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Sunday, March 15, 2015
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IRDAI issues norms for Insurance Marketing Firms (IMF)

The Insurance Regulatory and Development Authority of India released its final guidelines on IMFs, which will be a new distribution category for insurance products. With a minimum capital requirement of ` 10 lakh, the insurance marketing firm can distribute products of two life insurers, two general insurers and two health insurance companies at any point in time. Under these norms, IMFs can market and service insurance through insurance sales persons, apart from marketing other financial products through financial service executives. These include products of mutual fund companies, pension products of Provident Fund Regulatory Development Authority, other financial products distributed by SEBI-licensed investment advisors.
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Online Aggregators under Net

The budget proposal to bring the online commerce industry under the ambit of the new service tax rate of 14% will impact web-based aggregates of retail sellers, taxi owners, bus operators and hotels including companies such as Amazon, Flipkart, Uber, Snapdeal and OlaCabs. March 1 onwards, online aggregates that own and manage a web-based software application came under the tax net.
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Levy of service tax on restaurants and hotel accommodation is unconstitutional

The high court of Kerala has held that Levy of service tax on : (1) service forming part of supply of goods in a restaurant, as well as, (2) short- term accommodation services in hotels, inns, etc. is unconstitutional being violate of Entries 54 and 62, respectively, of State List.Under works contract, only 'transfer of property in goods' is liable to VAT/sales-tax, therefore, service portion can be charged to service tax; however, in case of restaurants, entire supply of food (even as a part of service) is deemed to be sale and therefore, consideration therefor cannot be charged to service tax.Sum Paid to advertise group name 'HCL' instead of asses see's name was also eligible for input credit.
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Garnishee Order- Recovery of arrears in installments and amendment of Garnishee Notice

In terms of sub-section (2) of section 11 of the Central Excise Act, 1944. Central Excise Officers are empowered under this provision to issue an order to any other person from whom money is due to such person from whom recovery of arrears is required to be made. Such notice for recovery to the other person is generally referred as Garnishee Notice.

Clarification:
It is hereby clarified that recovery officers do have powers to add, amend, vary or rescind any Garnishee Notice issued. However, the interest of revenue has to be suitably safeguarded.

Installment to permit
It has been decided by the Board to allow recovery of arrears of taxes, interest and penalty in installments. The power to allow such payment in monthly installments shall be discretionary and shall be exercised by the Commissioners for granting sanction to pay arrears in installments up to a maximum of 24 monthly installments and by the Chief Commissioners for granting sanction to pay arrears in monthly installments greater than 24 and up to a maximum of 36 monthly installments.The facility to pay arrears in installments shall generally be granted to companies which show a reasonable cause for payment of arrears in installments such as the company being under temporary financial distress. Approval to pay in installments and the number of installments should be fixed such that an appropriate balance between recovery of arrears and survival of business is maintained taking into consideration the overall financial situation of the company, its assets, liabilities, income and expenses.
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MOA and AOA adoption by companies: Clarification

Ministry of Corporate Affairs vide General Circular No. 04/2015 dated 10/03/2015 has clarified that all the companies mandated to adopt new Memorandum of Association and Articles of Association as per Companies Act, 2013 on their First Annual General Meeting after the commencement of the Act can now do the same on or before March 31, 2015.
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Shareholders nod not a must for Banks, Insurance Cos, HFCs to buy Company Stakes

Banks, Insurance and Housing Finance Companies will no longer have to seek approval from shareholders before acquiring equity in companies making acquisition of securities in the ordinary course of its business u/s 186 of Companies Act, 2013.
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Vague terms in arbitration clause

Supreme Court rejected the prayer of a company to appoint an arbitrator in its dispute with another as the arbitration clause in the sales contract was vague.
The Supreme Court of India has held that in absence of independent evidence of corroborative nature, retracted statement of appellant could not constitute exclusive basis to determine culpability of appellant under section 9 of FERA.
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Form No. GNL-4 for filing addendum for rectification of defects or incompleteness notified

Any further information or documents called for, in respect of application or e-form or document, filed electronically with the Ministry of Corporate Affairs in terms of Companies Act 1956 shall be furnished in Form No. GNL-4 as an addendum.
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Power of attorney in cheque bounce: Supreme Court

Any employee of a company cannot file a criminal complaint about a cheque that was dishonored by a bank under Negotiable Instruments Act. There must be proper authorization and power of attorney in that behalf, the court stated in batch of appeals titled.
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Imposition of one-sided terms on sale of plot by a developer dominant in real estate market wasn't justified

The Competition Commission of India has held that imposition of unfair and one-sided terms and conditions by OP, a dominant player in relevant market for development and sale of residential plot, in agreement was abusive in terms of provisions of Section 4.
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Non-Compete Fee Paid To Director- Revenue Expenditure

The ITAT in ACIT vs. Clariant Chemicals(i) Ltd. held that non-compete fee paid to director on his
retirement to restrict him from sharing his experience was revenue expenditure. The High Court of Andhra Pradesh held that un absorbed loss or carried forward depreciation spilled over block period shall not be adjusted against undisclosed income.
Saturday, March 14, 2015
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Section 2(22) - Deemed dividend (Loans and advances)

The High Court of Delhi has held that merely because shares were issued belatedly in subsequent year, share application money cannot be treated as loan or deposits or advance for invoking provisions of section 2(22)(e).Section 195 could not be invoked in respect of payment by assessee of commission on export sale made to a US company which had no permanent establishment in India.
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Resale Price Method - Most Appropriate Method to determine Arm's Length Price

The High Court of Bombay held that in case of distribution or marketing activities when goods
are purchased from associated entities and sales are affected to unrelated parties without any further processing, then, RPM is most appropriate method to determine ALP of said transaction.
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TDS on payment to Foreign Consultant

The Supreme Court delivered a judgment in which an Indian company was denied no objection
certificate (NOC) to remit the 'success fee' to a Swiss firm because it did not deduct tax at source.
In this case, GVK Industries Ltd v ITO, the Indian firm sought the services of ABB of Zurich to raise
finance from Indian and foreign sources. After rendering the services, the foreign firm sent invoice to GVK for the success fee. When GVK approached the tax authorities for NOC, it was denied. Its argument that the Swiss firm had no place of business here, all services rendered were from abroad, and no part of success fee could be said to arise in this country attracting tax liability were rejected. The revenue authorities contended that the Swiss firm actively arranged loans and provided various services that attracted the income tax provisions. Therefore, tax must be deducted before remitting the fee abroad. Andhra Pradesh High Court ruled in favour of tax authorities u/s 9(1). This view was upheld by Supreme Court
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SEBI fines DLF, Directors ` 26 Crore each

DLF and its non-independent directors - KP Singh, Rajiv Singh, Pia Singh TC Goyal, Ramesh Sanka, GS Talwar and KameshwarSwarup have been fined ` 26 crore each by Securities and Exchange Board of India. The fine has been imposed for non-disclosure of material information in the company's offer documents during its IPO.
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BSE to launch function to prevent self trades in equities

Bombay Stock Exchange (BSE) said it plans to introduce a new functionality in its equity segment
to prevent self trades from March 16. The self-trade prevention check functionality is being introduced with the purpose of preventing matching between a buy and a sell order entered in the same order book by a member for the same client code originating from same or different trading terminals of the member.
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New norm for Institutional Trading Platform

BSE SME has also prescribed additional norms for listing of specified securities on the ITP. The exchange launched the ITP to enable Small and Medium Enterprises and start-up to achieve listing without an Initial Public Offer (IPO). For companies listing on ITP the minimum investment amount in a firm should be ` 10 crore or 25% of the listed capital, whichever is higher.
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BSE SME Exchange tightens Listing Norms and Eligibility Criteria

BSE SME has tightened the listing norms and eligibility criteria by increasing the post-issue paid up capital threshold to ` 3 crore from ` 1 crore for companies listing on the exchange platform. The exchange has also raised the net worth (excluding reserves) and tangible asset requirement to ` 3 crore from ` 1 crore. The revised norms would be applicable from April.A company intending to list on the SME exchange should also have registered profit (excluding extraordinary income) for at least two years of the immediate three preceding financial years or a net worth of ` 5 crore for three financial years before applying for listing.
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SEBI simplifies Trading, Demat Account Form

Securities and Exchange Board of India (SEBI) has simplified stock market trading Account Opening Form for local investors to encourage more participation in capital markets. Investors can now open a trading and Demat account by filling up a simplified account opening form, termed as SARAL form. Individual investors will have to submit only one documentary proof of address while opening a
trading account.
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Government approves norms to appoint MDs, CEOs of 5 State Run Banks

Government makes changes:

  • Splits post of Chairman into Managing Directors & Chief Executive Officers.
  • Allows private sector candidates to apply for MD & CEO in 'A' category banks
  • Invites application for BoB, PNB, BoI, IDBI & Canara Bank
  • Offers 3 years fixed tenure; flexible salary package to attract private sector talent
  • None of the existing Executive Directors in Public Sector Banks will be eligible to apply.
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Banks, NBFCs need RBI, SEBI nod to act as investment advisers

A bank or an Non Banking Financial Corporation (NBFCs) which proposes to undertake investment advisory services has to first obtain permission from Reserve Bank of India and then shall make an application for grant of registration through a subsidiary or Separately Identifiable Department Or Division (SIDD), Securities and Exchange Board of India (SEBI) said in a public communication.Investment advisers who were engaged in providing investment advice before the
notification of the norms in 2013 have time till April 20, 2015 to obtain necessary certification.
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Corporates must take hedging of Forex Exposure seriously

There is a pressing need on the part of corporate to improve their risk management practices in
view of imminent tightening of US interest rate cycles. In this context, hedging of Forex exposure by corporate assumes paramount significance. It was observed that every corporate needs to formulate a well-deliberated hedging policy and ensure strict adherence to it.
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Global Depository Receipts permitted to listed and non-listed Companies

The Finance Ministry notified new depository receipts scheme, which now allows depository receipts to be issued against securities of listed, unlisted of private or public companies against all underlying securities. The underlying securities would cover debt instruments, shares or units etc. Both the sponsored issues and unsponsored DR issuance has now been permitted.
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BLACK MONEY LAW – A NEED FOR SERIOUS DEBATE

The initiatives proposed by Finance Minister in his budget speech on February 28, 2016 to effectively
deal with the problem of black money, which eats into vitals of our society and economy, are highly
commendable. The measures initiated by the government in the last nine months to bring back the
black money in Swiss Banks has already brought very fruitful results and the names and the details of possible offenders have already been disclosed to Special Investigation Team set up by honorable Supreme Court.
The entire country including the common man heartily supports the retrieval of illegal black money kept outside India. The main focus of the government as well as the public is to ensure that money collected from corruption, crime, drug trafficking, terrorism and arms dealing are all accessed effectively with the help and support of foreign government. Fortunately, Uncle Sam (President of United States of America) is also actively supporting this move in his country's own interest and most of the international jurisdictions have already signed a treaty with government in this regards for exchange of all necessary information.

Fear Psychosis in Businesses
The Finance Minister has proposed new law on black money to be presented with parliament shortly in respect of concealment of foreign assets and evasion of tax in relation to foreign assets. The objective of the law is appreciated; however the proposed law has already brought in a big fear psychosis among the genuine businessmen and corporates in India as well as outside India. It is important for the government to ensure that another draconian law is not brought in, in a spree, to curb black money and concealment of foreign assets of money launderers. The manner in which law is proposed by Finance Minister, it may severely impact the genuine business activities, domestic as well as international investments by Indians and Foreign Direct Investments by foreigners in India.

Sweeping Powers:
The proposed law will give sweeping powers to the government officials:

  • to initiate prosecution with punishment of rigorous imprisonment up to 10 years.
  • the offense being made non compoundable
  • proposal to withdraw powers of Settlement Commission
  • penalty equivalent to 300% of the tax levied
  • even non-filing of return or filing of return with inadequate disclosures will be liable for imprisonment up to 7 years.
  • Proposal to equate offence of concealment of income or evasion of tax as money laundering

In respect of non-compliance of Foreign Exchange Management Act, besides the above sweeping powers, the power including imprisonment, of attachment and confiscation of assets in India or abroad are also proposed. The power corrupts and the absolute power corrupts absolutely.

The proposed law may be as draconian as possible for the offenders accumulating assets and black money arising out of corruption, drug trafficking, anti-national activities, heinous crimes, terrorism and illegal arms dealing.

However, in case same or similar provisions are extended to business transactions, investments, imports and exports, corporate acquisitions, creation of investment funds and other similar activities undertaken by the resident Indians and Corporate Indians, a very serious risk may arise of misuse of such severe powers in the hands of government.

It may be noted that the current law gives freedom to invest outside India, to have international bank accounts, create foreign assets and large business empires outside India. The bill should not cover the permitted genuine business activity and need not be particular about technical procedures or technical breaches in the normal course of business.

The current government and most of its leaders are highly honest and dedicated to the national cause but how will they stop or curb heavy dose of corruption, severe harassment, arrest, threat to arrest and all kind of similar misuses by officials and future Governments with political vendetta. The Foreign Exchange Regulation Act (FERA) and Conservation of Foreign Exchange and Prevention of Smuggling Activities (COFEPOSA) provided similar powers as are being proposed in the aforesaid draconian law. The Indian democracy and Indian businesses will not tolerate a similar dose of absolute powers delegated to motivated or over-enthusiastic officials of the tax department, Enforcement Directorate, Central Bureau of Investigation and various other enforcement agencies.

The proposed law should not in any manner adversely impact the economic and business atmosphere in the country so as to affect genuine businesses. It is rather important to decontrol most of the capital account transactions to bring in more growth and investment including growth of large businesses within India and outside India as well as international investments in India.

The following important controls and precautions need to be built in the proposed law:-
  • The proposed law should apply only to black money arising out of corruption, crime, drug trafficking, terrorism and arms dealing, currently defined as money laundering in terms of Money Laundering Act, 2002.
  • The foreign business assets and international business transactions should not be in the scope of proposed law.
  • The contravention of FEMA is currently liable for penalty up to 3 times of the amount involved. To provide for powers of confiscation and attachment beside imprisonment will completely reverse the decision taken by the government while replacing FEMA with FERA. RBI may give a special window to compound FEMA non-compliance in genuine cases.
  • We may suggest a one-time Amnesty, except to money launderers, to clean the stable, provided the money declared is brought in and after collection of applicable tax, is mainly utilized for investment in the growth of agriculture, industry & business as well as in the development of infrastructure in India
  • Even the proposed change in definition of "residential status" for foreign company in the Income Tax Law needs to be modified.
The BJP government had committed to the nation that it will bring back the illicit Black Money held in Swiss Accounts or in other countries through their election manifesto. Due to political pressure as the ruling party, it is important for PM to remember that they also made following promises:
  • Non adversarial and conducive tax environment
  • Conducive and friendly business environment
  • Eradication of harassment and corruption in tax administration
  • Eradication of tax terrorism
  • To address uncertainty and anxiety among business class
  • Simpler and small Direct Tax Laws
  • Stable and reliable tax regime
  • Improvement of investment climate with the target of ease of doing business in India.
The government needs to be very careful and balance the aforesaid promises on one hand and curbing of black money on the other. The current government is highly matured and needs to appreciate that a powerful section of bureaucracy which has been highly corrupt wishes to take the party in power into a wrong direction so that all the good initiatives taken by the government are destabilized.

The curbing of Black money is important but not at the cost of curbing Genuine business activity. It is important to provide more flexibility in foreign transactions, business regulations and tax laws to Indian and foreign businesses, for Ease of Doing Business and Make in India project to be a reality.