Chartered Accountant Finance: [aaykarbhavan] Judgments and Information [2 Attachments]

Rejection of stay application merely because it will not cause any genuine hardship to assessee

It is observed that when the appeals of the assessee challenging the imposition of penalty were pending before the ld. CIT(A) and the prayer of the assessee for stay of outstanding demand on account of the said penalty was rejected by the revenue authorities, the assessee had moved writ petitions before the Hon'ble Bombay High Court and vide two separate orders passed on 13th January 2013, their lordships granted the stay of outstanding demand subject to the payment of Rs.50,00,000/- for each of the two years after considering all the submissions made on behalf of the assessee which have now been reiterated before us in support of the present stay applications. The said stay was granted by the Hon'ble Bombay High Court till the disposal of the penalty appeals by ld. CIT(A) and since the ld. CIT(A) has already disposed of the said appeals, the balance outstanding demand is being sought to be stayed by the assessee by the present stay applications. Although the ld. Counsel for the assessee has submitted that a sum of Rs.50,00,000/- has already been paid by the assessee against the penalty imposed for each of the two years under consideration, it is pertinent to note that the same has been paid as per directions of the Hon'ble Bombay High Court and not voluntarily by the assessee. The ld. Counsel for the assessee no doubt has made an attempt to show that the assessee has a good prima-facie case to succeed on merit in its appeal filed before the Tribunal. However this matter can be decided finally only after hearing both the sides while disposing of the appeals of the assessee by the Tribunal. Moreover, the financial position of the assessee is very sound as agreed even by its ld. Counsel and any further recovery of the outstanding demand on account of penalty is not going to cause any genuine hardship to the assessee. At the same time, government also needs liquid funds to manage its day to day affairs. Having regard to all these facts & circumstances, we are of the view that the stay of outstanding demand for both the years can justifiably be granted subject to a further payment of Rs.50,00,000/-by the assessee against the penalty imposed for each of the two years under consideration. Accordingly, we direct the assessee to deposit a further sum of Rs.50,00,000/- against the outstanding demand for each of the two years by 10/02/2014. Subject to the said payment, the balance outstanding demand for both the years under consideration is stayed for a period of six months or till the disposal of the assessee's appeals by the Tribunal, whichever is earlier. The registry is directed to fix the said appeals of the assessee for hearing of out of turn on 13.02.2014 as announced in the open court and taken note by the learned Representatives of both the sides.

INCOME TAX APPELLATE TRIBUNAL "D" BENCH, MUMBAI

BEFORE SHRI P.M. JAGTAP, AM AND SHRI VIVEK VARMA, JM

S.A. No.332 /Mum/2013 – (Arising out of ITA No. 7650/Mum/2013)

Assessment Year 2004-05

S.A. No.333 /Mum/2013 – (Arising out of ITA No. 7651/Mum/2013)

Assessment Year 2005-06

M/s Deloitte Consulting India Private Limited

Vs.

The Assistant Commissioner of Income-tax

Date of Pronouncement :03/01/2014

O R D E R

PER P.M. JAGTAP, A.M.

By these stay applications, the assessee is seeking stay of outstanding demand of Rs.1,55,26,718/- and Rs.1,81,18,488/- for A.Y.2004-05 and 2005-06 respectively on account of penalty imposed u/s 271(1)(c).

2. The assessee in the present case is a joint venture between Mastek Ltd. and Deloittee Consulting LLP, USA. It is registered under the 'Software Technology Parks of India' Scheme and is engaged in the business of export of computer software and also in providing Information Technology Enables Services. Alongwith its return of income for both the years under consideration, the assessee had filed an Accountant's Report in prescribed form reporting inter-alia the particulars of its international transactions which included payments made by the assessee to Deloitte for rendering of marketing-services amounting to Rs.5.86 crores and 6.60 crores for A>Y. 2004-05 and 2005-06 respectively. These payments were claimed to be made by the assessee to Deloitte in connection with the reimbursement of salary and other direct costs without their being any mark-up charged by Delloitte. Given that there was a dispute on the determination of the arm's length price of these transactions, the assessee, with a view to avoid litigation, filed revised return suo¬moto disallowing the amount paid towards reimbursement of salary and other directs costs. The assessee however claimed deduction u/s 10A of the Act on the amounts so disallowed on the ground that the corresponding TP adjustment having not been made by the AO/TPO, the proviso to section 92C(4) of the Act was not applicable. This claim of the assessee for deduction u/s 10A was not allowed by the AO, the ld. CIT(A) as well as the Tribunal in the quantum proceedings and the assessee therefore preferred appeals before the Hon'ble Bombay High Court which are pending for disposal. Meanwhile, the AO imposed penalty of Rs.2,05,26,718/- and Rs.2,31,18,488/- u/s 271(1)(c) for A.Y. 2004-05 and 2005-06 respectively in respect of the addition made to the total income of the assessee on account of disallowance of deduction u/s 10A and on confirmation of the same by the ld. CIT(A), the assessee has preferred its appeals before the Tribunal which are pending. This imposition of penalty has given rise to the impugned outstanding demand which is being sought to be stayed by the assessee in the present applications.

3. The ld. Counsel for the assessee vehemently supported these stay applications filed by the assessee. He put-forth following propositions in support of the assessee's case that the penalty imposed by the AO and confirmed by the ld. CIT(A) for both the years under consideration is not sustainable.

a. Complete disclosure made by the Applicant vis-à-vis the issue in dispute and hence there can be no question of any furnishing of inaccurate particulars and or concealment of income;

b. The denial of deduction u/s 1OA to the Applicant itself is wrong and hence there can be no question of penalty;

c. Issue in dispute is a legal issue on which there can be no levy of penalty;

d. No penalty levied on a similar issue in the earlier years thereby clearly demonstrating that the Department too accepts that this is neither a case of concealment of income nor furnishing of inaccurate particulars and hence there can be no levy of penalty for the year under consideration.

e. No finding of the Assessing Officer as to whether the penalty is levied for concealment of income or furnishing of inaccurate particulars and hence there can be no levy of penalty;

4. On the basis of above propositions, the ld. Counsel for the assessee submitted that the assessee has a good prima-facie case to succeed on merit in its appeals filed before the Tribunal and urged that keeping in view the same as well as the fact that the assessee has already paid a sum of Rs.50,00,000/- each against penalty imposed for both the years under consideration, the balance outstanding demand on account of penalty may be stayed.

5. The ld. DR on the other hand strongly opposed these stay applications filed by the assessee. He submitted that the penalty imposed by the AO u/s 271 (1)(c) for both the years under consideration has been confirmed by the ld. CIT(A) after considering all the submissions made on behalf of the assessee and it therefore cannot be said that the assessee has a good prima-facie case to succeed on merit in the appeals filed before the Tribunal. He submitted that keeping in view this position as well as the fact that the financial position of the assessee is very sound, it is not a fit case to grant the stay of outstanding demand as sought by the assessee in the present stay applications.

6. We have considered the rival submissions and perused the relevant record. It is observed that when the appeals of the assessee challenging the imposition of penalty were pending before the ld. CIT(A) and the prayer of the assessee for stay of outstanding demand on account of the said penalty was rejected by the revenue authorities, the assessee had moved writ petitions before the Hon'ble Bombay High Court and vide two separate orders passed on 13th January 2013, their lordships granted the stay of outstanding demand subject to the payment of Rs.50,00,000/- for each of the two years after considering all the submissions made on behalf of the assessee which have now been reiterated before us in support of the present stay applications. The said stay was granted by the Hon'ble Bombay High Court till the disposal of the penalty appeals by ld. CIT(A) and since the ld. CIT(A) has already disposed of the said appeals, the balance outstanding demand is being sought to be stayed by the assessee by the present stay applications. Although the ld. Counsel for the assessee has submitted that a sum of Rs.50,00,000/- has already been paid by the assessee against the penalty imposed for each of the two years under consideration, it is pertinent to note that the same has been paid as per directions of the Hon'ble Bombay High Court and not voluntarily by the assessee. The ld. Counsel for the assessee no doubt has made an attempt to show that the assessee has a good prima-facie case to succeed on merit in its appeal filed before the Tribunal. However this matter can be decided finally only after hearing both the sides while disposing of the appeals of the assessee by the Tribunal. Moreover, the financial position of the assessee is very sound as agreed even by its ld. Counsel and any further recovery of the outstanding demand on account of penalty is not going to cause any genuine hardship to the assessee. At the same time, government also needs liquid funds to manage its day to day affairs. Having regard to all these facts & circumstances, we are of the view that the stay of outstanding demand for both the years can justifiably be granted subject to a further payment of Rs.50,00,000/-by the assessee against the penalty imposed for each of the two years under consideration. Accordingly, we direct the assessee to deposit a further sum of Rs.50,00,000/- against the outstanding demand for each of the two years by 10/02/2014. Subject to the said payment, the balance outstanding demand for both the years under consideration is stayed for a period of six months or till the disposal of the assessee's appeals by the Tribunal, whichever is earlier. The registry is directed to fix the said appeals of the assessee for hearing of out of turn on 13.02.2014 as announced in the open court and taken note by the learned Representatives of both the sides.

7. In the result, stay applications of the assessee are allowed in terms indicated above.

Order pronounced in the open court on 03/01/2014.

IT: Approval of Commissioner to suggestions given by audit party could not be taken as substantial compliance under section 151 for reopening of assessment after expiry of four years from end of relevant assessment year

■■■

[2013] 35 taxmann.com 338 (Gujarat)

HIGH COURT OF GUJARAT

Adani Ports And Special Economic Zone Ltd.

Deputy Commissioner of Income-tax*

AKIL KURESHI AND MS. SONIA GOKANI, JJ.

SPECIAL CIVIL APPLICATION NO. 17184 OF 2012

MAY 7, 2013

Section 151, read with section 148, of the Income-tax Act, 1961 - Income escaping assessment - Sanction for issue of notice [Conditions precedent] - Assessment year 2005-06 - Whether proviso to section 151(1) requires that no notice for reopening of assessment shall be issued after expiry of four years from end of relevant assessment year, unless Chief Commissioner or Commissioner is satisfied on reasons recorded by Assessing Officer, that it is a fit case for issue of such notice - Held, yes - Certain aspects of matter in case of assessee were brought to notice by audit party and suggestions with respect to remedial measures were also made by them - Whether, where Commissioner approved suggestions made by audit party, such approval could not be seen as substantial compliance of section 151(1) where notice for reopening was issued after period of four years from end of relevant assessment year - Held, yes [Paras 9,10 & 11] [In favour of assessee]

FACTS

■		After completion of scrutiny assessment, notice was issued by the Assessing Officer for reopening of assessment beyond the period of four years from the end of relevant assessment year on ground that excess depreciation was allowed to the assessee in the relevant assessment year.
■		The assessee filed the writ petition against the notice and contended that since the Assessing Officer had not obtained approval from the Chief Commissioner or the Commissioner before issuing of such notice, same was invalid. Also, notice for reopening was issued at the instance of the Audit Party.
■		On the other hand, the revenue contended that the suggestions of the audit party with respect to the remedial measure were perused and approved by the Commissioner. Therefore, such action of the Commissioner should be taken as substantial compliance of the requirement of section 151.

HELD

■		Sub-section (1) of Section 151; as can be seen, requires that in a case where the assessment under section 143(3) or section 147 has been made for a particular assessment year, no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Assistant Commissioner or Deputy Commissioner, unless the Joint Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issuance of such notice. Proviso to sub-section (1) requires that no such notice, after the expiry of period of four years from the end of relevant assessment year, shall be issued unless the Chief Commissioner or the Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice. [Para 8]
■		The present being a case of issuance of notice after four years from the end of relevant assessment year, and therefore, proviso to sub-section (1) of Section 151 would apply. In such a case, irrespective of the level of Assessing Officer issuing notice for reopening a pre condition of the Chief Commissioner or the Commissioner being satisfied on the reasons recorded by the Assessing Officer that it is a fit case for issuance of such notice must be satisfied. This additional safe guard not only involves the application of mind on the part of the Chief Commissioner or the Commissioner but his satisfaction, which would be based on the reasons recorded by the Assessing Officer, and such satisfaction should be that it is a fit case for issuance of the notice. [Para 9]
■		Admittedly, in the present case, these requirements have not been fulfilled. What the Revenue however argues is that when the Commissioner had perused the suggestions of the audit party, the same should be seen as substantial compliance of such a requirement. [Para 10]
■		Such a contention cannot be accepted. Sub-section (1) of Section 151 is an important procedural safeguard against arbitrary exercise of power of issuing a notice for reopening of assessment previously framed after scrutiny. Proviso to sub-section (1) of Section 151 is applicable, where such notice is issued after expiry of four years from the end of relevant assessment year. In such a case, the requirement of satisfaction to be recorded is that of the Chief Commissioner or Commissioner. Such requirement cannot be seen as technical. Compliance of such requirement is therefore, necessary before issuance of notice under section 148. [Para 11]
■		Under such circumstances, impugned notice is quashed. [Para 12]

CASES REFERRED TO

CIT v. SPL's Sidhartha Ltd. [2012] 345 ITR 223/204 Taxman 115 (Mag.)/17 taxmann.com 138 (Delhi) (para 11).

B.S. Soparkar for the Petitioner. Mrs. Mauna M. Bhatt for the Respondent.

ORDER

Akil Kureshi, J. - Heard learned counsel for the parties for final disposal of the petition.

Petitioner has challenged a notice dated 21st March 2012 [Annexure "A" to the petition] issued by the respondent-Assessing Officer under Section 148 of the Income-tax Act, 1961 ["Act" for short]. The petition arises in the following background.

2. The petitioner is a company registered under the Companies Act, 1956. For the Assessment Year 2005-06, the petitioner had filed its return of income on 30th October 2005 declaring its total income at "NIL". Such return was accompanied by documents, such as Tax Audit report under section 44AB of the Act, etc.

Such return was taken by the Assessing Officer in scrutiny. He framed scrutiny assessment under section 143 (3) of the Act on 2nd April 2007. It is this scrutiny assessment which the respondent desires to reopen beyond the period of four years from the end of relevant assessment year.

3. At the request of the petition, respondent supplied the reasons recorded by him for issuing such a notice. Such reasons read as under :-

"It is also noticed that during the previous year the assessee company has purchased one Ship/Tug called "MV Dolphin" valued at Rs. 20,66,76,400/- and Rs. 5,16,69,100/- [@ 25% on Rs. 206676400/-]. On verification of the invoice bill and Customs Bill of entry no. 468 dated 11-11-2004. It has revealed that bill of entry was presented to Customs authority on 11-11-2004 for clearance of Tug and the relevant customs duty was debited in the DFCLC Lie No. 0810042703 dated 12.10.2004. This clearly indicates that the assessee company got custody to Tug in November 2004 and thereafter, it was put to use for business. Thus, the assessee was eligible to get 50% depreciation [12.5%] on Tug which was cleared from Customs authority in November 2004. This has resulted in excess allowance of depreciation of Rs. 25834550/- [50% of 51669100/-]."

4. Upon receipt of the reasons, the petitioner under a communication dated 8th November 2012, raised detailed objections before the Assessing Officer. Such objections were, however, dismissed by an order dated 19th November 2012. Hence, this petition.

5. Learned counsel for the petitioner raised following contentions :

(i)		that there was no failure on the part of the assessee to declare truly and fully all material facts. The notice for reopening issued beyond the period of four years from the end of the relevant assessment year was therefore without jurisdiction;
(ii)		The Assessing Officer was acting under the directions of the audit party. The notice for reopening was issued at the instance of audit party, and therefore also, the same was bad in law;
(iii)		He lastly contended that in terms of proviso to sub-section (1) of Section 151 of the Act, the Assessing Officer had not obtained approval from the Chief Commissioner or Commissioner before issuing the notice, and therefore also, notice was invalid.

6. On the other hand, learned counsel Ms. Mauna Bhatt appearing for the Department opposed the petition and raid the following contentions :

(i)		There was no true and full disclosure on the part of the petitioner with respect to purchase of the Ship/Tug called "M.V Dolphin" particularly in context of the petitioner's claim for full depreciation of Rs. 5,16,69,100/- @ 25% of the total value.
(ii)		She pointed out that from the Invoice bills from the Customs Department, it was revealed that the bill of entry was presented on 11th November 2004 for the clearance of Tug and the relevant customs duty was debited on 12th October 2004, which would indicate that the petitioner got the custody of Tug only in the month of November 2004 and that therefore, full depreciation @ 25% could not have been claimed during the year under consideration. She submitted that these facts were not emerging from the return or other documents produced during the course of assessment. The Assessing Officer having independently examined the issue was convinced that the assessment was required to be reopened. Merely because certain aspects of the matters were brought to his notice by the audit party would not per se mean that he was acting under the directions of the audit party.
(iii)		The suggestions of the audit party with respect to the remedial measures that could be taken, was perused and approved by the Commissioner. It was thereupon that the Assessing Officer, after recording his reasons, issued a notice for reopening. She, therefore, submitted that the foundational grounds for issuing the notice for reopening being common, the action of the Commissioner in approving the proposal for reopening the assessment should be seen as substantial compliance of the requirement of Section 151 (1) of the Act.

7. In the present case, we are inclined to decide only the question of necessary approval to be obtained for issuance of notice. Section 151 (1) of the Act pertains to sanction for issuance of notice and reads as under :-

"151. Sanction for issue of notice - (1) In a case where an assessment under sub-section (3) of section 143 or section 147 has been made for the relevant assessment year, no notice shall be issued under section 148 by an Assessing Officer who is below the rank of Assistant Commissioner or Deputy Commissioner, unless the Joint Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issue of such notice.

Provided that after the expiry of four years from the end of the relevant assessment year, no such notice shall be issued unless the Chief Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice.

(2) In a case other than a case falling under sub-section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Joint Commissioner, after the expiry of four years from the end of relevant assessment year, under the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice."

8. Sub-section (1) of Section 151; as can be seen, requires that in a case where the assessment under section 143 (3) or section 147 has been made for a particular assessment year, no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Assistant Commissioner or Deputy Commissioner, unless the Joint Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issuance of such notice. Proviso to sub-section (1) requires that no such notice, after the expiry of period of four years from the end of relevant assessment year, shall be issued unless the Chief Commissioner or the Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice.

9. The present being a case of issuance of notice after four years from the end of relevant assessment year, and therefore, proviso to sub-section (1) of Section 151 would apply. In such a case, irrespective of the level of Assessing Officer issuing notice for reopening, a pre-condition of the Chief Commissioner or the Commissioner being satisfied on the reasons recorded by the Assessing Officer that it is a fit case for issuance of such notice must be satisfied. This additional safe-guard not only involves the application of mind on the part of the Chief Commissioner or the Commissioner but his satisfaction, which would be based on the reasons recorded by the Assessing Officer, and such satisfaction should be that it is a fit case for issuance of the notice.

10. Admittedly, in the present case, these requirements have not been fulfilled. What the Revenue however argues is that when the Commissioner had perused the suggestions of the audit party, the same should be seen as substantial compliance of such a requirement.

11. We are afraid, such a contention cannot be accepted. Sub-section (1) of Section 151 of the Act is an important procedural safeguard against arbitrary exercise of power of issuing a notice for reopening of assessment previously framed after scrutiny. Proviso to sub-section (1) of Section 151 is applicable, where such notice is issued after expiry of four years from the end of relevant assessment year. In such a case, the requirement of satisfaction to be recorded is that of the Chief Commissioner or Commissioner. Such requirement cannot be seen as technical. Compliance of such requirement is therefore, necessary before issuance of notice under section 148 of the Act. Delhi High Court in case of CIT v. SPL's Sidhartha Ltd. [2012] 345 ITR 223/204 Taxman 115 (Mag.) 17 taxmann.com 138 (Delhi) held and observed as under :-

"Thus, if authority is given expressly by affirmative words upon a defined condition, the expression of that condition excludes the doing of the Act authorised under other circumstances than those as defined. It is also established principle of law that if a particular authority has been designated to record his/her satisfaction on any particular issue, then it is that authority alone who should apply his/her independent mind to record his/her satisfaction and further mandatory condition is that the satisfaction recorded should be "independent" and not "borrowed" or "dictated" satisfaction. Law in this regard is now well-settled. In Sheo Narain Jaiswal v. Income-tax Officer [1989] 176 ITR 352 (Patna), it was held :

"Where the Assessing Officer does not himself exercise his jurisdiction under section 147 but merely acts at the behest of any superior authority, it must be held that assumption of jurisdiction was bad for non-satisfaction of the condition precedent."

12. Under the circumstances, only on this ground, impugned notice dated 21st March 2012 is quashed. We express no opinion on the other two contentions of the petitioner.

Petition stands disposed of accordingly.

--
Regards,

Pawan Singla , LLB

M. No. 9825829075

FAQs on Foreign Investments in India

Posted In RBI / FEMA | Articles | No Comments »

These FAQs cover broadly the following areas : I. Foreign Direct Investment II. Foreign Technology Collaboration Agreement III. Foreign Portfolio Investment IV. Investment in Government Securities and Corporate debt V. Foreign Venture Capital Investment VI. Investment by QFIs and is been Updated up to January 28, 2014.

Updated up to January 28, 2014

I. Foreign Direct Investment (FDI)

Q. 1. What are the forms in which business can be conducted by a foreign company in India?

Ans. A foreign company planning to set up business operations in India may:

Incorporate a company under the Companies Act, 1956, as a Joint Venture or a Wholly Owned Subsidiary.
Set up a Liaison Office / Representative Office or a Project Office or a Branch Office of the foreign company which can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office or Other Place of Business) Regulations, 2000.

Q.2. What is the procedure for receiving Foreign Direct Investment in an Indian company?

Ans. An Indian company may receive Foreign Direct Investment under the two routes as given under:

i. Automatic Route

FDI is allowed under the automatic route without prior approval either of the Government or the Reserve Bank of India in all activities/sectors as specified in the consolidated FDI Policy, issued by the Government of India from time to time.

ii. Government Route

FDI in activities not covered under the automatic route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance. Application can be made in Form FC-IL, which can be downloaded from http://www.dipp.gov.in. Plain paper applications carrying all relevant details are also accepted. No fee is payable.

The Indian company having received FDI either under the Automatic route or the Government route is required to comply with provisions of the FDI policy including reporting the FDI to the Reserve Bank. as stated in Q 4.

Q.3. What are the instruments for receiving Foreign Direct Investment in an Indian company?

Ans. Foreign investment is reckoned as FDI only if the investment is made in equity shares , fully and mandatorily convertible preference shares and fully and mandatorily convertible debentures with the pricing being decided upfront as a figure or based on the formula that is decided upfront. Any foreign investment into an instrument issued by an Indian company which:

gives an option to the investor to convert or not to convert it into equity or
does not involve upfront pricing of the instrument

as a date would be reckoned as ECB and would have to comply with the ECB guidelines.

The FDI policy provides that the price/ conversion formula of convertible capital instruments should be determined upfront at the time of issue of the instruments. The price at the time of conversion should not in any case be lower than the fair value worked out, at the time of issuance of such instruments, in accordance with the extant FEMA regulations [the DCF method of valuation for the unlisted companies and valuation in terms of SEBI (ICDR) Regulations, for the listed companies].

Q.4. What are the modes of payment allowed for receiving Foreign Direct Investment in an Indian company?

Ans. An Indian company issuing shares /convertible debentures under FDI Scheme to a person resident outside India shall receive the amount of consideration required to be paid for such shares /convertible debentures by:

(i) inward remittance through normal banking channels.

(ii) debit to NRE / FCNR account of a person concerned maintained with an AD category I bank.

(iii) conversion of royalty / lump sum / technical know how fee due for payment or conversion of ECB, shall be treated as consideration for issue of shares.

(iv) conversion of import payables / pre incorporation expenses / share swap can be treated as consideration for issue of shares with the approval of FIPB.

(v) debit to non-interest bearing Escrow account in Indian Rupees in India which is opened with the approval from AD Category – I bank and is maintained with the AD Category I bank on behalf of residents and non-residents towards payment of share purchase consideration.

If the shares or convertible debentures are not issued within 180 days from the date of receipt of the inward remittance or date of debit to NRE / FCNR (B) / Escrow account, the amount shall be refunded. Further, Reserve Bank may on an application made to it and for sufficient reasons permit an Indian Company to refund / allot shares for the amount of consideration received towards issue of security if such amount is outstanding beyond the period of 180 days from the date of receipt.

Q.5. Which are the sectors where FDI is not allowed in India, both under the Automatic Route as well as under the Government Route?

Ans. FDI is prohibited under the Government Route as well as the Automatic Route in the following sectors:

i) Atomic Energy

ii) Lottery Business

iii) Gambling and Betting

iv) Business of Chit Fund

v) Nidhi Company

vi) Agricultural (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc. under controlled conditions and services related to agro and allied sectors) and Plantations activities (other than Tea Plantations) (c.f. Notification No. FEMA 94/2003-RB dated June 18, 2003).

vii) Housing and Real Estate business (except development of townships, construction of residential/commercial premises, roads or bridges to the extent specified in Notification No. FEMA 136/2005-RB dated July 19, 2005).

viii) Trading in Transferable Development Rights (TDRs).

ix) Manufacture of cigars , cheroots, cigarillos and cigarettes , of tobacco or of tobacco substitutes.

(Please also see the the website of Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry, Government of India at www.dipp.gov.in for details regarding sectors and investment limits therein allowed ,under FDI)

Q.6. What is the procedure to be followed after investment is made under the Automatic Route or with Government approval?

Ans. A two-stage reporting procedure has to be followed :.

• On receipt of share application money:

Within 30 days of receipt of share application money/amount of consideration from the non-resident investor, the Indian company is required to report to the Foreign Exchange Department, Regional Office concerned of the Reserve Bank of India,under whose jurisdiction its Registered Office is located, the Advance Reporting Form, containing the following details :

Name and address of the foreign investor/s;
Date of receipt of funds and the Rupee equivalent;
Name and address of the authorised dealer through whom the funds have been received;
Details of the Government approval, if any; and
KYC report on the non-resident investor from the overseas bank remitting the amount of consideration.

The Indian company has to ensure that the shares are issued within 180 days from the date of inward remittance which otherwise would result in the contravention / violation of the FEMA regulations.

• Upon issue of shares to non-resident investors:

Within 30 days from the date of issue of shares, a report in Form FC-GPR- PART A together with the following documents should be filed with the Foreign Exchange Department, Regional Office concerned of the Reserve Bank of India.

• Certificate from the Company Secretary of the company accepting investment from persons resident outside India certifying that:

The company has complied with the procedure for issue of shares as laid down under the FDI scheme as indicated in the Notification No. FEMA 20/2000-RB dated 3rd May 2000, as amended from time to time.

• The investment is within the sectoral cap / statutory ceiling permissible under the Automatic Route of the Reserve Bank and it fulfills all the conditions laid down for investments under the Automatic Route,

• OR

• Shares have been issued in terms of SIA/FIPB approval No. ——————— dated ——————– (enclosing the FIPB approval copy)

• Certificate from Statutory Auditors/ SEBI registered Merchant Banker / Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India.

Q.7. What are the guidelines for transfer of existing shares from non-residents to residents or residents to non-residents?

Ans. The term 'transfer' is defined under FEMA as including "sale, purchase, acquisition, mortgage, pledge, gift, loan or any other form of transfer of right, possession or lien" {Section 2 (ze) of FEMA, 1999}.

The following share transfers are allowed without the prior approval of the Reserve Bank of India

A. Transfer of shares from a Non Resident to Resident under the FDI scheme where the pricing guidelines under FEMA, 1999 are not met provided that :-

i. The original and resultant investment are in line with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation, etc.;

ii. The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations / guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/ substantial acquisition / SEBI SAST, buy back); and

iii. Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations / guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank.

B. Transfer of shares from Resident to Non Resident:

i) where the transfer of shares requires the prior approval of the FIPB as per the extant FDI policy provided that :

a) the requisite approval of the FIPB has been obtained; and

b) the transfer of share adheres with the pricing guidelines and documentation requirements as specified by the Reserve Bank of India from time to time.

ii) where SEBI (SAST) guidelines are attracted subject to the adherence with the pricing guidelines and documentation requirements as specified by Reserve Bank of India from time to time.

iii) where the pricing guidelines under the Foreign Exchange Management Act (FEMA), 1999 are not met provided that:-

The resultant FDI is in compliance with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation etc.;
The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations / guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/ substantial acquisition / SEBI SAST); and
Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations / guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank

iv) where the investee company is in the financial sector provided that :

a) NOCs are obtained from the respective financial sector regulators/ regulators of the investee company as well as transferor and transferee entities and such NOCs are filed along with the form FC-TRS with the AD bank; and

b) The FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation etc., are complied with.

Transfer of shares/ fully and mandatorily convertible debentures by way of Gift:

A person resident outside India can freely transfer shares/ fully and mandatorily convertible debentures by way of gift to a person resident in India as under:

Any person resident outside India, (not being a NRI or an erstwhile OCB), can transfer by way of gift the shares/ fully and mandatorily convertible debentures to any person resident outside India (including NRIs but excluding OCBs).
Note: Transfer of shares from or by erstwhile OCBs would require prior approval of the Reserve Bank of India.
a NRI may transfer by way of gift, the shares/convertible debentures held by him to another NRI only,
Any person resident outside India may transfer share/ fully and mandatorily convertible debentures to a person resident in India by way of gift.

Q.8. Can a person resident in India transfer security by way of gift to a person resident outside India?

Ans. A person resident in India who proposes to transfer security by way of gift to a person resident outside India [other than an erstwhile OCBs] shall make an application to the Central Office of the Foreign Exchange Department, Reserve Bank of India furnishing the following information, namely:

Name and address of the transferor and the proposed transferee
Relationship between the transferor and the proposed transferee
Reasons for making the gift.
In case of Government dated securities, treasury bills and bonds, a certificate issued by a Chartered Accountant on the market value of such securities.
In case of units of domestic mutual funds and units of Money Market Mutual Funds, a certificate from the issuer on the Net Asset Value of such security.
In case of shares/ fully and mandatorily convertible debentures, a certificate from a Chartered Accountant on the value of such securities according to the guidelines issued by the Securities & Exchange Board of India or the Discounted Free Cash Flow (DCF) method with regard to listed companies and unlisted companies, respectively.
Certificate from the Indian company concerned certifying that the proposed transfer of shares/convertible debentures, by way of gift, from resident to the non-resident shall not breach the applicable sectoral cap/ FDI limit in the company and that the proposed number of shares/convertible debentures to be held by the non-resident transferee shall not exceed 5 per cent of the paid up capital of the company.

The transfer of security by way of gift may be permitted by the Reserve bank provided:

(i) The donee is eligible to hold such security under Schedules 1, 4 and 5 to Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time.

(ii) The gift does not exceed 5 per cent of the paid up capital of the Indian company/ each series of debentures/ each mutual fund scheme

(iii) The applicable sectoral cap/ foreign direct investment limit in the Indian company is not breached

(iv) The donor and the donee are relatives as defined in section 6 of the Companies Act, 1956.

(v) The value of security to be transferred by the donor together with any security transferred to any person residing outside India as gift in the financial year does not exceed the rupee equivalent of USD 50000.

(vi) Such other conditions as considered necessary in public interest by the Reserve Bank.

Q.9. What if the transfer of shares from resident to non-resident does not fall under the above categories?

Ans.

Transfer of Shares by Resident which requires Government approval

The following instances of transfer of shares from residents to non-residents by way of sale or otherwise requires Government approval:

(i) Transfer of shares of companies engaged in sector falling under the Government Route.

(ii) Transfer of shares resulting in foreign investments in the Indian company, breaching the sectoral cap applicable.

Prior permission of the Reserve Bank in certain cases for acquisition / transfer of security

i) Transfer of shares or convertible debentures from residents to non-residents by way of sale requires prior approval of Reserve Bank in case where the non-resident acquirer proposes deferment of payment of the amount of consideration. Further, in case approval is granted for the transaction, the same should be reported in Form FC-TRS to the AD Category – I bank, within 60 days from the date of receipt of the full and final amount of consideration.

(ii) A person resident in India, who intends to transfer any security, by way of gift to a person resident outside India, has to obtain prior approval from the Reserve Bank.

Any other case not covered by General Permission.

Q 10. What are the reporting obligations in case of transfer of shares between resident and non-resident ?

Ans. The transaction should be reported by submission of form FC-TRS to the AD Category – I bank, within 60 days from the date of receipt/remittance of the amount of consideration. The onus of submission of the form FC-TRS within the given timeframe would be on the resident in India, the transferor or transferee, as the case may be.

Q.11. What is the method of payment and remittance/credit of sale proceeds in case of transfer of shares between resident and non-resident?

Ans. The sale consideration in respect of the shares purchased by a person resident outside India shall be remitted to India through normal banking channels. In case the buyer is a Foreign Institutional Investor (FII), payment should be made by debit to its Special Non-Resident Rupee Account. In case the buyer is a NRI, the payment may be made by way of debit to his NRE/FCNR (B) accounts. However, if the shares are acquired on non-repatriation basis by NRI, the consideration shall be remitted to India through normal banking channel or paid out of funds held in NRE/FCNR (B)/NRO accounts.

The sale proceeds of shares (net of taxes) sold by a person resident outside India) may be remitted outside India. In case of FII the sale proceeds may be credited to its special Non-Resident Rupee Account. In case of NRI, if the shares sold were held on repatriation basis, the sale proceeds (net of taxes) may be credited to his NRE/FCNR(B) accounts and if the shares sold were held on non repatriation basis, the sale proceeds may be credited to his NRO account subject to payment of taxes. The sale proceeds of shares (net of taxes) sold by an erstwhile OCB may be remitted outside India directly if the shares were held on repatriation basis and if the shares sold were held on non-repatriation basis, the sale proceeds may be credited to its NRO (Current) Account subject to payment of taxes, except in the case of erstwhile OCBs whose accounts have been blocked by Reserve Bank.

Q. 12. Are the investments and profits earned in India repatriable?

Ans. All foreign investments are freely repatriable (net of applicable taxes) except in cases where:

i) the foreign investment is in a sector like Construction and Development Projects and Defence wherein the foreign investment is subject to a lock-in-period; and

ii) NRIs choose to invest specifically under non-repatriable schemes.

Further, dividends (net of applicable taxes) declared on foreign investments can be remitted freely through an Authorised Dealer bank.

Q.13. What are the guidelines on issue and valuation of shares in case of existing companies?

Ans.

A. The price of shares issued to persons resident outside India under the FDI Scheme shall not be less than :

(i) the price worked out in accordance with the SEBI guidelines, as applicable, where the shares of the company is listed on any recognised stock exchange in India;

(ii) the fair valuation of shares done by a SEBI registered Category – I Merchant Banker or a Chartered Accountant as per the discounted free cash flow method, where the shares of the company is not listed on any recognised stock exchange in India; and

(iii) the price as applicable to transfer of shares from resident to non-resident as per the pricing guidelines laid down by the Reserve Bank from time to time, where the issue of shares is on preferential allotment.

B. The price of shares transferred from resident to a non-resident and vice versa should be determined as under:

i) Transfer of shares from a resident to a non-resident:

a) In case of listed shares, at a price which is not less than the price at which a preferential allotment of shares would be made under SEBI guidelines.

b) In case of unlisted shares at a price which is not less than the fair value as per the Discounted Free Cash Flow (DCF) Method to be determined by a SEBI registered Category-I- Merchant Banker/Chartered Accountant.

ii) Transfer of shares from a non-resident to a resident – The price should not be more than the minimum price at which the transfer of shares would have been made from a resident to a non-resident.

In any case, the price per share arrived at as per the above method should be certified by a SEBI registered Category-I-Merchant Banker / Chartered Accountant.

Q.14. What are the regulations pertaining to issue of ADRs/ GDRs by Indian companies?

Ans.

Indian companies can raise foreign currency resources abroad through the issue of ADRs/ GDRs, in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Government of India thereunder from time to time.
A company can issue ADRs / GDRs, if it is eligible to issue shares to persons resident outside India under the FDI Scheme. However, an Indian listed company, which is not eligible to raise funds from the Indian Capital Market including a company which has been restrained from accessing the securities market by the Securities and Exchange Board of India (SEBI) will not be eligible to issue ADRs/GDRs.
Unlisted companies, which have not yet accessed the ADR/GDR route for raising capital in the international market, would require prior or simultaneous listing in the domestic market, while seeking to issue such overseas instruments. Unlisted companies, which have already issued ADRs/GDRs in the international market, have to list in the domestic market on making profit or within three years of such issue of ADRs/GDRs, whichever is earlier.
After the issue of ADRs/GDRs, the company has to file a return in Form DR as indicated in the RBI Notification No. FEMA.20/ 2000-RB dated May 3, 2000, as amended from time to time. The company is also required to file a quarterly return in Form DR- Quarterly as indicated in the RBI Notification ibid.
There are no end-use restrictions on GDR/ADR issue proceeds, except for an express ban on investment in real estate and stock markets.
Erstwhile OCBs which are not eligible to invest in India and entities prohibited to buy, sell or deal in securities by SEBI will not be eligible to subscribe to ADRs / GDRs issued by Indian companies.
The pricing of ADR / GDR issues including sponsored ADRs / GDRs should be made at a price determined under the provisions of the Scheme of issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Government of India and directions issued by the Reserve Bank, from time to time.

Q.15. What is meant by Sponsored ADR & Two-way fungibility Scheme of ADR/ GDR?

Ans. Sponsored ADR/GDR: An Indian company may sponsor an issue of ADR/ GDR with an overseas depository against shares held by its shareholders at a price to be determined by the Lead Manager. The operative guidelines for the same have been issued vide A.P. (DIR Series) Circular No.52 dated November 23, 2002.

Two-way fungibility Scheme: Under the limited Two-way fungibility Scheme, a registered broker in India can purchase shares of an Indian company on behalf of a person resident outside India for the purpose of converting the shares so purchased into ADRs/ GDRs. The operative guidelines for the same have been issued vide A.P. (DIR Series) Circular No.21 dated February 13, 2002. The Scheme provides for purchase and re-conversion of only as many shares into ADRs/ GDRs which are equal to or less than the number of shares emerging on surrender of ADRs/ GDRs which have been actually sold in the market. Thus, it is only a limited two-way fungibility wherein the headroom available for fresh purchase of shares from domestic market is restricted to the number of converted shares sold in the domestic market by non-resident investors. So long the ADRs/ GDRs are quoted at discount to the value of shares in domestic market, an investor will gain by converting the ADRs/ GDRs into underlying shares and selling them in the domestic market. In case of ADRs/ GDRs being quoted at premium, there will be demand for reverse fungibility, i.e. purchase of shares in domestic market for re-conversion into ADRs/ GDRs. The scheme is operationalised through the Custodians of securities and stock brokers under SEBI.

Q.16. Can Indian companies issue Foreign Currency Convertible Bonds (FCCBs)?

Ans. FCCBs can be issued by Indian companies in the overseas market in accordance with the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993.

The FCCB being a debt security, the issue needs to conform to the External Commercial Borrowing guidelines, issued by RBI vide Notification No. FEMA 3/2000-RB dated May 3, 2000, as amended from time to time.

Q.17. Can a foreign investor invest in Preference Shares? What are the regulations applicable in case of such investments?

Ans. Yes. Foreign investment through preference shares is treated as foreign direct investment. However, the preference shares should be fully and mandatorily convertible into equity shares within a specified time to be reckoned as part of share capital under FDI. Investment in other forms of preference shares requires to comply with the ECB norms.

Q.18. Can a company issue debentures as part of FDI?

Ans. Yes. Debentures which are fully and mandatorily convertible into equity within a specified time would be reckoned as part of share capital under the FDI Policy.

Q.19. Can shares be issued against Lumpsum Fee, Royalty, ECB , Import of capital goods/ machineries / equipments (excluding second-hand machine) and Pre-operative/pre-incorporation expenses (including payments of rent)?

Ans. An Indian company eligible to issue shares under the FDI policy and subject to pricing guidelines as specified by the Reserve Bank from time to time, may issue shares to a person resident outside India :

being a provider of technology / technical know-how, against Royalty / Lumpsum fees due for payment;
against External Commercial Borrowing (ECB) (other than import dues deemed as ECB or Trade Credit as per RBI Guidelines).
With prior approval from FIPB for against import of capital goods/ machineries / equipments and Pre-operative/pre-incorporation expenses subject to the compliance with the extant FEMA regulations and AP Dir Series 74 dated June 30,2011.

Provided, that the foreign equity in the company, after such conversion, is within the sectoral cap.

Q.20. What are the other modes of issues of shares for which general permission is available under RBI Notification No. FEMA 20 dated May 3, 2000?

Ans.

Issue of shares under ESOP by Indian companies to its employees or employees of its joint venture or wholly owned subsidiary abroad who are resident outside India directly or through a Trust up to 5% of the paid up capital of the company.
Issue and acquisition of shares by non-residents after merger or de-merger or amalgamation of Indian companies.
Issue shares or preference shares or convertible debentures on rights basis by an Indian company to a person resident outside India.

Q.21. Can a foreign investor invest in shares issued by an unlisted company in India?

Ans. Yes. As per the regulations/guidelines issued by the Reserve Bank of India/Government of India, investment can be made in shares issued by an unlisted Indian company.

Q.22. Can a foreigner set up a partnership/ proprietorship concern in India?

Ans. No. Only NRIs/PIOs are allowed to set up partnership/proprietorship concerns in India on non-repatriation basis.

Q.23. Can a foreign investor invest in Rights shares issued by an Indian company at a discount?

Ans. There are no restrictions under FEMA for investment in Rights shares issued at a discount by an Indian company, provided the rights shares so issued are being offered at the same price to residents and non-residents. The offer on right basis to the person's resident outside India shall be:

(a) in the case of shares of a company listed on a recognized stock exchange in India, at a price as determined by the company; and

(b) in the case of shares of a company not listed on a recognized stock exchange in India, at a price which is not less than the price at which the offer on right basis is made to resident shareholders.

Q.24. Can a AD bank allow pledge of shares of an Indian company held by non-resident investor in favor of an Indian bank or an Overseas bank?

Ans. Yes, the same has been allowed vide the instruction and subject to compliance with the terms and conditions as mentioned in the AP Dir Series Circular No 57 dated May 2, 2011.

Q.25. What declaration/certificate needs to be obtained by the AD in respect of utilization of loan proceeds for the declared purpose, consequent to pledge of shares, to comply with para. 2 (i) (b) of the A. P. (DIR Series) Circular No. 57 dated May 2, 2011?

Ans. The AD may obtain a board resolution 'ex ante' passed by the Board of Directors of the investee company, that the loan proceeds received consequent to pledge of shares, will be utilised by the investee company for the declared purpose.

The AD may also obtain a certificate from the statutory auditor 'ex post' of the investee company, that the loan proceeds received consequent to pledge of shares, have been utilised by the investee company for the declared purpose.

Q.26 : Is a non-resident permitted to acquire share on stock exchange under FDI scheme?

Ans: Prior to issuance of A.P (DIR Series) Circular No. 38, dated September 6, 2013, no person resident outside India except a portfolio investor was allowed to acquire shares on stock exchange.

Portfolio Investors registered with SEBI namely FII and QFI were eligible to acquire shares on stock exchange in accordance with the requirements. Further, NRIs were also permitted to acquire shares on stock exchange, on repatriation and non-repatriation basis, in accordance with portfolio investment scheme for them.

With effect from August 5, 2013 (date of publication of relevant notification), a non-resident, other than portfolio investor, is eligible to acquire shares on stock exchange through a registered broker subject to the condition that the non-resident investor has already acquired and continues to hold the control in accordance with SEBI (Substantial Acquisition of Shares and Takeover) Regulations i.e. he has complied with the minimum stake requirement under SEBI Regulations.

Q.27 : What will be the pricing norms for a non-resident permitted to acquire share on stock exchange under FDI scheme?

Ans: He shall acquire shares at the ruling market price.

Q:28 Whether the non-resident, permitted to acquire shares on stock exchange under FDI scheme, can sell those shares?

Ans: Non-Residents were already permitted to sell the shares on the recognised stock exchange in accordance with Regulation 9(2)(iii(b) of Notification FEMA No. 20 dated May 3, 2000.

Yes, the non-resident shall be at liberty to sell those shares as applicable under FDI guidelines. The shares acquired under the present scheme shall be treated as acquisition under FDI scheme and as such all requirement namely, sectoral cap, entry route, pricing, reporting, documentation etc. would have to be complied.

Thus, non-resident having acquired shares under the scheme can subsequently transfer shares under FDI scheme.

Q:29 What will be mode of payment for the non-resident permitted to acquire share on stock exchange under FDI scheme?

Ans: The Non-Resident permitted to acquire shares under the scheme can use following mode for payment of shares:

by way of inward remittance through normal banking channels, or
by way of debit to the NRE/FCNR account of the person concerned maintained with an authorised dealer/bank;
by debit to non-interest bearing Escrow account (in Indian Rupees) maintained in India with the AD bank in accordance with Foreign Exchange Management (Deposit) Regulations, 2000;
the consideration amount may also be paid out of the dividend payable by Indian investee company, in which the said non-resident holds control, provided the right to receive dividend is established and the dividend amount has been credited to specially designated non-interest bearing rupee account for acquisition of shares on the floor of stock exchange.

Q:30 Can an escrow account be opened without RBI permission for the non-resident permitted to acquire share on stock exchange under FDI scheme?

Ans: Yes, an escrow account for the purpose can be opened under General Permission under Regulation 5(5) of Foreign Exchange Management (Deposit) Regulations. [c.f. FEMA Notification No. 280 dated July 10, 2013]

Q:31 What is the meaning of Indian company?

Ans: An Indian Company means a company registered under the Companies Act, 1956.

Q32: What is the concept of downstream investment?

Ans: In common understanding, downstream investment would mean investment by a company in another company by way of subscription or acquisition of shares or acquisition of control. The investment in another Indian company (downstream) by an Indian company already having foreign investment is called downstream investment subject to conditions of ownership and control. Thus, there will be two Indian Companies, a first level company which has accepted foreign investment and in turn has made investment in a second level company i.e. another Indian company. [c.f. A.P.(DIR Series) Circular Numbers 1, 42 and 44 respectively dated July 4, 2013, September 13, 2013 and September 13, 2013].

Q:33 What will be the composition of 'direct foreign investment'?

Ans: The concept 'direct foreign investment' means foreign investment in any Indian company made directly in form of Foreign Direct Investment (FDI), Portfolio investment from Foreign Institutional Investment (FII), Non-Resident Indian and Qualified Foreign Investor (QFI), Foreign Venture Capital Investor i.e under Schedule 1, 2, 3, 6 and 8 of the Notification No. FEMA. 20/2000-RB dated May 3, 2000, as amended from time to time. Thus, the investment in the above manner will be aggregated in first level Indian Company. Such first level Indian Company obviously cannot have indirect foreign investment.

Q: 34 What about foreign investment in second level Indian Company?

Ans: The second level Indian Company can have 'direct foreign investment' as explained above and also have investment from another Indian company which is not 'resident owned and controlled' i.e. indirect foreign investment.

Further, the methodology for calculation of total foreign investment i.e. direct as well as indirect foreign investment would apply at every stage of investment in Indian companies and thus in each and every Indian company.

Q:35 What is the meaning of 'resident owned' Indian Company?

Ans: An Indian company be treated as 'Owned by resident Indian citizens' if more than 50% of the capital in it is beneficially owned by resident Indian citizens and/or Indian companies, which are ultimately owned and controlled by resident Indian citizens. Thus, computation of such percentage would require ascertaining shareholding by 'resident Indian citizens' and if the shareholding of such company is held by another Indian companies each of such Indian companies are ultimately owned and controlled by resident Indian citizens. It is clarified the such Indian owners are not only resident within meaning of Section 2(v) of FEMA, 1999 but are also citizen of India. The shareholding of a foreign citizen who has become resident within meaning of Section 2(v) ibid will not be aggregated for the benchmark of 50% and above.

Further, for Information & Broadcasting and defence sector if a declaration is made by persons as per section 187C of the Indian Companies Act about a beneficial interest being held by a non-resident entity, then even though the investment may be made by a resident Indian citizen, the same shall be counted as foreign investment.

Q:36 What is meaning of 'control'?

Ans: 'Control' shall include the right to appoint a majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements. For ascertaining control by resident Indian citizens the above norms shall be applied.

Q:37 What will be the composition of 'indirect foreign investment'?

Ans: 'Indirect foreign investment' means entire investment in other Indian companies by an Indian company (IC), having foreign investment in it provided IC is not 'owned and controlled' by resident Indian citizens and/or Indian Companies which are owned and controlled by resident Indian citizens or where the IC is owned or controlled by non-residents. However, as an exception, the indirect foreign investment in the 100% owned subsidiaries of operating-cum-investing/investing companies will be limited to the foreign investment in the operating-cum-investing/ investing company. Thus, if an Indian company A has 60% FDI/ADR/GDR/Portfolio investment/FCCB/FVCI in it, invests in 100% of the shareholding of another Indian company B, it will be taken as B has indirect foreign investment of 60%. But, foreign owned Indian company A, having foreign investment of more than 50% but less than 100%, invests in 20% of the shareholding of another Indian company B, it will be taken as B has indirect foreign investment of 20%.

Q:38 Are there any exception on application of downstream investment?

Ans: The downstream rule may not be applied in following cases:

Where the first level Indian company is owned and controlled by resident Indian citizens;
Where the second level Indian company is engaged in an activity eligible for 100% foreign investment under automatic route;
where for investment in sectors it is specified in a statute or a rule there under. The above methodology of determining direct and indirect foreign investment therefore does not apply to the insurance sector which will continue to be governed by the relevant Regulation;
Downstream investment/s made by a banking company, as defined in clause (c) of Section 5 of the Banking Regulation Act, 1949, incorporated in India, which is owned and/or controlled by non-residents/ a non-resident entity/non-resident entities, under Corporate Debt Restructuring (CDR), or other loan restructuring mechanism, or in trading books, or for acquisition of shares due to defaults in loans, shall not count towards indirect foreign investment.

Q: 39 What are implications of applicability of downstream rule:

Ans: While the norms of foreign investment for first level Indian company were already in place, the downstream investment in second level Indian companies would now have to be in accordance/ compliance with the relevant sectoral conditions on entry route, conditionalities and caps.

Such a company has to notify Secretariat for Industrial Assistance, DIPP and FIPB of its downstream investment in the form available at http://www.fipbindia.com within 30 days of such investment, even if capital instruments have not been allotted along with the modality of investment in new/existing ventures (with/without expansion programme).
The downstream investment by way of induction of foreign equity in an existing Indian Company to be duly supported by a resolution of its Board of Directors as also a Shareholders' Agreement, if any;
The issue/transfer/pricing/valuation of shares shall continue to be in accordance with extant SEBI/RBI guidelines;
For the purpose of downstream investment, the Indian companies making the downstream investments would have to bring in requisite funds from abroad and not use funds borrowed in the domestic market. This would, however, not preclude downstream operating companies, from raising debt in the domestic market. Downstream investments through internal accruals are permissible.

Q:40 As portfolio investment may undergo change quite frequently, it will be difficult to monitor downstream investment?

Ans: To facilitate such computation, for the purpose portfolio investments either by FIIs, NRIs or QFIs holding as on March 31 of the previous year would be taken into account. e.g. for monitoring foreign investment for the financial year 2011-12, portfolio investment as on March 31, 2011 would be taken into account.

Q:41 What is the procedure to ensure compliance with the downstream investment guidelines?

Ans: The FDI recipient Indian company at the first level which is responsible for ensuring compliance with the FDI conditionalities like no indirect foreign investment in prohibited sector, entry route, sectoral cap/conditionalities, etc. for the downstream investment made by in the subsidiary companies at second level and so on and so forth would obtain a certificate to this effect from its statutory auditor on an annual basis as regards status of compliance with the instructions on downstream investment and compliance with FEMA provisions. The fact that statutory auditor has certified that the company is in compliance with the regulations as regards downstream investment and other FEMA prescriptions will be duly mentioned in the Director's report in the Annual Report of the Indian company. In case statutory auditor has given a qualified report, the same shall be immediately brought to the notice of the Reserve Bank of India, Foreign Exchange Department (FED), Regional Office (RO) of the Reserve Bank in whose jurisdiction the Registered Office of the company is located.

Q:42 What will be the role of Regional Office of RBI?

Ans: Where the statutory auditor has given qualified report about the downstream investment, RO shall take action to ensure compliance in consultation with the Central Office.

Q:43 Since the instructions were issued by RBI in 2013 for the period commencing from February 13, 2009, how to ensure compliance retrospectively?

Ans: As regards investments made between February 13, 2009 and the date of publication of the FEMA notification i.e. June 21, 2013, Indian companies shall be required to intimate, within 90 days from the date of this circular, through an AD Category I bank to the concerned Regional Office of the Reserve Bank, in whose jurisdiction the Registered Office of the company is located, detailed position where the issue/transfer of shares or downstream investment is not in conformity with the regulatory framework now being prescribed. Reserve Bank shall consider treating such cases as compliant with these guidelines within a period of six months or such extended time as considered appropriate by RBI in consultation with Government of India.

ROs shall forward such consolidated statement to the Central Office with their comments for ensuring compliance with the instructions.

Q:44 Is first level Indian investee company making downstream investment required to file FC-GPR?

Ans: No, it is not required. FC-GPR is not to be filed by the first level Indian investee company at the time of making downstream investment in second level Indian investee company. However, compliance has to be ensured as explained under Q 41.

Q 45: After the issue of instructions on 'Pricing Guidelines for FDI instruments with optionality clauses', in terms of APDIR 86 dated January 9, 2014, what will be the status of pricing guidelines for FDI instruments without any optionality clauses?

Ans: The extant pricing guidelines shall continue to be applicable for FDI instruments without any optionality clauses [Plain FDI instruments]. The pricing guidelines for FDI instruments with optionality clauses in terms of APDIR 86 dated January 9, 2014 provides for pricing at the time of exercise of exit option only. If the investor, exercises his option during the validity of the optionality clause shall exit only in accordance with the guidelines stated in APDIR 86 dated January 9, 2014

Q 46: Will there now be two pricing regimes, one for FDI with optionality clauses and one without optionality clauses?

Ans: Yes, the instructions, as contained in APDIR 86 dated January 9, 2014, are applicable at the time of exit by non resident investor from FDI with optionality agreement. Therefore there will be two sets of pricing guidelines at the time of exit of non-resident from FDI. One applicable to plain FDI instruments and another for FDI with optionality clause.

The FDI at the time of entry shall continue to be regulated under existing guidelines. Thus, entry time pricing guidelines shall be the same for FDI with or without optionality.

Q 47: The instructions prescribe that in case of a listed company, the non-resident investor shall be eligible to exit at the market price obtaining on recognised stock exchanges. Does it mean that all exit from investment in case of a listed company having FDI with optionality are to happen on the floor of stock exchange?

Ans: The optionality clause creates an obligation for the investee to buy the shares from the investor at the price prevailing on the stock market at the relevant time.

Q 48: It has been specified that in case of unlisted company, the non-resident investor shall be eligible to exit from the investment in equity shares of the investee company at a price not exceeding that arrived at on the basis of Return on Equity (RoE) as per the latest audited balance sheet. What does it mean? What is the meaning of latest audited balance sheet?

Ans: It means that in case of an unlisted company, the non-resident investor can exit at a price which gives annualized return equal to or less than the RoE as per latest audited balance sheet.

II. Foreign Technology Collaboration Agreement

Whether the payment in terms of foreign technology collaboration agreement' can be made by an Authorised Dealer (AD) bank?

Ans. Yes, RBI has delegated the powers, to make payments for royalty, lumpsum fee for transfer of technology and payment for use of trademark/brand name in terms of the foreign technology collaboration agreement entered by the Indian company with its foreign partners, to the AD banks subject to compliance with the provisions of Foreign Exchange Management (Current Account Transactions) Rules, 2000. Further, the requirement of registration of the agreement with the Regional Office of Reserve Bank of India has also been done away with.

III. Foreign Portfolio Investment

Q.1. What are the regulations regarding Portfolio Investments by SEBI registered Foreign Institutional Investors (FIIs)?

Ans.

Investment by SEBI registered FIIs is regulated under SEBI (FII) Regulations, 1995 and Regulation 5(2) of FEMA Notification No.20 dated May 3, 2000, as amended from time to time. FIIs include Asset Management Companies, Pension Funds, Mutual Funds, and Investment Trusts as Nominee Companies, Incorporated / Institutional Portfolio Managers or their Power of Attorney holders, University Funds, Endowment Foundations, Charitable Trusts and Charitable Societies.
SEBI acts as the nodal point in the registration of FIIs. The Reserve Bank of India has granted general permission to SEBI Registered FIIs to invest in India under the Portfolio Investment Scheme (PIS).
Investment by SEBI registered FIIs and its sub accounts cannot exceed 10 per cent of the paid up capital of the Indian company. However, in case of foreign corporates or High Net-worth Individuals (HNIs) registered as sub accounts of an FII, their investment shall be restricted to 5 per cent of the paid up capital of the Indian company. All FIIs and their sub-accounts taken together cannot acquire more than 24 per cent of the paid up capital of an Indian Company.
SEBI registered FIIs/sub-accounts of FIIs can invest in primary issues of Non-Convertible Debentures (NCDs)/ bonds only if listing of such bonds / NCDs is committed to be done within 15 days of such investment. In case the NCDs/bonds issued to the SEBI registered FIIs / sub-accounts of FIIs are not listed within 15 days of issuance to the SEBI registered FIIs / sub-accounts of FIIs, for any reason, then the FII/sub-account of FII shall immediately dispose of these bonds/NCDs either by way of sale to a third party or to the issuer and the terms of offer to FIIs / sub-accounts should contain a clause that the issuer of such debt securities shall immediately redeem / buyback the said securities from the FIIs/sub-accounts of FIIs in such an eventuality.

Q.2. Is Indian Investee Company eligible to raise the aggregate cap of 24% for Portfolio Investments by SEBI registered Foreign Institutional Investors (FIIs)?

Ans.

An Indian company can raise the 24 per cent ceiling to the sectoral cap / statutory ceiling, as applicable, by passing a resolution by its Board of Directors followed by passing a Special Resolution to that effect by their General Body. 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, should necessarily intimate the same to the Reserve Bank of India, 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.
The Indian Company thus raising the aggregate cap for FII investment should inform Reserve Bank of India, Foreign Exchange Department, Central Office, Shahid Bhagat Singh Marg, Fort, and Mumbai 400001. The intimation should necessarily be accompanied by (a) a resolution passed by Board of Directors of the Company enhancing the FII aggregate cap, (b) A special Resolution to the effect passed by the shareholders of the Company (c) 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, (d) a certificate from the Company Secretary stating that all the resident shareholders of the investee company are 'owned and controlled' by residents.
To avoid inconvenience to the FII investors/Indian company, such intimation should be well in advance else RBI shall caution list the company on FII investment in the company reaching 22% of paid up capital or paid up capital of each series of convertible debentures issued by the company.

Q.3. What are the regulations regarding Portfolio Investments by NRIs/PIOs?

Ans.

Non- Resident Indian (NRIs) and Persons of Indian Origin (PIOs) can purchase or sell shares/ fully and mandatorily convertible debentures of Indian companies on the Stock Exchanges under the Portfolio Investment Scheme. For this purpose, the NRI/ PIO has to apply to a designated branch of a bank, which deals in Portfolio Investment. All sale/ purchase transactions are to be routed through the designated branch.
An NRI or a PIO can purchase shares up to 5 per cent of the paid up capital of an Indian company. All NRIs/PIOs taken together cannot purchase more than 10 per cent of the paid up value of the company.
The sale proceeds of the repatriable investments can be credited to the NRE/ NRO, etc. accounts of the NRI/ PIO, whereas the sale proceeds of non-repatriable investment can be credited only to NRO accounts.
The sale of shares will be subject to payment of applicable taxes.

Q.4. Is Indian Investee Company eligible to raise the aggregate cap of 10% for Portfolio Investments by SEBI registered NRI/PIO?

Ans.

This limit for investment by NRI/PIO under Portfolio investment scheme can be increased by the Indian company from 10 per cent to 24 per cent by passing a General Body resolution. Indian company raising the aggregate NRI investment limit of 10 per cent to 24 per cent, should necessarily intimate the same immediately to Reserve Bank of India, Foreign Exchange Department, Central Office, Shahid Bhagat Singh Marg, Fort, Mumbai 400001. The intimation should necessarily be accompanied by (a) a resolution passed by Board of Directors of the Company enhancing the FII aggregate cap, (b) A special Resolution to the effect passed by the shareholders of the Company (c) 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, (d) a certificate from the Company Secretary stating that all the resident shareholders of the investee company are 'owned and controlled' by residents
To avoid inconvenience to the company such intimation should be well in advance else RBI shall caution list the company on FII investment in the company reaching 8% of paid up capital or paid up capital of each series of convertible debentures issued by the company.

Q.5. With Reference to instructions issued for NRI – PIS Scheme in Para. 2 (i) and (ii) of the A. P. (DIR Series) Circular No. 29 dated August 20, 2013 – whether RBI will allot separate / new Unique Code No. to the Link Office of the AD bank or will the Current Code No. allocated will continue to be the Unique Code No.?

Ans.

If the AD bank's Link Office already has a Code No. allotted by RBI, it will continue to be the Unique Code Number for reporting the transactions of NRI-PIS to RBI and the bank need not apply for new code.

Q.6. Can an AD bank debit investment advisory fees, chartered accountant's fees for issue of 15CA/CB certificates to NRE/NRO – PIS account, as the permissible debit under the head – "Any charges on account of sale/purchase of shares or convertible debentures under PIS"?

Ans.

The charges towards investment advisory fees, chartered accountant fees for issue of 15CA / CB certificates, etc. related to the transactions of sale/purchase of shares / debentures under PIS, may be debited to the NRE / NRO PIS accounts.

Q.7. Under FERA 1973, in terms of para. 2 of the A.D.(M.A. Series) Cir. No. 32 dated November 1, 1999, powers were delegated to the ADs, to grant permissions to the NRIs/OCBs who made portfolio investments through a designated branch of an AD, on repatriation or non-repatriation basis. The investment could be made in shares, debentures, Govt. securities (other than bearer securities), treasury bills, units of MFs, etc. Hence, the prescribed format for permission letter for investment on repatriation basis viz. 'RBI-RPC- on repatriation basis' [available at page nos. 37 to 40 of the A.P. (DIR Series) Circular No. 29, dated August 20, 2013 on RBI website] includes a reference to all such investments besides equity shares and convertible debentures. Whether the same format is applicable under FEMA also?

Ans.

Under FEMA, the PIS includes investment only in equity shares and convertible debentures of Indian companies, on repatriation or non-repatriation basis. Hence, while issuing the approval letter to their NRI clients for undertaking investments under PIS, the relevant paragraphs in the format of permission letter viz.. 'RBI-RPC- on repatriation basis', will be required to be suitably modified by the ADs. In this connection, attention of the AD is also invited to para. 2(iii) of the A.P. (DIR Series) Circular No. 29, dated August 20, 2013.

Q.8. Whether the transfer of funds from NRE – PIS and NRO – PIS accounts to NRE / NRO accounts of the NRI ( opened under provisions of Notification No. FEMA. 5/2000-RB dated May 3, 2000 amended from time to time), is allowed on account of sale/maturity proceeds of equity shares and convertible debentures purchased and sold under Portfolio Investment Scheme (PIS) through NRE-PIS and NRO – PIS accounts ?

Ans.

It is clarified that NRE-PIS and NRO-PIS are essentially NRE and NRO accounts respectively and so designated to keep the portfolio investment related operations of the account holder segregated for facilitating identification and compliance. As such, there is no prohibition on transfer of any balances held in a NRE-PIS account to a NRE account or in a NRO-PIS account to a NRO account, subject of course to payment of taxes, if and as applicable.

IV. Investment in other securities

Q.1. Can a Non-resident Indian (NRI) and SEBI registered Foreign Institutional Investor (FII)invest in Government Securities/ Treasury bills and Corporate debt?

Ans. Under the FEMA Regulations, only NRIs andSEBI registered FIIs are permitted to purchase Government Securities/Treasury bills and Corporate debt. The details are as under :

A. A Non-resident Indian can purchase without limit,

(1) on repatriation basis

i) Dated Government securities (other than bearer securities) or treasury bills or units of domestic mutual funds;

ii) Bonds issued by a public sector undertaking (PSU) in India; and

iii) Shares in Public Sector Enterprises being disinvested by the Government of India.

(2) on non-repatriation basis

i) Dated Government securities (other than bearer securities) or treasury bills or units of domestic mutual funds;

ii) Units of Money Market Mutual Funds in India; and

iii) National Plan/Savings Certificates.

B. A SEBI registered FII may purchase, on repatriation basis, dated Government securities/ treasury bills, listed non-convertible debentures/ bonds issued by an Indian company and units of domestic mutual funds either directly from the issuer of such securities or through a registered stock broker on a recognised stock exchange in India.

Purchase of debt instruments including Upper Tier II instruments issued by banks in India and denominated in Indian Rupees by FIIs are subject to limits notified by SEBI and the Reserve Bank from time to time. The present limit for investment in Corporate Debt Instruments like non-convertible debentures / bonds by FIIs is USD 45 billion , which constitutes of the:

Out of USD 45 billion, USD 25 billion is earmarked for investment in infrastructure corporate bonds and the remaining USD 20 billion is earmarked for investment in non-infrastructure corporate bonds. Out of the USD 25 billion earmarked for FIIs investment in infrastructure corporate bonds, a uniform lock-in period of one year and residual maturity of fifteen months has been prescribed for USD 22 billion investment by FIIs excluding the USD 3 billion limit earmarked for QFIs investment in mutual fund debt oriented schemes.The present limit of investment by SEBI registered FIIs in Government Securities is USD 20 billion which constitutes of :

USD 10 billion will be without any conditions and the remaining USD 10 billion is with the condition that the residual maturity of the instrument at the time of first purchase by FIIs should be at least three years.

Sovereign Wealth Funds (SWFs), Multilateral agencies, endowment funds, insurance funds, pension funds and foreign Central Banks to be registered with SEBI are also allowed to invest in Government securities within this enhanced limit of USD 20 billion.

Q.2. Can a NRI and SEBI registered FII invest in Tier I and Tier II instruments issued by banks in India?

Ans. SEBI registered FIIs and NRIs have been permitted to subscribe to the Perpetual Debt instruments (eligible for inclusion as Tier I capital) and Debt Capital instruments (eligible for inclusion as upper Tier II capital), issued by banks in India and denominated in Indian Rupees, subject to the following conditions:

Investment by all FIIs in Rupee denominated Perpetual Debt instruments (Tier I) should not exceed an aggregate ceiling of 49 per cent of each issue and investment by individual FII should not exceed the limit of 10 per cent of each issue.
Investments by all NRIs in Rupee denominated Perpetual Debt instruments (Tier I) should not exceed an aggregate ceiling of 24 per cent of each issue and investments by a single NRI should not exceed 5 percent of each issue.
Investment by FIIs in Rupee denominated Debt Capital instruments (Tier II) shall be within the limits stipulated by SEBI for FII investment in corporate debt instruments.
Investment by NRIs in Rupee denominated Debt Capital instruments (Tier II) shall be in accordance with the extant policy for investment by NRIs in other debt instruments.
Investment by FIIs in Rupee denominated Upper Tier II Instruments raised in Indian Rupees will be within the limit prescribed by the SEBI for investment in corporate debt instruments.
The details of the secondary market sales / purchases by FIIs and the NRIs in these instruments on the floor of the stock exchange are to be reported by the custodians and designated Authorised Dealer banks respectively, to the Reserve Bank through the soft copy of the Forms LEC (FII) and LEC (NRI).

Q.3. Can a NRI and SEBI registered FIIinvest in Indian Depository Receipts (IDRs)?

Ans. NRI and SEBI registered FIIs have been permitted to invest, purchase, hold and transfer IDRs of eligible companies resident outside India and issued in the Indian capital market, subject to the following conditions:

(i) The purchase, hold and transfer of IDRs is in accordance with the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 notified vide Notification No. FEMA 20 / 2000-RB dated May 3, 2000, as amended from time to time.

A limited two way fungibility for IDRs (similar to the limited two way fungibility facility available for ADRs/GDRs) subject to the following terms and conditions:

The conversion of IDRs into underlying equity shares would be governed by the conditions mentioned in paras 6 and 7 of A.P. (DIR Series) Circular No. 5 dated July 22, 2009.
Fresh IDRs would continue to be issued in terms of the provisions of A.P. (DIR Series) Circular No. 5 dated July 22, 2009.
The re-issuance of IDRs would be allowed only to the extent of IDRs that have been redeemed /converted into underlying shares and sold.
There would be an overall cap of USD 5 billion for raising of capital by issuance of IDRs by eligible foreign companies in Indian markets. This cap would be akin to the caps imposed for FII investment in debt securities and would be monitored by SEBI.
IDRs shall not be redeemable into underlying equity shares before the expiry of one year period from the date of issue of the IDRs.
At the time of redemption / conversion of IDRs into the underlying shares, the Indian holders (persons resident in India) of IDRs shall comply with the provisions of the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 notified vide Notification No. FEMA 120 / RB-2004 dated July 7 2004, as amended from time to time.

The FEMA provisions shall not apply to the holding of the underlying shares, on redemption of IDRs by the FIIs including SEBI approved sub-accounts of the FIIs and NRIs.The issuance, redemption and fungibility of IDRs would also be subject to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended from time to time as well as other relevant guidelines issued in this regard by the Government, the SEBI and the RBI from time to time.

Q.4. Can aperson resident in India invests in the Indian Depository Receipts (IDRs)? What is the procedure for redemption of IDRs held by persons resident in India?

Ans. A person resident in India may purchase, hold and transfer IDRs of eligible companies resident outside India and issued in the Indian capital market. The FEMA Regulations shall not be applicable to persons resident in India as defined under section 2(v) of FEMA, 1999, for investing in IDRs and subsequent transfer arising out of a transaction on a recognized Stock Exchange in India. However, at the time of redemption / conversion of IDRs into underlying shares, the Indian holders (persons resident in India) of IDRs shall comply with the provisions of the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 notified vide Notification No. FEMA 120 / RB-2004 dated July 7 2004, as amended from time to time. The following guidelines shall be followed on redemption of IDRs by persons resident in India:

i. Listed Indian companies may either sell or continue to hold the underlying shares subject to the terms and conditions as per Regulations 6B and 7 of Notification No. FEMA 120/RB-2004 dated July 7, 2004, as amended from time to time.

ii. Indian Mutual Funds, registered with SEBI may either sell or continue to hold the underlying shares subject to the terms and conditions as per Regulation 6C of Notification No. FEMA 120/RB-2004 dated July 7, 2004, as amended from time to time.

iii. Other persons resident in India including resident individuals are allowed to hold the underlying shares only for the purpose of sale within a period of 30 days from the date of conversion of the IDRs into underlying shares.

V. Foreign Venture Capital Investment

What are the regulations for Foreign Venture Capital Investment?

Ans.

A SEBI registered Foreign Venture Capital Investor has general permission from the Reserve Bank of India to invest in a Venture Capital Fund (VCF) or an Indian Venture Capital Undertaking (IVCU), in the manner and subject to the terms and conditions specified in Schedule 6 of RBI Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time. These investments by SEBI registered FVCI, would be subject to the SEBI regulation and sector specific caps of FDI.
FVCIs can purchase equity / equity linked instruments / debt / debt instruments, debentures of an IVCU or of a VCF through initial public offer or private placement in units of schemes / funds set up by a VCF. At the time of granting approval, the Reserve Bank permits the FVCI to open a Foreign Currency Account and/ or a Rupee Account with a designated branch of an AD Category – I bank.
FVCIs allowed to invest in the eligible securities (equity, equity linked instruments, debt, debt instruments, debentures of an IVCU or VCF, units of schemes / funds set up by a VCF) by way of private arrangement / purchase from a third party also. FVCIs are also allowed to invest in securities on a recognized stock exchange.
The purchase / sale of shares, debentures and units can be at a price that is mutually acceptable to the buyer and the seller.
AD Category – I banks can offer forward cover to FVCIs to the extent of total inward remittance. In case the FVCI has made any remittance by liquidating some investments, original cost of the investments has to be deducted from the eligible cover to arrive at the actual cover that can be offered.

VI. Investment by QFIs

Q 1. What are QFIs ~~and what are the investments they can undertake~~?

Ans

QFIs mean a person who fulfils the following criteria :

(a) Resident in a country that is a member of Financial Action task Force (FATF) or a member of a group which is a member of FATF; and

(b) Resident in a country that is a signatory to IOSCO's MMoU (Appendix A Signatories) or a signatory of a bilateral MoU with SEBI

PROVIDED that the person is not resident in a country listed in the public statements issued by FATF from time to time on jurisdictions having a strategic AML/CFT deficiencies to which counter measures apply or that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies;

Further such person is not resident in India and is not registered with SEBI as a Foreign Institutional Investor (FII) or Sub-Account of an FII or Foreign Venture Capital Investor (FVCI).

Explanation:

"bilateral MoU with SEBI" shall mean a bilateral MoU between SEBI and the overseas regulator that, inter alia, provides for information sharing arrangements.
Member of FATF shall not mean an associate member of FATF.

Q2. What are the investments QFIs can undertake and what are the applicable caps for such investment?

Ans

Rupee denominated units of equity schemes of domestic MFs

The QFIs may invest in rupee denominated units of equity schemes of domestic MFs directly issued by the SEBI registered domestic MFs under the two routes, namely the Direct Route – SEBI registered Depository Participant (DP) route and the Indirect Route – Unit Confirmation Receipt (UCR) route (no secondary market purchases are allowed )

Investments by the QFIs will have a ceiling of USD 10 billion under both the routes. Units and UCRs issued under this scheme to QFIs, are non-tradable and non-transferable.

Domestic MF debt schemes which invest in infrastructure debt

QFIs are also allowed to invest (under both the routes – Direct and Indirect), up to an additional amount of USD 3 billion in units of domestic MF debt schemes which invest in infrastructure ("Infrastructure" as defined under the extant ECB guidelines) debt of minimum residual maturity of 5 years, within the existing ceiling of USD 25 billion for FII investment in corporate bonds issued by infrastructure companies.

Equity shares

QFIs are also permitted to invest through SEBI registered Depository Participants in equity shares of listed Indian companies through recognized brokers on recognized stock exchanges in India as well as in equity shares of Indian companies which are offered to public in India in terms of the relevant SEBI guidelines/regulations.

The individual and aggregate investment limits for the QFIs are 5% and 10% respectively of the paid up capital of an Indian company. These limits are over and above the FII and NRI investment ceilings prescribed under the Portfolio Investment Scheme for foreign investment in India. Further, wherever there are composite sectoral caps under the extant FDI policy, these limits for QFI investment in equity shares shall also be within such overall FDI sectoral caps.

QFIs are also permitted to acquire equity shares by way of rights shares, bonus shares or equity shares on account of stock split / consolidation or equity shares on account of amalgamation, demerger or such corporate actions subject to the investment limits prescribed below. QFIs are also allowed to sell the equity shares so acquired by way of sale

Debt securities

Qualified Foreign Investors (QFIs) have been permitted to purchase, on repatriation basis, debt securities through SEBI registered Qualified Depository Participants (QDPs) in eligible corporate debt instruments, viz. listed Non-Convertible Debentures(NCDs), listed bonds of Indian companies, listed units of Mutual Fund debt Schemes and "to be listed" corporate bonds directly from the issuer or through a registered stock broker on a recognized stock exchange in India. The provisions relating to FIIs in case of non-listing of "to be listed" corporate bonds, within 15 days as per A.P. (DIR Series) Circular No. 89 dated March 1, 2012, are applicable to QFIs.

QFIs are permitted to invest in corporate debt securities (without any lock-in or residual maturity clause) and Mutual Fund debt schemes subject to a total overall ceiling of USD 1 billion. This limit shall be over and above USD 20 billion for FII investment in corporate debt.

QFIs are also be permitted to sell 'eligible debt securities' so acquired by way of sale through registered stock broker on a recognized stock exchange in India or by way of buyback or redemption by the issuer.

Mode of payment / repatriation

A QFI may open a single non-interest bearing Rupee Account with an AD Category- I bank in India, for routing the receipt and payment for transactions relating to purchase and sale of units of domestic mutual funds, equity shares of listed Indian companies and eligible debt securities

Demat accounts – QFIs would be allowed to open a single demat account with a QDP in India for investment in all eligible debt securities under the QFI scheme.

Permissible currencies – QFIs will remit foreign inward remittance through normal banking channel in any permitted currency (freely convertible) directly into the single non-interest bearing Rupee account of the QFI maintained with an AD Category-I bank.

Pricing – The pricing of all eligible transactions and investment in all eligible securities by QFIs under this scheme shall be in accordance with the relevant and applicable guidelines issued from time to time.

Hedging – QFIs would be permitted to hedge their currency risk on account of their permissible investments (in equity and debt instruments) in terms of the guidelines issued by the Reserve Bank from time to time, similar to the facilities made available to the FIIs in the matter.

Reporting – In addition to the reporting to SEBI as may be prescribed by them, QDPs and AD Category-I banks (maintaining QFI accounts) are required to ensure reporting to the Reserve Bank of India in a manner and format as prescribed by the Reserve Bank of India from time to time.

Foreign Investments in Infrastructure Debt Funds

Investment on repatriation basis by eligible non-resident investors viz. Sovereign Wealth Funds, Multilateral Agencies, Pension Funds, Insurance Funds and Endowment Funds which are registered with SEBI as eligible non- resident investors in IDFs is allowed in Rupee and Foreign currency denominated bonds issued by the Infrastructure Debt Funds (IDFs) set up as an Indian company and registered as Non-Banking Financial Companies (NBFCs) with the Reserve Bank of India and in (ii) Rupee denominated units issued by IDFs set up as SEBI registered domestic Mutual Funds(MFs), in accordance with the terms and conditions stipulated by the SEBI and the Reserve Bank of India from time to time.

The original / initial maturity of all aforementioned securities at the time of first investment by a non resident investor is five years and subject to a lock in period of 3 years.

All non-resident investment in IDFs (other than NRIs) (in both Rupee and Foreign Currency denominated securities) are within an overall cap / limit of USD 10 billion. This cap / limit of USD 10 billion would be within the overall cap of USD 25 billion for FII investment in bonds / non convertible debentures issued by Indian companies in the infrastructure sector (where infrastructure is as defined under the extant ECB guidelines) or by Infrastructure Finance Companies (IFCs registered as NBFCs with the Reserve Bank).

The facility of foreign exchange hedging would be available to the eligible non-resident IDF investors, IDFs as well as the infrastructure project companies exposed to the foreign exchange/ currency risk

Q: What are the reporting requirements for acquisition/transfer of shares by non-residents under respective schedules to FEMA 20:

Ans: Following are the reporting requirements

(A) Reporting of FDI for fresh issuance of shares

(i) Reporting of inflow

(a) The actual inflows on account of such issuance of shares shall be reported by the AD branch in the R-returns in the normal course.

(b) An Indian company receiving investment from outside India for issuing shares / convertible debentures / preference shares under the FDI Scheme, should report the details of the amount of consideration to the Regional Office concerned of the Reserve Bank through it's AD Category I bank, not later than 30 days from the date of receipt in the Advance Reporting Form enclosed in Annex – 6. Noncompliance with the above provision would be reckoned as a contravention under

FEMA, 1999 and could attract penal provisions.

The Form can also be downloaded from the Reserve Bank's website

http://www.rbi.org.in/Scripts/BS_ViewFemaForms.aspx.

(c) Indian companies are required to report the details of the receipt of the amount of consideration for issue of shares / convertible debentures, through an AD Category – I bank, together with a copy/ies of the FIRC/s evidencing the receipt of the remittance along with the KYC report on the non-resident investor from the overseas bank remitting the amount. The report would be acknowledged by the Regional Office concerned, which will allot a Unique Identification Number (UIN) for the amount reported.

(ii) Time frame within which shares have to be issued

The equity instruments should be issued within 180 days from the date of receipt of the inward remittance or by debit to the NRE/FCNR (B) /Escrow account of the non-resident investor. In case, the equity instruments are not issued within 180 days from the date of receipt of the inward remittance or date of debit to the NRE/FCNR (B) account, the amount of consideration so received should be refunded immediately to the non-resident investor by outward remittance through normal banking channels or by credit to the NRE/FCNR (B)/Escrow account, as the case may be. Non-compliance with the above provision would be reckoned as a contravention under FEMA and could attract penal provisions. In exceptional cases, refund / allotment of shares for the amount of consideration outstanding beyond a period of 180 days from the date of receipt may be considered by the Reserve Bank, on the merits of the case.

(iii) Reporting of issue of shares

(a) After issue of shares (including bonus and shares issued on rights basis and shares issued on conversion of stock option under ESOP scheme)/ convertible debentures / convertible preference shares, the Indian company has to file Form FC-GPR, through it's AD Category I bank, not later than 30 days from the date of issue of shares. The Form can also be downloaded from the Reserve Bank's website http://www.rbi.org.in/Scripts/BS_ViewFemaForms.aspx.

Non-compliance with the above provision would be reckoned as a contravention under FEMA and could attract penal provisions.

(b) Form FC-GPR has to be duly filled up and signed by Managing Director/Director/Secretary of the Company and submitted to the Authorised Dealer of the company, who will forward it to the concerned Regional Office of the Reserve Bank. The following documents have to be submitted along with Form FC-GPR:

(i) A certificate from the Company Secretary of the company certifying that :

a) all the requirements of the Companies Act, 1956 have been complied with;

b) terms and conditions of the Government's approval, if any, have been complied with;
c) the company is eligible to issue shares under these Regulations; and
d) the company has all original certificates issued by AD banks in India evidencing receipt of amount of consideration.

(ii) A certificate from SEBI registered Merchant Banker or Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India.

(c) The report of receipt of consideration as well as Form FC-GPR have to be submitted by the AD bank to the Regional Office concerned of the Reserve Bank under whose jurisdiction the registered office of the company is situated.

(d) Issue of bonus/rights shares or shares on conversion of stock options issued under ESOP to persons resident outside India directly or on amalgamation / merger with an existing Indian company, as well as issue of shares on conversion of ECB / royalty / lumpsum technical know-how fee / import of capital goods by units in SEZs has to be reported in Form FC-GPR.

B. Reporting of FDI for Transfer of shares route

(i) The actual inflows and outflows on account of such transfer of shares shall be reported by the AD branch in the R-returns in the normal course.

(ii) Reporting of transfer of shares between residents and non-residents and vice- versa is to be made in Form FC-TRS. The Form FC-TRS should be submitted to the AD Category – I bank, within 60 days from the date of receipt of the amount of consideration. The onus of submission of the Form FC-TRS within the given timeframe would be on the transferor / transferee, resident in India.

(iii) The sale consideration in respect of equity instruments purchased by a person resident outside India, remitted into India through normal banking channels, shall be subjected to a KYC check (Annex 9-ii) by the remittance receiving AD Category – I bank at the time of receipt of funds. In case, the remittance receiving AD Category – I bank is different from the AD Category – I bank handling the transfer transaction, the KYC check should be carried out by the remittance receiving bank and the KYC report be submitted by the customer to the AD Category – I bank carrying out the transaction along with the Form FC-TRS.

(iv) The AD bank should scrutinise the transactions and on being satisfied about the transactions should certify the form FC-TRS as being in order.

(v) The AD bank branch should submit two copies of the Form FC-TRS received from their constituents/customers together with the statement of inflows/outflows on account of remittances received/made in connection with transfer of shares, by way of sale, to IBD/FED/or the nodal office designated for the purpose by the bank in the proforma (which is to be prepared in MS-Excel format). The IBD/FED or the nodal office of the bank will consolidate reporting in respect of all the transactions reported by their branches into two statements inflow and outflow statement. These statements (inflow and outflow) should be forwarded on a monthly basis to Foreign Exchange Department, Reserve Bank, Foreign Investment Division, Central Office, Mumbai in soft copy (in MS- Excel) by e-mail. The bank should maintain the FC-TRS forms with it and should not forward the same to the Reserve Bank of India.

(vi) The transferee/his duly appointed agent should approach the investee company to record the transfer in their books along with the certificate in the Form FC-TRS from the AD branch that the remittances have been received by the transferor/payment has been made by the transferee. On receipt of the certificate from the AD, the company may record the transfer in its books.

(vii) On receipt of statements from the AD bank , the Reserve Bank may call for such additional details or give such directions as required from the transferor/transferee or their agents, if need be.

C. Reporting of conversion of ECB into equity

Details of issue of shares against conversion of ECB have to be reported to the Regional Office concerned of the Reserve Bank, as indicated below:

In case of full conversion of ECB into equity, the company shall report the conversion in Form FC-GPR to the Regional Office concerned of the Reserve Bank as well as in Form ECB-2 to the Department of Statistics and Information Management (DSIM), Reserve Bank of India, Bandra-Kurla Complex, Mumbai – 400 051, within seven working days from the close of month to which it relates. The words "ECB wholly converted to equity" shall be clearly indicated on top of the Form ECB-2. Once reported, filing of Form ECB-2 in the subsequent months is not necessary.
In case of partial conversion of ECB, the company shall report the converted portion in Form FC-GPR to the Regional Office concerned as well as in Form ECB-2 clearly differentiating the converted portion from the non-converted portion. The words "ECB partially converted to equity" shall be indicated on top of the Form ECB-2. In the subsequent months, the outstanding balance of ECB shall be reported in Form ECB-2 to DSIM.
The SEZ unit issuing equity as mentioned in para (iii) above, should report the particulars of the shares issued in the Form FC-GPR.

D. Reporting of ESOPs for allotment of equity shares

The issuing company is required to report the details of issuance of ESOPs to its employees to the Regional Office concerned of the Reserve Bank, in plain paper reporting, within 30 days from the date of issue of ESOPs. Further, at the time of conversion of options into shares the Indian company has to ensure reporting to the Regional Office concerned of the Reserve Bank in form FC-GPR, within 30 days of allotment of such shares. However, provision with regard to advance reporting would not be applicable for such issuances.

E. Reporting of ADR/GDR Issues

The Indian company issuing ADRs / GDRs has to furnish to the Reserve Bank, full details of such issue in the Form enclosed in Annex -10, within 30 days from the date of closing of the issue. The company should also furnish a quarterly return in the prescribed Form, to the Reserve Bank within 15 days of the close of the calendar quarter. The quarterly return has to be submitted till the entire amount raised through ADR/GDR mechanism is either repatriated to India or utilized abroad as per the extant Reserve Bank guidelines.

F. Reporting of FII investments under PIS scheme

(i) FII reporting: The AD Category – I banks have to ensure that the FIIs registered with SEBI who are purchasing various securities (except derivative and IDRs) by debit to the Special Non-Resident Rupee Account should report all such transactions details (except derivative and IDRs) in the Form LEC (FII) to Foreign Exchange Department, Reserve Bank of India, Central Office by uploading the same to the ORFS web site (https://secweb.rbi.org.in/ORFSMainWeb/Login.jsp). It would be the banks responsibility to ensure that the data submitted to RBI is reconciled by periodically taking a FII holding report for their bank.

(iii) The Indian company which has issued shares to FIIs under the FDI Scheme (for which the payment has been received directly into company's account) and the Portfolio Investment Scheme (for which the payment has been received from FIIs' account maintained with an AD Category – I bank in India) should report these figures separately under item no. 5 of Form FC-GPR (Annex – 8) (Post-issue pattern of shareholding) so that the details could be suitably reconciled for statistical / monitoring purposes.

G. Reporting of NRI investments under PIS scheme

The link office of the designated branch of an AD Category – I bank shall furnish to the Reserve Bank18, a report on a daily basis on PIS transactions undertaken by it, on behalf of NRIs. This report can be furnished on a floppy to the Reserve Bank and also uploaded directly on the OFRS web site (https://secweb.rbi.org.in/ORFSMainWeb/Login.jsp). It would be the banks responsibility to ensure that the data submitted to RBI is reconciled by periodically taking a NRI holding report for their bank.

H. Reporting of foreign investment by way of issue / transfer of 'participating interest/right' in oil fields

Foreign investment by way of issue / transfer of 'participating interest/right' in oil fields by Indian companies to a non resident would be treated as an FDI transaction under the extant FDI policy and the FEMA regulations. Accordingly, transfer of 'participating interest/ rights' will be reported as 'other' category under Para 7 of revised Form FC-TRS and issuance of 'participating interest/ rights' will be reported as 'other' category of instruments under Para 4 of Form FCGPR.

Source- RBI

TDS – C3 and C9 Corrections – Points to consider while submitting Corrections

Posted In Income Tax | Articles | 1 Comment »

Following are some useful information to adhere before submitting Corrections, with special reference to C3 & C9:

What are C3 & C9 Corrections?

C3 Correction involves Updation or Addition of Deductee details in the TDS statement. The facility to delete Deductee records has now been discontinued for the purpose of correct reporting and is no longer permissible in the TDS statements. Accordingly, the delete option available under "Updation mode for Deductee" has been removed from RPU 3.8.

Revision of TDS Statement by way of Adding a new Challan and underlying Deductees is referred to as C9 Correction.

Important points to adhere while submitting Corrections:

· Correct and Complete Reporting: It is very important to report correct and valid particulars (TAN of the deductor, Category (Government / Non-Government) of the deductor, PAN of the deductees and other particulars of deduction of tax) in the TDS statement. Please ensure that records are corrected for all deductees reported in the corrections to avoid multiple submissions.

· Addition of new deductee rows and thereby, challans is not encouraged by CPC (TDS), except for inadvertent errors. Please ensure that complete data is reported in the first instance, while quarterly TDS Statement is submitted.

· Validate PAN and name of fresh deductees from TRACES before quoting it in correction statement. Download PAN Master from TRACES and use the same to file new statement to avoid quoting of incorrect and invalid PAN

· TDS statement cannot be filed without quoting any valid challan and deductee row

· Quote correct and valid lower rate TDS certificate in TDS statement wherever the TDS has been deducted at lower / zero rate on the basis of certificate issued by the Assessing Officer

· Download the Justification Report to know the details of TDS defaults, if any, on processing of TDS statements and submit corrections accordingly

· File correction statements promptly in case of incomplete and incorrect reporting. Please use the new version 3.8 of the Return Preparation Utility (RPU) and version 4.1 & 2.137 of the File Validation Utility (FVU) released by NSDL.

Please ensure that data for all deductees reported in TDS Statements are duly corrected which will help the deductees in claiming correct TDS Credits, besides generating correct TDS Certificates.

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F. No, 3B/RJI - 494 / 20 L3 - t4
To
Shri B.S.K Rao,
Auditor and Tax Advocate
BDKRao, Beside SBI, Tilak Nagar,
Shimoga 577 2OI
Sir/Madam,
Sub:
Ref:
Request for information under RTI Act,
Reg.
Your RTI application 03'02'2Ot4 dated
05.02.2014
Office of the Centralized Processlng Center,
Income Tax Department, Prestige Alpha'
Post Box No-1, Electronic CitY Post
Bangalore - 560100, Karnataka
Dated :2A.02.20L4
2005 Request for information
received in this office on
prease refer to the RTI apprication cited above. The information sought by you is as
under :
ThesectionwiseWrongclaimsreportedintaxauditreportformNo3CDthatrelatesto
return fired in ITR-4 and ITR-5 uproaded to e-firing website of income tax department for the
A.Y.2013-14 (Financial Year 2}t2-t3) is not available in the e-filing portal'
The First APPellate AuthoritY
Income-tax (CPC), Unit-4, Prestige
560100.
under RTI Act for CPC
Alpha, Post Box No-1,
is the Addl/Joint Commissioner of
Electronic CitY Post, Bangalore -
Central puOtic Information Officer,(CPC)' U-4'
Bangalore
Yours faithfullY,
www

B.S.K.RAO, s.co', LL.B, MtcA,
Auditor & Tax Advocate
Tel : 08182-227830 (O)
08182-221273 (R)
BDKRAO, Beside SBl, Tilak Nagar
Shimoga-S77 201, KARNATAKA
February 3,2014
To,
Office of the Gommissioner of lncome-Tax (CPG),
No.48/1 &4812, PrestigeAlpha, lll Floor,
Hosur Road, Bangalore-560 100
Karnataka State.
Hon'ble Sir,
Sub: Request to provide Wrong Glaims reported in Form No.3GD uploaded to e-filing
website of lncome-Tax Deptt. for the Asst. Year 2013-14, in respect of return
filed in lTR4 & ITR-S - Application U/s 6(1) of RTI Act - Regarding
-0-
1. CBDT is the policy making body for lncome-Tax Law in lndia. There is duty on the part
of CBDT to collect & maintain data of wrong claims reported in Form No.3CD to take policy
decisions & also to enable assessing officers of lncome-Tax Deptt. to utilize such data to
conclude quality assessments. (Very purpose of uploading the same in e-filing website of
lncome-Tax Depft.). For the Asst. Year 2013-14 relating to Financial Year 2012-13, Tax Audit
Report Form No.3GD uploaded to e-filing website of lncome-Tax Deptt. through Deptt. utility as
per CBDT Notification No.34/2013/F.No.1421512013-TPL Dt.01.05.2013 (See Exhibit-l)
2. Kindly provide total of Section Wise Wrong Claims reported in Tax Audit Report-Form
No.3CD that relates to returns filed in lTR4 & ITR-5 uploaded to e-filing website of lncome-Tax
Deptt. for the Asst. Year 2013-14 (Financial Year 2012-13).
3. Strenuous efforts of lnstitute of Chartered Accountants of lndia to expand the demand &
supply gap of Chartered Accountants since 1984, with the mofto of giving full employment to
existing practicing members have increased the cost of voluntary compliance of return filing in
Non-Gorporate Tax Audit cases under lncome-Tax Act. This application made to promote
transparency & accountability in framing/retaining such monopolistic Tax Audit policy of
CBDT in lncome-Tax Act. I hereby state that the information sought does not fall within the
restrictions contained in Section I & 9 of the Act & to the best of my knowledge it relates to your
good office. I also state that I am the citizen of lndia & eligible to seek information under RTlAct.
4. Enclosed Rs.10/- lndian Postal Order bearing No.27F 827191 Dt.18.01 .2014 drawn on
Commissioner of lncome-Tax (CPC). I hope that your good office will provide the information
requested in Para No.2 above at an early date.
With Respects,
Encl:-
>Rs. 10/- IPO No.27F 827191
>Exhibit-1 (CBDT Notification)
>Article Published in Tax Guru.com
www.taxguru.in

Link to you tube.

http://taxguru.in/income-tax/constitution-india-income-tax.html

Constitution of India and Income tax

Posted In Income Tax | Articles | No Comments »

Kaushal Agrawal

This lecture shall answer following questions?

1. Do you know from which document Govt. derives power to levy income taxes?

2. Do you know which Govt. has the power to levy tax on income?

3. Everyone knows Govt. can levy taxes only by making law. But which article of the constitution gives power to do so?

4. Do you know whether Central Govt has the power to levy taxes on agricultural income?

5. Which schedule of the Constitution divides the power to make law between Central Govt. and State Govt.?

I hope this video shall also be liked by you all.

2014-TIOL-106-ITAT-MUM

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'B' MUMBAI

ITA No.2143/Mum./2009
Assessment Year: 2003-04

ITA No.2144/Mum./2009
Assessment Year: 2004-05

ITA No.2145/Mum./2009
Assessment Year: 2005-06

NATVAR PARIKH & CO PVT LTD
96, CHEMBUR MANKHURD LINK ROAD
SIVAJI NAGAR, MUMBAI-400043
PAN NO:AAACN2937Q

DEPUTY COMMISSIONER OF INCOME TAX
CENTRAL CIRCLE-40, AAYAKAR BHAVAN
101, M K ROAD, MUMBAI-400020

D Karunakara Rao, AM And Amit Shukla, JM

Date of Hearing: January 8, 2014
Date of Decision: January 22, 2014

Appellants Rep by: Mr S N Inamdar & Mr Ashwin Damania
Respondent Rep by: Mr Preetam Singh

Income Tax - Sections 132A, 132(4), 132(1), 132(4), 139(1), 139(5), 143(2), 153A, 153A(a), 153C - Whether if no materials are found during the Search, the AO is duty bound to reiterate the original assessment and cannot made any additions u/s 153A - Whether the statement recorded at the time of search which was retracted by the assessee and documents which are already the part of books of account can be considered as incriminating documents for making assessment under section 153A.

Assessee company is engaged in the business of warehousing, clearing &forwarding and transportation. It also started the business of running of a club. From members of club one time membership entrance fee is charged. Assessment was made u/s 143(3) on a total loss of Rs. 50.99 lacs which was allowed to be carried forward. AO accepted the claim of assessee that one time membership entrance fee is a capital receipt following the decision of Hon'ble Jurisdictional High Court in CIT v/s Diners Business Services Pvt. Ltd.

A search and seizure action was carried out. During the course of search and seizure action, a statement on oath was recorded of the Managing Director on the issue of membership fee in which he stated that in the original assessment it was considered as capital receipt. However, the factual position is reviewed and it is advised that exemption claimed is legally not correct. The membership fees received are generally for a period of 25 years. Hence, the 1/25th portion thereof is chargeable to tax in every year. Hence, the said amount is offered.

After search, assessee retracted from his statement and withdrew his offer for taxation of one time membership entrance fee on the ground that the assessee's claim was based on the decision of the Hon'ble Jurisdictional High Court in Diners Business Services Pvt. Ltd. and he has been duly advised that such a judgment is applicable in assessee's case also.

AO brought the said amount of membership fee under tax by holding the same as revenue receipt observing that in the case of Diners Club the membership fees was a 'ONE TIME PAYMENT' however in the present case it is to be paid every 'Twenty five year'. Thus, it was limited to a specific period. Members do not get rights in the properties of the club but only use the services provided by the club. Thus, it is in the nature of revenue and has to be taxable in entirety during the year of its receipt and not a portion of it. Moreover once a statement is given u/s 132(4) it is to be abided by as the same is given under oath and the section per se states that statement recorded under the said section shall be used in evidence in any proceedings under the Indian Income tax Act.

In appellate proceeding, assessee took an additional ground that as no incriminating material whatsoever was found during the course of search, no addition can be made. AO had solely relied upon the statement recorded on oath u/s 132(4), which cannot be said to be incriminating material because the assessee has first clarified that its claim was based on the decision of the Hon'ble Jurisdictional High Court. The assessee had retracted this statement immediately after the search and seizure action.

Revenue contended that during the course of search, statement of the Managing Director was recorded, who has clearly admitted that the membership fee collected can be taxed as revenue receipt though on deferred basis. This itself is an incriminating material. Besides this, a document was found wherein it was mentioned about the type of membership, duration for which membership was offered and the price of membership subscription. This means that there were some material found relating to membership fee.

After hearing both the parties, the ITAT held that,

++ from a plain reading of the provisions of section 153A, it is evident that if a search has been initiated u/s 132(1) or requisition has been made u/s 132A, then AO is obliged to issue notice u/s 153A, requiring such person to furnish return of income of six years in the prescribed form for the immediately preceding the year of search. The AO is legally required to assess or re-assess the total income of six assessment years immediately preceding to the year of search. The second proviso to section 153A provides that if the assessment or re-assessment of any of the assessment year, falling within the period of six years is pending on the date of search, then the same shall get abated. In the present case, for the years under appeal, the assessments were not pending and had attained finality, therefore, the assessments completed in the impugned assessment years will not get abated. Once that is so, the legal position as of now is that the additions over and above the assessed income cannot be made de hors the incriminating material found at the time of search while completing the assessment u/s 153A. This, inter-alia, means that if there is no incriminating material, then the original assessment made can be reiterated and no further addition is called for;

++ in the statement recorded on oath, the assessee has clearly stated that it has claimed the membership fee as capital receipt based on the decision of the Hon'ble Jurisdictional High Court and such a claim has also been accepted by the Assessing Officer in scrutiny proceedings. After having said that the assessee stated that membership is for 25 years, then 1/25th portion thereof can be charged to tax in every year. Neither in the question nor in the answer thereto, there is any reference to any document or seized material, much less any incriminating material to show that the assessee's claim which was allowed by the Department has been negated. Otherwise also, this claim is purely based on legal principle as upheld by the Hon'ble Jurisdictional High Court. Thus, the statement as such cannot be said to be incriminating material so as to infer that any addition is warranted on this issue while completing the assessment under section 153A, when the earlier assessments have attained finality at the time of search. The list of category of the membership and the fee charged is already part of the record and the books of account which, has been subject matter of scrutiny u/s 143(3) earlier. Moreover, this document does not show that the assessee's claim for capital receipts will automatically be inferred as revenue receipt. Thus, the additions made by AO are cancelled.

Assessee's appeal allowed

Cases followed:

All Cargo Global Logistics Vs. DCIT (2012-TIOL-391-ITAT-MUM-SB)

Jai Steels India, Jodhpur v/s ACIT, [2013] 259 CTR (Raj.) 281

ORDER

Per: Amit Shukla:

These appeals preferred by the assessee, are directed against the impugned order 6th February 2009, for the assessment year 2003-04, order dated 7th February 2009 for the assessment year 2004-05 and 2005-06, passed by the learned Commissioner (Appeals)-VII, Mumbai, passed under section 153A(a) r/w section 143(3) of the Income Tax Act, 1961 (for short "the Act"). Since the grounds raised by assessee in all the years under appeal are common, therefore, as a matter of convenience, these were heard together and are being disposed of by way of this consolidated order. However, in order to understand the implication, it would be necessary to take note of facts of one appeal and, accordingly, we are narrating the facts, as they appear in ITA No. 2143/Mum./2009, for the assessment year 2003-04.

Ground of appeal for the A.Y. 2003-04

"1. The learned Commissioner of Income tax (Appeals) [CIT(A)] erred in upholding the action of the Assessing Officer in making addition of a sum of Rs.27,75,000/- on account of entrance fee collected by the appellant which were capital receipts.

2(a) The learned CIT(A) erred in not following the ratio laid down by the Bombay High Court in the case of CIT V. Diners Business Services P. Ltd. [(2003) 263 ITR 1 (Bom)] on the grounds that the amount received by the appellant was not one time fee and that the amount received was a composite amount including the annual fee.

(b) The appellant further submits that the CIT(A) erred in concluding that the amount received by the appellant was a composite amount contrary to the actual situation where the appellant receives from each member entrance fees and annual fees separately.

3. The appellant submits that while deciding the appeal against the appellant and holding that the sum of Rs.27,75,000/ - is taxable, the learned CIT(A) relied upon certain conclusion reached in the order which are contrary to facts as enumerated hereunder:-

(a) The learned CIT(A) erred in holding that the appellant has not charged uniform annual fees from all the members whereas the appellant has in fact charged uniform annual fees from all the members.

(b) The learned CIT(A) erred in holding that the appellant has accepted consolidated subscription fees whereas the appellant has actually charged entrance fees and annual fee separately.

(c) The learned CIT(A) erred in holding that the appellant has accepted in assessment year 2003-04 that the entrance fee is taxable income whereas in fact the appellant had flied a revised return of income considering the entrance fee as a capital receipt and the same has been accepted by the Assessing Officer while completing the original assessment under section 143(3) of the Act.

4. The learned CIT(A) erred in upholding the action of the Assessing Officer in rejecting the retraction by the appellant of the earlier offer made by it with regard to taxability of entrance fees and failed to appreciate that the earlier offer was made under utter stress and based on a wrong understanding / interpretation of the principle governing the taxability of the entrance fees. He ought to have held that there is no estoppel on a point of law & such so called admission are not conclusive.

5. The appellant submits that the order of the ld. CIT(A) has been passed without affording reasonable opportunity to the appellant to represent its case.

6. The appellant submits that the Assessing Officer be directed to delete the addition made of Rs. 27,75,500 on account of entrance fees."

2. Besides the aforesaid grounds, the assessee, vide letter dated 22nd November 2010, has also raised following as additional ground which is purely legal in nature:-

The assessment and assumption of jurisdiction under section 153A is invalid in law in respect of legal issues considered and concluded in original assessment particularly when no material was found as a result of search requiring any change of opinion. Therefore, it be held that the assessment is null and void being without jurisdiction."

3. After hearing the parties, the additional ground in all the three years were admitted as they are purely legal ground which does not require any investigation of facts.

4. Facts in brief:- The assessee is a company engaged in the business of warehousing, clearing & forwarding and transportation. Besides this, the assessee company had also started the business of running of a club called ACRES Club. It has enrolled members in the club for which one time membership entrance fee is charged. For the assessment year 2003-04, the assessee has filed its return of income on 28th November 2003, under section 139(1) of the Act, declaring losses of Rs. 23,38,967. Later on, revised return of income was also filed on 1st December 2003, under section 139(5), declaring total loss of Rs. 50,99,960. Such a return of income was subjected to scrutiny and notice under section 143(2) dated 7th April 2004 was issued and served. In pursuance thereof, assessment order under section 143(3) was completed vide order dated 10th March 2006 on a total loss of Rs. 50,99,597, which was allowed to be carried forward. The relevant date for filing of the return of income and completion of the assessment for the assessment year 2004-05 and 2005-06, are as under:-

	*A.Y. 2004-05*	*A.Y. 2005-06*
Date of filing of the return of income	01.11.2004 declaring total loss of Rs. (-) 4,16,25,646	The original return of income filed on 31.10.2005, which was revised on 05.12.2005 declaring total loss of Rs. 3,95,37,344
Date of order	The assessment order passed u/s 143(3) vide order dated 21st March 2006 at a loss of Rs. 4,16,25,646	Intimation under section 143(1) was processed on 21st November 2006 on the revised return of income

5. The Assessing Officer, while completing the original assessments in the aforesaid manner, in all the years, has followed the decision of the Hon'ble Jurisdictional High Court in CIT v/s Diners Business Services Pvt. Ltd., [2003] 263 ITR 001 (Bom.), for accepting the assessee's claim that one time membership entrance fee is a capital receipt. Thus, such a receipt was not subjected to tax. These assessments had attained finality.

6. Thereafter, a search and seizure action under section 132(1) was carried out by the investigation wing, Mumbai, in assessee's case on 23rd January 2007. Consequent to this search and seizure action, notice under section 153A(a) was issued for all the years under appeal on 6th August 2007. The assessee, in response to the said notice, filed its return of income on 3rd September 2007 on the same income as were shown in the original return of income / revised return of income. During the course of search and seizure action, a statement on oath was recorded on 24th January 2007 of the Managing Director, Mr. Apurva Parikh. The relevant extract of the statement, particularly on the issue of membership fee are as under:-

"Q.14. It is observed from the accounts of the Natvar Parikh & Co. Pvt. Ltd. (Aces Club) that membership fees have been collected of Rs. 15.43 crores for the different F.Y. as under:-

*Financial Year*	*Amount (Rs.)*
2002-03	27,75,000
2003-04	4,29,70,978
2004-05	3,30,35,167
2005-06	3,84,64,802
1.4.2006 to 23.1.2007	3,71,27,285
*Total:*	*15,43,73,232*

You are requested to explain as to why the above membership fees have not been offered to tax and claimed as exempt.
Ans14. We were given to understand that as per the Mumbai High Court judgment in case of Diners Club India Pvt. Ltd. such membership fees are capital receipt and not chargeable to tax. Our this claim is also accepted by the Assessing Officer in the Asst. Year 2004-05. However, we have reviewed the factual position prevailing in our case and the case laws of Mumbai High Court. In our case, the membership is for a maximum period of 25 years only and the members do not get any vested right in the assets of the club. Having considered these facts, we have been now advised that the exemption claimed is legally not correct. However, the membership fees received are generally for a period of 25 years. Hence, the 1/25th portion thereof is chargeable to tax in every year. Accordingly, I offer to tax, the income on account of membership fees of the Acres Club in the hands of Natvar Parikh & Co. Pvt. Ltd. for the different financial years as under:

*Financial Year*	*Amount (Rs.)*
2002-2003	1,11,000
2003-2004	18,29,839
2004-2005	31,51,246
2005-2006	46,89,838
1.4.2006 to 23.1.2007	61,.74,929
*Total*	*1,59,56,852*

The tax due for the current financial year, if any, after set off of the past losses will be paid in due course. It is requested that due immunity from penalty may please be granted for this voluntary disclosure on our part."

7. Accordingly, at the time of search, the assessee offered 1/25th portion of the membership fee as chargeable to tax in respective years. Later on, vide letter dated 30th March 2007, the assessee retracted the statement recorded under section 132(4) and withdrew his offer for taxation on the one time membership fee, on the ground that the assessee's claim was based on the decision of the Hon'ble Jurisdictional High Court in Diners Business Services Pvt. Ltd. (supra) and he has been duly advised that such a judgment is applicable in assessee's case also, wherein the High Court has clearly stated that entrance fee received from members is a capital receipt.

8. The Assessing Officer, however, brought the said amount of membership fee under tax by holding it as revenue receipt after observing and holding as under:-

"3.3 I have considered the assesse's submission in this regard and I am of the view that the facts obtaining in the Diners Business Services Pvt. Ltd. and the assesse's case are different. In the case of Diners Club the membership fees was a 'ONE TIME PAYMENT' however in the present case it is to be paid every 'Twenty five year'. Thus in the present case it is not a 'ONE TIME PAYMENT' but only limited to a specific period. Secondly in the present case members do not get rights in the properties of the club but only use the services provided by the club. Hence it is an undisputable fact that the fees received by members is in the nature of revenue and thus has to be taxable in entirety during the year of its receipt and not a portion of it. The receipt is to be taxed in entirety also because it is not to be refunded to the members and hence accrues as income in the year of receipt. Moreover once a statement is given u/s 132(4) it is to be abided by as the same is given under oath and the section per se states that statement recorded under the said section shall be used in evidence in any proceedings under the Indian Income tax Act. Hence even the retraction by the assessee has no legal validity. I therefore add the total amount i.e. Rs.27,75,000/- being the entrance fees received during this year to the total income of the assessee."

9. Similar observations were made in the assessment year 2004-05 and 2005-06 also. The learned Commissioner (Appeals) too confirmed the findings of the Assessing Officer after detail discussion.

10. Before us, the learned Counsel for the assessee submitted that the additional ground, as raised by the assessee, goes to the root of the issue involved as no incriminating material whatsoever was found during the course of search, so as to suggest that one time membership fee is revenue receipt and not capital receipt, Therefore, in view of the Special Bench decision the Tribunal, Mumbai Bench, in All Cargo Global Logistics v/s DIT, no addition can be made. The Assessing Officer has solely relied upon the statement recorded on oath under section 132(4), which cannot be said to be incriminating material because the assessee has first clarified that its claim was based on the decision of the Hon'ble Jurisdictional High Court and, in any case, such expenditure should be deferred for 25 years. No corroborative evidence was found during the course of search so as to suggest that the membership fee is actually a revenue receipt. The assessee has retracted this statement immediately after the search and seizure action, based on the legal advice that the decision of the Hon'ble Jurisdictional High Court is applicable and has a binding precedence. Once, there is no incriminating material, then even if the assessment is completed under section 153(A) r/w 143(3), no addition can be made. He also strongly relied upon the decision of the Hon'ble Rajasthan High Court in Jai Steels India, Jodhpur v/s ACIT, [2013] 259 CTR (Raj.) 281. On merits also, he placed detail submissions as to why such a receipt cannot be held to be revenue in nature.

11. On the other hand, the learned Departmental Representative submitted that during the course of search, statement of the Managing Director was recorded, who has clearly admitted that the membership fee collected can be taxed as revenue receipt though on deferred basis for the period of 25 years. This itself is an incriminating material. Besides this, a document was found wherein it was mentioned about the type of membership, duration for which membership was offered and the price of membership subscription. This means that there were some material found relating to membership fee, wherein the period of membership was given for 25 years. Once the membership fee is for a specific period i.e., for 25 years, then the decision of the Hon'ble Jurisdictional High Court will not apply. Therefore, not only the addition is justified under section 153A, but also the addition made by the Assessing Officer is legally covered on merits. On the merits of the addition, he strongly relied upon the findings of the learned Commissioner (Appeals) and the case laws relied upon by him.

12. We have heard the rival contentions, perused the findings of the authorities below with reference to the legal issue raised in the additional ground of appeal as well as the material available on record. The returns of income for the assessment year 2003-04 and 2004-05 were filed under section 139, which were subjected to assessment under section 143(3), whereas, the return of income for the assessment year 2005-06 was subject to the assessment under section 143(1). All these assessments were completed much before the date of search. On the date of issuance of notice under section 153A, no assessment was pending and the assessment so completed earlier had attained finality. From a plain reading of the provisions of section 153A, it is evident that if a search has been initiated under section 132(1) or requisition has been made under section 132A, then the Assessing Officer is obliged to issue notice under section 153A, requiring such person to furnish return of income of six years in the prescribed form for the immediately preceding the year of search. The Assessing Officer is legally required to assess or re-assess the total income of six assessment years immediately preceding to the year of search. The second proviso to section 153A provides that if the assessment or re-assessment of any of the assessment year, falling within the period of six years is pending on the date of search, then the same shall get abated. In the present case, for the years under appeal, the assessments were not pending and had attained finality, therefore, the assessments completed in the impugned assessment years will not get abated. Once that is so, the legal position as of now is that the additions over and above the assessed income cannot be made dehors the incriminating material found at the time of search while completing the assessment under section 153A. This, inter-alia, means that if there is no incriminating material, then the original assessment made can be reiterated and no further addition is called for. This has been held so by the Tribunal, Mumbai Special Bench, in All Cargo Global Logistics (supra) and also by the decision of the Hon'ble Rajasthan High Court in Jai Steel, Jodhpur (supra). In the later decision, the High Court has analysed the provisions of section 153A in detail. The relevant conclusion of the High Court are as under:-

"The requirement of assessment or reassessment under the said section has to be read in the context of Sections 132 or 132A of the Act, inasmuch as, in case nothing incriminating is found on account of such search or requisition, then the question of reassessment of the concluded assessments does not arise, which would require more reiteration and it is only in the context of the abated assessment under second proviso which is required to be assessed.

The underline purpose of making assessment of total income under Section 153A of the Act is, therefore, to assess income which was not disclosed or would not have been disclosed.

The purpose of second proviso is also very clear, inasmuch as, once a assessment or reassessment is 'pending' on the date of initiation of search or requisition and in terms of Section 153A a return is filed and the AO is required to assess the same, there cannot be two assessment orders determining the total income of the assessee for the said assessment year and, therefore, the proviso provides for abatement of such pending assessment and reassessment proceedings and it is only the assessment made under Section 153A of the Act which would be the assessment for the said year.

The necessary corollary of the above second proviso is that the assessment or reassessment proceedings, which have already been 'completed' and assessment orders have been passed determining the assessee's total income and, such orders are subsisting at the time when the search or the requisition is made, there is no question of any abatement since no proceedings are pending.

From a plain reading of the provision alongwith the purpose and purport of the said provision, which is intricately linked with search and requisition under Sections 132 and 132A of the Act, it is apparent that:

(a) the assessments or reassessments, which stand abated in terms of II proviso to Section 153A of the Act, the AO acts under his original jurisdiction, for which, assessments have to be made;

(b) regarding other cases, the addition to the income that has already been assessed, the assessment will be made on the basis of incriminating material and

(c) in absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made.

The argument of the learned counsel that the AO is also free to disturb income, expenditure or deduction de hors the incriminating material, while making assessment under Section 153A of the Act is also not borne out from the scheme of the said provision which as noticed above is essentially in context of search and/or requisition. The provisions of Sections 153A to 153C cannot be interpreted to be a further innings for the AO and/or assessee beyond provisions of Sections 139 (return of income), 139(5) (revised return of income), 147 (income escaping assessment) and 263 (revision of orders) of the Act."

Thus, the law as envisaged by the High Court is that, if no incriminating material has been found, then no addition can be made in the assessment completed under section 153A which has not been abated.

13. Now, in the present case, we have to see whether the statement recorded under section 132(4) or the Annexure-B which has been referred to by the learned Departmental Representative can be said to be incriminating material. On a perusal of the answer given to question no.14 of the statement on oath recorded at the time of search which has been reproduced above, the assessee has clearly stated that it has claimed the membership fee as capital receipt based on the decision of the Hon'ble Jurisdictional High Court and such a claim has also been accepted by the Assessing Officer in scrutiny proceedings. After having said that the assessee stated that membership is for 25 years, then 1/25th portion thereof can be charged to tax in every year. Neither in the question nor in the answer thereto, there is any reference to any document or seized material, much less any incriminating material to show that the assessee's claim which was allowed by the Department has been negated. Otherwise also, this claim is purely based on legal principle as upheld by the Hon'ble Jurisdictional High Court. Thus, the statement as such cannot be said to be incriminating material so as to infer that any addition is warranted on this issue while completing the assessment under section 153A, when the earlier assessments have attained finality at the time of search. Annexure-B also only gives the list of category of the membership and the fee charged. These details are already part of the record and the books of account which, has been subject matter of scrutiny under section 143(3) earlier. Moreover, this document does not show that the assessee's claim for capital receipts will automatically be inferred as revenue receipt. The period of membership of 25 years also is a part of the record and no new information or material can be said to have come into picture as a result of search. Thus, neither the statement recorded under section 132(4) nor the document mentioned at Annexure-B can be inferred as incriminating material for the purpose of making addition under section 153A. Thus, respectfully following the ratio and the principle laid down by the Hon'ble Rajasthan High Court that once there is no incriminating material found at the time of search, then no addition can be made on the assessments which are not pending and have attained finality. Accordingly, on the legal ground itself, the additions made by the Assessing Officer in all the years under appeal i.e., A.Y. 2003-04, 2004-05 and 2005-06 are cancelled.

14. Since we have decided the issue on the additional ground, therefore, the other grounds raised on merits are not adjudicated upon. Statistically speaking, the assessee's appeals are treated as allowed.

15. In the result, assessee's appeals are treated as allowed.

(Order pronounced in the open Court on 22.1.2014)

Independent Director – (Listing Agreement and the Companies Act, 2013)

Posted In Company Law | Articles | No Comments »

CS Akhilesh Kumar Jha

Introduction

The concept of Independent director was introduced in the Report of Kumar Mangalma Birla Committee. The main purpose for establishment of this committee was to promote good cooperate Governance and make transparency among Companies and its stakeholders.

The main focus of this Committee were as follow:-

1) To fix a standard for listed companies by way of necessary amendment in the Listing Agreement so that the transparency among companies and its stakeholder may be cleared and to fix some important clauses in the listing agreement which shall be related to continues disclosures etc.

2) To prepare a Code for companies.

3) To take necessary safeguard related to the information of Insider Trading.

So, considering the motive of investors and stakeholders, this committee had also prepared a "Code" for companies. In this code, the committee recommended two requirements. First was Mandatory requirement like its applicably, composition of Board of Directors, Audit Committee, Remuneration Committee, Board Procedure, Management discussion and Analysis Report and Information sharing with shareholder and other one was non-mandatory requirement.

Thereafter, Corporate Governance has been introduced as Clause 49 of the Listing Agreement.

Meaning of Independent Director under Listing Agreement

Clause 49 prescribes the following definition "Independent Director". The expression 'independent director' shall mean a nonexecutive director of the company who:-

"a. apart from receiving director's remuneration, does not have any material pecuniary relationships or transactions with the company, its promoters, its directors, its senior management or its holding company, its subsidiaries and associates which may affect independence of the director;

b. is not related to promoters or persons occupying management positions at the board level or at one level below the board;

c. has not been an executive of the company in the immediately preceding three financial years;

d. is not a partner or an executive or was not partner or an executive during the preceding three years, of any of the following:

i) the statutory audit firm or the internal audit firm that is associated with the company, and

ii) the legal firm(s) and consulting firm(s) that have a material association with the company.

e. is not a material supplier, service provider or customer or a lessor or lessee of the company, which may affect independence of the director.

f. is not a substantial shareholder of the company i.e. owning two percent or more of the block of voting shares.

g. is not less than 21 years of age."

In simple way, the person, who is appointed as Independent director, has no any connection with company whether directly or indirectly.

Meaning of Independent Director under the Companies Act, 1956

There is no definition has been prescribed under Companies Act, 1956 related to "Independent Director"

Meaning Independent Director under the Companies Act, 2013

In view of more transparency, the Companies Act, 2013 has prescribed the concept of "Independent Director." Let's discuss the Independent director:-

Section 2 (47) Independent Director, "means a independent director refer to in sub section (6) of Section 149 of the Act,"

Section 149(6) "an independent director in relation to a company, means a director other than a managing director or a whole-time director or a nominee director,—

(a) Who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience;

(b) (i) who is or was not a promoter of the company or its holding, subsidiary or associate company;

(ii) Who is not related to promoters or directors in the company, its holding, subsidiary or associate company.

(c) Who has or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year;

(d) None of whose relatives has or had pecuniary relationship or transaction with the company, its holding, subsidiary or associate company, or their promoters, or directors, amounting to two per cent. or more of its gross turnover or total income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial year;

(e) Who, neither himself nor any of his relatives—

(i) Holds or has held the position of key managerial personnel or is or has been employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed;

(ii) Is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of—

(A) A firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or

(B) Any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent or more of the gross turnover of such firm;

(iii) Holds together with his relatives two per cent or more of the total voting power of the company; or

(iv) Is a Chief Executive or director, by whatever name called, of any nonprofit organization that receives twenty-five per cent or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds two per cent. or more of the total voting power of the company; or

(f) Who possesses such other qualifications as may be prescribed."

Comparison between Listing Agreement and the Companies Act, 2013

For aforesaid definition of the Companies Act, 2013 is wider than the definition as prescribed under the Listing Agreement. Now, we discuss the main differences of definitions.

Sl. No	Listing Agreement	Sl. No	The Companies Act, 2013	Comment
1.	A nonexecutive director of the company who apart from receiving director's remuneration, does not have any material pecuniary relationships or transactions with the company, its promoters, its directors, its senior management or its holding company, its subsidiaries and associates which may affect independence of the director;	1.	Who has or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year; None of whose relatives has or had pecuniary relationship or transaction with the company, its holding, subsidiary or associate company, or their promoters, or directors, amounting to two per cent or more of its gross turnover or total income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial year;	The clause which is mentioned under the Companies Act, 2013 is wider than the clause mentioned under Listing Agreement. The Companies Act, 2013 has not only covered the company but its holding, subsidiary, associate, its promoter or directors etc also. The Companies Act, 2013 has also fixed the maximum time period for transaction i.e. 2 years. The Companies Act, 2013 has also restricted the relative of directors to enter transactions etc.
2.	A nonexecutive director of the company who is not related to promoters or persons occupying management positions at the board level or at one level below the board;			Similar clauses are not mentioned under the Companies Act, 2013, Here, the restriction has been imposed only board level but under the Companies Act 2013, which is mentioned in point no 1. Above, restricts the transaction and pecuniary relationship with company, its holding, its subsidiary etc…
3.	A nonexecutive director of the company who has not been an executive of the company in the immediately preceding three financial years;
4.	A nonexecutive director of the company who is not a partner or an executive or was not partner or an executive during the preceding three years, of any of the following:- i) the statutory audit firm or the internal audit firm that is associated with the company, and ii) the legal firm(s) and consulting firm(s) that have a material association with the company.	2.	Who, neither himself nor any of his relatives is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of— (A) A firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or (B) Any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent or more of the gross turnover of such firm;	Both the clauses are almost similar but the scope of Companies Act, 2013 is wider than the Scope of Listing Agreement.
5.	A nonexecutive director of the company who is not a material supplier, service provider or customer or a lessor or lessee of the company, which may affect independence of the director.
6.	A nonexecutive director of the company who is not a substantial shareholder of the company i.e. owning two percent or more of the block of voting shares
7.	A nonexecutive director of the company who is not less than 21 years of age.
		3	Who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience.	New point under the Companies Act, 2013, Any person who has in any kind of expertise and experience shall be covered under this law. The companies Act, 2013 has not clarified the expertise in this regard.
		4	Who is or was not a promoter of the company or its holding, subsidiary or associate company.	The person who is independent Director is prohibited to be a promoter for the company or its holding company or its subsidiary and its associate company, where the listing agreement just put the restriction related to connection of board level.
		5	Who is not related to promoters or directors in the company, its holding, subsidiary or associate company.	The companies Act, 2013 is also prohibited the connectivity of promoter and individual director. It means a person who is connected, directly and indirectly, with director in any associate company of main company, the person cannot be appointed as independent director of such main company.
		6	Who, neither himself nor any of his relatives holds or has held the position of key managerial personnel or is or has been employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed;	The Companies Act, 2013 has imposed restriction for a person who is appointed as an independent Director, if he or his relative is a key managerial person in any company or its holding or its associate company etc. Suppose Mr. A is appointed as independent Director in an A Ltd and A Ltd has an Associate company where his relative Mr. B is a company Secretary, In that case his appointment is not valid as per the Companies Act, 2013.
		7	Who, neither himself nor any of his relatives holds together with his relatives two per cent or more of the total voting power of the company; or	The Companies Act, 2013 also imposed restriction to the directors who hold 2% or more voting power of the Company
		8.	Who, neither himself nor any of his relatives Is a Chief Executive or director, by whatever name called, of any nonprofit organization that receives twenty-five per cent or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds two per cent. or more of the total voting power of the company; or	The companies Act, 2013 has also scoped on Non Profit Organization. This clause is not prescribed under the Listing Agreement.
		9.	Who possesses such other qualifications as may be prescribed.	In this regard, the Companies Act, 2013 shall prescribe the rule.

Declaration by the Independent Director

According to Section 149 (7), The Independent Director shall give declaration that he is complying with the criteria of Section 149 (6) of the Act in the First Board Meeting of the Company after incorporation and thereafter the First Board Meeting of each financial year or when ever his status of Independent directors has affect.

Duties, Role and Responsibility of Independent Director

The independent Director and company shall comply with the Schedule IV of the Act; it is a frame and area of Independent Director. Let's discuss.

Code for Independent Directors

The Code is a guide to professional conduct for independent directors. Adherence to these standards by independent directors and fulfillment of their responsibilities in a professional and faithful manner will promote confidence of the investment community, particularly minority shareholders, regulators and companies in the institution of independent directors.

I. Guidelines of professional conduct:

An independent director shall:

(1) uphold ethical standards of integrity and probity;

(2) act objectively and constructively while exercising his duties;

(3) exercise his responsibilities in a bona fide manner in the interest of the company;

(4) devote sufficient time and attention to his professional obligations for informed and balanced decision making;

(5) not allow any extraneous considerations that will vitiate his exercise of objective independent judgment in the paramount interest of the company as a whole, while concurring in or dissenting from the collective judgment of the Board in its decision making;

(6) not abuse his position to the detriment of the company or its shareholders or for the purpose of gaining direct or indirect personal advantage or advantage for any associated person;

(7) refrain from any action that would lead to loss of his independence;

(8) where circumstances arise which make an independent director lose his independence, the independent director must immediately inform the Board accordingly;

(9) assist the company in implementing the best corporate governance practices.

II. Role and functions:

The independent directors shall:

(1) help in bringing an independent judgment to bear on the Board's deliberations especially on issues of strategy, performance, risk management, resources, key appointments and standards of conduct;

(2) bring an objective view in the evaluation of the performance of board and management;

(3) scrutinize the performance of management in meeting agreed goals and objectives and monitor the reporting of performance;

(4) satisfy themselves on the integrity of financial information and those financial controls and the systems of risk management are robust and defensible;

(5) safeguard the interests of all stakeholders, particularly the minority shareholders;

(6) balance the conflicting interest of the stakeholders;

(7) determine appropriate levels of remuneration of executive directors, key managerial personnel and senior management and have a prime role in appointing and where necessary recommend removal of executive directors, key managerial personnel and senior management;

(8) moderate and arbitrate in the interest of the company as a whole, in situations of conflict between management and shareholder's interest.

III. Duties:

The independent directors shall—

(1) undertake appropriate induction and regularly update and refresh their skills, knowledge and familiarity with the company;

(2) seek appropriate clarification or amplification of information and, where necessary, take and follow appropriate professional advice and opinion of outside experts at the expense of the company;

(3) strive to attend all meetings of the Board of Directors and of the Board committees of which he is a member;

(4) participate constructively and actively in the committees of the Board in which they are chairpersons or members;

(5) strive to attend the general meetings of the company;

(6) Where they have concerns about the running of the company or a proposed action, ensure that these are addressed by the Board and, to the extent that they are not resolved, insist that their concerns are recorded in the minutes of the Board meeting;

(7) keep themselves well informed about the company and the external environment in which it operates;

(8) not to unfairly obstruct the functioning of an otherwise proper Board or committee of the Board;

(9) pay sufficient attention and ensure that adequate deliberations are held before approving related party transactions and assure themselves that the same are in the interest of the company;

(10) ascertain and ensure that the company has an adequate and functional vigil mechanism and to ensure that the interests of a person who uses such mechanism are not prejudicially affected on account of such use;

(11) report concerns about unethical behaviour, actual or suspected fraud or violation of the company's code of conduct or ethics policy;

(12) acting within his authority, assist in protecting the legitimate interests of the company, shareholders and its employees;

(13) not disclose confidential information, including commercial secrets, technologies, advertising and sales promotion plans, unpublished price sensitive information, unless such disclosure is expressly approved by the Board or required by law.

IV. Manner of appointment:

(1) Appointment process of independent directors shall be independent of the company management; while selecting independent directors the Board shall ensure that there is appropriate balance of skills, experience and knowledge in the Board so as to enable the Board to discharge its functions and duties effectively.

(2) The appointment of independent director(s) of the company shall be approved at the meeting of the shareholders.

(3) The explanatory statement attached to the notice of the meeting for approving the appointment of independent director shall include a statement that in the opinion of the Board, the independent director proposed to be appointed fulfils the conditions specified in the Act and the rules made there under and that the proposed director is independent of the management.

(4) The appointment of independent directors shall be formalized through a letter of appointment, which shall set out:

(a) The term of appointment;

(b) The expectation of the Board from the appointed director; the Board-level committee(s) in which the director is expected to serve and its tasks;

(d) Provision for Directors and Officers (D and O) insurance, if any;

(e) The Code of Business Ethics that the company expects its directors and employees to follow;

(f) The list of actions that a director should not do while functioning as such in the company; and

(g) The remuneration, mentioning periodic fees, reimbursement of expenses for participation in the Boards and other meetings and profit related commission, if any.

(5) The terms and conditions of appointment of independent directors shall be open for inspection at the registered office of the company by any member during normal business hours.

(6) The terms and conditions of appointment of independent directors shall also be posted on the company's website.

V. Re-appointment:

The re-appointment of independent director shall be on the basis of report of performance evaluation.

VI. Resignation or removal:

(1) The resignation or removal of an independent director shall be in the same manner as is provided in sections 168 and 169 of the Act.

(2) An independent director who resigns or is removed from the Board of the company shall be replaced by a new independent director within a period of not more than one hundred and eighty days from the date of such resignation or removal, as the case may be.

(3) Where the company fulfils the requirement of independent directors in its Board even without filling the vacancy created by such resignation or removal, as the case may be, the requirement of replacement by a new independent director shall not apply.

VII. Separate meetings:

(1) The independent directors of the company shall hold at least one meeting in a year, without the attendance of non-independent directors and members of management;

(2) All the independent directors of the company shall strive to be present at such meeting;

(3) The meeting shall:

(a) Review the performance of non-independent directors and the Board as a whole;

(b) Review the performance of the Chairperson of the company, taking into account the views of executive directors and non-executive directors;

(c) Assess the quality, quantity and timeliness of flow of information between the company management and the Board that is necessary for the Board to effectively and reasonably perform their duties.

VIII. Evaluation mechanism:

(1) The performance evaluation of independent directors shall be done by the entire Board of Directors, excluding the director being evaluated.

(2) On the basis of the report of performance evaluation, it shall be determined whether to extend or continue the term of appointment of the independent director.

Now, the code of Independent Director is combination of moral duty of an Individual which depends upon person to person. Whatever is prescribed under this Code of Independent Director, it is just a basic lesion of an Individual towards his work. So it is the positive of the Companies Act, 2013 which covers these entire moral lesions.

Stock Option Scheme

The companies Act, 2013 prohibits to take Stock Option but he may receive fee according to Section 197 of the Act. He may also entitle to receive reimbursement of expenses for participating in the Board Meeting and other meeting and profit related commission as may be approved by the member.

Period of holding office

An Independent Director holds office only for 5 consecutive years. He is eligible for further re-appointment after passing of Special Resolution by the Company.

Thereafter, it is mandatory to disclose in the Director Report for his re-appointment.

The interesting point of the Companies Act, 2013, an independent Director shall be appointed for 5 consecutive years. He again eligible for re-appointment but he shall not be appointed more than 2 consecutive term. It means he may be appointed for total tenure of 10 years. Thereafter, as soon as he ceases from his position, he shall not be appointed for three years. It means every 10years of his period; three years shall be a holiday period.

It is noted that during the holiday period (three years period), he shall not be appointed or associated with company by any means, directly or indirectly.

How Can Appoint an Independent Director

This is a new concept under the Companies Act, 2013. In this new concept, the Independent director shall be appointed from a Data base which is created and maintained as per Section 150 of the Act. In this Section, anybody corporate, institute or association which shall be notified by the Central Government, who have sufficient knowledge and expertise to maintaining such data bank. These concerns have own website in this regard. The data bank must be contained three main basic informations like name, address and qualification of persons who want to act as Independent Director.

So, the Independent Director shall be selected from this data bank.

The appointment of Independent Director shall be made in the General Meeting of the Company. So, the explanatory statement annexed to the Notice of the General Meeting must be disclosed the Justification for choosing the appointee for appointment as Independent Director.

The Companies Act, 2013 is trying to give much more transparency for stakeholders in every area; we are just waiting of its complete applicability. The central government shall prescribe the rule for maintiang the date of independent director and they also prescribed the manner for selection of Independent director.

Conclusion

The introduction of Independent Director under the Companies Act, 2013 reflects more transparency in the corporate world. Whatever is written in the code of conduct of Independent Director under the Schedule IV of the Act, if hundred percent applies where there shall be independent director, the benefit defiantly will go to the hand of stakeholders and society at large.

Cenvat Credit on CHA Service Used For Export of Goods

Posted In Service Tax | Articles | No Comments »

Manas Joshi

One fine morning, my mobile rang and my client asked me "Sir, can I take CENVAT credit on CHA services used for export of goods?" Officers are disallowing our credit". Since law is very clear, I immediately gave positive reply to my client and discontinued our conversation. Then I thought do we really need interpretation of the definition of "input service" so as to cover services provided by Customs House Agent (CHA) in the definition. With the help of this article, I just want to convey those aspects which are very much clarified by the Central Government as well as Tribunal in relation to availing CENVAT on CHA services used for export of goods.

We all are aware that the definition of "input service" has gone through various amendments since past few years which have resulted in lot of litigations. The text of the latest definition of "input service" is reproduced below for your ready reference:

l) "input service" means any service, -

(i) used by a provider of [output service] for providing an output service; or

(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal,

and includes services used in relation to modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal;

but excludes, -

(A) service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for -

(a) construction or execution of works contract of a building or a civil structure or a part thereof; or

(b) laying of foundation or making of structures for support of capital goods, except for the provision of one or more of the specified services; or

(B) services provided by way of renting of a motor vehicle], in so far as they relate to a motor vehicle which is not a capital goods; or

(BA) service of general insurance business, servicing, repair and maintenance, in so far as they relate to a motor vehicle which is not a capital goods, except when used by -

(a) a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person; or

(b) an insurance company in respect of a motor vehicle insured or reinsured by such person; or]

(c) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee

It can be seen that the above definition is divided into three parts. The first part covers all such services which have direct or indirect co-relation with the manufacture of final goods. The second part starts with the word "and includes" and therefore, this is the inclusive part of the definition till exclusion part. This second part not only covers the services which are specifically mentioned but also those services which are not specifically mentioned and which are not specifically covered in the exclusion part of the definition (this is where most of the litigations are going on and expecting much more in future). Lastly, the third part of the definition, starting with the word "but excludes" relates with the exclusion part. It can be clearly seen from the definition that the exclusion list is specific and not "inclusive". Thus, prima facie it can be concluded that an assessee can avail CENVAT credit of all such services which are not specifically excluded from the definition. It is important to note that the service provided by CHA is nowhere mentioned in the exclusive part of the definition and therefore, CENVAT credit on CHA service should be allowed.

IN CASE OF EXPORT, PORT IS PLACE OF REMOVAL

Further to our discussion, I wish to bring your attention to the last sentence of the "inclusive part" which says that services related to outward transportation of goods upto the place of removal. The term "place of removal" is not defined under the Cenvat Credit Rules, 2004 and therefore, we need to refer the definition of "place of removal" given under Section 4(3)(C) of the Central Excise Act, 1944. The text of the definition is reproduced below for your ready reference:

"place of removal" means -

(i) a factory or any other place or premises of production or manufacture of the excisable goods;

(ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty;

(iii) a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory;

from where such goods are removed;

In normal practice, the manufacturers export goods on FOB basis i.e. Free on Board basis. In such cases, ownership of such export goods belongs to the manufacturer-exporter until such manufacturer-exporter hand over documents related to such export good to the shipping lines. In other words, it can be said that ownership of export goods get transferred to the foreign customer upon transfer of documents of title to shipping lines at Port and thus, "Port" is the place from where export goods are to be sold. As seen in the definition of the "place of removal", the third point of the definition clearly says that "place of removal" is any place from where the excisable goods are to be sold after their clearance from the factory and thus, it is clear that in case of export of manufactured goods, "Port" is the "place of removal". Thus, CHA service availed for export of goods is specifically included in the definition of "input service".

In this connection, reliance can be place on the below decisions of the Hon'ble Tribunal wherein it is held that in case of export of manufactured goods, port is the place of removal and therefore, CENVAT credit of service tax paid on CHA service is admissible:

a) CCE, Hyderabad-IV v/s Pokarna Ltd. – 2013 (292) E.L.T. 316 (Tri. – Bang.)

b) CCE, Rajkot v. Rolex Rings P. Ltd. – 2008 (230) E.L.T. 569 (Tri.-Ahmd.)

c) Adani Pharmachem (P.) Ltd. v. CCE, 2008 (232) ELT 804 (Tri. – Ahmd.)

d) Meghachem Industries v/s CCE, Ahmedabad – 2011 (23) S.T.R. 472 (Tri. – Ahmd.)

e) JK Tyre & Industries LTD. v/s CCE, Mysore – 2010 (18) S.T.R. 637 (Tri. – Bang.)

CBE&C CLARIFIES THAT PORT IS PLACE OF REMOVAL IN CASE OF EXPRT

Further, I wish to bring your attention to para no. 8.2 of the Circular F. No. 137/85/2007-CX.4 wherein the CBE&C has also clarified that CENVAT credit of service tax paid on the transportation of goods upto such place of sale would be admissible if it is established that sale has actually taken place at the place of customer (it is also useful in case of credit on outward transportation of GTA service). In case of export goods, ownership of such goods remained with the manufacturer-exporter till port area and it gets transferred at the Port upon hand over of documents of title to export goods and therefore, based on clarification issued by the CBE&C, CENVAT credit of service tax paid on CHA service for export of goods is admissible.

In Real Estate Broking Business passing of Commission is normal Practice

Posted In Income Tax Case Laws | Judiciary | No Comments »

CA Sandeep Kanoi

ACIT vs. Shri Damodar Dass Batra (ITAT Delhi)

Issue - The Ld. CIT (A) has erred in deleting the addition of Rs. 11,23,263/- made by the A.O. without considering the fact that these commission expenses are bogus and fictitious and could not be fully substantiated by the assessee.

Held by CIT (A)

Appellant has been serving as a Real Estate Broker who buys and sells properties of well-known Developers/Builders. An established fact in this trade is that commission/rebate/incentive, called by whatever name, is passed on to the early investors or the investors who buy the bulk of property and who make the ready cash advance. It is also an established fact that the real estate broker also passes on a part of such commission, called by whatever name, to their clients. Therefore, the commercial expediency of such payments is very much justified.

Held by ITAT

We have heard both the sides on the issue. We find that in the assessee' s business, it is a common practice to provide rebate or commission or incentive to various persons with whom the assessee has brokered the deal, therefore, we find that commission has been paid for the business purpose of the assessee. In view of these facts, we find no merits in this ground of revenue's appeal.

ACIT vs. Shri Damodar Dass Batra (ITAT Delhi), ITA No.4197/Del./2010, Date of Pronouncement- the 21.02.2014

Tax officials should act as a facilitator rather than tax administrators

Posted In Excise Duty | News | No Comments »

MOS for Finance (Revenue) Asks Tax Administrators to be Tax Payer Friendly, Transparent and Play the Role of Facilitator; Confers Presidential Award of Appreciation on 37 Officers of the Customs and Central Excise Department

Shri J.D. Seelam, Minister of State for Finance (Revenue) said that the tax officials should act as a facilitator rather than tax administrators. He said that there is a need to widen the tax base. There is need to simplify the tax procedure and make it more transparent, he added. He said that tax administration needs to be tax payer friendly. Shri Seelam said that tax system should be stable so that entrepreneurs know well in advance about his tax liabilities etc. and make a provision for the same. He asked the Customs and Central Excise officers to frequently interact with all stakeholders, become facilitator and change the public perception about their organisation. He said that tax payment needs to be made a 'Status Symbol' in order to encourage tax payers to make tax payment voluntarily.

Shri Seelam was speaking at a function organized here today to mark the Central Excise Day and to hold the Annual Investiture Ceremony for conferment of Presidential Award of Appreciation on officers of the Customs and Central Excise Department, who have been awarded on the eve of the Republic Day, 2013. Shri Seelam, Minister of State for Finance (Revenue) was the Chief Guest on the occasion and Shri Sumit Bose, Finance Secretary and Secretary (Revenue) was the Guest of Honour. The function was also attended by Chairperson, CBEC, Members of the Board and the retired Chairmen and Members of the Board, senior officers of the CBEC, both retired and serving, probationers, representatives of trade and media among others.

Shri Seelam, MoS for Finance later presented the Appreciation Certificates to the thirty seven (37) officers who were conferred the award for "Specially Distinguished Record of Service" in 2013. He extended his compliments to the recipients and their family members who were present in large number. He lauded the role of the Department in trade facilitation and enforcement laying special emphasis on its contribution to the national exchequer.

Earlier addressing the gathering, Shri Sumit Bose, Finance Secretary and Secretary (Revenue) dwelt upon the purpose of commemorating this day and expressed his satisfaction at the pace with which the Central Excise Act has adopted itself to the changes in the Indian Economy. He said that tax laws and procedures over the years were modified to keep pace with the changes in the economy and in order to facilitate the trade. He impressed upon the role played by the Act in creating an enabling environment to sustain the momentum in the economic growth of the country. Shri Bose lauded the initiative of CBEC in implementation of several e-governance projects, especially, the implementation of ACES on the excise side. He asked the tax officials to be open, transparent, tax payer friendly and honest in their dealings. He also exhorted the officers to emulate the sincerity and hard work of 37 awardees.

Earlier in her Welcome Address, Ms. J.M. Shanti Sundharam, Chairperson, CBEC expressed her sense of pride in being a part of such an occasion. While congratulating the 37 awardees, she made a special mention of the sacrifices made by their families so that the officers could wholeheartedly devote themselves to their official duties.

On the occasion, a short film depicting the evolvement of Central Excise Department over the last 70 years was also shown.

The Presidential Award of Appreciation Certificates is announced annually in two categories "exceptionally meritorious services rendered at the risk of life" and "specially distinguished record of service." The said awards were introduced in 1962 to give recognition to officers of Customs, Central Excise, Service Tax, Enforcement and Narcotics.

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