| RBI raises FII limit in govt, corp bonds by $ 5 bn each |
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Mumbai, 24 January To attract foreign funds into the bond market, the Reserve Bank of India (RBI) today raised the ceiling for foreign institutional investors ( FII)' s holdings in government securities and corporate bonds by $ 5 billion each. The cap on domestic debt now stands at $ 75 billion. Bond dealers and treasury executives said the interest of FIIs had been robust. The additional capital flows would help tackle the high current account deficit, which stood at a record 5.4 per cent of the gross domestic product in the quarter ended September. The three- year lock- in period for FIIs purchasing government securities ( G- secs) for the first time has been done away with, RBI said. The sub- limit of $ 10 billion for investment by FIIs in G- secs was enhanced by $ 5 billion, it added, while the cap on corporate debt other than in the infrastructure sector was raised from $ 20 billion to $ 25 billion. With rises of $ 5 billion in each of the two categories, FIIs and long- term investors can now invest $ 25 billion in G- secs and $50 billion in corporate debt instruments, including the sub- limit of $ 25 billion for infra bonds. RBI said though the residual maturity condition would not be applicable on the entire sub- limit ( in G- secs) of $ 15 billion, such investments would not be allowed in short- term papers such as treasury bills. The overall FII limit for domestic debt is distributed through a host of categories across government, corporate and infrastructure debt. Long- term investors include sovereign wealth funds, multilateral agencies, pension funds and foreign central banks. STEPS TO AID INFLOWS |Sub- limit for FII investment in G- secs raised from $ 10 billion to $ 15 billion |Cap on corporate debt ( excluding infra) raised from $ 20 billion to $ 25 billion |Three- year lock- in for FIIs purchasing G- secs done away with |The cap on domestic debt now stands at $ 75 billion Additional capital flows expected to help tackle high current account deficit BS REPORTER |
| Cabinet nod to probe lobbying charges againstWalMart |
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New Delhi, 24 January The Cabinet today decided a retired judge would probe whether US- based retail chain WalMart Stores was involved in lobbying activities in India to gain entry into the market, an official statement said. The judge was asked to give his report within three months. Last month, the government had decided on a probe into the matter, following media reports on disclosures of WalMart before the US Senate regarding its lobbying activities. In November, WalMart had disclosed it spent $ 25 million on lobbying in the US over the past four years, including on issues related to " enhanced market access for investment in India". However, the US retailer has repeatedly denied any illegal activity. In September, the government had allowed 51 per cent foreign direct investment in multi- brand retail in India. In the winter session of Parliament, allegations WalMart had indulged in lobbying in India to gain entry into the market had stalled proceedings. Under the Commission of Inquiry Act, the government would have to table the probe report, as well as the action report, before Parliament. WalMart had entered the Indian market in 2007. It operates a 50: 50 joint venture with Bharti Enterprises, which runs 17 modern wholesale stores and provides backend logistical support to Bharti retail's Easyday stores. |
| The world according to GAAR |
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The finance ministry has provided some helpful clarifications on the General Anti- Avoidance Rules (GAAR). Recently introduced as an antitax avoidance measure, GAAR seeks to examine the commercial and economic substance of a transaction, arrangement or investment, and to declare it as an impermissible, avoidance arrangement in case the prescribed tests are satisfied. An expert committee headed by Parthasarathi Shome made recommendations for the re- design of GAAR after a comprehensive review. Clarifications from the government indicate that some of the major recommendations have been accepted. The major clarification is that GAAR will be deferred to April 1, 2016. Investments made before August 30, 2010 will be grandfathered, meaning they will be taken out of the purview of the new legal provisions. Do these clarifications address investor concerns? Let's look at a few important questions and try to find answers: How to interpret deferral to April 1, 2016: GAAR will apply in relation to income arising on or after April 1, 2015 to be assessed in the assessment year beginning April 1, 2016. One must, however, await the Finance Bill, 2013 next month for confirmation. What grandfathering of investments made before August 30, 2010 implies: Such investments will be safe and should not be subject to GAAR. This result should obtain even if such investments are sold after April 1, 2015. However, the same treatment should not be expected for the entire fund or special purpose vehicle ( SPV) as such. If funds or SPVs were set up before August 31, 2010 but investments were made by such entities after August 31, 2010, GAAR will still apply. What happens to investments made after August 30, 2010 and sold before April 1, 2015: No specific clarification has been provided. The statement on grandfathering and the general scheme of GAAR is widely interpreted to mean that such investments will not be subject to GAAR. Effectively, it means there is a two- year window to sell investments. If such investments are sold after April 1, 2015, GAAR will apply. The status of specific anti- avoidance rules ( SAAR) or limitation on benefits (LOB) clauses in tax treaties, such as India- Singapore vis- à- vis GAAR: No clarity yet. It is mentioned that where both GAAR and SAAR are applicable, only one of them will apply. This can be interpreted to mean that GAAR or SAAR, whichever is beneficial to the interest of revenue, will apply. The implications for funds and SPVs in Mauritius and Singapore: Currently, GAAR overrides tax treaties, including the LOB clause ( that is, circumstances in which the benefits under the treaty will not be available). SPVs and funds proposed to be set up in Singapore will need more clarity on the status of the LOB clause in the India- Singapore treaty vis- à- vis the GAAR framework. In other words, the issue of whether benefits under the India- Singapore treaty will be accorded to a non- resident where one satisfies the LOB clause under the treaty is unresolved. Proposed SPVs or funds looking at Mauritius need clarity on whether a tax residency certificate issued by the Mauritius revenue authorities will be accepted as a proof of tax residency ( as suggested in circular 789 of 2000) and entitlement to the benefits under the India- Mauritius tax treaty. Also, the LOB clause in the India- Mauritius treaty seems to be a work- in- progress, going by recent press reports. Similarly, existing SPVs and funds will need to await more clarity on LOB clauses and " substance" requirements wherever a tax treaty benefit is planned. (The term " substance" refers to the commercial and economic rationale behind an investment or a transaction. It also means financial and other commitments in terms of personnel, facilities and plant and machinery on the ground in the relevant tax- friendly jurisdiction.) The need to review the LOB clause and "substance" will arise because GAAR will apply on investments made after August 30, 2010 and sold after April 1, 2015 or any other date of implementation. Migration from Mauritius to Singapore or even vice- versa in the absence of actionable clarity at this stage may be premature and a wasteful exercise. Hopefully, the Finance Bill, 2013 will provide more certainty. The implications for foreign institutional investors ( FIIs): FIIs choosing to be governed by any tax treaty will be subject to GAAR. FIIs choosing to be governed by Indian tax laws and not any tax treaty will not be subject to GAAR. Investors in FIIs ( widely interpreted to include participatory note holders) are not expected to be subject to GAAR. In any case, there may not be a need to go after FIIs that have accounted for tax liability in relation to all the trades executed by them. Pertinent expectations from the Finance Bill, 2013 in relation to FIIs: In order to encourage FIIs to choose Indian tax laws, short- term capital gains tax and securities transaction tax rates will need to be calibrated, as the expert committee has recommended. A compelling domestic tax regime will always obviate the need to seek recourse to any tax treaty. The implication of the binding effect of an approving panel decision on both taxpayer and the tax department: Given that an ex- judge of the high court will chair the approving panel, it is not clear whether a taxpayer can refer an appeal to the Income Tax Appellate Tribunal or needs to approach the jurisdictional high court by way of a writ petition. Clarity is required here. What to expect in 2015 or, say, 2016: The present GAAR framework will be about five years old by then. Hopefully, any government taking power after the general elections in 2014 will review international experience and recently introduced domestic transfer pricing provisions before implementing GAAR. Further, all investments made before the date of eventual implementation of GAAR should be out of the purview of GAAR and not merely those made before August 31, 2010. The author is Partner, J Sagar Associates. These views are personal sunil. jain@ jsalaw. com Recent clarifications on the new rules answer some questions and raise hopes from the Finance Bill, 2013 ILLUSTRATION: BINAY SINHA |
| Sai Prasad Group's activities undermulti- agency probe |
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New Delhi, 24 January Pune- based Sai Prasad Group, which has interests in real estate, food and films, is being probed for alleged financial irregularities, including illegal raising of funds. The probe was initiated by the ministry of corporate affairs (MCA) about two years ago, after it received complaints from investors based in Raipur. Now, the Securities and Exchange Board of India ( Sebi), the Reserve Bank of India ( RBI) and the economic offences wing ( EOW) of the Goa police are also involved in the investigations. The Sai Prasad Group, promoted by Balasaheb Bhapkar and his son, Shashank Bhapkar, has seen good growth in less than a decade. Among its assets, it lists several hundreds of acres of agriculture farms in Maharashtra, Madhya Pradesh and Chhattisgarh. The group also has offices in Goa and Uttar Pradesh. Last year, the Bhapkars also ventured into tinsel town, producing the film Chhodo Kal Ki Batein. The funds for these ventures, however, are collected in an unauthorised manner from small investors who are promised attractive returns. The money is collected under several plans such as monthly installment plans and one- time plans. Several ' advisers' and ' zonal' and ' regional' officers, who together took up to 40 per cent of the amount collected as commission, helped the group collect the funds, investigations by Business Standardshowed. In a report in October, an investigation officer of the Goa polices economic offences cell said though Sai Prasad Properties had its registered office in Goa, the operations were being managed from Pune. "The Goa office is managed by an office assistant and an employee. The company is inviting investment in property and promising high returns. There is no allotment of property in the investment plan," the report said, adding the company hadn't shown any property for the current investment scheme in Goa. "The investment plans of the company will start maturing after two to three years and a problem of repayment might arise," it said. The report was accessed under the Right to Information ( RTI) Act by Mumbai- based RTI activist Bhupendra Singh. According to the group's website, currently, the group is spread across about 100 cities and accounts for 131 branches and 1,500 employees. It has about 600,000 advisers serving about 1,100,000 customers and associates. " The ultimate goal of Sai Prasad Group of Companies is to provide customer satisfaction and customer delight with diligence, sincerity and commitment, which is based on the principle of joint participation and expectations of customers," the website says. Shashank Bhapkar, managing director of the group, did not respond to calls and an email seeking comments. Group Chief Executive Officer Sanjay Roy said, "We have responded to all notices from the RoC ( Registrar of Companies). If there are investigations, you have to ask the people conducting the investigations." He declined to share further details on the group. Sources in the RoC, however, confirmed the company hadn't given satisfactory responses to many of the questions raised in showcause notices. They added the registrar was in the process of initiating criminal prosecution proceedings against the directors and senior officials of the group. The MCA and RBI have been receiving complaints on the group's activities since 2010- 11. RBI had written to the Goa police's economic offences cell, saying the company wasn't registered as a non- banking financial company and, therefore, wasn't authorised to raise deposits from the public. The MCA had directed its regional director for the western region ( based in Mumbai) to inspect the books of Sai Prasad Properties and Sai Prasad Foods under Section 209. The inspection report alleged several violations, including diversion of funds, manipulation of records and non- compliance with provisions under the Income Tax Act, the Banking Regulation Act, etc. It also alleged several violations of the provisions of the Companies Act. In August 2012, the RoC, Goa, had written to the Sebi chairman, intimating violation of Collective Investment Schemes Regulations under the Sebi Act. Officials said Sebi had issued a show- cause notice to this effect and was investigating the matter. MCA, Sebi, RBI and EOW probing violations; firm says it has replied to notices UNDER THE SCANNER |Funds for group ventures are collected from small investors who are promised attractive returns |The money is collected under several plans such as monthly installment plans and one- time plans |Advisers and zonal and regional officers together take up to 40% of the amount collected as commission | Goa polices economic offences cell said though Sai Prasad Properties had its registered office in Goa, operations were being managed from Pune |RBI said the company wasnt registered as an NBFC and, therefore, wasnt authorised to raise deposits from the public |
Company Secretary, Chennai
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