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Sunday, February 16, 2014
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RBI eases FDI norms, allows ‘optionality’ clauses

The Reserve Bank of India (RBI) has eased foreign direct investment norms by allowing optionality clauses to facilitate investors to exit from investments in both equity and debentures. In a notification, the central bank said that henceforth, call and put options can be included in such investments, subject to the minimum lock-in period and without assured return. A call option allows a holder to buy shares in an entity at an agreed price while a put option allows an investor to sell.
Saturday, February 15, 2014
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RBI aligns NBFC loan restructuring rules with banks

The Reserve Bank of India (RBI) said that rules for restructuring loans by non-banking financial companies will be the same as those of banks. The key provisions include that the relaxation or extension of commencement of projects will not amount to restructuring for infrastructure, non-
infrastructure and corporate real estate projects. The central bank also said a special classification benefit will be provided to corporate debt restructuring cases, including small and medium enterprises, until the end of March 2015.
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RBI to Withdraw Pre-2005 Currency Notes

Anybody with currency bundles stashed under the mattress may need to check them. The Reserve Bank of India has said that banknotes issued before 2005 will be completely phased out after March 31 and replaced with new ones. From July 1 on wards, however, things could get more interesting at bank counters. To exchange more than 10 pieces of Rs. 500 and Rs. 1,000 notes, non-customers will have to furnish proof of identity and residence to the bank branch in which she/he wants to exchange
the notes.
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New NPA Norms: RBI offers some breather

The Reserve Bank of India (RBI) has offered some leeway to banks for early detection and resolution of bad loans. Under the new regime kicking off from April 1, lenders can finance 50 per cent of the outstanding loan value. Earlier, Reserve Bank of India (RBI) had proposed to allow takeover of existing loans by new financiers at 60 per cent or more of the loan value. The central bank also diluted rules for accelerated provisioning it had proposed for non-performing accounts. Now lenders will make 25 per cent provision for unsecured loans that remain unpaid for six months. Initially, RBI had proposed 30 per cent provisions. Plus, for loans that have remained unpaid for two years, banks have to set aside 40 per cent, instead of 50 per cent.The new framework calls for early formation of a lenders’ committee with the timeline to agree to a plan for resolution. It also offers incentives for lenders to agree collectively and quickly to a restructuring plan. It will give better regulatory treatment of stressed assets if a resolution plan is underway. However, it will attract accelerated provisioning if no agreement can be reached. Seeking improvements in the current debt restructuring process, the framework allows independent evaluation of large value restructuring. This is for purpose of framing viable plans and a fair sharing of losses (and future possible upsides) between promoters and creditors.
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SEBI issues norms for registration of FPI with depositories

Ushering in a new regime for overseas investors as FPIs (Foreign Portfolio Investors), Securities and Exchange Board of India (SEBI) issued operating guidelines for depository participants to register these new entities and to ensure that their combined holding in any listed company remains capped at 10 per cent.
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RBI allows Asset Reconstruction Companies to convert debt into equity

The Reserve Bank of India (RBI) has permitted asset reconstruction companies (ARCs) to convert debt of crisis- ridden companies into equities as part of restructuring process. Such companies are required to obtain, for the purpose of enforcement of security interest, the consent of secured creditors holding not less than 60 percent of the amount outstanding to a borrower as against 75 percent at present.
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CCI order on trade practices leaves chemist groups divided

CCI has passed several orders against various chemist associations after complaints were lodged with the competition watchdog that these associations were preventing retailers from offering discounts to consumers and boycotting certain pharma companies without justified reasons.
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RBI allows NRIs to operate resident bank A/c on ‘either or survivor’ basis

The Reserve Bank of India (RBI) has allowed non-resident Indians (NRIs) to operate resident bank accounts on “either or survivor” basis. According to RBI, banks may include an NRI close relative in existing/new resident bank accounts as joint holder with the resident account holder on “either or survivor” basis, subject to fulfillment of a few conditions.
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DDA to raise floor area ratio for hotels by up to 66%

The Delhi Development Authority (DDA) has decided to increase the floor area ratio (FAR) or floor space index (FSI) — the ratio of the total floor area of a building to the size of the plot on which it is built — to 3.75 for hotels outside the Lutyens zone that stand on roads with more than 30-meter width, up from existing FAR of 2.25. This means the gross floor area across different floors of such a hotel can be 3.75 times the size of the plot. In the case of hotels next to roads with width of under 30 meters (again outside the Lutyens zone), FAR is being raised to 3.25, up 44 per cent.
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No 'Non-compete' clause in pharma M&As except in special cases

The government has decided against a blanket ban on the incorporation of a ‘non-compete’ clause if an Indian pharma company is acquired by a foreign drug company. The ban was mooted by the Department of Industrial Promotion & Policy (DIPP) as a safeguard to ensure acquisition of Indian pharma companies does not lead to shortage of critical drugs. The government has decided to take up the issue on a case-by-case basis.
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The Reserve Bank of India, Indian Banks Association and almost all Public Sector Banks are deeply concerned about significant rise in non performing assets during last one year. The Indian economy have been passing through an unprecedented turbulent time. Many important sectors of the economy have been adversely affected. Telecom sector is passing through critical policy issues after 2G scam. Power Sector has been suffering due to lack of coal and fuel linkage. Coal mining has been subjected to serious scrutiny by CBI and Hon’ble Supreme Court. The Iron ore mining has been subjected to a Supreme Court ban. The national highways’ development projects in BOT mode have severely suffered due to financial closure, policy issues besides political impasse and a complete rethinking is happening about the approach towards toll collection and its sanctity. Similarly heavy industries, steel sector and real estate construction sector has been passing through difficult time during last 3 years. Similar description can be seen about many other crucial and basic sectors. Even the financial market is strained by severe liquidity crunch. The capital market has not been able to channelize any fresh resources to business and industry for last many years. In certain sectors including power sector disbursements are not being made by the banks, in spite of full financial closure and sanction in place due to apprehension in the minds of lenders. Air India and Kings fisher indicate Aviation sector difficulties. In the aforesaid backdrop, we also need to consider as per the regulatory framework in place, the term loan and all other borrowings are treated as non performing assets on the basis of a very strict rule of 90 days or more delay in repayment to the banks. Also in case of time overrun i.e. delay in implementation of projects, the term loans are categorized as non performing assets. Once the loans are categorized as non performing in respect of a borrower, no further financial facility of borrowing of any kind is considered by the banking system. Even the banking system has to mandatory make a provision for doubtful debt the interest portion cannot be recognized as revenue. This rule of RBI have worked very well during the economic growth period, but in the current atmosphere several issues have emerged for kind consideration of the financial system regulator i.e. RBI. RBI is known for a very pragmatic and professional approach and therefore we wish to bring out the following for a public debate and consideration by the regulator for a more pragmatic and practical approach :-

  • The Reserve Bank of India can consider as to whether a uniform approach of 90 days benchmark is appropriate for all the sectors or it could be differently considered for different sectors of the economy.
  • We have seen that US and European governments have provided for special treatment for early recovery of various sectors. RBI has also considered special dispensation for Air India, and certain large infrastructure projects which were specially impacted due to sect oral reasons. RBI may now  consider issues and economic situation of each sector and accordingly work out a special financial package so that genuine difficulties and problems of the sector are appropriately considered while determining NPA criteria.
  • The banks may be allowed to consider all cases which are currently non performing on case by case basis and to provide necessary heading, additional resources and re-phasing all repayments, wherever considered genuine. The bank boards may be delegated to devise an appropriate policy framework in this regard.
  • Wherever the finance are adequately secured, additional lending for specially structured products to meet the needs of the borrower may be permitted.
  • The banks may be freely permitted to extend corporate loans, loans for general business purpose and any other borrowings needed to meet the requirements as assessed by the management and the bank, subject to adequate security and / or cash flow, may be considered. A new pragmatic and practical policy and regulatory framework is needed both at the RBI level as well as at level of the banks. Indian economy currently need a special treatment to not only improve the sentiments but also growth. The current negative sentiment has impacted mandatory circulation and M3 significantly and not only it is necessary to recognize the financial distress at an early stage but also at the same time bold steps and support is needed from the financial sector to meet the needs of the borrower so that on a sustained basis a fair recovery for the loans can be ensured. It is important to add that all kinds of diversion of funds has to be checked strictly. The banking approach has to be developmental and principled basis rather than rule basis and investigator.
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A new debate has emerged in respect of pricing of gas and petroleum products due to heavy increase in the cost permitted by the government. The government should ensure that the entire data and information in respect of actual cost and how the said cost is determined is need to be transparently met. The justification based on international prices of specific products could be manipulated and may not be relevant. It is important to provide adequate and reasonable margin to the industry and business but in the same time the prices have to be regulated based on detailed cost management and curbing anti competitive position. The increase in prices of coal, milk, power and various other basic inputs require a close scrutiny by the regulator and the government. We welcome our readers to send us detailed information and data available with them or any suggestions in this regard so that Indian trade and industry and more importantly public at large is charged fair price duly regulated in a transparent and effective manner.
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Some Latest Judgements

The Chattisgarh High Court has held that where assessee surrendered income during search, explained manner in which it was derived in statement and paid tax as well as interest thereon, it was not necessary to file return before due date to get immunity from penalty for concealment under clause (2) of Explanation 5 to section 271(1)(c)

The Pune ITAT bench has held that where premium paid in excess of face value of investments classified under HTM (Held to Maturity) category had been amortized over period till maturity, same ‘revenue expenditure’

The Mumbai ITAT bench has held that entire expenses incurred on gratuity and other terminal benefits at time of retirement of employee are arevenue in nature allowable in year of retirement

The Mumbai ITAT bench has held that VRS payments made to retiring employees are allowable as revenue expenditure

The Mumbai ITAT bench has held that travelling expenses incurred by foreign head office on travelling of its own staff in connection with Indian branches was allowable under section 37(1) and section 44C was not applicable to it

Section 194C, read with section 40(a)(ia): TDS on contracts The Allahabad High Court has held that in a case of purchase of goods and equipment, provisions of section 194C would not be attracted

Section 194-I, read with section 194C: 
TDS on contracts and Rent The Karnataka High Court has held that where assessee entered into an agreement with a contractor for hiring of vehicles and made use of vehicles and equipment and paid hire charges on basis of number of hours of use, section 194-I, and not section 194C, would be attracted.

Section 115JA: Computation of Booked Profit

The Delhi High Court has held that Since computation of minimum alternate tax was cumbersome which was not possible by merely examining return or documents enclosed with return itself as several aspects were required to be examined, prima facie adjustment under section 143(1)(a) could not be made.

Section 24: Deductions from House Property

The Punjab & Haryana High Court has held that interest on interest paid due to default in payment of home loan installments is not deductible u/s 24

Section 32: Depreciation

The Mumbai ITAT bench has held that even if merged company did not claim depreciation for last few years, depreciation in hands of resultant company was to be allowed on WDV computed without adjustment of earlier depreciation

Section 50C: Special provision for full value of consideration in case of Land & Building 

The Jodhpur ITAT bench has held that where assessee sold a property and he had challenged market value adopted by Registrar for stamp duty purposes, provisions of section 50C(1) would not apply for purpose of computing capital gain on sale of property

Objective of SFIS is to accelerate growth in export of services so as to create a powerful and unique ‘Served From India’ brand, instantly recognized and respected world over.


Indian Service Providers, listed in Appendix 41 of Handbook of Procedures Volume 1 (HBPv1)-

  • who have free foreign exchange earning of at least ` 10 lakhs in current financial year
  • For Individual Indian Service Providers, minimum exchange earnings of ` 5 Lakhs.

LIST OF SERVICES AS PER GATT (eligible and ineligible)

All Indian Service Providers (Appendix 10 
of HBP v.1)


Duty Credit Scrip equivalent to 10% of free foreign exchange earned during current financial year (w.e.f 1.1.2011).


  • For import of any capital goods (including spares, office equipment & furniture and consumables) that are otherwise freely importable and / or restricted under ITC (HS).
  • For importing / domestic sourcing of capital goods (including spares) related to the manufacturing sector business of service provider.
  • For import of only those vehicles, which are in the nature of professional equipment
  • For payment of duty in case of Import/ domestic sourcing of motor cars, SUV’s and all purpose
  • vehicles as Professional Equipment by Hotels, Travel agents, Tour operators, etc.
  • Such vehicles will have to be registered for Tourist purpose only.
  • Proof of registration will need to be submitted to RA (Revenue Authority) within 6 months.
  • In case of hotels, clubs having residential facility of minimum 30 rooms, golf resorts and stand- alone restaurants having catering facilities, for  import of consumables including food items and alcoholic beverages.

For payment of excise duty for procurement from 
domestic sources, in respect of items permitted for 
imports under SFIS Duty Credit Scrip.


Entitlement /goods (imported / procured) shall be 
non transferable (except within group company and 
managed hotels) and be subject to Actual User 
    Additional customs duty/excise duty paid in cash or through debit under Duty Credit Scrip shall be adjusted as CENVAT Credit or Duty Drawback as per DoR (Department of Revenue) rules, except
    under SFIS.


    Valid for a period of 18 months. Re validation of Duty Credit Scrip shall not be permitted unless covered under paragraph 2.13.1 or paragraph 2.13.2 A of HBP v1.

    Transfer of export performance from one to another 
    shall not be permitted.

    Available subject to a minimum of Rs 5 Lakh each and multiples thereof



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    CBDT clarifies on TDS on Service Tax

    The Central Board of Direct Taxes (CBDT) has made it clear that tax need not be deducted at source on the service tax component on payments made/due to a resident payee. This will be allowed only in cases where the service tax component comprised in the amount payable to a resident is indicated separately in the contract between the payer and the payee, the CBDT has said in a circular. In such situation, tax has to be deducted on the amount paid/payable without including the service tax component.
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    I-T dept to use information from banks to nail tax evaders

    The Income Tax Department is considering seeking information on individuals exchanging high-denomination notes in huge numbers. It will then match banks’ information with its own. If there is a mismatch in the income reported by a person and cash exchanged by him, the taxman will go deeper. But RBI has provided an easy three-month window for exchange of notes. Details of identity and residence will not be required for exchange of notes between April 1 and June 30. The I-T department is concerned that many individuals with black money might take advantage of this.
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    Tax Regime: Foreign Portfolio Investors to be treated like FIIs

    The Government came out with a notification for the new combined category. Foreign Portfolio Investors (FPIs) will get the same tax treatment as FIIs under the Income Tax Act. The Authorized Dealer will repatriate money for QFIs only when a chartered accountant has certified that all tax dues have been paid.
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    STT must for tax breaks on losses

    The Mumbai Income-Tax Appellate Tribunal (ITAT) has upheld a penalty on a foreign investing entity that had attempted to pay lower taxes by setting off long-term capital losses based on transactions on which it paid securities transaction tax (STT) against long-term capital gains based on non-STT transactions.
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    SC okays revocation clause in Land Acquisition law

    The Supreme Court (SC) uphold cancellation where acquisition amount not accepted for 5 years or more, if the dispute was in court all along, with a rider, even for old cases. The order relates to compensation under Clause 24 or the ‘retrospective’ clause for land acquired by private parties or the government. The new law — the formal name is Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. If for five years after acquisition the owners of the land refused to accept compensation, the acquisition could be set aside.
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    SC seeks centre’s reply on plea against new Companies Act

    The Supreme Court (SC) has sought the Centre’s response on a petition seeking to declare as ultra vires of the Constitution some of the provisions of the new Companies Act that aims to create the National Company Law Tribunal (NCLT) and the Appellate Tribunal.
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    Suing directors for loan recovery

    The Supreme Court ruled that though a mortgage of assets of a company which failed to return a loan may have come to an end with their sale, the contract of indemnity with regard to the loan would continue. They are independent contracts. The directors who stood guarantee will still be liable to return the full loan.
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    Soften company law blow for private companies

    Private companies — in which public interest is non-existent — should not be subjected to mandatory auditor rotation, requirement of a  woman director on the Board or be covered under class action suits. A submission to this effect has been made to the Corporate Affairs Ministry, listing at least 20 provisions of the new company law from which “non-public interest private companies” should be exempted. The exemption should be available for all private companies that are neither subsidiaries of listed companies nor have substantial public borrowings
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    SEC judge bars ‘Big Four’ China units for 6 months over audits

    Chinese units of the global “Big Four” accounting firms should be suspended from auditing US-
    listed companies for six months, a judge in the US ruled, in an escalation in a long-running dispute over regulators’ access to documents.In a harshly worded 112-page ruling, Securities and Exchange Commission Administrative Law Judge Cameron Elliot censured the Chinese affiliates of KPMG, Deloitte & Touche, Price water house Coopers and Ernst and Young.
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    Deregulation of Interest Rates on Non Resident (External) Rupee (NRE) Deposits

    It has been decided to extend the freedom allowed to banks to offer interest rates on incremental NRE deposits with maturity of 3 years and above without any ceiling till February 28, 2014. With effect from March 1, 2014, the interest rate ceiling will revert to the position prior to August 14, 2013, i.e. interest rates offered by banks on NRE deposits cannot be higher than those offered by them on comparable domestic rupee deposits.
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    Cos may issue debt to NRIs as bonus: RBI

    With a view to rationalizing and simplifying the procedures, it has been decided by the Reserve Bank of India (RBI) that an Indian company may issue non-convertible/redeemable preference share or debentures to non-resident shareholders by way of distribution as bonus from its general reserves. So far, RBI was granting permission for such issuance's on a case-to-case basis. The RBI will have no objection if the borrower company wishes to issue equity shares for a rupee amount less than that arrived at as mentioned above by a mutual agreement with the ECB lender. It may be noted that the fair value of the equity shares to be issued shall be worked out with reference to the date of conversion only.