Prior RBI approval required in cases of acquisition/ transfer of control of NBFCs
The Reserve Bank of India has today issued directions to all the non-banking financial companies (NBFCs), both deposit accepting and non-deposit accepting, stating that prior approval of the Reserve Bank is required in case of any takeover/acquisition of shares of an NBFC; or merger/amalgamation of an NBFC with another entity; or any merger/amalgamation of an entity with an NBFC, that would give the acquirer/ another entity control of the NBFC, or would result in acquisition/transfer of shareholding in excess of 10 percent of the paid up capital of the NBFC. The said requirement is applicable to all NBFCs, irrespective of it being a deposit taking or a non-deposit taking NBFC. Prior written approval of the Reserve Bank would also be required before approaching the Court or Tribunal under Section 391-394 of the Companies Act, 1956 or Section 230-233 of Companies Act, 2013 seeking order for mergers or amalgamations with other companies or NBFCs.
In view of the above, it is brought to the notice of the prospective acquirers of NBFCs that acquisition of shares/ takeover of an NBFC without the prior approval of the Reserve Bank shall result in adverse regulatory action by the Reserve Bank, including, cancellation of Certificate of Registration of the concerned NBFC.
——————
RBI/2013-14/606
DNBS (PD) CC.No.376/03.10.001/2013-14
DNBS (PD) CC.No.376/03.10.001/2013-14
May 26, 2014
All NBFCs (excluding Primary Dealers)
Dear Sirs,
Requirement for obtaining prior approval of RBI in cases of acquisition/ transfer of control of NBFCs
Under Section 45 IA (4)(c) of the RBI Act, 1934, a certificate of Registration can only be given to a company if the Bank is satisfied, inter alia, that the general character of the management or the proposed management of the non-banking financial company shall not be prejudicial to the public interest or the interests of its depositors.
2. In this connection attention is drawn to DNBS (PD) C.C.No.160/ 03.10.001/2009-10 dated September 17, 2009 requiring prior approval of the Reserve Bank in cases of acquisition/ transfer of control of NBFCs accepting deposits. In supersession of those instructions, and to enable RBI to ensure that the 'fit and proper' character of the management of NBFCs, both deposit accepting and non-deposit accepting, is continuously maintained, it has been decided as under:
The prior written permission of the Reserve Bank of India shall be required for –
(i) any takeover or acquisition of control of an NBFC, whether by acquisition of shares or otherwise;
(ii) any merger/amalgamation of an NBFC with another entity or any merger/amalgamation of an entity with an NBFC that would give the acquirer / another entity control of the NBFC;
(iii) any merger/amalgamation of an NBFC with another entity or any merger/amalgamation of an entity with an NBFC which would result in acquisition/transfer of shareholding in excess of 10 percent of the paid up capital of the NBFC.
(iv) Prior written approval of the Reserve Bank would also be required before approaching the Court or Tribunal under Section 391-394 of the Companies Act, 1956 or Section 230-233 of Companies Act, 2013 seeking order for mergers or amalgamations with other companies or NBFCs.
3. Applications in this regard may be submitted to the Regional Office of the Department of Non-Banking Supervision in whose jurisdiction the Registered Office of the Company is located.
4. Notification No.DNBS(PD) 275/GM(AM)/2013-14 dated May 26, 2014, issued in this regard by the Reserve Bank in exercise of powers under Sections 45K and 45L of the RBI Act, 1934 is enclosed for meticulous compliance.
5. Any transfer of shares in violation of the notification would result in adverse regulatory action including cancellation of Certificate of Registration (CoR).
Yours faithfully,
(A.Mangalagiri)
General Manager
General Manager
RESERVE BANK OF INDIA
DEPARTMENT OF NON-BANKING SUPERVISION
CENTRAL OFFICE
CENTRE I, WORLD TRADE CENTRE,
CUFFE PARADE, COLABA,
MUMBAI 400 005.
CENTRAL OFFICE
CENTRE I, WORLD TRADE CENTRE,
CUFFE PARADE, COLABA,
MUMBAI 400 005.
Notification No. DNBS.(PD) 275/GM(AM)-2014 dated May 26, 2014
The Reserve Bank of India, having considered it necessary in the public interest, and being satisfied that for the purpose of enabling it to regulate the credit system to the advantage of the country, it is necessary to give the directions as set out below, in exercise of the powers conferred by sections 45K and 45L of the Reserve Bank of India Act, 1934 (2 of 1934) and of all the powers enabling it in this behalf, gives to every non-banking financial company the directions hereinafter specified.
Short title and commencement of the Directions
1. (1) These Directions shall be known as the 'Non-Banking Financial Companies (Approval of Acquisition or Transfer of Control) Directions, 2014'.
(2) These Directions shall be applicable to every non banking financial company whether accepting deposits or not, except Primary Dealers.
(3) These Directions shall come into force with immediate effect.
Definitions
2. For the purpose of these Directions, unless the context otherwise requires,-
(a) "control" shall have the same meaning as is assigned to it under clause (e) of sub-regulation (1) of regulation 2 of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
(b) "NBFC" means a non-banking financial company as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934.
3. Requirement to obtain prior approval of Reserve Bank of India for acquisition or transfer of control of NBFCs. – The prior written permission of the Reserve Bank of India shall be required for –
(i) any takeover or acquisition of control of an NBFC, whether by acquisition of shares or otherwise;
(ii) any merger/amalgamation of an NBFC with another entity or any merger/amalgamation of an entity with an NBFC that would give the acquirer / another entity control of the NBFC;
(iii) any merger/amalgamation of an NBFC with another entity or any merger/amalgamation of an entity with an NBFC which would result in acquisition/transfer of shareholding in excess of 10 percent of the paid up capital of the NBFC.
(iv) Prior written approval of the Reserve Bank would also be required before approaching the Court or Tribunal under Section 391-394 of the Companies Act, 1956 or Section 230-233 of Companies Act, 2013 seeking order for mergers or amalgamations with other companies or NBFCs.
4. Application of other laws not barred. – The provisions of these Directions shall be in addition to, and not in derogation of the provisions of any other laws, rules, regulations or directions, for the time being in force.
5. Repeal and saving.- (i) The Non-Banking Financial Companies (Deposit Accepting) (Approval of Acquisition or Transfer of Control) Directions, 2009 issued vide Notification No. DNBS.(PD) 208/ CGM(ANR)-2009 dated September 17, 2009 shall stand repealed.
(ii) Notwithstanding such repeal, any action taken, purported to have been taken or initiated under the directions hereby repealed shall continue to be governed by the provisions of the said directions.
(A.Mangalagiri)
General Manager
General Manager
UP ITO jailed in bribery case
Special Judge (West) Anti-Corruption, Lucknow has sentenced Shri Bhagwati Prasad, then Income Tax Officer, Barabanki (Uttar Pradesh) to undergo five years Rigorous Imprisonment with fine of Rs. 90,000/- in a bribery case.
CBI had registered a case on the basis of complaint alleging that Shri Bhagwati Prasad, Income Tax Officer, Barabanki had demanded bribe of Rs.5000/- for issuing a 'No dues certificate'. A trap was laid and Shri Bhagwati Prasad, Income Tax Officer, was caught red handed while demanding & accepting a bribe of Rs.5,000/- from Complainant. A Charge Sheet was filed in the Court of Special Judge (West), Anti- corruption, Lucknow on 26.07.2000 against the accused.
The Trial Court found the accused persons guilty and convicted them.
Source- CBI Press Release
BI ask banks to share information/documents required by SIT
RBI/2013–14/652
DBOD.AML.No.20470/14.01.001/2013-14
DBOD.AML.No.20470/14.01.001/2013-14
June 23, 2014
The Chairpersons / CEOs of all Scheduled Commercial
Banks (Excluding RRBs)/Local Area Banks /
All India Financial Institutions
Banks (Excluding RRBs)/Local Area Banks /
All India Financial Institutions
Dear Madam/Sir,
Constitution of Special Investigating Team – sharing of information
In pursuance of the Hon'ble Supreme Court Judgment dated July 4, 2011, Government of India has constituted a Special Investigation Team (SIT) under the Chairmanship of Hon'ble Justice M.B. Shah. In this regard, the Hon'ble Supreme Court has directed that:
"All organs agencies, departments and agents of the State, whether at the level of the Union of India, or the State Government, including but not limited to all statutorily formed individual bodies, and other constitutional bodies extend all the cooperation necessary for the functioning of the Special Investigation Team.The Union of India and where needed the State Government will facilitate the conduct of the investigastions, in their fullest measures, by the Special Investigation Team and functioning, by extending all necessary financial, material, legal, diplomatic and intelligence resources, whether such investigations or portions of such investigations occur inside the country or abroad."
2. In view of the above, all the banks and financial institutions are advised to ensure that information/documents required by the SIT are made available as and when required.
Yours faithfully,
(Lily Vadera)
Chief General Manager
Chief General Manager
RBI announces Timelines for Regulatory Approvals and Citizens' Charter for Delivery of Services
The Reserve Bank of India (RBI) today released on its website the 'Timelines for Regulatory Approvals' and 'Citizens' Charter' for delivery of services as part of implementation of the non-legislative recommendations of the Financial Sector Legislative Reforms Commission (FSLRC).
These timelines are indicative. If departments are likely to exceed the timeline, they will revert to the applicant.
In case an applicant does not get a response within the indicated timeline, they can approach the head of the concerned department. The department head will respond with the status of the application, the reason for delay, request for additional information, if any, as well as the likely time for disposal of the application.
Background
As per one recommendation of the FSLRC, all regulators are required to move to a time-defined approval process, subject to applicable laws, for all permissions including licence to do business, as well as launch of products and services.
Accordingly, the Reserve Bank has prepared timelines for regulatory approvals by its various departments and a Citizens' Charter for delivery of services by its departments which have public interface.
—–
Citizens' Charter
| I. Public Accounts Department | ||
| Sr. No. | Description of Service | Time taken for providing Service |
| 1. | Delivery of receipted challans tendered with cash | Within 20 minutes (depending upon volume and cash tendered) |
| 2. | Delivery of receipted challans tendered with cheques issued by Government departments maintaining accounts with Reserve Bank of India | Within 30 minutes |
| 3. | Delivery of receipted challans tendered with local cheques drawn on other banks | After 3 clear working days |
| 4. | Delivery of receipted challans tendered with outstation cheques | 7 days (for the four Metros) 15 days for other centers |
| 5. | Submission of scrolls to Government departments | On next working day |
| 6. | Submission of monthly statements to Government departments | On second working day of the following month |
| 7. | Cash withdrawal by Government through cheques | 20 minutes (Depending upon volume of withdrawal) |
| 8. | Receipt of debit/credit scrolls from agency banks and reimbursement of claims/settlement | Day to day basis |
| II. Public Debt Office | ||
| Sr. No. | Description of Service | Time taken for providing Service |
| 1. | Issue of Duplicate Securities (a) Government Promissory (G.P.)Notes | 3 months from the date of publication in the Government Gazette |
| (b) Duplicate Receipt | Within two days of admission of claim | |
| 2. | Payment of Interest Warrant | |
| (a) Stock Certificate | On due date | |
| (b) Subsidiary General Ledger (SGL) | On due date | |
| (c) Savings Bonds | On due date | |
| 3. | (a)Transfer | 4 days |
| (b)Change of enfacement | 2 days from the date of receipt of special cancellation advice from the parent PDO | |
| (c) Conversion | 4 days | |
| 4. | Credit to SGL account | 3 days |
| 5. | Issue of scrip by debit to SGL | 2 days |
| 6. | Receipt of Securities for repayment | 5 days |
| 7. | SGL Transfer | 1 day |
| 8. | Registration of Power of Attorney and Certification | 1 day |
| 9. | Other Services | |
| (a) Examination | 1 day | |
| (b) Certificate of Registry of sale power | 1 day | |
| (c) Renewal | 6 days | |
| (d) Withdrawal from safe custody | 1 day | |
| 10. | Revalidation of Interest Warrant | 1 day |
| 11. | Registration of Nomination | 1 day |
| III. Deposit Accounts Department | ||
| Sr. No. | Description of Service | Time taken for providing Service |
| 1. | Transfer (of funds from one bank's current account to another bank's current account in RBI) | Immediately once the instrument is received. |
| 2. | Clearing | 3 days |
| 3. | Receipt of Cash | 15 minutes (depending on the volume of tender) |
| 4. | Withdrawal of Cash | 20 minutes (depending on the volume of tender) |
| 5. | Issue of Demand Draft | 1 hour |
| 6. | Issue of cheque books | 20 minutes |
| 7. | Furnishing of daily statement of accounts | The statements are available instantly for the account holders at their end online either in CBS-E-kuber portal or through Telebanking |
| 8. | Refinance facility and disbursement of loans | Same day |
| The time frame indicates clear working days. | ||
| IV. Foreign Exchange Department | ||
| Sr. No. | Description of Service | Time taken for providing Service |
| 1. | External Commercial Borrowing (ECB) / Foreign Currency Convertible Bonds (FCCB) | |
| Trade Credit under approval route | 7 days | |
| Post servicing of automatic cases | 15 days | |
| ECB/FCCB under approval route | 30 days | |
| 2. | Foreign Investment | |
| Transfer of Shares (requiring prior RBI approval) | 40 days | |
| Pledge of Shares | 40 days | |
| Issue of licence for Branch/ Liaison Office | 40 days | |
| Refund of advance remittance | 7 days | |
| Foreign Collaboration – General Permission Route (FC-GPR) to be taken on record | 40 days | |
| 3. | Indian Investment Abroad | |
| Investment in Overseas Joint Ventures and Wholly Owned Subsidiaries (not covered by automatic route) | 40 days | |
| Disinvestment of shares in Overseas Joint Ventures/ Subsidiaries | 40 days | |
| Other Overseas Investment under approval route | 40 days | |
| Allotment of Unique Identification Number (UIN) | Instantly auto generated by the online reporting system | |
| 4. | Exports | |
| Permission for waiving GR Form formalities for exports | 7 days | |
| Set Off / Write Off | 7 days | |
| Export receivables / payables outside ACU mechanism | 7 days | |
| Refund / retention of advance | 7 days | |
| Imports | ||
| Direct imports | 7 days | |
| Third country / Merchanting trade / Warehousing | 7 days | |
| Import receivables / payables outside ACU mechanism | 7 days | |
| Items under Schedule III of Current Account Transaction (CAT) Rules – release of exchange beyond the stipulated limits | ||
| (i) Travel related purposes | 7 days | |
| (ii) Non-travel related purposes | 7 days | |
| 5. | Others | |
| Issue / Renewal of Money Changer's licence | 40 days | |
| Compounding of contraventions of FEMA | 180 days | |
| V. Issue Department |
| The availability and modes of services relating to banknotes and coins will undergo changes on account of implementation of the policy for shifting of retail functions pertaining to currency management services from RBI to the commercial banks. The Citizens' Charter is being appropriately modified to incorporate the above. |
Notes:
These timelines are indicative and exclude the date of submission of the application and are subject to the application being complete in all respects.
These timelines are indicative and exclude the date of submission of the application and are subject to the application being complete in all respects.
If departments are likely to exceed the timeline, they will revert to the applicant.
In case an applicant does not get a response within the indicated timeline, they can approach the head of the concerned department. The department head will respond with the status of the application, the reason for delay, request for additional information, if any, as well as the likely time for disposal of the application.
——
Timelines for Regulatory Approvals
I. Department of Banking Operations and Development
| Sr. No. | Description of Regulatory Approval | Time required |
| 1. | Private Bank Licence- In principle approval | 90 days@ |
| 2. | Approval to banks for acquisition/transfer of shares of five per cent or more of paid up equity share capital of the bank | 90 days |
| 3. | Approval to banks for holding non-banking assets beyond 7 and up to 12 years, in terms of Section 9 of Banking Regulation Act, 1949 | 15 days |
| 4. | 'In principle' approval to banks for IPO, preferential issues of capital and qualified institutional placements | 30 days |
| 5. | Approval to banks for redemption of subordinated debt | 15 days |
| 6. | Approval to banks for establishing a subsidiary/joint venture/associate/making strategic investments in financial services companies | 45 days |
| 7. | Approval to banks for offering activities such as investment advisory services, portfolio management services or venturing into stock broking, mutual funds, venture capital funds, insurance or pension management departmentally | 45 days |
| 8. | Permission to banks for expanding the scope of para-banking activities of the bank/it's subsidiary | 45 days |
| 9. | Permission to banks to retain investments in non-financial services companies beyond the prescribed prudential limits | 45 days |
| 10. | Approval to foreign banks having their business in India for substitution of Government / approved Securities held under Section 11(2)(b) of the Banking Regulation Act, 1949 | 5 days |
| 11. | Approval to foreign banks having their business in India for deposit/withdrawal of Government / approved Securities held under Section 11(2)(b) of the Banking Regulation Act, 1949 | 5 days |
| 12. | Appointment / re-appointment of whole time directors (MD & CEO / EDs/ Jt. MDs ) and Part-time Chairmen (non-whole time directors) in Private Sector Banks, including LABs | 90 days |
| 13. | Appointment / re-appointment of CEOs of Foreign Banks operating in India | 90 days |
| 14. | Remuneration Bonus and Employee Stock Option(ESOP) of whole time directors (MD & CEO / EDs/ Jt. MDs ) and Part-time Chairmen (non-whole time directors) of Private Sector Banks, including LABs | 60 days |
| 15. | Remuneration, Bonus and Employee Stock Option of CEOs of Foreign Banks operating in India | 60 days |
| 16. | Opening of branches under Annual Branch Expansion Plan (ABEP) in respect of banks for which the general permission granted to open the branches in Tier 1 centres in terms of Circular DBOD.BAPD. Nos. 54 & 60/ 22.01.001/ 2013- 14 dated September 19, and October 21, 2013 has been withdrawn | 30 days |
| 17. | Shifting of sole rural branches of banks outside the centre / village | 15 days |
| 18. | Shifting of rural branches of banks outside the block | 15 days |
| 19. | Part- shifting of a branch of bank | 15 days |
| 20. | Conversion of a rural branch of bank into satellite office | 15 days |
| 21. | Merger of Sole Rural / Semi Urban Branch of bank | 15 days |
| 22. | Closure of Rural Branches of banks | 15 days |
| 23. | Opening of branches under Annual Branch Expansion Plan (ABEP) of Local Area Banks | 30 days |
| 24. | Advances to banks' Directors | 90 days |
| 25. | Staff Incentive Schemes by banks for deposit mobilization | 90 days |
| 26. | Authorisation for import of gold/silver by banks | 60 days |
| @ The timeline for issue of in-principle approval for private sector bank licences commences from receipt of report from the Independent External Advisory Committee. | ||
II. Department of Banking Supervision
| Sr. No. | Description of Regulatory Approval | Time required |
| 1. | Approval given to banks and Financial Institutions for Statutory Central Auditors and Statutory Branch Auditors | |
| i) Public Sector Banks: | ||
| a) Statutory Central Auditors | 15 days | |
| b) Statutory Branch Auditors | 30 days | |
| ii) Private Sector Banks/Foreign Banks: | ||
| a) Statutory Central Auditors | 30 days | |
| b) Statutory Branch Auditors | 30 days | |
| iii) Overseas branches of Indian Banks: Statutory Auditors | 30 days | |
| iv) Select Financial Institutions: Statutory Auditors | 21 days |
III. Department of Currency Management/ Issue Department
| Sr. No. | Description of Regulatory Approval | Time required |
| 1. | Opening of currency chests (CCs) by banks
| Approval in Three Stages Stage I – 15 days Stage II – 15 days Stage III – Final Approval 10 days |
IV. Department of Non-Banking Supervision
| Sr. No | Description of Regulatory Approval | Time required |
| SRO | ||
| 1. | Recognition to Self-Regulatory Organisation (SRO) | 45 days |
| Non-Banking Finance Companies(NBFCs) | ||
| 2. | Issue of Certificate of Registration (other than Securitization and Reconstruction Companies) | 45 days |
| 3. | NOC to sponsor Infrastructure Debt Fund by NBFC | 30 days |
| 4. | Change of control/ownership/management of an NBFC | 30 days |
| 5. | Change of name | 30 days |
| 6. | Shifting of company's Registered Office and request for issue of fresh Certificate of Registration | 30 days |
| 7. | Issue of NOC for setting up of subsidiary/ Wholly Owned Subsidiary overseas | 30 days |
| 8. | Approval for exemption from the exposure norms in cases where public funds are not accepted | 30 days |
| 9. | Permission to invest in insurance companies | 30 days |
| 10. | Permission to convert NBFC from Category A (Accepting Deposits) to Category B (Non-Deposit Accepting) | 30 days |
| 11. | Conversion of existing NBFCs to other categories such as Core Investment Companies-Non Deposit taking-Systemically Important (CIC-ND-SI) , NBFC-Micro Finance Institutions (NBFC-MFIs), NBFC-Infrastructure Finance Companies (IFCs) and NBFC-Factors | 30 days |
| 12. | Opening of branches (> 1000 in number) by NBFCs primarily into lending against gold jewellery | 30 days |
| 13. | Opening of branches by NBFCs-Deposit taking | 30 days |
| 14. | Issue of co-branded credit cards and pre-paid payment instruments | 30 days |
| 15. | Distribution of mutual fund products | 30 days |
V. Department of Payment and Settlement Systems
| Sr. No. | Description of Regulatory Approval | Time required |
| Financial Market Infrastructure | ||
| 1. | Authorisation for Financial Market Infrastructure e.g. Central Counter Party, Trade Repository, etc. | 120 days @ |
| Retail Payment System | ||
| 2. | Authorisation for Retail Payment System (including Card Payment Networks, Cross Border Money Transfer, ATM Network, Prepaid Payment Instrument Operators, White Label ATM Operators, etc.) | 120 days # |
| @ –The proposals are put up for approval to Board for Payment and Settlement Systems (BPSS) which meets once in a quarter. # – Payment and Settlement Systems Act, 2007 [Sec 7(4)] states that RBI shall endeavour to dispose of applications for Authorisation within six months from the date of filing. The proposals get approved in the BPSS meeting that meets once in a quarter. | ||
VI. Foreign Exchange Department
| Sr. No. | Description of Regulatory Approval | Time required |
| 1. | a) Trade Credit under approval route | 7 days |
| b) Post servicing of External Commercial Borrowing (ECB)/ Foreign Currency Convertible Bond (FCCB) under Automatic and Approval route | 15 days | |
| c) ECB/FCCB proposals under Approval route | 30 days | |
| 2. | NOC/approval for
| 30 days |
| 40 days | |
| 3. | Receipt of Capital Contribution | 30 days |
| 4. | a)Transfer of shares from Non Resident Indian (NRI) to Non Resident(NR) | 40 days |
| b) Gift of shares from Resident to NRI c) Delay in reporting d) Permission for opening of escrow account by Authorised Dealer(AD) Category – I bank beyond the period of 6 months for effecting transfer of shares | 60 days | |
| 5. | a) Permission for establishment of new Liaison Office(LO)/ Branch Office(BO) in India under Approval Route | 40 days |
| b) Approval for establishing additional LO/BO in India. c) Permission for shifting LO/BO to another city. | 10 days on receipt of Government approval | |
| d) Permission for opening LO/BO/ Project Office(PO) by entities from China, Hong Kong, Macau, Pakistan, Bangladesh, Afghanistan, Sri Lanka and Iran | 10 days on receipt of Government approval | |
| e) Permission for establishing PO in India which require GOI approval | 10 days on receipt of Government approval | |
| 6. | Permission to open foreign currency account in India | 60 days |
| 7. | To open foreign currency account outside India | 60 days |
| 8. | To open Non Resident Ordinary(NRO) account in consultation with the MoF, GoI | 30 days on receipt of Government approval |
| 9. | To receive salary outside India in foreign currency account | 90 days |
| 10. | For transfer/acquisition of immovable property not covered under general permission in terms of Foreign Exchange Management Act(FEMA) 21 | 30 days on receipt of Government approval |
| 11. | Approvals given for proposals regarding miscellaneous external payments of permissible Current and Capital Account transactions | 30 days |
| 12. | a) Investment in Overseas Joint Ventures and Wholly Owned Subsidiary(WOS) (not covered by automatic route) b) Other overseas Investment under approval route | 40 days |
| c) Disinvestment of shares in Overseas Joint Ventures / Subsidiaries | 40 days | |
| d) Allotment of Unique Identification Number (UIN) | Instant online allotment | |
| 13. | Issue and Renewal of fresh AD Category(Cat)-I licence | 30 days |
| 14. | Issue of fresh AD Cat-II licence | 90 days |
| 15. | Issue and Renewal of fresh AD Cat-III licence | 30 days |
| 16. | Issue of fresh licence to conduct Money Transfer Service Scheme(MTSS) business | 45 days |
| 17. | Issue of first permission to undertake Rupee Drawing Arrangement (RDA) scheme | 30 days |
| 18. | Approvals to take Insurance policies from insurance companies in foreign countries. | 7 days |
| 19. | Compounding of contraventions of FEMA | 180 days |
| 20. | Issue/ Renewal of Money Changer's licence | 40 days |
VII. Financial Markets Department
| Sr. No. | Description of Regulatory Approval | Time required |
| 1. | NDS-CALL membership | 7 days* |
| 2. | Intra-day Limit (IDL) setting for RTGS members | 7 days* |
| * The timeline indicates clear working days, excluding date of receipt of application | ||
VIII. Internal Debt Management Department
| Sr. No. | Description of Regulatory Approval | Time required |
| Bank Primary Dealers (carrying PD business departmentally) | ||
| 1. | 1. Licence for Primary Dealer Business | 90 days |
| 2. Termination of PD licence | 90 days | |
| Standalone Primary Dealers | ||
| 2. | 3. Licence for Primary Dealer Business | 90 days |
| 4. Termination of PD licence | 90 days | |
| 5. Change in shareholding pattern | 45 days | |
| 6. For undertaking Portfolio Management Services | 60 days | |
| 7. To act as market makers for the Credit Default Swaps (CDS) | 45 days | |
| 8. Diversification of activities by PD | 45 days | |
| 9. Declaration of Dividend - (In case there are special reasons or difficulties for any PD in strictly adhering to the guidelines relating to Dividend, it may approach RBI in advance for an appropriate ad hoc dispensation in this regard) | 45 days | |
IX. Rural Planning and Credit Department
Regulatory approvals granted without involving other departments/agencies
| Sr. No. | Description of Regulatory Approval | Time required |
| State and Central Co-op. Banks | ||
| 1. | Grant of loan/advance against the security of NRE deposits to a resident individual/ firm/ company in India | 30 days |
| 2. | Disposal of non-banking assets | 30 days |
| 3. | Investment in shares of other Co-operative Societies situated outside the area of the co-operative bank | 30 days |
| 4. | Permission to make investments in non-SLR securities | 30 days |
| 5. | Retirement of investments made in the deposits of PSUs / Companies / Corporations / UCBs / NBFCs, etc. and investments in mutual funds, non- PSU bonds – Approval of time-bound programme by Regional Office | 30 days |
Regulatory approvals involving inter-office/inter-agency coordination
| Sr. No. | Description of Regulatory Approval | Time required |
| State and Central Co-op. Banks | ||
| 1. | Grant of banking licence | 30 days |
| 2. | Permission to make investments in non-PSU bonds where prescribed criteria are not met | 30 days |
| 3. | Permission to issue Long Term (Subordinated) Deposits and Innovative Perpetual Debt Instruments | 30 days |
| 4. | Permission to take up insurance business and renewal thereof | 30 days |
| 5. | Permission for commencing co-branded credit card business and renewal of permission | 30 days |
| State Co-op. Banks | ||
| 6. | Grant of branch licence to State Co-op. banks | 30 days |
| 7. | Grant of permission to open Extension Counters | 30 days |
| 8. | Permission for opening specialized branches for conducting forex business, etc., and for up-gradation of existing extension counters into full-fledged branches | 30 days |
| 9. | Permission for shifting of a bank branch to a different locality/municipal ward other than the one mentioned in the licence | 30 days |
| 10. | Inclusion in the 2nd Schedule to RBI Act 1934 | 30 days |
| Regional Rural Banks | ||
| 11. | Inclusion in Second Schedule of RBI Act | 45 days |
| 12. | Exclusion from Second Schedule of RBI Act | 45 days |
| 13. | Grant of branch licence | 45 days |
| 14. | Grant of licence for opening of service branch, Regional Offices | 45 days |
| 15. | Permission for shifting of branches outside the locality/municipal ward at semi-urban / urban / metropolitan centres | 45 days |
| 16. | Permission of conversion of satellite offices into full-fledged branches | 45 days |
| 17. | Permission for opening of extension counters | 45 days |
| 18. | Permission for upgradation of extension counters into full-fledged branches | 45 days |
| 19. | Permission for setting up of ultra-small branches | 45 days |
| 20. | Grant of branch licence | 45 days |
| 21. | Grant of licence for opening of service branch, Regional Offices. | 45 days |
| 22. | Permission for shifting of branches outside the locality/municipal ward at semi-urban / urban / metropolitan centres | 45 days |
| 23. | Appropriation from the Reserve Fund under Section 17(2) of the BR Act, 1949 | 45 days |
X. Urban Banks Department
| Sr. No. | Description of Regulatory Approval | Time required |
| 1. Approvals/Permissions given by Central Office | ||
| 1. | Extension of Area of Operation i) beyond adjoining districts and to the entire State of registration ii) beyond the State of registration iii) for multi-state UCBs | 90 days |
| 2. | Shifting of branches – Request from UCBs not conforming to the FSWM (Financially Sound and Well Managed) criteria for shifting of their offices/branches outside the centre/State | 90 days |
| 3. | Shifting of branches of UCBs outside the State of registration | 90 days |
| 4. | Permission to undertake intra-day short selling of G-Secs | 90 days |
| 5. | Permission to extend unsecured advances up to 25% of total assets subject to conditions prescribed in our circular dated April 3, 2010 | 90 days |
| 6. | Remission of Debt of Director related loans | 90 days |
| 7. | Grant of permission for raising Long Term (Subordinated) Deposits (LTD)/ Perpetual Non-Cumulative Preference Shares (PNCPS)/ Conversion of deposits to equity | 90 days |
| 2. Approvals/Permissions given by Regional Offices | ||
| 8. | Shifting of offices to different wards/municipal areas | 45 days |
| 9. | Extension of time for submission of Form – V (Furnishing of details of Branches opened) | 90 days |
| 10. | Change of address to same municipal ward, post issue of authorization but before opening of branch | 90 days |
| 11. | Authorisation for opening of branches under Annual Business Plan and new off-site ATMs | 90 days |
| 12. | Approval for opening of specialized branches by UCBs | 90 days |
| 13. | Permission to extend internet banking facility to customers | 90 days |
| 14. | Permission for payment of dividend | 90 days |
| 15. | Change in name of bank | 90 days |
| 16. | Authorization to maintain/renew NRE accounts | 90 days |
| 3. Other applications received by the Department for recommendations but approvals/permissions granted by other Departments /Organisations | ||
| 17. | Approvals related to Centralised Payment System | 90 days |
| 18. | MTSS | 90 days |
| 19. | AD-I and AD-II category licences | 90 days |
| 20. | Opening of current account/SGL account | 45 days |
| 21. | Clearing House memberships | 45 days |
| 22. | NDS-OM Membership | 90 days |
| 23. | Permission to extend mobile banking to customers | 90 days |
| 24. | Banker to Issue | 90 days |
| 25. | Merchant Banking | 90 days |
Footnotes:
- All the above estimated timelines for regulatory approvals of various departments (I to X) are anticipated to be met by in most cases, but a few may exceed these timelines.
- If departments are likely to exceed the timeline, they will revert to the applicant.
- In case an applicant does not get a response within the indicated timeline, they can approach the head of the concerned department. The department head will respond with the status of the application, the reason for delay, request for additional information, if any, as well as the likely time for disposal of the application.
- In some situations, a change in procedure or in the environment will change the estimated time for action. In such cases, the timeline for approval will be modified appropriately.
- The timelines given in column 3 for all above Departments (I to X) are subject to receipt of complete information/documents from the banks/Institutions concerned as well as receipt of regulatory/supervisory inputs/due diligence reports/approvals from other regulators and the concerned Government Agencies/Departments.
ICAI suggests independent and comprehensive audit of all TDS returns
Audit of TDS returns
A major portion of the revenue by way of income-tax is recovered through deduction of tax at source. For furnishing the information required under revised clause 27 of Form No.3CD, an in-depth verification of the TDS returns is necessary.
It is suggested that an independent audit provision may be inserted to provide for a comprehensive audit of all the TDS returns filed with the Department. Appropriate forms of audit report can be prescribed to certify about the correctness of the quarterly TDS returns. This will enable the Department to rest be assured about the correctness of the TDS returns filed as well as the remittance of the tax deducted at source to the credit of the
Central Government.
Central Government.
Source- Pre-budget Memorandum 2014 on direct taxes by (Institute of Chartered Accountants of India
Sec. 143(2) notice is must even if assessee treats original return as one in response to sec. 148 notice
IT: Even where assessee requested Assessing Officer to treat original return as one in response to section 148 proceeding, notice under section 143(2) was mandatory; otherwise re-assessment would be bad in law
No addition of unexplained sums if it was duly explained by assessee in absence of any response from third parties
IT : In a case of purchase of shares on credit, assessee's obligation stood discharged under section 69A if he furnished details of cheques, details of banks and addresses of sellers of shares
Evasion of Service Tax by Banks - DGCEI MO Circular
24.06.2014
Tuesday
DURING the course of investigation against one of the Co-Operative Banks, DGCEI noticed that the Bank was, inter alia, providing banking and other financial services to their clients which include
(a) issue of cheque books(b) issue of Bankers Cheques/Pay Orders/Demand Drafts(c) advancing loans to clients such as personal loans, vehicle loans, housing loans, working capital loans, term loans etc(d) arranging for local and international Letters of Credit(e) Bill discounting(f) providing Bank guarantees etc. and charging their customers who avail of the above facilities.
DGCEI found that the Bank was charging processing fee @ 0.25% of the loan amount subject to a maximum of Rs.10,00,000/- from the customers for processing of the loan applications. Investigations conducted revealed that the Bank was bifurcating the said processing fee into two parts, one as processing fee and the other as agreement fee @ 25% and 75% of the total fee respectively. Processing fee is collected on pre-sanction basis for appraisal & sanction of the loan and the agreement fee is collected on post-sanction basis for executing the loan documents for release of the sanctioned facilities. It was revealed that the Bank, was not paying service tax on 75% of the processing fee which they termed as 'agreement fee' till July, 2012.
DGCEI brings this Modus Operandi to the filed formations for taking necessary action in similar cases
Application of AS-22 on AS-19
Esha Agrawal
Hello everyone thanks for the appreciation for my last article "why AS 22 is applied", coming with another article application of AS-22 on AS -19 "leases". I am writing this article to discuss with you all how AS- 22 deferred taxes is applied on AS-19There are two types of lease
1) Financial lease
2) Operating lease
Financial lease is lease where risk and reward are also transferred to lessee by lessor
Operating lease means lease other than financial lease
In case of financial lease we get the ownership of asset so we charge depreciation on asset but in case of income tax they don't consider asset on lease as an asset so depreciation and finance charges are not allowed, only lease rentals paid are allowed as expense. So DTA/DTL are created on such difference
ILLUSTRATION
Ram took one machine on lease whose fair value was Rs 100000. Agreed lease rentals were
| Y0 | 10000 |
| Y1 | 39000 |
| Y2 | 26000 |
| Y3 | 34000 |
Guaranteed residual value on lease was Rs 10000
Rate of interest 10%, Expenses on lease nil, Tax rate 30 %, life of machine 3 years
SOLUTION
Calculation of value of machine
Lower of following
1) Fair value
OR
2) P.V. of minimum lease payments from standpoint of lessee
| Year | Lease rental | discount | P.V. |
| Y0 | 10000 | 1 | 10000 |
| Y 1 | 39000 | 0.909 | 35451 |
| Y 2 | 26000 | 0.826 | 21476 |
| Y3 | 44000 | 0.751 | 33044 |
| TOTAL 99971 | |||
So value of machine Rs 99971(lower of fair value rupees 100000 or P.V. of MLP RS 99971)
| Calculation of finance charges | ||||||||||||||||||||||||||||||||||||||||
|
Finance charges is just like a loan account here value of machine is rupees 99971 of which Rs 10000 is down payment so balance payment is Rs 89971 on which interest is levied @ 10% Rs 8997 for 1styear , instalment paid at the end of 1st year Rs 39000 so principal payment is Rs 30003. Now the outstanding amount in the second year is Rs 59968 on which interest is levied at the end of 2nd year @ 10% Rs 5997, instalment paid Rs 26000 so principal payment is Rs 20003 and so on.
Effects in accounts and taxation
| Accounts treatment Tax treatment Timing difference Deferred tax | |||||
| Years | finance charges | depreciation | Instalments | ||
| 1 | 8997 | 33324 | 49000 | 6679 | 2004(DTL) |
| 2 | 5997 | 33324 | 26000 | 13321 | 1993(DTA) |
| 3 | 4035 | 33323 | 44000 | 6642 | 1993(Reversal of DTA) |
For accounting purpose the lease asset is treated as asset so depreciation is charged on asset and finance charges on outstanding loan amount, in the first year total deduction allowed as per accounting purpose is Rs 42321, for tax purpose, lease asset do not consider as asset so depreciation and finance charges are not allowed, only lease rentals are allowed which is Rs 49000, the amount of deduction allowed for tax purpose exceed the deduction allowed for accounting purpose by Rs 6679 and therefore taxable income is lower than the accounting income. This gives rise to deferred tax liability is of Rs 2004, in second year deduction for accounting purpose is Rs 39321 and deduction for taxation purpose is Rs 26000, accounting income is more than is more than taxable income, this gives rise to DTA Rs 1993(Rs 3993 minus 2004 opening balance of DTL), 3rd year deduction allowed for taxation purpose exceeds deduction allowed for accounting purpose so DTA created in second year Rs 1993 is reversed in 3rd year.
This is the treatment of AS-22 on AS-19
So i have discussed just a part of this accounting standard, Hope you enjoyed reading the article and gain some knowledge from this. If you have any queries please ask me i will try to solve it, you can mail me at eshaag6@gmail.com.
IT : Where assessee had sufficient interest free fund available with it to be invested in mutual funds, deduction of interest expenditure on borrowed fund could not be disallowed under section 36(1)(iii)
IT : Where assessee had sufficient profit and interest free funds to be invested in mutual fund from where exempted income was generated and nothing had been charged by bank except STT, disallowance under section 14A was to be restricted to amount of STT
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[2014] 45 taxmann.com 427 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax-I
v.
Amod Stamping (P.) Ltd.*
M.R. SHAH AND R.P. DHOLARIA, JJ.
TAX APPEAL NOS. 1058 TO 1060 OF 2013†
DECEMBER 10, 2013
I. Section 36(1)(iii) of the Income-tax Act, 1961 - Interest on borrowed capital (Disallowance of) - Assessment years 2004-05 and 2005-06 - Assessee claimed deduction of interest expenditure - Assessing Officer disallowed same under section 36(1)(iii) on plea that assessee failed to establish that investments in mutual funds had not been made from borrowed fund; and same had been made out of interest free funds available with it - Tribunal having noticed that interest free funds available with assessee were far in excess of investments, deleted impugned disallowance - Whether Tribunal was justified in its action - Held, yes [Para 3.2] [In favour of assessee]
II. Section 14A of the Income-tax Act, 1961 - Expenditure incurred in relation to exempt income (Interest free funds) - Assessment year 2006-07 - Assessing Officer made disallowance of Rs. 13.89 lakhs under section 14A towards interest and other expenses incurred by assessee in relation to earning of exempt income from mutual fund investments in banks - Commissioner (Appeals) having noticed that assessee was having sufficient profit and interest free funds in comparison to investments and no interest had been charged by bank except security transaction tax of Rs. 64,909, restricted disallowance to Rs. 64,909 - Whether Commissioner (Appeals) was justified in his action - Held, yes [Para 4.1] [In favour of assessee]
FACTS - I
| ■ | The assessee-company was engaged in the business of manufacturing of electrical laminations, job work of stamping. In the return of income filed for the assessment year 2004-05, it claimed deduction of interest expenditure. | |
| ■ | The Assessing Officer disallowed the interest expenditure under section 36(1)(iii). He held that the assessee failed to establish that investments in mutual funds had been made out of own interest free funds. | |
| ■ | On appeal, the Commissioner (Appeals) confirmed the disallowance made by the Assessing Officer. | |
| ■ | On second appeal, the Tribunal having found that the interest free funds available with the assessee as on the date of balance-sheet were far in excess of investments as on 31-3-2004, deleted the disallowance made by the Assessing Officer under section 36(1)(iii). | |
| ■ | On appeal to High Court: |
HELD - I
| ■ | While deleting the disallowance made by the Assessing Officer under section 36(1)(iii), the Tribunal has relied upon the decision of the Bombay High Court in the case of CIT v. Reliance Utilities & Power Ltd. [2009] 313 ITR 340/178 Taxman 135 and had specifically observed that the interest free funds as on the date of balance-sheet were far in excess of investments as on 31-3-2004. [Para 3.1] | |
| ■ | In the case of Reliance Utilities & Power Ltd. (supra), the Bombay High Court has held that if there are funds available both interest free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest free funds generated or available with the company, if the interest free funds were sufficient to meet the investments and, therefore, interest was deductible. Similar view has been taken by the Division Bench of the Gujarat High Court in the case of CIT v. Gujarat State Fertilizers & Chemicals Ltd. [2013] 358 ITR 323/36 taxmann.com 230/217 Taxman 229. Applying the ratio/law laid down by the Bombay High Court as well as Division Bench of the Gujarat High Court to the facts of the instant case and when it has been found that the assessee was having interest free funds far in excess of investments, it can be said that the investments are made out of interest free funds. Therefore, the Assessing Officer was not justified in making disallowance under section 36(1)(iii). Under the circumstances, no error and/or illegality had been committed by the Tribunal in deleting the disallowance made by the Assessing Officer under section 36(1)(iii). [Para 13.2] |
CASE REVIEW - I
CIT v. Reliance Utilities & Power Ltd. [2009] 313 ITR 340/178 Taxman 135 (Bom.) (para 3.2) and CITv. Gujarat State Fertilizers & Chemicals Ltd. [2013] 358 ITR 323/36 taxmann.com 230/217 Taxman 229 (Guj.) (para 3.2) followed.
CASES REFERRED TO
CIT v. Reliance Utilities & Power Ltd. [2009] 313 ITR 340/178 Taxman 135 (Bom.) (para 2.3) and CITv. Gujarat State Fertilizers & Chemicals Ltd. [2013] 358 ITR 323/36 taxmann.com 230/217 Taxman 229 (Guj.) (para 3.2).
K.M. Parikh for the Appellant. Manish J. Shah for the Respondent.
JUDGMENT
M.R. Shah, J. - As common question of law and facts arise in this group of appeals and as such with respect to the same assessee but different assessment years, all these appeals are disposed of by this common judgment and order.
Tax Appeal No. 1058/2013
1.1 Feeling aggrieved and dissatisfied with the impugned judgment and order dated 01.05.2013 passed by the learned Income Tax Appellate Tribunal, Ahmedabad [hereinafter referred to as "ITAT"] in ITA No. 685/Ahd./2008 for the assessment year 2004-05, the Revenue has preferred the present tax appeal to consider the following substantial question of law
"Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in deleting the addition made on account of disallowance of interest expenditure of Rs. 16,02,493/-without appreciating that the assessee failed to establish that investments in mutual funds and interest free advances had been made out of own interest free funds by furnishing day-to-day cash-flow statement?"
Tax Appeal No. 1059/2013
1.2 Feeling aggrieved and dissatisfied with the impugned judgment and order dated 01.05.2013 passed by the learned ITAT in ITA No. 3606/Ahd./2008 for the assessment year 2005-06, the Revenue has preferred the present tax appeal to consider the following substantial question of law
"Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in deleting the addition made on account of disallowance of interest expenditure of Rs. 26,21,684/-without appreciating that the assessee failed to establish that investments in mutual funds and interest free advances had been made out of own interest free funds by furnishing day-to-day cash-flow statement?"
Tax Appeal No. 1060/2013
1.3 Feeling aggrieved and dissatisfied with the impugned judgment and order dated 01.05.2013 passed by the learned ITAT in ITA No. 3192/Ahd./2010 for the assessment year 2006-07, the Revenue has preferred the present tax appeal to consider the following substantial question of law
"(1) Whether on the facts and circumstances of the case, the ITAT was right in law in deleting the disallowance of Rs. 13,89,062/- made u/s.14A of the Act towards interest and other expenses incurred in relation to exempted income without appreciating that the assessee was maintaining mixed funds and failed either to furnish day-to-day cash-flow statement or to establish that it had its own surplus funds for investment which generated exempt income?
(2) Whether on the facts and circumstances of the case., the ITAT was right in restricting the addition made on account of disallowance of interest expenditure from Rs. 28,00,620/- to Rs. 64,909/- without appreciating that the assessee failed to establish that investments in mutual funds and interest free advances had been made out of own interest free funds by furnishing day-to-day cash-flow statement?"
2. For the sake of convenience the facts of Tax Appeal No.1058/2013 for the assessment year 2004-05 are considered which in nut-shell are as under:
2.1 That assessee engaged in the business of manufacturing of electrical laminations, job work of stamping filed return of income for the year under consideration declaring loss of Rs. 1,35,700/-. That the company took over the business of Surya Laminations Pvt. Ltd. as per the amalgamation during year under consideration. The case was taken up for scrutiny and thereafter the assessment was framed under Section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as "IT Act"] and the income was determined at Rs. 2,50,11,834/-. That the AO disallowed an amount of Rs. 16,02,493/- being the interest expenditure under Section 36(1)(iii) of the IT Act [which is the dispute/issue in the present tax appeal].
2.2 That being aggrieved and dissatisfied with the order passed by the AO making disallowance of Rs. 16,02,493/- being the interest expenditure under section 36(1)(iii) of the IT Act, the assessee preferred appeal before the learned CIT(A) and the learned CIT(A) confirmed the disallowance made by the AO under section 36(1)(iii) of the IT Act.
2.3 Feeling aggrieved and dissatisfied with the order passed by the learned CIT(A), the assessee preferred appeal before the learned ITAT and by impugned judgment and order, the learned ITAT has deleted the disallowance under section 36(1)(iii) of the IT Act made by the AO, confirmed by the learned CIT(A) by observing that the interest free funds as on the date of the balance-sheet were far in excess of the investments. Therefore, relying upon the decision of the Bombay High Court in the case of CIT v. Reliance Utilities & Power Ltd. [2009] 313 ITR 340/178 Taxman 135, the learned ITAT has deleted the disallowance made by the AO under section 36(1) (iii) of the IT Act.
2.4 Similar disallowances were made by the AO with respect to the assessment years 2005-06 and 2006-07, which are deleted by the learned ITAT by impugned judgment and order.
2.5 The additional question of law in Tax Appeal No. 1060/2013 with respect to AY 2006-07 is deleting the disallowance of Rs. 13,89,062/-made under section 14A of the IT Act towards interest and other expenses incurred in relation to exempted income.
3. Heard Shri K.M. Parikh, learned Counsel appearing on behalf of the Revenue and Shri Manish J. Shah, learned Advocate appearing on behalf of the assessee, who is on caveat.
3.1 At the outset it is required to be noted that in each assessment year the AO directed to make disallowance under section 36(1)(iii) of the IT Act which has been deleted by the learned ITAT by impugned judgment and order. At the outset it is required to be noted that while deleting the disallowance made by the AO under section 36(1)(iii) of the IT Act, the learned ITAT has relied upon the decision of the Bombay High Court in the case of Reliance Utilities & Power Ltd. (supra) and has specifically observed that the interest free funds as on the date of balance-sheet were far in excess of investments as on 31.03.2004. In para 23 [AY 2004-05] and while deleting the disallowance made by the AO under section 36(1)(iii) of the IT Act, the learned ITAT has observed as under:
'23. From the audited Balance Sheet as on 31.03.2004 placed on record it is seen that as on 31.03.2004 the investments of the Assessee are to the tune of Rs. 5.82 crore as compared to Rs. 46,000/- in the immediately preceding financial year meaning thereby that the investments to the extent of Rs. 5,82,28,953/- have been made during the year. It is also seen from the Balance Sheet that the interest free funds in the form of share capital, reserves and surplus and unsecured loans as on 31.03.2004 was to the extent of Rs. 22.92 crore as against Rs.2.79 crore as on 31.03.2004 meaning thereby that there was an increase of Rs. 20.13 crore in interest free funds. Thus it is seen that the interest free funds as on the date of Balance Sheet were far in excess of investments as on 31st March, 2004. In the case of Reliance Utilities (supra) the Hon. Bombay H.C. has held as under:—
"Held that if there were funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free funds generated or available with the company, if the interest-free funds were sufficient to meet the investments".
Considering the facts of the case and seen in the light of the decision of Hon. Bombay H.C. (supra) and respectfully following it, we are of the view that in the present case a presumption can be made that investment are out of interest free funds and, therefore, the Assessing Officer was not justified in making addition. We, therefore, direct the deletion of addition, made by A.O. Thus this ground of assessee is allowed.'
3.2 Similar observations are made by the learned ITAT with respect to the assessment years 2005-06 and 2006-07. In the case of Reliance Utilities & Power Ltd. (supra), the Bombay High Court has held that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free funds generated or available with the company, if the interest-free funds were sufficient to meet the investments and therefore, interest was deductible. Similar view has been taken by the Division Bench of this Court in the case of CIT v. Gujarat State Fertilizers & Chemicals Ltd. [2013] 358 ITR 323/36 taxmann.com 230/217 Taxman 229 (Guj.). Applying the ratio/law laid down by the Bombay High Court in the case of Reliance Utilities & Power Ltd. (supra) as well as Division Bench of this Court in the case of Gujarat State Fertilizers & Chemicals Ltd. (supra) to the facts of the case on hand and when it has been found that the assessee was having interest-free funds far in excess of investments and therefore, it can be said that the investments are made out of interest-free funds and therefore, the AO was not justified in making additions and/or making disallowance under section 36(1)(iii) of the IT Act. Under the circumstances, no error and/or illegality has been committed by the learned ITAT in deleting the disallowance made by the AO under section 36(1)(iii) of the IT Act. No question of law much less substantial question of law arise with respect to deletion of the disallowance made by the AO under section 36(1)(iii) of the IT Act.
4. Now, so far as the additional question raised in Tax Appeal No. 1060/2013 i.e. whether the ITAT was right in law in deleting the disallowance of Rs. 13,89,062/- made u/s.14A of the Act towards interest and other expenses incurred in relation to exempted income is concerned, it is required to be noted that as such learned CIT(A), after considering the factual position that the assessee had shown exempted income of Rs. 50,59,675/- comprising of long term capital gain of Rs. 13,50,412/- and dividend of Rs. 37,09,263/- and placing reliance on the decision of the Bombay High Court in the case of Reliance Utilities & Power Ltd.(supra), restricted the addition made by the AO, by holding as under:
"5.3. I have carefully considered the facts of the case, the submissions of the appellant and the assessment order. From perusal of the bank account and the balance sheet it is noticed that major investments in mutual funds was in the A.Y. 04-05 when the net investment was Rs. 2.27 crores against the receipt of interest free unsecured loans of Rs. 11.1 Crores. During A.Y. 05-06 the investment as on 31-03-05 was Rs. 2.01 crores and there was profit of Rs. 85 lakhs from the business and repayment of interest free unsecured loans of Rs. 4.7 crores. Further in the current year, there was profit of Rs. 11.82 crores and increase in interest free unsecured loan of Rs. 1.2 crores and the investment in mutual fund is at Rs.2.33 crores as on 31-03-06. Furthermore all the mutual fund transactions were carried out through Citi Bank account and there are redemption and dividend receipts and investments during the year. No interest chargers are debited in the bank account except for security transaction tax of Rs. 64,909/-. In view of the above and decision on the case of CIT v. Reliance Utilities & Power Ltd.(Ref. 2009) 178 Taxman 135 (Bom.), the disallowance is restricted to Rs. 64,909/- which is direct expenditure in relation to interest free income, Ground No.2 is partly allowed."
4.1 The aforesaid has been confirmed by the learned ITAT. Considering the aforesaid facts and circumstances and considering the fact that the assessee was having sufficient profit and interest free funds in comparison to the investments and with respect to mutual fund transactions, no interest has been charged by the bank except security transaction tax of Rs. 64,909/- and considering the above when the deductions under section 14A of the IT Act was restricted to Rs. 64,909/-, it cannot be said that both learned CIT(A) and learned ITAT have committed any error. We are in complete agreement with the view taken by the learned CIT(A) as well as the learned ITAT. No question of law much less substantial question of law arises.
5. In view of the above, all the aforesaid questions are held against the revenue and consequently, all these tax appeals are dismissed.
S.K.J. IT: Bad debts relating to non-rural branches of a bank in excess of credit balance of provisions for bad debts created under section 36(1)(viia), alone would be admissible deduction under section 36(1)(vii)
IT: Disallowance of provision made for leave encashment was justified
IT: Where surplus outstanding was reflected in suspense account over a long period over a large number of years, addition could be made to income
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[2014] 45 taxmann.com 428 (Kerala)
HIGH COURT OF KERALA
South Indian Bank Ltd.
v.
Commissioner of Income-tax, Trichur*
DR. MANJULA CHELLUR, CJ.
AND A.M. SHAFFIQUE, J.
AND A.M. SHAFFIQUE, J.
IT APPEAL NO. 186 OF 2011†
JANUARY 22, 2014
I. Section 36(1)(vii), read with section 36(1)(viia), of the Income-tax Act, 1961 - Bad debts (Rural v. Non-rural loans) - Assessment year 2006-07 - Whether it cannot be said that bad debts relating to non-rural branches of a bank in excess of credit balance of provisions for bad debts created under section 36(1)(viia) alone would be admissible deduction under section 36(1)(vii) - Held, yes [Para 5] [In favour of assessee]
II. Section 43B of the Income-tax Act, 1961 - Business disallowance - Certain deductions to be allowed only on actual payment (Provision on leave encashment) - Assessment year 2006-07 - Assessing Officer disallowed provision made by assessee bank for leave encashment under section 43B(f) - Commissioner allowed claim of assessee - Opinion of Commissioner (Appeals) was set aside by Tribunal in light of stay order of judgment of High Court of Calcutta in Excide Industries case [Pending in SLA (Civil) No. C.C. 12060] and relevant SLP was still pending - Provision seemed to be in force during relevant time in light of stay order granted by Apex court in SLP - Whether, as long as section 43(B)(f) was on statute, said disallowance was justified - Held, yes [Para 6] [In favour of revenue]
III. Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability (Long outstanding in suspense account) - Assessment year 2006-07 - Assessee realised surplus on sale of jewellery - Said amount stood long for many years in suspense account - Whether this outstanding acquired character of trade surplus and, hence, addition of said amount as income was justified - Held, yes [Para 7] [In favour of revenue]
CASE REVIEW-I
CIT v. South Indian Bank Ltd. [2010] 326 ITR 174/191 Taxman 272 (Ker.) (para 4) No longer good law.
CASE REVIEW -III
Catholic Syrian Bank Ltd. v. Asstt. CIT [IT Appeal No. 10. (Coch.) of 2009, dated 11-2-2011] (para 7)affirmed.
CIT v. T.V. Sundaram Iyengar & Sons Ltd. [1996] 222 ITR 344/88 Taxman 429 (SC) (para 7)followed.
CASES REFERRED TO
South Indian Bank Ltd. v. CIT [2003] 262 ITR 579/130 Taxman 749 (Ker.) (para 3), Exide Industries Ltd. v. Union of India [2007] 292 ITR 470/164 Taxman 9 (Cal.) (para 3), CIT v. South Indian Bank Ltd. [2010] 326 ITR 174/191 Taxman 272 (Ker.) (FB) (para 4), Catholic Syrian Bank Ltd. v. CIT[2012] 343 ITR 270/18 taxmann.com 282 (SC) (para 5) and CIT v. T.V. Sundaiam Iyengar & Sons Ltd.[1996] 222 ITR 344/88 Taxman 429 (SC) (para 7).
P. Balakrishnan and Mohan Pulickal for the Appellant. P.K.R. Menon and Jose Joseph for the Respondent.
JUDGMENT
Dr. Manjula Chellur, CJ. - The above appeal is filed for deciding the following substantial questions of law:
| "A. | Whether on the facts and in the circumstances of the case the Tribunal is correct in law and fact in holding that the bad debt relating to the non rural branches in excess of the credit balance of the provisions for bad debts created under section 36(1)(viia) alone is admissible for deduction under Section 36(1)(vii) ? | |
| B. | Whether on the facts and in the circumstances of the case the authorities are correct in law and fact in not allowing the claim for leave encashment ? | |
| C. | Whether on the facts and in the circumstances of the case the Tribunal is correct in law and fact in holding that the surplus outstanding in the appellant's accounts acquired the character of trade surplus when the appellant had not credited the said sum in their P&L account and there is nothing to show that there is cessation of the liability ?" |
2. The appellant Bank is before us for the assessment year 2006-07. In the above three substantial questions of law, the first issue refers to disallowance of 'bad debt' claimed under Section 36(1)(vii). The second issue is disallowance of 'leave encashment' claimed. The third issue is addition of an amount on account of 'jewellery sales surplus'.
3. So far as the first substantial question of law; the Assessing Officer disallowed the claim of the appellant under Section 36(1)(vii) amounting to Rs. 21,40,05,176/- being bad debts written off. As against this an appeal came to be filed by the assessee/appellant which came to be allowed by the Commissioner of Income Tax(Appeals)[for short 'CIT(Appeals)'] placing reliance on the Division Bench decision of this Court reported in the South Indian Bank Ltd. v. CIT [2003] 262 ITR 579/130 Taxman 749 (Ker). So far as disallowance of leave encashment, CIT (Appeals) allowed the said claim also, placing reliance on Exide Industries Ltd. v. Union of India [2007] 292 ITR 470/164 Taxman 9 (Cal.).
4. Then coming to the third issue, addition of a sum of Rs. 23,221/-, i.e surplus realised on sale of Jewellery, as against the orders of the Assessing Officer, CIT(Appeals) allowed the appeal.
Aggrieved by the said judgment of the CIT (Appeals), Revenue preferred appeal before the Tribunal and Tribunal reversed the finding of CIT (Appeals) so far as Section 36(1)(vii) disallowance by placing reliance on the Full Bench judgment of this Court in CIT v. South Indian Bank Ltd. [2010] 326 ITR 174/191 Taxman 272 (Ker.). So far as Section 43B(f) claim, the Tribunal reversed the finding of the CIT (Appeals) in the light of judgment of Calcutta High Court in Exide Industries Case (pending in SLA (Civil) No.CC.12060 dated 08.09.2008). So far as the third issue, addition of Rs. 23,221/-, being the trade surplus, placing reliance on its earlier decision, the Tribunal, Cochin Bench, confirmed the order of the Assessing Officer reversing the opinion of CIT (Appeals). Aggrieved by the same, the appellant/assessee is before us.
5. The argument of learned counsel appearing for the assessee so far as the first issue, i.e. disallowance of Rs. 21,40,05,176/- towards bad debts being written off, he placed reliance in the case of Catholic Syrian Bank Ltd. v. CIT [2012] 343 ITR 270/18 taxmann.com 282 (SC). As a matter of fact the Full Bench of High Court of Kerala opined that by virtue of proviso to Section 36(1)(vii) the Bank is entitled to claim such bad debts only to the extent it exceeds the provision created for bad or doubtful debts arising out of rural advances under Clause (viia) of Section 36(1) of the Act. According to the Apex Court, the said view was erroneous as the Full Bench ignored the significant expression appearing in both the proviso to Section 36(1)(vii) and Clause (v) of Section 36(2) i.e., "assessee to which Clause (viia) of Sub-section (1) applies". In other words, if the case of the assessee does not fall under Section 36(1)(vii), the proviso/limitation would not apply to the assessee. In that context three Judges Bench of the Apex Court opined that the provisions of Section 36(1)(vii) and (viia) of the Income-tax Act are distinct and independent items of deduction and operate in their respective fields. The Bad debts written off, other than those for which the provision is made under clause (viia), will be covered under the main part of Section 36(1)(vii), while the proviso will operate in cases falling under clause (viia) to limit deduction to the extent of difference between the debt or part thereof written off in the previous year and credit balance in the provision for bad and doubtful debts account made under clause (viia). Thus the proviso would not permit the benefit of double deduction operating with reference to rural loans while, under Section 36(1)(vii), the assessee would be entitled to general deduction upon an account having become bad debt and being written off as irrecoverable in the accounts of the assessee for the previous year. In the light of above observations of the Apex Court, the Full Bench judgment relied upon by the Tribunal is no longer good law, therefore the first substantial question of law is answered in favour of the assessee.
6. Then coming to the second issue, it pertains to the provision made for leave encashment and the disallowance claimed was under Section 43B(f). As already stated above, the opinion of the CIT(Appeals) was set aside by the Tribunal in the light of the stay order of the judgment of the High Court of Calcutta inExcide Industries case (supra) and the SLP stated above is still pending. Therefore, the opinion of the Tribunal so far as disallowance claimed in respect of leave encashment under Section 43B(f) of the Act, as on today, the provision seems to be in force in the light of the stay order granted by the Apex Court in the SLP. Therefore, as long as Section 43B(f) is on Statute, the said disallowance is justified.
7. Then coming to the third issue, i.e. addition of Rs. 23,221/- in respect of trade surplus on sale of jewellery, it was noticed by the Assessing Officer that over long number of years this amount of Rs. 23,221/- was reflected in the suspense account and according to the assessee, this cannot be considered as income because if the borrower demands return of money, it has to be paid back to the borrower. According to the learned Standing Counsel for the Revenue, the very fact that this amount is reflected in the account for long time over number of years as trade surplus amount it has to be considered as income as observed by the Tribunal. In the light of Catholic Syrian Bank Ltd. v. CIT(Asst.) in ITA No.10/Coch/2009 dated 11.02.2011 which again places reliance on CIT v. T.V. Sundaiam Iyengar & Sons Ltd. [1996] 222 ITR 344/88 Taxman 429 (SC), as on today the law declared in T.V. Sundaiam Iyengar and Sons's (supra) case would cover the issue so far as the trade surplus amount. Hence, we cannot find fault with the opinion of the Tribunal.
In the light of above observations, the appeal is partly allowed. Second and third issues are answered in favour of Revenue.
SB †Arising out of order of Tribunal in IT Appeal No. 65 (Coch.) of 2009, dated 30-6-2011.
Regards,
Pawan Singla , LLB
M. No. 9825829075
ITR'S TRIBUNAL TAX REPORTS (ITR (Trib)) HIGHLIGHTS
F International transactions : ALP : Giant companies having extraordinary turnover to be excluded from comparables : Adaptec (India) P. Ltd. v. Dy. CIT (Hyd) p. 744
F Communication charges to be reduced from both export turnover and total turnover : Adaptec (India) P. Ltd. v. Dy. CIT (Hyd) p. 744
F International transactions : ALP : Companies earning revenue from both software development services and products, giant companies having diversified activities and huge turnover, companies failing in employee cost filter and related party transaction filter to be excluded from companies : Virtusa (India) P. Ltd. v. Dy.CIT (Hyd) p. 754
F Non-resident : Expenses incurred by head office exclusively for Indian branch allowable u/s. 44C : Dy. DIT (International Taxation) v. Development Bank of Singapore (Mumbai) p. 776
F International transactions : Companies having revenue from both products and software services and segment-wise data not available, companies having supernormal profit, enormous turnover, companies not qualifying employee cost filter and RPT filter and functionally dissimilar cannot be treated as comparable : Sumtotal Systems India P. Ltd. v. Asst. CIT (Hyd.) p. 446 (9-5-2014)
F Communication charges attributable to delivery of computer software outside India reduced from export turnover to be reduced also from total turnover: Sumtotal Systems India P. Ltd. v. Asst. CIT (Hyd.) p. 446 (9-5-2014)
F Capital gains : Conversion of stock-in-trade in investment permissible : Sukarma Finance Ltd. v. Asst. CIT (Delhi) p. 465 (2-5-2014)
F Where volume of sale consideration not determinative to prove trading in shares, income from purchase and sale of shares to be treated under head "Capital gains" : Sukarma Finance Ltd. v. Asst. CIT (Delhi) p. 465 (2-5-2014)
F Income : Chronological events of case to be considered by AO before making addition, matter remanded : Corporate Law Chambers India v. Dy. CIT (Mumbai) p. 477 (6-6-2014)
F Appeal to CIT (Appeals) : CIT (Appeals) has no power to entertain additional ground on question of jurisdiction of AO: Asst. CIT v. Punjab Urban Development Authority (Chandigarh) p. 481
F Method of accounting : Revision having effect of increasing profits of earlier year for which assessment completed not permissible : Asst. CIT v. Punjab Urban Development Authority (Chandigarh) p. 481
F Depreciation : Where assessee categorically stating no inclusion of any cost of land in cost of building, depreciation to be allowed : Asst. CIT v. Punjab Urban Development Authority (Chandigarh) p. 481
F Expenditure for acquisition of land of proposed airport not revenue expenditure, capital expenditure not allowable u/s. 37 : Asst. CIT v. Punjab Urban Development Authority (Chandigarh) p. 481
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