| TACKLING TRUST DEFICIT |
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infrastructure sectors. However, the path to recovery has legal potholes, something corporate India should be wary of. Experts share their insights on the issue with Business Standard: Laying a road map for India's economic recovery, Union Budget 2014- 15 emphasised the need to propel growth in India's real estate, infrastructure and construction sectors. The Budget seeks to usher in Reits, the draft regulations for which were unveiled by the Securities and Exchange Board of India in October 2013, in a stable and certain tax environment to enable these to attract investment and meet the increasing need of funds by the infrastructure and construction sectors. The Reit model envisaged in India has two primary elements: First, the trust will raise capital by issuing units ( to be listed on stock exchanges). Second, the income- bearing assets will be held by a special purpose vehicle ( SPV), the controlling interest in which will be held by the trust. Though the tax treatment of Reits has been extensively provided for in the amendments/ proposals, the following issues merit consideration: (a) Under the proposed explanation to section 10( 23FC), SPV is defined as " an Indian company in which the business trust holds controlling interest and any specific percentage of shareholding or interest, as may be required by the regulations under which such trust is granted registration". This definition does not provide any tangible definition of " controlling interest". Clause 2( 1)( i) of the draft Reit regulations defines "change in control" as " interest, whether direct or indirect, to the extent of more than 50 per cent of voting rights or interest", not controlling interest. Though the term " controlling interest" has gained attention following the famous Vodafone judgment, it remains undefined. (b) The proposals provide for differential tax treatment for different streams of income at the hands of the unit holder. The distribution of capital gains derived by a business trust shall not be taxable at the hands of unit holders but income by way of interest received from a business trust to unit holders (from the interest income derived by a business trust from an SPV) shall be taxable at the rates applicable to unit holders. This will require one- to- one correlation of payment of income by a business trust with its income. Reits envisage transferring to atrust the completed asset or the shares/ interest in the SPV that owns the assets. The transfer of assets or shares of the SPV to the Reit will attract stamp duty and this might be a significant cost, even before investors record any income. There is a genuine case to argue this transfer should be subjected to a nominal or minimal stamp duty, akin to the transfer of loans to a securitisation trust in a securitisation transaction, as it is in the nature of a financing transaction. In the case of transferring shares of the SPV, it should be possible to reduce the stamp duty to nil if the shares are dematerialised. This, however, won't be the case if the transfer is of the actual asset. Thus, the Reit structure could turn against the transfer of the actual asset to the Reit, unless the prohibitive impact of stamp duty is reduced. As this is largely a state- level subject, states should be brought on board; they should facilitate the success of this structure. The resultant boost to real estate should be recognised. The tax impact of Reit investment is lower if the asset is owned by the Reit directly, not by the SPV. Therefore, in terms of providing returns to investors, owning the asset directly is preferable, provided the stamp duty impact is reduced. That this structure should succeed and the global experience should be made available in India cannot be overemphasised. Another issue is computation of capital gains on the developer, through which the developer receives a mix of units and cash from the Reit. Thereafter, the cost of acquisition of the asset at the hands of the Reit has to be clarified for computation of capital gains when the Reit eventually sells the asset. Current tax provisions do not go far enough to address these issues. 'Need a tangible definition of controlling interest' 'States must mitigate the impact of stamp duties' DAKSHA BAXI Executive Director ( taxation), Khaitan & Co AMIT SINGHANIA Principal Associate, Amarchand Mangaldas The tax impact of Reit investment is lower if the asset is owned by the Reit directly, not by the SPV. In terms of providing returns to investors, owning the asset directly is preferable |
| BRIEF CASEN |
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The Supreme Court has held that destruction of a rented building does not end the lease as long as the land on which the building stood continues to exist. There was conflict of views in its earlier judgments about the continuation of the lease when the building itself was destroyed, for instance by natural calamities. One leading judgement stated that the tenancy ended with the destruction of the building. Another held that the lease of a building included the land on which it stood. Even if the building is destroyed or demolished, the lease does not end as long as the land beneath continued to exist. This latter view was upheld by the larger bench of the Supreme Court in the case, Shaha Ratangi vs Proposed Kumbhar Sons Hotel Ltd. In this case, the tenant of a godown in a plot of land was affected by the digging of basement for a hotel, which bought the land. He moved the civil court which held that his tenancy right had lapsed with the sale of the land to the hotel. The appellate court and the Bombay High Court dismissed his appeals. However, the Supreme Court set aside those judgments and ruled that the lease continued even after the sale of land because the interest of the tenant was not purchased by the hotel. In the facts of the case, the hotel was asked to pay ₹ 20 lakh as compensation to the lessee of the godown. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> University is a ' consumer' in law A university which has invested in mutual funds is a ' consumer' under the Consumer Protection Act and can seek compensation for deficiency in service of the investment firm, the Supreme Court has stated in the case, Punjab University vs Unit Trust of university argued that there was a specific understanding that the invested amount would be refunded with minimum interest @ 13.5 per cent. However the yield was below that. UTI challenged the maintainability of the complaint of the university as it was not a consumer. The Supreme Court rejected the argument stating that the university made the investment for a benevolent purpose and not for gain or profiteering; so it was a consumer. However, it dismissed the petition because the maturity amount depended upon the NAV. " Just because the maturity amount is below their expectation, they cannot drag the service provider to court," the judgment said. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Sanction not necessary to prosecute offenders An officer committing offenses like breach of trust and cheating cannot claim that he cannot be prosecuted without the sanction of the government as these acts are not " in discharge of his duties", the Supreme Court stated in the judgment, officer who was deputed as Administrator- cumManaging Director of the Bihar State Housing Cooperative Federation Ltd was accused of several offenses. When the chief judicial magistrate took cognisance of them he challenged it arguing that he could not be prosecuted as under Section 197 of the Criminal Procedure Code, sanction of the government was not obtained for launching prosecution. The high court and the Supreme Court on appeal, rejected his contention stating that " it can be no part of the duty of a public servant or acting in the discharge of his official duties to commit any of the offenses and the official status of the public servant can, at best, only provide an opportunity for commission of the offenses." >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Hospital to refund excess charges to the ventilator in a serious condition where five injections costing ₹ 18,990 each was administered daily for five days. She was cured and the entire bill of ₹ 7 lakh was paid without protest. Later, it was found that the injections cost only ₹ 9,000 in the open market. The hospital did not respond to her request for the bill of the hospital's medical supplier. She moved the district consumer forum for refund of the excess payment. It asked the hospital to pay ₹ 2 lakh. The state commission dismissed the hospital's appeal. The National Commission asked the hospital to refund half the price as it had "indirectly imposed unjustified and unreasonable conditions" on the patient. It blamed the patient also for taking an " opportunistic attitude." The commission further remarked that though the hospital has " every right to earn profits from its pharmacy, it should be reasonable or acceptable." |
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