[aaykarbhavan] Business standard news updates 3-3-3014

cash investment cap in MFs may soon be raised to ₹ 50,000

VRISHTI BENIWAL New Delhi, 2 March Investors might soon be allowed to buy in cash mutual funds ( MFs) worth up to ₹ 50,000, without declaring their Permanent Account Number ( PAN). The Securities & Exchange Board of India ( Sebi) is planning to increase the cap for cash payment in mutual fund products from the current ₹ 20,000. After the issue was discussed at a meeting of the Financial Stability and Development Council ( FSDC) last month, the market regulator is expected to shortly issue a circular permitting the higher limit. At the meeting, Sebi Chairman UK Sinha had said such a move might help increase penetration of mutual funds in small towns and villages, where some people preferred to invest in cash. The increase in cap will lower the disadvantage faced by mutual funds vis- a- vis insurance products but not bring in a level playing field, as there is no cash limit for investing in insurance products. Also, according to the income- tax rules, if an investment in financial instruments exceeds ₹ 50,000, the investor is required to furnish PAN. So, the information will go to the I- T department, which could, potentially, ask the investor to reveal the source of this money. Two major concerns were raised over increasing cash payment limit for MFs. First, such a move might encourage people to park their illicit money in MFs. According to officials present at the meeting, Finance Minister P Chidambaram allayed this fear by saying the proposed move would encourage people to prefer MFs to unproductive assets like gold. Turn to Page 7 > |The increase in cap on cash investment in MFs will lower the disadvantage faced by mutual funds vis- a- vis insurance products |However, the move will not bring in a level playing field, as there is no cash limit for investing in insurance products |According to I- T rules, if an investment in financial instruments exceeds ₹ 50,000, the investor is required to furnish PAN |So, the I- T department could ask the investor to reveal the source of money invested   Click: Article continued from…Cash investment cap Cash investment... The second concern was that mutual fund houses might have to invest in infrastructure to be able to accept cash which would increase their costs in small areas, where they could currently be running one- man shops. However, Sebi is likely to go ahead with the proposal, keeping the larger interest of customers in mind. "Sebi is saying if you go to small towns and villages, people will give cash. But the other view is that people who invest in MFs don't mind paying in cheque. In fact, mutual funds say very few people use even the present limit of ₹ 20,000. Apparently, the old UTI, which has presence across India, is among the few MFs that get cash. So, it might not amount to much," said a finance ministry official who did not want to be named. Some mutual fund houses are of the view that handling cash will be a problem, as they will have to maintain cash- chest security. That is not the case in acceptiong cheques, which are crossed. They argue it's one person in, say, two months who comes with cash to invest in MFs. "We discourage cash payments because one anyway needs a bank account for MF redemption," says V Krishnan, president, Integrated Enterprises. Cash payments may encourage some people to park their unaccounted money in MFs, he adds. "Everything needs to be transparent." There also is a counter view — the same rules across all financial products, at least for up to ₹ 50,000 of investment, will help bring down arbitrage. Besides, it will give more choice to the customers in selecting mode of investment. "From customers' point of view, it will be beneficial. To increase the penetration of your product and provide convenience to investors, you have to do that. You need to empower customers with more choices," says Jaideep Bhattacharya, managing director, Baroda Pioneer Mutual Fund. The issue is expected to be discussed again at the next FSDC meeting, scheduled for March 7.

 

Foxed by ghost investors, Sebi seeks foreign help PRESS TRUST OF INDIA New Delhi, 2 March As the Securities and Exchange Board of India ( Sebi) sifts through "hopelessly mixed up" documents submitted by Sahara, chances remain very low of finding genuine investors. The market regulator suspects it to have provided details of mostly "ghost or fictitious" investors. Making things worse, there has been a considerable delay in response from central agencies and state governments from whom Sebi has been seeking assistance for attaching Sahara group properties for almost a year, sources said. Notwithstanding these hiccups in such a high- profile case in which Sahara chief Subrata Roy has been taken into police custody for being produced before the Supreme Court on Tuesday, Sebi is seeking help from its peers in foreign countries such as Mauritius, the UK and the US. It is also seeking the help of some other jurisdictions, where Sahara is said to have presence through business ventures or shell companies. Besides help in administrative matters, the overseas regulators may also be tapped for sharing intelligence on the ventures set up by Sahara in various jurisdictions. As majority of investor accounts, from about 30 million listed out by Sahara, not turning out to be genuine, there is a suspicion about possible money laundering activities, a senior official said, adding that other regulatory agencies would need to play a more active role in such a scenario. Even among those who so far appear to be genuine investors and whose numbers could reach a few lakhs at most, amajority are in the " multiple investor" category. Refunds have been made as yet only for "individual genuine investor" accounts. While Sahara has accused Sebi of going slow on the repayment process despite ₹ 5,120 crore having been deposited with it, senior officials said that the refund task is too complex and the group has not been very forthcoming when asked to cooperate in investor verification. The group claims that Sebi has not sought its help in verifying investors. While genuine investors not finding multiple mentions and those not listed against multiple accounts are being repaid their investments, Sebi will soon ask the Supreme Court about the " genuine multiple investors" or those having multiple deposits. These investors would begin getting their refunds after the Supreme Court go- ahead in this regard. While Sebi has not disclosed any official figure for the refunds made so far, Sahara group claims that the total refund so far is just about ₹ 1 crore. Sebi has also set up a special team of officers to deal with refunds. An officer on special duty and other dedicated officers may deal with the objections and claims relating to the Sahara properties to be sold and for conducting the sale of the property to garner funds for refunding the investors' money. An initial pilot study conducted by Sebi for ascertaining the genuineness of investor documents submitted by Sahara had found that close to 99 per cent of the bond- holders were untraceable. The ratio has not improved much since then, sources said. Under the pilot programme, Sebi sent out redemption notices inviting claims to more than 21,000 bond- holders but it received less than 300 claims. While more than 7,000 notices returned undelivered, there was no response in respect of over 13,000 notices. Sebi had referred these cases and many others at a later stage to Sahara for further verification, but not much headway could be made. With regard to the pending payment of about ₹ 20,000 crore from Sahara firms, Sebi is of the view that the group has not been able to establish its claims of having repaid this amount directly in cash to investors. Among others, Sebi had asked Sahara firms to explain payments made by Sahara Credit Cooperative Society (₹ 13,366 crore), Sahara India Commercial Corp Ltd (₹ 4,384 crore), Sahara Q Shop (₹ 2,258 crore), Ketak City Homes (₹ 19 crore) and Kirit City Homes ( ₹ 44 crore) on behalf of Sahara India Real Estate Corp Ltd. Similarly, the group has been asked to explain payments of ₹ 2,479 crore by SICCL and ₹ 2,412 crore by Sahara QShop on behalf of Sahara Housing Investment Corp Ltd. The group was also asked to provide bank statements of these companies to verify the payment claims, but they later said that all payments were made in cash. It also claimed that such large- scale dealings were possible with its vast network of branches. Sahara has said Sebi " does not want to understand the spread of our network into 4,700 centres" and the average daily payment at each branch of about ₹ 2.5 lakh. (From left) Bollywood actor Fardeen Khan, film- maker Ramesh Sippy, lyricist Sameer and comedian Johnny Lever at a press conference in support of Sahara Chief Subrata Roy in Mumbai on Sunday evening. The film fraternity defended Roy by talking about his " patriotism, philanthropy and patronage of the arts" and how he could never commit a fraud PHOTO: SURYAKANT NIWATE The market regulator is seeking help from its peers in Mauritius, the UK and the US to solve the high- profile money laundering case involving Sahara chief Subrata Roy No land mortgage. Quick disposal.   Hazy CSR tax laws make companies jittery SUDIPTO DEY Starting April 1, the corporate social responsibility landscape for India Inc is in for a change. And the clock has started ticking for corporate India to rejig its CSR activities, and bring them in line with the new guidelines. Even as CSR practitioners and corporate lawyers read between the lines of the notified rules under section 135, and the schedule VII of the Companies Act 2013, tax experts point out that the new guidelines could spring a surprise or two on the taxation front for the companies. The ball is now in the court of the Ministry of Finance — in effect, the Central Board of Direct Taxes — to align the existing income tax regulations with the new CSR guidelines. The crux of the issue, say tax experts and corporate lawyers, is whether the CSR spend — now mandated by law — is to be treated as a business expenditure. The Companies Act 1956 —or even the 2013 Act — does not talk about tax treatment of CSR expenses — something that falls under the exclusive domain of the Income Tax law. Moreover, under the old Companies Act of 1956 there is no mention of CSR or equivalent requirement on companies. Such a spend could typically be incurred through a donation route. Under Section 80G of Income Tax Act, 1961, donations to tax registered " not- for- profit" organisations are eligible for deduction — 50 per cent or 100 per cent — depending on which category they fall under. Tax experts point out that there have been instances where income tax authorities have disputed allowing CSR expenses as business expenditure. Tax authorities claim that under section 37 of the Income Tax law, CSR is not business expenditure. Only business related expenses can be treated as tax deductible, they contend. "Possible disallowance of CSR expenses would have the effect of increase in taxable income and the overall tax liability of the corporate," says Nabin Ballodia, partner, tax & regulatory services, KPMG. However, some corporate lawyers claim that in the past, based on specific facts, courts have taken the view that CSR expenditure should be allowable as a deduction for income tax purpose. Thus, without a clear- cut guidance from tax authorities in relation to the new CSR guidelines, corporates could clearly be heading towards uncharted territory when it comes to tax implications of their CSR spend. With a legislative mandate to incur the expenditure, there is now a stronger case for allowing tax deduction, says Ritika Loganey Gupta, associate director, Tax & Regulatory Services, EY. Clarity on tax deduction would not only help avoid the haze but would also encourage corporates to focus on the CSR spend — without worrying about tax liability, adds Ballodia. THE CHANGING LANDSCAPE Key changes in the notified CSR rules in Companies Act 2013 |CSR expenditure to be in line with the amended Schedule VII of the Companies Act 2013 |Net profit calculations exclude dividends from other Indian companies and profits generated outside India |Indian branches and project offices of foreign companies covered under CSR provisions |Private companies exempted from requirement of having independent directors in CSR committees |CSR Policy which includes the list of CSR projects, modalities of execution and monitoring process to be displayed on company website |Political contribution excluded from CSR expenditure Key amendments in Schedule VII to Companies Act 2013 (i) Eradicating extreme hunger, poverty and malnutrition, promoting preventive healthcare and sanitation and making available safe drinking water (ii) Promotion of education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects (iii) Promoting gender equality and empowering women, setting up homes and hostels for women and orphans, setting up old age homes, day care centres, and other such facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups (iv) Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water (v) Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art, setting up of public libraries, promotion and development of traditional arts and handicrafts (vi) Measures for the benefit of armed forces veterans, war widows and their dependents (vii) Training to promote rural sports, nationally recognised sports, and paraOlympic sports and Olympic sports (viii) Contribution to the Prime Ministers National Relief Fund or any other fund set up by the central government or the state governments for socioeconomic development and relief and welfare of the scheduled castes, the scheduled tribes, other backward classes, minorities and women (ix) Contributions or funds provided to technology incubators located within academic institutions which are approved by the central government (x) Rural development projects Tax deductions under Income Tax Act 1961 ( Section 80G) I. Following donation allowed subject to a maximum of 10% of the Adjusted Gross Total Income: A. Donations to government for promoting family planning, etc, 100% allowed B. Eligible for 50% deduction: |Donations to government for other charitable purpose |Donation for housing accommodation/ improvement of cities, towns or villages etc. II. Eligible for 100% deduction w/ o maximum limit: |Donation to PM's National Relief Fund |Donation to State Government Fund for Medical Relief to the Poor |National Illness Assistance Fund |Chief Ministers or Lt. Governors Relief Fund |Approved university or educational institution of national eminence, etc. Clarity on tax deduction would encourage companies to focus on the CSR spend without worrying about tax liability Companies Act silent on tax treatment

BRIEF CASEN [1] M J ANTONY A weekly selection of key court orders

Single venue for arbitration Courts in two countries cannot have speedily, economically and finally. The Supreme Court stated so while setting aside the view of the Bombay High court which had ruled that the courts in England and India have concurrent jurisdiction in the disputes between Enercon India Ltd and Enercon GMBH, incorporated under German laws. There might also be an "ugly rush" to get one forum decide before the other and it would be " a recipe for confusion and injustice". In this case, two Indians entered into a joint venture agreement with the German corporation and formed the Indian company to manufacture and sell wind turbine generators. However, the latter alleged that the German firm stopped shipments of the supplies. The reason urged was that the German firm wanted to pressurise it to sell the shareholding in a desired manner. The dispute travelled from courts in Daman, where the company is registered, the Bombay High Court and to England. The high court ruled against the Indian firm. It appealed to the Supreme Court. It appointed the chairman of the arbitration tribunal and declared that it would conduct proceedings in India. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Daily wage workers cannot be absorbed The Supreme Court last week dismissed the petitions of daily wage workers, who have been on the roll of the Bihar agricultural produce marketing board for nearly two decades and wanted regularisation in the state employment. The board was taken over by the state government. The daily wage workers pleaded for regularisation on the ground that they were working for decades, and they were paid salaries equal to those in the department. However, the Supreme Court denied their prayer in the case, Nand Kumar vs state of Bihar, stating that " it was within their knowledge all the consequences of appointment being temporary; they cannot have even a right to invoke the theory of legitimate expectation for being confirmed in the post". >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Medical or judicial negligence? The Supreme Court last week dealt with a case of alleged medical negligence, but wondered whether it " bordered on judicial negligence". The judge of the Punjab and Haryana went on the basis that the patient had died due to medical negligence. But there was no allegation that she had died. In fact, the medical council had found that the doctors were competent and followed accepted procedure. Despite that the high court repeatedly wrote in its judgment that the patient died and proceeded to decide the case on that basis. When the management of Inscol multi- speciality hospital in Chandigarh appealed to the Supreme Court, it frowned on the gross error committed by the high court. The high court made a belated attempt to change the word " died" to " on the brink of death", on the pretext that it was correcting "typographical" errors. The Supreme Court said the change altered the very foundation of the judgment. It asked the high court to rehear the case, Daljit Singh vs Jagjit Singh. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Growing money on trees The Delhi High Court, last week, confirmed the sentence on Glitter Gold Plantations Ltd and two of its directors for violating the rules and order of Sebi and not refunding the dues of the investors. The company collected money from the public promising that it shall give teak trees to the unit holders after 20 years and the share per unit, which at the time of offer in 1997 was 2,500 was likely to be ₹ 3 lakh per unit at the time the trees are given to the investors. The company was not registered with Sebi and it had not approved of the scheme. It ordered the company to return the money to the investors. It did not fully comply with the order. Some investors filed criminal cases leading to conviction of some directors along with the company. They appealed to the high court. It confirmed the conviction of two directors and the company. The directors will undergo imprisonment. The amount collected by the company will be deposited in the court. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Bar on use of trade name The Delhi High Court has restrained Max Switchgears Ltd from selling and dealing in electrical goods, ie, switchgear, switches and other allied goods under the trade mark MAX as well as from using the same as dominant part of its corporate name. It was also restrained from using any deceptively similar trade mark which may amount to infringement of the registered trade mark of Mex Switchgears Ltd. The latter approached the court complaining that the use of expression MAX, which is deceptively similar to its registered trademark MEX, was bound to cause confusion and deception amongst the purchasing public and trade. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Credit societies lose claim The Bombay High Court last week dismissed a large number of petitions moved by credit societies registered under the provisions of the Maharashtra Co- operative Societies Act. They had challenged the interpretation of a provision in the Deposit Insurance & Credit Guarantee Corporation Act which provided that the corporation shall be liable to pay every depositor of the bank an amount equal to the amount due to him in respect of his deposit in that bank when an order of winding up or liquidation of that bank is made. It restricted the liability to the extent of ₹ 1,00,000. The credit societies had deposited huge sums in certain co- op banks whose licences were cancelled by Reserve Bank of India. The credit societies wanted the entire deposit with interest. But the corporation was offering only ₹ 1,00,000 to each of them by treating them as one unit each. It was argued that the correct interpretation would require the corporation to treat each of their small depositors s as one unit each. The high court, however, upheld the provision based on earlier decisions.

 

 

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CS A Rengarajan

9381011200

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