the best and safe investment and a hedge against inflation. However the recent surge in prices is beyond reasonable expectations and calculations. The recent attempt of the Government to control the activities of gold loan, imposing excise on gold, introduction of tax at source for gold purchases are certain initiatives which are required to be further matured and modified in a manner so that we are able to efficiently and effectively check the risk to Indian economy and Indians arising out of a possible bubble burst. The Indian Government needs to check the gold hoarding and speculative activities in gold and silver to ensure sanctity of the precious metals.

Negative list of services

The Government has imposed service tax on all services subject to a small negative list, which require complete reconsideration and should be deferred pending a debate. Accrual system of imposition of service tax on chartered accountant is completely misplaced.
Thursday, April 12, 2012
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The Securities and Exchange Board of India (SEBI), in consultation with the Credit Rating Agencies (CRAs) and also with the other regulators, has decided that CRAs shall follow the applicable requirements pertaining to rating process and methodology and its records, transparency and disclosures, avoidance of conflict of interest, code of conduct, etc, as prescribed in the regulations and circulars issued by SEBI from time to time.
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  • An individual resident in India may borrow a sum not exceeding USD 250,000/- or its equivalent from her / his close relatives outside India, subject to the conditions mentioned therein.
  • The Reserve Bank of India (RBI) may allow repayment of such loans to NRE / Foreign Currency Non-Resident (Bank) [FCNR(B)] account of the lender concerned subject to the condition that the loan to the resident individual was extended by way of inward remittance in foreign exchange through normal banking channels or by debit to the NRE /  FCNR(B) account of the lender and the lender is eligible to open NRE / FCNR(B) account within meaning of the Foreign Exchange Management (Deposit) Regulations, 2000 notified vide Notification No. FEMA 5/2000-RB dated May 3, 2000, as amended from time to time.
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The Reserve Bank of India (RBI) has clarified that the Indian company raising the aggregate FII
investment limit of 24 per cent to the sectoral cap/ statutory limit, as applicable to the respective
Indian company or raising the aggregate NRI investment limit of 10 per cent to 24 per cent, should necessarily intimate the same to the Reserve Bank of India (RBI), immediately, as hitherto, along with a Certificate from the Company Secretary stating that all the relevant provisions of the extant Foreign Exchange Management Act, 1999 regulations and the  Foreign Direct Policy, as amended from time to time, have been complied with.
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Henceforth, remittance shall be allowed from resident individuals for acquiring the qualification
shares for holding the post of a Director in the overseas company to the extent prescribed as per
the law of the host country where the company is located. The limit of remittance for acquiring such
qualification shares shall be within the overall ceiling prescribed for the resident individuals under
the Liberalized Remittance Scheme (LRS) in force at the time of acquisition.

  • Acquiring shares of a foreign company towards professional services rendered or in lieu of Director's remuneration It has been decided to grant General Permission to the resident individuals to acquire shares of a foreign entity in part /full consideration of professional services rendered to the foreign company or in lieu of Director's remuneration. The limit of  acquiring such shares in terms of value shall be within the overall ceiling prescribed for the resident individuals under the Liberalized Remittance Scheme (LRS) in force at the time of acquisition.
  • Acquiring shares in a foreign company through ESOP Scheme

It has now been decided that resident employees or Directors may be permitted to accept shares offered under an Employee Stock Option Plan (ESOP) Scheme globally, on uniform basis, in a foreign company irrespective of the percentage of the direct or indirect equity stake in the Indian company subject to:

The shares under the Employee Stock Option Plan (ESOP) Scheme are offered  by the issuing company globally on a uniform basis, and

An Annual Return is submitted by the 
Indian company to the Reserve Bank of 
India (RBI) through the AD Category - I 
bank giving details of remittances / 
beneficiaries, etc.
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The Reserve Bank (RBI) has allowed foreign venture capital investors to invest in securities
through private arrangements or purchase from a third party. RBI (Reserve Bank of India) in a circular released that it has now been decided to allow foreign venture capital investors to invest in eligible securities (equity, equity-linked instruments, debt and debt instruments, debentures of a domestic venture capital undertaking or VC (Venture Capital) funds, units of schemes/funds set up by a VC fund) by way of private arrangements or purchase from a third party also.
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  • Creation of charge on immovable /movable property and other financial assets

It has been decided that proposals from the  Indian party for creation of charge in the form of pledge / mortgage / hypothecation on the immovable / movable property and other financial assets of the Indian Party and their  group companies may be considered by the Reserve Bank of India (RBI) under the approval route within the overall limit fixed (presently 400%) for financial commitment
subject to submission of a 'No Objection' by the Indian Party and their Group companies from their Indian lenders.

  • Reckoning bank guarantee issued on behalf of JV / WOS for computation of Financial Commitment
It has been decided that the bank guarantee issued by a resident bank on behalf of an
overseas JV / WOS of the Indian party, which is backed by a counter guarantee / collateral
by the Indian party, shall be reckoned for computation of the financial commitment of the Indian Party and reported accordingly.

  • Issuance of personal guarantee by the direct / indirect individual promoters of the Indian Party
It has been decided that issuance of personal guarantee by the promoters of the Indian
Party as presently allowed under the General Permission shall also be extended to the
indirect resident individual promoters of the Indian party with same stipulations as in the
case of personal guarantee by the direct promoters.

  • Financial Commitment without equity contribution to JV / WOS
It has now been decided that the proposals from the Indian party for undertaking financial commitment without equity contribution in JV / WOS may be considered by the Reserve Bank of India (RBI) under the approval route. AD banks may forward the proposals from their constituents after ensuring that the laws of the host country permit incorporation of a company without equity participation by the Indian party.

  • Submission of Annual Performance Report
Where the law of the host country does not mandatorily require auditing of the books of accounts of JV / WOS, the Annual Performance Report (APR) may be submitted by the Indian party based on the un-audited annual accounts of the JV / WOS provided:

  1. The Statutory Auditors of the Indian party certifies that 'The un-audited annual accounts of the JV / WOS reflect the true and fair picture of the affairs of the JV /WOS' and
  2. That the un-audited annual accounts of 
  3. the JV / WOS has been adopted and  
  4. ratified by the Board of the Indian party. 
  • Compulsorily Convertible Preference 
    Shares (CCPS)
It has been decided that Compulsorily Convertible Preference Shares shall be treated
at par with equity shares and the Indian party is allowed to undertake financial commitment
based on the exposure to JV by way of CCPS.
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The Telecom Regulatory Authority of India (TRAI) has released a consultation paper on
"Issues Related to Advertisements in TV channels" vide press release number 64/2012 dated 16
March 2012. The salient features of the proposal include:

  • Prescribing upper limit for duration of advertisements on clock hour basis.
  • Different maximum limits for duration of advertisements.
  • Scheduling advertisement breaks.
  • Defining time gaps between constructive advertisement breaks, etc.

The full text of the consultation paper is available on TRAI`s website: www.trai.gov.in.
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Alarmed by the 120% rise in the prices of guar gum futures in the last one month, despite falling
trading volumes, the National Commodity and Derivatives Exchange (NCDEX) has barred traders from taking fresh positions in all existing contracts of guar gum and guar seeds for this
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The Securities and Exchange Board of India (SEBI) has said that a stock exchange without any trading at its own platform or where the annual trading is less than Rs 1000 crores, may apply for voluntary de-recognition and exit. If  the stock exchange eligible for voluntary de-recognition is not able to achieve a turnover of Rs 1000 crores on continuous basis or does not apply for voluntary de-recognition and exit within a period of two years from the date of notification, The Securities and Exchange Board of India (SEBI) shall proceed with the compulsory de-recognition and exit of such stock exchange. The Board also decided that the stock exchanges may be permitted to exit subject to certain conditions such as payment of statutory dues to the Securities and Exchange Board of India (SEBI) / Government contribution of certain percentage of assets of the exchange towards Investor Protection and Education Fund etc.
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The Securities and Exchange Board of India (SEBI) has unveiled rules for regulating private
pool of capital to increase systemic stability, while making it mandatory for real estate funds and
hedge funds to register with the regulator. The regulator has classified all types of funds into
three categories: venture capital, private equity and hedge funds.While the first two categories of funds have to be close-ended with a minimum tenure of three years and are barred from engaging in leverage, hedge funds are allowed to be open-ended or close-ended and can engage in leverage.
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The Securities and Exchange Board of India (SEBI) has come out with the rules for Alternative
Investment Funds (AIFs). The said rules will be applicable for all pooled investment vehicles other
than family trusts and holding companies among others. The regulator has also said these funds should not have more than 1,000 investors and the minimum investment amount should not be less
than Rs 1 crore. The Securities and Exchange Board of India (SEBI) has also mandated that
sponsors should contribute at least 2.5% of the initial corpus. Moreover, Alternative investment
funds (AIFs) cannot invest more than 25% of the investible funds in one company.
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The Delhi High Court has dismissed a plea by Reckitt Benckiser (India) Ltd's shareholder
challenging the firm's decision to reduce its share capital on grounds of want of any infirmity in
the decision of the firm, noted for products like Dettol and Strepsils.Petitioner had contended in his pleas that reduction of share capital of the firm was nothing but "forcible acquisition" of shares by public as the stake of the promoter group was not touched for the propose reduction. The high court had rejected his contentions saying that section 100 of the Companies Act 1956; expressly permit a firm, if authorized by its article of association, to reduce its share capital.