Sunday, June 16, 2013

[aaykarbhavan] Business standard legal digest and updates 17-6-2013




India approaches half- a- dozen tax havens on global black money exposé


PRESS TRUST OF INDIA

New Delhi, 16 June

India has approached half a dozen foreign jurisdictions, including Singapore and some tax havens, for banking and other financial details of about 500 individuals and entities that might have ' secret offshore accounts' at those places.

The " names and listed addresses" of as many as 505 India- linked entities, including businessmen and companies from the country, have been made public after a global expose on secret offshore accounts by US- based rights group, the International Consortium of Investigative Journalists ( ICIJ).

The addresses of Indian entities and individuals, according to the ICIJ exposé, have addresses of upmarket localities of account holders from Delhi, Mumbai, Bangalore, Kolkata, Chennai, Hyderabad, Pune, Ahmedabad, Baroda, Surat, Chandigarh and many other Indian cities and a few other moffusil locations.

Sources here said the Foreign Tax and Tax Research ( FT& TR) division in the finance ministry has approached the British Virgin Islands, Cayman Islands and Singapore under the tax information exchange treaties with these jurisdictions for banking and other details of those named by ICIJ.

Besides, FT& TR has approached Cook Islands and Samoa through other diplomatic channels, sources said, adding a few other countries have also been approached for details of entities alleged to have secret accounts at those places. "Preliminary inputs obtained in this regard do not present a clear picture and hence details have been sought through official protocol mechanisms and existing treaties," a senior finance ministry official said.

The ICIJ claims to have found over " 100,000 secret companies, trusts and funds created in offshore locales" by entities from across the world in the past three decades.

While the broader details of this global expose were announced by ICIJ in April, the names and addresses of the individuals and entities were made public yesterday.

The ICIJ has, however, put a disclaimer there might be a legitimate use for offshore companies and trusts and being on the list does not necessarily mean that the said entities have broken any laws.

Sources said the Indian authorities would also take a call on further action after they get necessary details from the countries concerned and find any wrongdoing on the part of the individuals and entities named by ICIJ.

Sebi finalising new anti- money laundering guidelines PRESS TRUST OF INDIA

New Delhi, 16 June

The Securities and Exchange Board of India is finalising new anti- money laundering guidelines covering entities such as brokers and mutual funds to put in place stronger checks against possible cleansing of funds through capital markets. The guidelines, expected to be ready within a few weeks, will replace AML/ CFT ( Anti Money Laundering and Combating the Financing of Terrorism) standards, which first came into effect about 10 years ago and saw the last major amendments in late 2010, a senior official said.

Will move Cabinet for further FDI liberalisation, says Sharma


BS REPORTER

New Delhi, 16 June

Commerce & Industry Minister, Anand Sharma today said his ministry would move the Cabinet for further liberalisation of Foreign Direct Investment ( FDI).

Sharma told reporters here that he would chair a retail round table involving heads of Indian companies and foreign investors on June 27, to seek views on implementation issues and to address their concerns, if any. After the stakeholder consultation, an appropriate view would be taken on implementationrelated aspects, he said.

The meeting would particularly discuss FDI in multi- brand retail (MBRT).

Sharma hinted that telecom could see 100 per cent FDI against the present cap of 74 per cent and the FDI cap might be revised in defence. Before leaving for a 10- day visit from tomorrow to Helsinki, St Petersburg, Belfast and London, Sharma said he would address all concerns of foreign retail sector investors and ensure help in setting up stores.

The government is likely to come up with clarifications and simplification of guidelines, whenever required, Sharma said. The department of industrial policy and promotion ( DIPP) had, earlier this month, issued clarifications on MBRT policy, which added to the confusion. The clarifications introduced some new ideas that are being seen as a roadblock for foreign investors, as well as for domestic firms. Also, the department has left many issues hanging, to be considered later.

DIPP says the acquisition of existing retail stores will not be part of the mandatory $ 100- million investment.

Front- end retail stores must be set up as an additionality and not through acquisition of existing stores. This will hurt companies like Walmart, which wants to acquire the existing stores of the Bharti group.

On the 30 per cent sourcing from the Indian micro, small and medium enterprises sector, the government has made it clear that these cannot be used for global business as well and global sourcing has to be kept separate. "The 30 per cent sourcing will be reckoned only with reference to front- end stores. A multibrand retailing entity cannot engage in any other form of distribution." Also, the sourcing condition pertains only to manufactured and processed products, DIPP has said. " Procurement of fresh produce is not covered by this condition." Chains like Walmart, Tesco and Carrefour are expected to have the bulk of their products in the fresh produce category.

Sharma reiterated that he strongly favoured raising the FDI cap in telecom as well as the defence sector.

Sharma said his ministry would move the Cabinet for further liberalisation in other sectors as well, which hold potential for FDI inflows.

"I am strongly in favour of raising the cap in the telecom sector. I have discussed this with the telecom and finance ministers and once we have the proposal, we will move the Cabinet for raising the cap to 100 per cent, and also for FDI in defence, because we want defence manufacturing to be here," he said.

He said his ministry wants global majors in the defence sector to partner with both, the public sector units and the private sector, to manufacture weapon systems in India. " Defence technologies have multiple applications, including industrial applications. We want the global majors to partner with Indian entities, so that the big outgo of foreign exchange could also be brought down and domestic manufacturing improves and jobs are created," he added.

On hiking the FDI cap in the defence sector, he said that he had written to the defence minister and would meet him on the matter. " He ( the defence minister) has written back to me, suggesting that we will discuss this matter in a meeting," Sharma said.

Finance Minister PChidambaram had last week said that he would meet Sharma after the Arvind Mayaram Committee submits report on Foreign Institutional Investors and FDI by Monday or Tuesday. He would also meet Prime Minister Manmohan Singh after that, Chidambaram had said.

He had said every sector and every cap would be reviewed. FDI inflows declined 38 per cent to $ 22 billion in 2012- 13 against $ 35 billion in the previous financial year.

Commerce & Industry Minister, Anand Sharma

Before leaving on a 10- day foreign visit starting Monday, Sharma said he would address concerns of foreign retail sector investors and ensure help in setting up stores

 

LEGAL DIGEST


Supersession of elected committees

The Supreme Court has issued seven " general directions" to be followed when a state government supersedes elected managing committees of cooperative banks and other financial bodies. This has become necessary, stated the court, " in view of the mushrooming cases in various courts challenging orders of supersession of elected committees." The order was passed while dismissing the appeal of the Madhya Pradesh government against the high court judgment in the case of supersession of the board of directors of District Cooperative Bank Ltd, Panna. The joint registrar of cooperative societies superseded the board after issuing a show cause notice containing 19 charges. The directors challenged the supersession as it was done without consulting Reserve Bank of India. The court directed reinstatement of the board of directors for the full term. Among the general directions are supersession should be ordered only in rare circumstances, the committees should not be penalised for short- comings and illegalities committed by the earlier body, it should be given sufficient time to rectify defects, the registrar should consult controlling banks before taking action, he should not act under political pressure, if he does not act bona fide he shall be subjected to disciplinary proceedings and pay cost of legal proceedings and finally "public money should not be spent by the government for unnecessary litigation involving various factions in a coop."

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> When tender goes into spam

The Delhi High Court last week dismissed the petition of Swiss company, Opus Group AB challenging the rejection of its bid by the Ministry of Road Transport and Highways. The firm is a worldwide vehicle inspection industry group with focus on vehicle testing and diagnostics. It made the technical bid last year in response to the ministry's tender and deposited earnest money. It also provided the email and contact addresses. However, the ministry sought certain clarifications which did not reach the company as the spelling was wrong and the computer moved the message to spam. Though the information was sent later, it was beyond the deadline and therefore the bid was rejected. The company argued the message was sent to the wrong address and it could not be blamed. The ministry denied the charges and stated that it could not be blamed for technical faults at their end. The high court stated that it was the duty of the bidder to check the communications regularly as instructed in the bid document and if the message has gone into spam folder, it was not the faulty of the ministry. It was the company which should have corrected the technical flaw after checking the spam file. The court will interfere in tenders only if there is mala fide or arbitrariness.

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> VAT penalty only prospective

The Bombay High Court last week upheld the constitutional validity of the 2009 amending Act to the Maharashtra Value Added Tax, 2009, but clarified that the imposition of a penalty under Section 93( 2) will take effect only prospectively as it would be harsh to make it operate from 2005. The retrospective operation of the law was challenged by several companies like Jindal Poly Films Ltd and Bajaj Auto Ltd. The government had provided for an incentive package to encourage industries to disperse outside Mumbai- Pune- Thane belt. Later the package was modified twice to accelerate the dispersal. The companies argued, among other things, that the state legislature by amending the provision sought to collect a tax after they had taken the benefit of the exemption and passed on the benefit, which is unreasonable. It also amounted to imposition of new levy.

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Challenge to TM rejected

The Bombay High Court has rejected the plea of Macleods Pharmaceuticals Ltd for an injunction against Intas Pharmaceuticals for violation of trademark of a medicine and " passing off". Macleods produces Anti- Thyrox, a medicine brand used to treat thyroid deficiency, and Intas manufacturers Lethyrox, for the same symptoms. Macleods alleged that the opposite party violated its trade mark and therefore it should be stopped from marketing the product to avoid confusion among the consumers. The high court rejected the request stating that the marks are distinct and different. Moreover, Macleods has not established the ingredients of passing off action. The adoption of the name by the opposite party appeared to be honest, independent and bona fide. The rival packets placed before the court also did not make out any case for confusion. There are no instances of any complaints being made suggesting any confusion having been caused. Since the medicines are the same, there cannot be any disastrous consequences. The court then expedited the hearing of the main suit.

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Patent denied for hair tonic

The Intellectual Property Appellate Board last week dismissed the petition of Hindustan Unilever Ltd challenging the denial of patent for water- in- oil microemulsions for hair treatment by the Controller of Patents and Designs.

According to the company, consumers who oiled their hair pre- wash and post- wash get an unattractive appearance. This invention prevented such condition. However, the controller rejected the claim of " invention". The board upheld the view of the controller.

MJ ANTONY

THINKSTOCK

Appeal against Advance Ruling before HC


When the concept of advance ruling was initiated, the idea was to facilitate the investors from abroad to get a quick clarification as to what would be the tax liability when they come to India. So the Authority for Advance Rulings was created under Sections 28E to 28M of the Customs Act, Section 23A to 23H of the Central Excise Act and Sections 245N to 245S of the Income Tax Act, which are all on similar lines. The Sections in these three Acts are similarly worded. In fact there is a common Authority for Advance Rulings now for all direct and indirect taxes under the central government.

The advance ruling is binding on the applicant and on the commissioner of Customs, Excise and Income Tax and the authorities subordinate to them in respect of the applicant. If the applicant or the commissioner is not satisfied with the ruling, he can file a special leave petition under Article 136 of the Constitution.

That was the normal understanding from the wording of the Article 136, which lays down that the Supreme Court in its discretion grants special leave to appeal from any judgement, decree, determination, sentence or order in any case or matter passed or made by any court or tribunal in the territory of India. In a very recent case of Colombia Sportswear company vs. Director of Income Tax, Bangalore- 2012( 283) ELT321( SC), the Supreme Court has decided on the issue as to whether an advance ruling pronounced by the Authority can be challenged by the applicant or the commissioner under Articles 226 and 227 of the Constitution before the High Court or under Article 136 of the Constitution before the Supreme Court.

The Supreme Court in this case relied on the decision by a Constitution Bench of this Court in the case of L Chandra Kumar vs. UOI – 1997( 92) ELT313( SC). In that case it was held that the power vested in the High Court to exercise judicial superintendence over the decisions of all Courts and Tribunal within their respective jurisdictions is a part of the basic structure of the Constitution. Therefore, the Supreme Court in the present case concluded that to hold that an advance ruling of the Authority should not be permitted to be challenged before the High Court under Article 226 and 227 of the Constitution would be to go against the Court ( to a Single Judge and then to a Division Bench), and then to the Supreme Court which is the normal route and it is the route of delay.

The Supreme Court took into account the fact that the object of establishing the Advance Rulings Authority was to get an expeditious ruling in respect of the future transaction relating to investment in India. If there is a delay in getting the final decision, the investment would hesitate to come due to uncertainty. The Supreme Court, therefore, held that when an advance ruling of the Authority is challenged before the High Court under Article 226 or 227 of the Constitution, the same should be heard directly by a Division Bench of the High Court and decided as expeditiously as possible.

The Supreme Court, however, took notice of the fact that the Article 136 itself gives it the power to accept special leave petition " in its discretion". Therefore, it would accept special leave petition directly if there is a substantial question of general importance, or if a similar question is already pending before it. However, this principle is also applicable for all cases.

The conclusion is that the position of Authority for Advance Rulings becomes same as that of CESTAT, that is, the general Tribunal for Customs, Excise and Service Tax in regard to filing an appeal before High Court or Supreme Court. All of them have to go to the High Court and then to the Supreme Court. In the case of advance ruling, the special dispensation is that the appeal to High Court will go directly to a Division Bench and it is required to be decided expeditiously. So it is in a better position compared to CESTAT.

smukher2000@ yahoo. com

Advance ruling is binding on the applicant and on the commissioner of Customs, Excise and Income Tax and the authorities subordinate to them in respect of the applicant

EXPERT EYE

SUKUMAR MUKHOPADHYAY

 

Rule 10H on pre- filing consultation: A unique feature of Advance Pricing Agreements


Finance Act, 2012, introduced the concept of Advance Pricing Agreements (APA). APAs are common in other developed countries.

An Advance Pricing Agreement ( APA) is an agreement between the taxpayer and the tax authorities on the pricing of international transactions between the taxpayer and its associated enterprises (AE). An APA provides certainty on the pricing to be adopted for the covered intercompany transactions. Further, a bilateral/ multilateral APA eliminates the risk of potential double taxation arising from controlled transactions.

The government has framed rules for APAs. Rule 10H is a very interesting rule which deals with pre- filing consultation. Every applicant is required to apply for pre- filing consultation. Pre- filing consultation shall, among other things, ( i) determine the scope of the agreement (ii) identify transfer pricing issues ( iii) determine the suitability of international transaction for the agreement ( iv) discuss broad terms of the agreement.

An assessee has an option not to go in for APA after pre- filing consultation. Up to this stage, no fee is payable to the Government. This kind of provision is an extremely welcome proposition, which will certainly encourage foreign companies to enter into APAs rather than take the risk of litigation in India.

Rule 10H talks about the steps which are required to be taken for pre- filing consultation, as below: |Every person proposing to enter into an agreement under these rules shall, by an application in writing, make a request for a pre- filing consultation. |On receipt of the request in Form No. 3 CEC, a team constituted by Director General of Income- tax (International Taxation) will hold prefiling consultation with the applicant.

In the background of provisions relating to pre- filing consultation, the following issues need to be addressed: Sub- rule 10H( 6) of I. T. Rules, 1962 specifically provides that the pre- filing consultation shall not bind the board to enter into the agreement or initiate an agreement process.

Therefore, it is also possible that this entire exercise may prove to be fruitless because the proceedings are neither binding on the taxpayer nor on the board. Composition of the team constituted by DG ( IT) for consultations also needs to be considered. Sub- rule 10F( j) talks about composition of team as "" team" means advance pricing agreement team consisting of income- tax authorities as constituted by the board and including such number of experts in economics, statistics, law or any other field as may be nominated by the Director General of Income- tax ( International Taxation)".

Since the team will be constituted entirely at the direction of DG( IT), its impartiality could be in doubt. The rules do not provide for any time limit for completion of APA procedure.

Whether taxpayers should opt for APA or not is a difficult question to answer. However, the taxpayers should bear in mind that the entire APA mechanism is controlled by the bureaucracy of the tax department. The dominance of tax department may be found not only irrational but also pro- revenue. But, since APA is essentially a bilateral agreement, the tax payer always has an option to opt out if not satisfied at any stage of the proceedings. Therefore, one view is that the taxpayers should make a serious effort to go in for APA and take the crucial decision to proceed or not only after the stage of pre- consultation.

It is necessary that the following problems should be addressed by the board on an urgent basis: |The constitution of ' team' should be fair and independent. In the current provision of law the apprehension of tax payers that the composition of team could be biased and pro revenue cannot be ignored.

|There should be review committee for addressing the matter where assessee is dissatisfied with recommendations of the APA Team |Some appeal procedure should be prescribed against the cancellation of APA made by Board under Rule 10R of I. T. Rules, 1962.

|There should be some time limit for completion of APA procedure.

It will not be out of place to remember that the experience of creation of Dispute Resolution Panel ( DRP) is vividly alive in our memory. The institution of DRP which was created to help to resolve transfer pricing problems faced unfortunate and avoidable problems in the beginning. It was general perception that the institution of DRP in fact failed because of lack of proper direction for its working and also because of some fundamental defects in its constitution.

Although the government subsequently took steps to solve the problems by amending the law as also by issuing notifications and clarifications etc. but in the meantime large number of cases had already been decided by the DRP which not only raised the level of litigation to an astronomical figure but also put a question mark on the judiciousness of the decision to create DRP.

Let the experience of DRP be not repeated in APA. The board is advised, therefore, to issue suitable directions and instructions for proper functioning of APA regime.

The article has been co- authored by Alok Gupta e- mail: hp. agrawal@ sskmin. com a. gupta@ sskmin. com

HP AGRAWAL

Corp affairs, civil aviation ministries raise concerns


PRESS TRUST OF INDIA

New Delhi, 16 June

Jet Airways and Etihad might have to re- work the ownership structure proposed in the 2,058- crore deal with key ministries including civil aviation and corporate affairs, raising concerns over ultimate control of the domestic carrier.

The issues were voiced at the Foreign Investment Promotion Board ( FIPB) meeting on Friday, sources said.

Decision deferred

The decision on the deal, struck by Jet Airways to sell 24 per cent of its stake to Abu Dhabi's Etihad Airways, was deferred by the FIPB.

The deal is the largest foreign investment proposal in the sector after the government allowed foreign carriers to pick up stake in Indian airlines last September.

Concerns have been primarily raised on the proposed ownership and control structure of the domestic airlines.

Sources said capital market regulator Securities and Exchange Board of India (Sebi), fair trade regulator Competition Commission of India and the department of industrial policy and promotion also had reservations about the transaction.

Major concerns on ultimate control of Jet Airways after the deal have been raised by various ministries.

After the FIPB meeting on Friday, Economic Affairs Secretary Arvind Mayaram had said: " It ( Jet- Etihad proposal) has been deferred. We need more details on effective control and ownership." However, Civil Aviation Minister Ajit Singh had said he did not " see any major problem for the deal".

Sources had said following Sebi's concerns, the deal was reworked with changes in the share- purchase agreement and articles of association of the company to ensure effective control of the company was not transferred to Etihad.

Under the Jet- Etihad deal, after the transactions are cleared by the regulatory authorities, Jet Airways promoter Naresh Goyal will directly own 51 per cent in the airline, while Etihad will own 24 per cent.

The foreign investment policy for civil aviation, revised last September, allows foreign airlines and foreign institutional investors to invest up to 49 per cent in an Indian airline. Non- resident Indians are already allowed 100 per cent investment.

Ahead of the Foreign Investment Promotion Board meet, Jet Airways yesterday named Australian aviation veteran Gary Kenneth Toomey as its new chief executive officer in place of Nikos Kardassis, who resigned on May 31.

WHO'S THE MASTER?

|The Securities and Exchange Board of India, the Competition Commission of India and the department of industrial policy and promotion are concerned primarily about the ownership and control structure of the domestic airlines |The Foreign Investment Proposal Investment Board has deferred a decision on the deal till the companies provide more details |Civil Aviation Minister Ajit Singh has said he does not " see any major problem for the deal"

Govt asks for more details; several regulators worried Etihad might get control

JET- ETIHAD DEAL Jet's Goyal designed business- class seat in his garage

Have you ever heard of an airline's business class seat being developed in a garage? That's what stiff competition did to Jet Airways . Former director general and chief executive of the International Air Transport Association, Giovanni Bisignani, says Jet Airways chief Naresh Goyal developed his business- class mock- ups in secrecy in the garage of his London home. In his book — Shaking the Skies — Bisignani also talks about his relation with leaders such as Indira Gandhi and Rajiv Gandhi and the developments in Indian aviation. He describes the Jet chief as " a leader with brilliant ideas and a very colourful character". " At one point, he was implementing the most elegant business class in Asia with the help of a famous Italian designer. He was so concerned about keeping the plans secret that all the mock- ups were set up in the garage of his wonderful London home. I think that shows how competitive airlines can be. Airports don't have to worry about things like this," Bisignani

writes. PTI

Former IATA chief Giovanni Bisignani

 

 


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CS A  RENGARAJAN,, B.Com ,FCS, LLB, PGDBM
Company Secretary, Chennai
CONVENOR, CHENNAI WEST STUDY CIRCLE ICSI-SIRC
email csarengarajan@gmail.com
mobile 093810 11200

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