| Safe- harbournorms to be eased |
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New Delhi, 15 September The finance ministry is likely to ease safe harbour norms to bring more taxpayers under its ambit as transfer pricing disputes between the tax department and multinational companies surge. Safe harbour prescribes the limit and conditions within which the price of cross- border transactions with a related company declared by an assessee is not questioned by tax authorities. The draft norms, released last month, had said companies earning aturnover of more than ₹ 100 crore would not be covered by the rules. This ceiling might now be raised in the final rules to be released this month. "The limit would be changed because we are trying to include maximum number of taxpayers under the safe harbour rules," said afinance ministry official who did not wish to be identified. Besides, multinational companies in India, transfer pricing disputes have also been there with Indian companies having subsidiaries abroad. The income- tax department had sent transfer pricing notices to these companies for undervaluing transactions with their associates in 2012- 13. These included Shell, Vodafone, Essar, Bharti Airtel, HSBC Securities & Capital Markets, Microsoft, Standard Chartered Securities and IBM, among others. The industry had argued the limit was so low that only a few small players would benefit from it and many large taxpayers would not be covered. It had also made a case for lowering the minimum operating margins prescribed for safe harbour in the draft rules. The tax department, however, might not provide much relaxation on this count, as it believes the numbers were derived after looking at some recent cases where taxpayers themselves had agreed to profit margins of 15 to 17 per cent in relation to their operating expenses and revenues. The industry feels if these margins are retained, safe harbour rules might not find many takers. "The economic situation does not support these kinds of margins. No one is making that kind of profits in the current environment," said Rahul Garg, leader- direct tax, PricewaterhouseCooper. For instance, for the information technology ( IT) sector, the draft rules had only said companies having operating margins of 20 per cent or more would be covered under the safe harbour norms. Those not adopting safe harbour norms can go for an advance pricing agreement or mutual agreement procedure. The margins are in line with the recommendations of the Rangachary committee on safe harbour rules. For the IT sector, it had recommended a margin of 20 per cent for the first two years, which is a 33 per cent increase over the average margin of 15 per cent disclosed in assessment year 200809. The committee had not prescribed any turnover cap for safe harbour rules. The safe harbour rules would apply to information technology, IT- enabled services, contract research & development in IT and pharmaceutical, financial transactionsoutbound loans, financial transactions- corporate guarantees, and automobile ancillaries- original equipment manufacturers. "We are finalising the rules and these would be sent to the law ministry for vetting after getting an approval from the finance minister. It might be notified this month," said another official. I- T NOTICES IN 2012- 13 ₹ 1, 090 cr tax to be paid by IBM ₹ 118 cr tax to be paid by Gillette ₹ 1, 300 cr to be paid by Vodafone ( adjustment) ₹ 1, 063 cr tax to be paid by Hindalco ( adjustment) ₹ 5, 135 cr to be paid by Microsoft (adjustment) ₹ 15, 000 cr to be paid by Shell (adjustment) |
| BENCH PRESSN [1] M J ANTONY |
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The Supreme Court last week set aside the judgment of the Calcutta High Court in a tender dispute and ruled that disqualification of Rashmi Metaliks Ltd by the Kolkata Metropolitan Development Authority on the ground of the company having failed to submit sufficient reason for disregarding its offer. The authority was, therefore, directed to " proceed further in the matter on this predication." In this case, one of the conditions for the bid was that the latest tax return should be filed along with the application. This was not done by the company. The high court held that it was an essential condition and hence, the bidder was rightly disqualified. The appeal of the firm was allowed by the Supreme Court stating that the condition was not an essential term of the ' notice inviting tender' and the financial bid of the company was substantially lower than others'. The Supreme Court examined the income tax returns filed later and found that for the Assessment Year 2011- 2012, the gross income of the company was ₹ 15,34,05,627, although, for the succeeding Assessment Year 2012- 2013, the income tax was nilL, but substantial tax had been deposited. "We think that the income tax return would have assumed the character of an essential term if one of the qualifications was either the gross income or the net income on which tax was attracted. In many cases, this is a salutary stipulation, since it is indicative of the commercial standing and reliability of the tendering entity," the judgment said, and added: " This feature being absent, we think that the filing of the latest tax return was a collateral term. Accordingly, the tendering authority ought to have brought this discrepancy to the notice of the company and if even thereafter no rectification had been carried out, the position may have been appreciably different. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Company cant stop flat mortgage The right to occupy a flat is a species of right to property and the flat can be mortgaged to avail of a loan for the flat owner's benefit, the Supreme Court stated last week while dismissing the appeal of Hill Properties Ltd against the attachment of a Malabar Hill flat at the instance of a petition by Union Bank of India before the Debt Recovery Tribunal. A shareholder of the building company mortgaged the flat, which was attached under the Securitisation Act. The company challenged it. Dismissing its appeal, the court stated: " We find that neither the Companies Act nor any other statute make any provision prohibiting the transfer of species of interest to third parties or to avail of loan for the flat owners' benefit. A legal bar on the saleability or transferability of such a species of interest, in our view, will create chaos and confusion. The right or interest to occupy any such flat is a species of property and hence has a stamp of transferability," the court said while upholding the view of the Bombay High Court. The company had argued that the occupier had permission only to use the flat owned by it and the rest of the substantial rights belonged to the company. A shareholder could not mortgage the flat without the permission of the company which was in violation of the articles of association of the company, it was argued by the company. The Supreme Court rejected this line of argument. It said: " It is too late in the day to contend that flat owners cannot sell, let, hypothecate or mortgage their flat for availing of loan without permission of the builder, society or the company. So far as a builder is concerned, the flat owner should pay the price of the flat. So far as the society or company in which the flat owner is a member, he is bound by the laws or articles of association of the company, but the species of his right over the flat is exclusively that of his. That right is always transferable and heritable." >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Sugar mill land take- over proper The Supreme Court last week set aside the judgment of the Allahabad High Court, which had ordered the Uttar Pradesh government to return land earlier owned by Lakshmi Sugar and Oil Mills Ltd to the company. Since several sugar mills were running losses, the state government had acquired them after passing the UP Sugar Undertakings ( Acquisition) Act. The State Sugar Corporation was set up to revive the sick units to protect cane growers. Lakshmi Mill challenged the take- over of its land stating that its land in Hardoi was agricultural, and therefore exempted from acquisition. The high court accepted the argument and asked the government to return the land to the mill. The government appealed to the Supreme Court. It held that the land was used for industrial purposes, not agricultural. This was evident as the land had been treated as industrial for purposes of the Land Ceiling Act. " It is difficult to see how the same land could be treated to be held or occupied for cultivation, for the Sugar Undertakings (Acquisition) Act," the judgment said. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Blacklisting of bidder upheld The Delhi High Court last week upheld the decision of the central government to blacklist a company in all business dealings with it as its executives had tried to influence the decision makers in a bid for bullet- proof jackets." The representative of the firm had no business to engage in conversation with Sanjay Baniwal, who was an officer involved in the evaluation process," the high court stated while dismissing the writ petition of the firm, Anjani Technoplast Ltd vs Union of India. The judgment noted from the narration of facts that the company representatives tried " outright flattery" by describing him as an upright and bold officer who could bring reforms. Then messages were also sent indicating that the officer was about to be transferred from his post. The judgment stated that all these certainly amounted to " a malpractice which a tenderer was not expected to adopt, more so when a decision had been taken that no bidder would contact any officer concerned with technical evaluation of the product and the said decision was accepted by all the tenderers without any reservation." >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Tax liability on share acquisition The Bombay High Court held last week that investment made in the shares of a private limited company for purposes of acquiring control over the business conducted by it, cannot be said to be stock- in- trade and is capital asset. In this case, Accra Investment ( P) Ltd, an investment company, sold shares of Millennium Alcobev Ltd, an unlisted company, to two of its shareholders, namely, M/ s. Scottish & Newcastle and United Breviaries Ltd. Accra then claimed benefit of deduction of the entire capital gains as they were invested in specified bonds. The assessing officer determined that the amounts earned on sale of shares by the assessee company would be taxable under the head profit and gains of business and not under the head capital gains. The income tax tribunal decided against the company and ruled that the company had purchased the shares of Millennium Alcobev with the object of trading in them and not to hold as capital asset. The high court reversed that view and accepted that of the assessee company. |
| 'Auditors will have moral challenges' |
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After 50 years, we have a comprehensive legislation governing corporates. To my mind, there are three aspects of the new Companies Act to draw attention to. First, the whole idea is to modernise the structure of corporate governance. The second is the attempt to simply procedures. The third issue is the mandatory two per cent CSR (corporate social responsibility) spend. The first two were long overdue. The responsibility is now shifting to companies to meet procedural requirements, and for auditors to vet them. However, I have a big problem with the third aspect. Making CSR spend mandatory is a bad idea. The rest of the world is moving forward towards the concept of a corporate's broad responsibility to the society. Corporates just can't get away by spending three- five per cent on the side if the processes by which they do business are damaging the society or the ecology. There could also be a tendency of politicians directing that spend. Will the new Act make it easy to do business in India? India ranks very poorly when it comes to business regulation. The ministry (of corporate affairs) now needs to get into a consultation process with industry while the rules get framed. All the stakeholders need to participate in framing of the rules. What, in your view, could the government do to further facilitate the ease of doing business in the country? The country — at the Centre and the states — must adopt the practice of Business Regulatory Impact Analysis (BRIA), which many developed and some developing countries have adopted. In this process, the requirements of all stakeholders that could be affected by a regulation are understood. A systematic evaluation could be done of the impact of any proposed regulation, or of the existing regulations, too, on the stakeholders to devise the best regulations that will serve the purposes of society. In this process, the numbers of regulations are also reduced so that only the most necessary and effective regulations are retained. In the Act, a lot of stress has been put on the role of directors in a Board to meet corporate governance- related concerns. How well placed is this move? It is inevitable that the roles and responsibilities of directors, especially independent directors, will get emphasised when companies want less regulation by the government, and more self- management of their own conduct. Someone has to take responsibility that the company is doing the right things not only towards the shareholders but also the society. How do you see the role of auditors changing under the new regime? In the new era, in which companies want more self- regulation, the auditors will have increasing moral challenges. They cannot be just endorsers of the numbers the companies provide them. They will have to comment on whether the numbers provide sufficient information to confirm that the board and the company are doing the right things, too. In a way, the dilemma faced by the CAG ( thr Comptroller and Auditor General) —about mere audit of numbers or also comments on intent — will have to be increasinkgly faced by independent corporate auditors too. In the new Companies Act regime — with more stress on selfregulation by companies — corporate auditors may face CAG- like dilemma, says ARUN MAIRA, member, Planning Commission of India. In an interaction with Sudipto Dey, the former India chairman of The Boston Consulting Group builds a case for reducing the number of regulations governing businesses — keeping only the necessary and effective ones. Edited excerpts: India must adopt the practice of Business Regulatory Impact Analysis which many other countries have adopted |
| Newland acquisition regime: Govt has to balance changes |
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Expectedly, the Bill had a stormy passage in the Lok Sabha, in balancing interests, but on including certain changes demanded by the Opposition was passed by both the Houses recently. Having achieved the passage, however, there are some glitches. Historically, land acquisition laws in India have been in effect since 1824 and till date the 1894 Land Acquisition Act, the existing law which was a Colonial law by purpose and nature and focused on acquisition of rural segments has been applicable. Given the changing nature in the demand of land, acquisitions for urban infrastructure such as construction of metro rail projects, have not been addressed in this Act, the orientation is essentially rural. The treatment for disparate segments is a lacuna which can create problems in going ahead. Ideally, there should have been two separate laws or the two aspects should have been addressed in separate chapters. The " public purpose" definition seeks to be inclusive but reads in a somewhat inchoate manner nonetheless. The availability of rural land in India is one of the lowest in the world. Therefore, both acquisition and displacement have to be treated as being two sides of the same coin. The rehabilitation of displaced persons is not provided for in the existing law and the legislature in the new Act, in any event, in seeking to address this issue has taken a right step. On the other hand, by raising the compensation to twice the market price in urban and four times in rural areas, and requiring that 25 per cent infrastructural facilities are to be provided in the areas that require resettlement, while it is a factor necessitated by the past agitations and Court orders, but has increased the cost to the acquirer excessively. Further, stakeholders other than the owners have to be compensated. This again leads to increase in compensation amount and provides opportunities to people without proper title to lay claims on the acquirer. And in spite of paying these high costs, the acquirer has no security in the land acquired. One of the reasons why the old Act was criticised is that the land or part thereof remained unutilised for long periods. To counter this, a provision for return of the land has been envisaged, as well as acquirer refunding one fourth of the compensation amount to the erstwhile owners if the land is sold. Again this is unfair as the earlier owner should not have any surviving interest in the land being duly compensated. The processes envisaged of the governmental actions and approvals are neither fast- track nor single window, there being five stages that every proposal has to undergo, and no timelines are provided. Given this and the inherent delays in government action, the date of utilisation should be calculated from the date on which all approvals for the purpose are obtained rather than from the date of acquisition. What is critical, therefore, is the role of the government, which has to be fair and objective, particularly as the Act takes into account rehabilitation and resettlement, an area fraught with palpable tension. Having said all the above, the new Act is certainly an improvement on the existing one and will hopefully create more transparency in the acquisition process for the acquirer in going forward and once the preliminary formalities are closed. Kumkum Sen is a partner at Bharucha & Partners Delhi Office and can be reached at kumkum. sen@ bharucha. in The processes envisaged of the governmental actions and approvals are neither fast- track nor single window The government's role has to be fair and objective as the Act takes into account rehabilitation and resettlement, an area fraught with palpable tension LEGAL EYE KUMKUM SEN |
| Newland acquisition regime: Govt has to balance changes |
|
Expectedly, the Bill had a stormy passage in the Lok Sabha, in balancing interests, but on including certain changes demanded by the Opposition was passed by both the Houses recently. Having achieved the passage, however, there are some glitches. Historically, land acquisition laws in India have been in effect since 1824 and till date the 1894 Land Acquisition Act, the existing law which was a Colonial law by purpose and nature and focused on acquisition of rural segments has been applicable. Given the changing nature in the demand of land, acquisitions for urban infrastructure such as construction of metro rail projects, have not been addressed in this Act, the orientation is essentially rural. The treatment for disparate segments is a lacuna which can create problems in going ahead. Ideally, there should have been two separate laws or the two aspects should have been addressed in separate chapters. The " public purpose" definition seeks to be inclusive but reads in a somewhat inchoate manner nonetheless. The availability of rural land in India is one of the lowest in the world. Therefore, both acquisition and displacement have to be treated as being two sides of the same coin. The rehabilitation of displaced persons is not provided for in the existing law and the legislature in the new Act, in any event, in seeking to address this issue has taken a right step. On the other hand, by raising the compensation to twice the market price in urban and four times in rural areas, and requiring that 25 per cent infrastructural facilities are to be provided in the areas that require resettlement, while it is a factor necessitated by the past agitations and Court orders, but has increased the cost to the acquirer excessively. Further, stakeholders other than the owners have to be compensated. This again leads to increase in compensation amount and provides opportunities to people without proper title to lay claims on the acquirer. And in spite of paying these high costs, the acquirer has no security in the land acquired. One of the reasons why the old Act was criticised is that the land or part thereof remained unutilised for long periods. To counter this, a provision for return of the land has been envisaged, as well as acquirer refunding one fourth of the compensation amount to the erstwhile owners if the land is sold. Again this is unfair as the earlier owner should not have any surviving interest in the land being duly compensated. The processes envisaged of the governmental actions and approvals are neither fast- track nor single window, there being five stages that every proposal has to undergo, and no timelines are provided. Given this and the inherent delays in government action, the date of utilisation should be calculated from the date on which all approvals for the purpose are obtained rather than from the date of acquisition. What is critical, therefore, is the role of the government, which has to be fair and objective, particularly as the Act takes into account rehabilitation and resettlement, an area fraught with palpable tension. Having said all the above, the new Act is certainly an improvement on the existing one and will hopefully create more transparency in the acquisition process for the acquirer in going forward and once the preliminary formalities are closed. Kumkum Sen is a partner at Bharucha & Partners Delhi Office and can be reached at kumkum. sen@ bharucha. in The processes envisaged of the governmental actions and approvals are neither fast- track nor single window The government's role has to be fair and objective as the Act takes into account rehabilitation and resettlement, an area fraught with palpable tension |
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