[aaykarbhavan] Fw: Parliament competent to impose Service Tax on Restaurants and hotels: Bombay HC and Judgments, [2 Attachments]

 

TDS on Salary – Section 192 – FAQ & Important Circulars

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Questions and Answers on Section 192

Q.1. Who is responsible to deduct tax on Salary?

A.1. All persons paying salary are responsible to deduct TDS on income chargeable under the head "Salary". In other words none of the payer of Salary is excluded; Individual, HUF, Partnership firms, companies, cooperative societies, Trust and other artificial judicial persons have to deduct TDS on Salary.

Q.2. Who is the payee?

A.2. Any employee having taxable income under the head "Salary" shall be treated as payee for TDS u/s 192. For application of S. 192, there must exist employer employee relationship between payer and payee. For eg. Director of company is not employee and as such no TDS u/s 192 on any amount paid to director, visiting professors are not employees and therefore no TDS u/s 192 on the amount paid by the institutions to the visiting faculty.

Q.3. Application of TDS on Non resident Employees?

A.3. Yes, TDS to be deducted by employers on payments made to non resident employee u/s 192.

Q.4. When does the liability to deduct tax at source shall arise u/s 192?

A.4. Liability to deduct tax at source shall arise at the time of actual payment of salary and not at the time of accrual.

Q.5. At what amount tax has to be deducted u/s 192?

A.5. TDS u/s 192 has to be deducted on estimated income of the employee under the head "Salaries" for that Financial Year. No tax will however be required to be deducted at source for financial year 2012-2013 in any case unless the estimated salary income including the value of perquisites, exceeds –

S.No.	Amount	Particulars
1.	Rs. 250000	For an individual resident in India of the age of 60 years and above but less than 80 years.
2.	Rs. 500000	For an individual resident in India of the age of 80 years of more.
3.	Rs.200000	Any other individual.

Q.6. At which rate TDS has to be deducted u/s 192?

A.6. TDS U/s 192 has to be deducted at the average of income tax computed on the basis of rates in force during the financial year. The total tax to be deducted on the estimated income of the employee for the relevant financial year is divided the number of months of his employment. The amount so arrived is the monthly deduction of tax at source.

However, if the employee does not have PAN No., TDS shall be deducted 20% without including Education Cess & SHEC, if the normal tax rate in this case is less than 20%. (Please refer section 206AA and Circular No.8 dated 13.12.2010).

Q.7 Whether employer is also liable to deduct tax on non monitory perquisites?

A.7. Section 192 (1)(A) provides an option to employer to pay tax on behalf of employee on non monitory perquisites however it is not mandatory. For the purpose of paying tax by employer u/s 1(a) tax shall be determined at the average rate of income tax of tax in force on the income chargeable under the head salaries including the value of non monitory perquisites.

Q.8 How to compute TDS on Salary in case of simultaneous employment?  What are relevant Forms and Rules?

A.8. Situation1: In case where change of employment made during the year–Where the employee was employed some other person before joining the present employer during the financial year, tax will be deducted by the present employer by taking into account the salary received from the TDS employer, tax deducted at source etc. for this purpose the employee has to submit in writing the full particulars regarding salary received.

Situation 2: Where employee is simultaneously working under more than one employer.  In this case tax will be deducted by the employer, the concerned employee so chooses. The employee shall submit the details of salaries due or received by him from other employer(s) the tds there from and such other particulars as may be prescribed in Form No.12 B.

The relevant judicial pronouncements:

1.    Employer not liable to deduct tax, if employee not intimate his earning from other employer, it was so held in CIT V/s Marubeni India Pvt. Ltd. (2007) 294 ITR 157 (Del).

2.    The assessee is not liable to deduct tax at source on payments received by its employee from any other employer. CIT v/s Woodward Governor India Pvt. Ltd. 295 ITR 1 Del) (See also Kinetics Technology (India) Ltd. v/s Jt. CIT (2006) 94 ITD 63 (Del)Q.9. What are the provisions of section 192[3] of the Act? Can an employer increase or decrease the amount of monthly TDS on Salary?A.9. Yes, the employer is authorized to adjust such excess/deficit in the subsequent months. However the same is permissible in case of same employee. [Please refer CIT v/s Enron Expat Services Inc (2010) 45 DTR 154: 194 Taxman 70 (Uttarakhand)] [ See also Commissioner of Income-tax v. Delhi Public School (2012) 247 CTR 317 (Del)]. The relevant judicial pronouncements:

1.      Interest u/s 201 (1A) is not applicable if the exact amount of TDS is not deducted in each month. ITO V/ Asia Hotels Ltd. (1991) 41 TTJ (Del) 28.

2.   No interest u/s 201(1A) for non deduction in initial months on grant of ex gratia, increments and DA since there was no default in terms of section 1 92(3).{Executive Engineer, T.L.C. Division, A.P. State Electricity Board v. ITO (1987) 20 ITD 318 (Hyd)].

3.      In correct estimate of salary cannot inevitably lead to inference that estimation is not honest and fair. [Lintas Indi Ltd. v. Asst. CIT (206)5 SOT 310 (Mum) ; Gwalior Rayon Silk Co. Ltd. V. CIT (1983) 140 ITR 832 (MP) and Nishith M. Desai v. ITO (206) 9 sot 42 (Mum)] ; CIT v ONGC Ltd. (2002) 254 ITR 121, 124 (Guj).

4.   The adjustment either of increasing or decreasing the tax deduction at source is to be made with reference to the estimated income of "the assessee" i.e. an employee and not all of them taken together deducting from some and refunding to others. (Shriram Pistons & Rings Ltd. v. ITO (2000) 16 DTC 331(Del­Trib) (2000) 73 ITD 30 (Del-Trib)].

Q.10. Can the person, responsible for any deduction of tax at source, adjust the excess tax deducted and deposited against the subsequent tax to be deducted in respect of payment to any other person?

A.10.   No. In this case the employee, whose tax has been deducted in excess than required, shall be allowed to take back the refund after filing return of income.

Q.11. What are the provision for deduction of tax at source on accumulated  balance of recognized provident fund?

A.11.  Section 192(4) states that the trustees of a recognized provident fund, or any other person, authorized by the regulation of the fund to make payment of accumulated balances due to employees shall deduct tax at the time when such accumulated balance due to the employee is paid, where such payment from recognized provident fund is taxable.

Q.12. Whether benefit of lower deduction or no deduction of TDS is available u/s 192?

A.12. Yes. However assessee to whom the salary is payable may make an application in Form No.13 to the Assessing Officer and if the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income tax at any lower rate or no deduction of income-tax, he my given such certificate as may be appropriate.

W.E.F. 1-4-2010, as per section 206AA(4), no certificate under section 197 shall be granted unless the application made in Form No.13 under that section contains the Permanent Account Number of the applicant.

Q.13. What the provisions of TDS on salary in case where employer undertakes to pay tax free salary?

A.13. Where an employer undertakes to pay tax free income to an employee, what he undertakes to pay is an agreed sum of money plus the tax payable for that amount. Therefore, at the time of making the estimate of salary income for the purpose of making deduction under section 192(1), the employer is under an obligation to take into consideration not only the actual amount that has been paid to the employee but also the tax payable on the salary income . [British Airways v. CIT (1992) 193 ITR 439 (Cal)].

Q.14. Whether the employer is liable to deduct tax at source on amount paid as compensation to employee upon settlement on termination of employment?

A.14. No. please refer Mahindra Singh Dharwal v. Hindustan Motors Ltd. (1985) 152 ITR 68 (SC)], All India Reporter Ltd. v. Ramachandra D. Datar (1961) 41 ITR 446 (SC)].,

Q.15. How the tax to be deducted at source shall be calculated in case  employee is earning income, which is taxable under other heads?

A.15. where an employee also has any income (not being a loss other than a loss under the head house property) for the same financial year, chargeable under any other head, he may furnish the statement of such other income and any tax deducted thereon to his employer to take them into consideration while deducting tax from his salary. However the resultant tax deductible u/s 192 cannot be less than the amounts that would have been deductible if such other income and tax deducted there on would not have been taken in to account.

However, any loss incurred under the head "Income from house property" can be taken in to account while determining TDS u/s 192.

Q.16. Whether private arrangement for making tax – free payments can discharge obligation to deduct tax at source?

A.16. No, Whatever the private arrangements between the payor and payee may be, the payer's liability under the statute is clear. Please refer John Patterson & Co. (India) Ltd. V. ITO (1959) 36 ITR 449 (Cal.)

Q.17. Whether employer should rely upon employees assurance about  making of savings by him while determining TDS u/s 192.  ?

A.17. No. On mere assurance of petitioner that he will make saving of particular amount without any documentary proof, it is not justifiable to reduce the TDS from salary proportionately. Please refer Major General, Vinay Kumar Singh v. UOI (2000) 18 DTC 19 (MP – HC) see also Koti Enterprises Pvt. Ltd. v. ITO (2000) 74 ITD 437 (Cal.) (SMC).

Q.18. Whether provisions of S. 192 shall also apply to any remuneration in  addition to 'Salary'?

A.18. Yes Remuneration in addition to salary received by employee for work done is chargeable as' Salary Income', therefore the same is liable for tax deduction at source. Please refer CIT v. V.R. Chaphekar (1977) 107 ITR 49 (Bom.) also refer American Express Bank Ltd V ITO (2002) 74 TTJ (Del – Trib) 599.

Q.19.  Whether transport facility given to employees from their residence to office and vice versa is a perquisite to attract TDS u/s 192?

A.19. Please refer Transworks information services Ltd. V ITO (2009) 29 SOT 543 (Mum).

Q.20.  Whether the employee is liable to once again pay tax where employer duly deducted Tax u/s 192 but not had issued TDS certificate?

A.20. once an employer has deducted tax at source employee assessee cannot be held responsible for payment once again. Please refer Pranab Kumar Chakraborty V DCIT (2008) 115 ITD 113 (Mum), see also J.G. Joseph v JCIT (2008) 303 ITR (AT) 395 (Mum).

Q.21. Whether provisions of s. 192 shall also apply to salary paid by non resident employer to a non resident employee for services rendered in India?

A.21. Yes, Provisions of S. 192 shall apply if the salary was paid for services rendered in India even though the employers as well as employee were nonresident and the payment is made outside India. Please refer Bobcock Power (Overseas Projects) Ltd. v. ACIT (2002) 81 ITD 29 (Del).

Q.22. When nonresident employer is deducting tax, whether the resident employer is also liable to deduct tax at source u/s 192 to whom the services of the employee have been made available?

A.22.   No, Please refer Cholamandalam MS General Insurance Co. Ltd., In re (2009) 309 ITR 356 (AAR) (Del).

Q.23. Whether the home salary payment made to expatriated employees  by the foreign company in foreign currency abroad can be held to be  'deemed to accrue or arise in India', consequently whether tax u/s 192  shall be deductible thereon?

A.23.Whether the home salary payment made to expatriated employees by the foreign company in foreign currency abroad can be held to be 'deemed to accrue or arise in India' would depend upon the in-depth examination of the facts in each case. If the home salary/ special allowance payment made by the foreign company abroad is for rendition of services in India and if no work is found to have been performed for foreign company, then such payment would certainly come under section 192 (1), read with section 9(1)( ii ). Please refer CIT v Eli Lilly & Co. (India) (P.) Ltd.*[2009] 312 ITR 225 (SC).

Q. 24 Whether fees paid to consultant doctor are covered by S. 192?

A.24. Fees paid to consultant doctors by assessee-hospital under a contract (FGC) are covered by section 1 94J and not section 192. ITO v. Apollo Hospitals International Ltd.[201 1] 9 taxmann.com 95 (AHD. – ITAT)

However where there is a employer-employee relationship between assessee and consultant doctors and, consequently, remuneration paid to them was chargeable to tax under head 'Salaries' and payments in question were subject to deduction of tax as per provisions of section 192 and not section 1 94J. St. Stephen's Hospital v. Dy. CIT, [2006] 6 SOT 60 (Delhi)

Q.25. Whether the provision of S. 40(a)(iii) shall attract, where deduction of Salary claimed being due but TDS not deducted since the same is not actually paid?

A.25. Where assessee claimed deduction of salary payable to its employee outside India on accrual basis and deducted tax at source under section 192, at time of payment or remittance of salary, assessee's claim would not be hit by provisions of section 40(a)(iii). Please refer Citigroup Global Markets India (P.) Ltd.* v Dy. CIT [2009] 29 SOT 326 (MUM.)

Q.26. whether shares and stock option plan offered at concessional rate will  be treated as perquisite for the purpose of deduction u/s 192?

A.26.   No. payer is not liable to deduct TDS under section 192 in respect of issue of its shares under stock option plan to its employees at a concessional rate as it could not be treated as a perquisite (salary). Please refer CIT v Wipro Ltd. [2009] 319 ITR 289 (KAR.)

Q.27. Whether employer responsible for deducting TDS in case of misuse of meal coupons by employee?

A.27.   No. where employer had distributed free food/meal coupons to its employees for purchase of meals only at specified eating points; such coupons were not transferable; and value of each coupon did not exceed monetary limit provided by rule 3(7)(iii), merely because some of employees had misused said facility by using coupons for other purposes, employer could not be treated to be in default for non­compliance with requirement of deducting tax at source under section 192, Please refer CIT(TDS) v. Reliance Industries Ltd. [2009] 308 ITR 82 (GUJ.)

Q.28. Whether reimbursement of expenses to parent company on account of expenses of globol manager shall attract TDS u/s 192?

A.28. No, Amount paid by assessee-company to its parent company on account of reimbursement of expenditure incurred in respect of global accounts manager, could not be treated as payment of salary, so as to attract deduction of tax at source. Please refer Expeditors International (India) (P.) Ltd v. ACIT [2008] 118 TTJ 652(Delhi).

However Salaries paid overseas to managing director for services rendered by him in India would fall under head 'salaries' as income earned in India and chargeable to tax and, consequently, section 192 would apply. Kinetic Technology (India) Ltd. v. ITO, [2005] 96 ITD 441 (Delhi)

Q.29. Whether tips paid by customers to employees working in a restaurant can be considered as part of their salary liable for deduction of tax at source?

A.29. No, please refer Nehru Place Hotels Ltd. v. ITO [2008] 173 Taxman 88.

Q.30. Whether foreign employer is liable to deduct tax at source on salary paid to expatriate technicians, account of remuneration for services rendered by them in India, irrespective of their residential status.?

A.30. Yes, Payment made to expatriate technicians by foreign employer, having permanent establishment in India, on account of remuneration for services rendered by them in India, is liable to tax in India irrespective of their stay in India. Therefore, foreign employer is liable to deduct tax at source U/s 192 while making such payments to expatriates. Please refer Pride Foramer S.A. v. ACIT, [2005] 97 ITD 86 (Delhi).

Q.31. Where director of a company is receiving commission in addition to Salary, whether TDS will be deducted upon actual payment.?

A.31. No, commission shall become taxable on due basis. Please refer Sanjib Kumar Agarwal V CIT (2009) 310 ITR 295 (Cal).

Q.32. Whether honorarium to part time teacher shall attract deduction u/s 192.?

A.32. Honorarium to part time teacher held as salary, if the employee is under the control of the employer, please refer Max Mueller Bhavan, In re (2004) 268 ITR 31, 32, 35 – 36 (AAR).

Q33. Whether salary paid to MP, MLA. Ministers & Chief Ministers shall  attract TDS u/s 192?

A33. MP and MLA are not employed by any body, rather they are elected by the public, their remuneration cannot be said to be salary within the meaning of section 15, such income shall be taxable under the head income from other sources as consequent to election they acquire constitutional position and discharge functions and obligations [CIT v Shiv Charan Mathur (2008) 306 ITR 126 (Raj)]

However pay and allowances received by the Chief Minister of State or a minister is salary. It cannot be taxed under the head income from other source (Please refer Lalu Prasad v CIT (2009) 316 ITR 186 (Patna).

Article 125 & 221 of the constitution deals with the salaries of Supreme Court and High Court Judges respectively and expressly state that what the judges receive are salaries. [Justice Deoki Nandan Agarwala v. Union of India (1999) 237 ITR 872 (SC).

IMPORTANT CIRCULARS

1.   Circular: No. 707, dated 11/07/1995 - Where non-residents are deputed to work in India and taxes are borne by employers, in certain cases if an employee to whom refunds are due has already left India and has no bank account here by the time assessment orders are passed, refund can be issued to employer as tax has been borne by it.

2.  Circular : No. 761, dated 13-1-1998.- Banks has been advised that as per section 17(1)(ii) of the Income-tax Act, 1961, the term 'salary' includes pension, once tax has been deducted under section 192 of the Income-tax Act, 1961, the tax-deductor is bound by section 203 to issue the certificate of tax deducted in Form 16. No employee-employer relationship is necessary for this purpose the certificate in Form No. 16 cannot be denied on the ground that the tax deductor is unaware of the payees' other income.

3. Circular: No. 285 [F. No. 275/77/79-IT(B)], dated 21-10-1980- Where the tax is deducted at source and paid by the branch office of the assessee and the quarterly statement/annual return (in case of salaries) of tax deduction at source is filed by the branch, such branch office would be treated as a separate unit independent of the head office. After meeting any existing tax liability of such a branch, which would normally be in relation to the deduction of tax at source, the balance amount may be refunded to the said branch office. The Income-tax Officer, who will refund the amount, would be the one who receives the quarterly statement/annual return (in case of salaries) of tax deduction at source from that branch office and keeps record of the payments of tax deduction at source made by that branch.

(Source – Book on Practical Aspects of Tax Audit, TDS, HUF & Capital Gains  written by CA Agarwal Sanjay 'Voice of CA' & Team}

Register of Members Under Companies Act, 2013 and Rules 2014

Posted In Company Law | Articles | No Comments »

CS M. Kurthalanathan

Introduction : Both the Companies Act, 1956 Act and Companies Act, 2013 requires companies to maintain register and index of members, register and index of debenture holders, but the 2013 Act requires company to maintain register and index of other securities also.

The particulars of Register of members and other details are prescribed in Companies (Management and Administration) Rules, 2014

Registers to be maintained:

Every company shall keep and maintain the following registers :—

(a) ROM indicating separately for each class of equity and preference shares held by each member residing in or outside India;

(b) Register of Debenture-holder and

(c) Register of any other security holders.

 (1) Every company shall, from the date of its registration, keep and maintain a register of its members in one or more books in Form No. MGT-1.

In the case of existing companies, registered under the Companies Act, 1956, particulars shall be compiled within six months from the date of commencement of these rules.

(2) For Company not having share capital-

(a)   ROM shall contain following Particulars:

• Name of the member;
• Address (registered office address in case the member is a body corporate);
• e-mail address;
• Permanent Account Number or CIN;
• Unique Identification Number, if any;
• Father's/Mother's/Spouse's name;
• Occupation; Status;
• Nationality;
• in case member is a minor

v  Name of the guardian and

v  DOB of the member;

v  Name and address of nominee;

(b) Date of becoming member;

(c) Date of cessation;

(d) Amount of guarantee, if any;

(e) any other interest if any.

(f) Instructions, if any, given by the member with regard to sending of notices etc.

Every company which issues or allots debentures or any other security shall maintain a separate register of debenture holders or security holders, as the case may be, for each type of debentures or other securities in one or more books in Form No.MGT-2

Maintenance of the Register of members etc. under section 88.

Every company shall maintain the registers in the following manner:-

(1) Entries after allotment or transfer of shares, debentures or other securities:

The entries in the registers maintained under section 88 shall be made within seven days after the Board of Directors or its duly constituted committee approves the allotment or transfer of shares, debentures or any other securities, as the case may be.

 (2) Register at R.O/other place:

v  Registers shall be maintained at the registered office of the company

v  Registers shall be maintained at other place- If

A special resolution is passed in a general meeting authorizing the keeping of the register at

• any other place within the city, town or village in which the registered office is situate or
• any other place in India in which more than 1/10^th  of the total members entered in the register of members reside.

 (3) Other entries in ROM or in respective registers:

Consequent upon any forfeiture, buy-back, reduction, sub-division, consolidation or cancellation of shares, issue of sweat equity shares, transmission of shares, shares issued under any scheme of arrangements, mergers, reconstitution or employees stock option scheme or any of such scheme provided under this Act or by issue of duplicate or new share certificates or new debenture or other security certificates, entry shall be made within seven days after approval by the Board or committee, in the register of members or in the respective registers, as the case may be

 (4) Change in Status:

If any change occurs in the status of a member or debenture holder or any other security holder whether due to death or insolvency or change of name or due to transfer to Investor Education Protection Fund or due to any other reason, entries thereof explaining the change shall be made in the respective register.

(5)  Reference of Order:

The necessary reference of order shall be indicated in the respective register –If

• any rectification is made in the register  by the company pursuant to any order passed by the competent authority under the Act,

• any order is passed by any judicial or revenue authority or by Security and Exchange Board of India (SEBI) or Tribunal attaching the shares, debentures or other securities and giving directions for remittance of dividend or interest

(6) Particulars of pledge/charge/Lien/hypothecation created by promoter:

In case of companies whose securities are listed on a stock exchange in or outside India, the particulars of any pledge, charge, lien or hypothecation created by the promoters in respect of any securities of the company held by the promoter including the names of pledgee/pawnee and any revocation therein shall be entered in the register within fifteen days from such an event

If promoters of any listed company, which has formed a joint venture company with another company have pledged or hypthoticated or created charge or lien in respect of any security of the listed company in connection with such joint venture company, the particulars of such pledge, hypothecation, charge and lien shall be entered in the register members of the listed company within fifteen days from such an event.

Corresponding register and index:

 Every register maintained shall include an index of the names included therein.

The register and index of beneficial owners maintained by a depository under section 11 of the Depositories Act, 1996 (22 of 1996), shall be deemed to be the corresponding register and index for  the purpose  of this act

Index of names to be included in Register.    

 (1) Every register maintained under sub-section (1) of section 88 shall include an index of the names entered in the respective registers and the index shall, in respect of each folio, contain sufficient indication to enable the entries relating to that folio in the register to be readily found.

The maintenance of index is not necessary in case the number of members is less than fifty.

(2) The company shall make the necessary entries in the index simultaneously with the allotment or transfer of any security in such Register.

Foreign Register:

 A company may keep a part of the register in any country outside India , if so authorized by its articles,  in such manner as may be prescribed called "foreign register", containing the names and particulars of the members, debenture-holders, other security holders or beneficial owners residing outside India.

Foreign register of members, debenture holders, other security holders or beneficial owners residing outside India.

(1) A company which has share capital or which has issued debentures or any other security may, if so authorised by its articles, keep in any country outside India, a part of the register of members or as the case may be, of debenture holders or of any other security holders or of beneficial owners, resident in that country (hereafter in this rule referred to as the "foreign register").

 (2) The company shall file Form MGT-3 with the Registrar for

• notice of the situation of the office within 30 days from the date of the opening of any foreign register  along with the fee as provided in Annexure B where such register is kept and

• any change in the situation of such office or of its discontinuance, within 30 days from the date of such change or discontinuance.

(3) A foreign register shall be

• deemed to be part of the company's ROM or of Register Of Debenture holder or of any other security holders or BO.

• maintained in the same format as the Principal Register.

• open to inspection and extracts may be taken there from and copies thereof may be required, in the same manner, mutatis mutandis, as is applicable to the principal register

•  closed but advertisement before closing the register shall be inserted in at least two newspapers circulating in the place where it is kept.

(4) If a foreign register is kept by a company in any country outside India, the decision of the appropriate authority in regard to the rectification of the register shall be binding.

(5) The company shall -

(a) transmit to its registered office in India a copy of every entry in any foreign register within 15 days after the entry is made; and

(b) keep at such office a duplicate register of every foreign register duly entered up from time to time.

(6) Every such duplicate register shall, for all the purposes of this Act, be deemed to be part of the principal register.

(7) with respect to duplicate registers, the shares or as the case may be, debentures or any other security, registered in any foreign register shall be distinguished from the shares or as the case may be, debentures or any other security, registered in the principal register and in every other foreign register; and no transaction with respect to any shares or as the case may be, debentures or any other security, registered in a foreign register shall, during the continuance of that registration, be registered in any other register.

(8) The company may discontinue the keeping of any foreign register; and thereupon all entries in that register shall be transferred to some other foreign register kept by the company outside India or to the principal register.

Authentication.

 (1) The Entries in the registers  and index included therein shall be authenticated by-

• the company secretary of the company or
• any other person authorised by the Board for the purpose, and the date of the board resolution authorising the same shall be mentioned.

(2) The Entries in the foreign register shall be authenticated by –

•  the company secretary of the company or
• any other person authorised by the Board by appending his signature in each entry.
  

Declaration in respect of beneficial interest in any shares.-

(1) A person whose name is entered in the register of members of a company as the holder of shares in that company but who does not hold the beneficial interest in such shares (hereinafter referred to as "the registered owner"), shall file with the company, a declaration to that effect in Form No.MGT.4 in duplicate, within a period of 30 days from the date on which his name is entered in the register of members of such company:

If any change occurs in the beneficial interest in such shares, the registered owner shall, within a period of thirty days from the date of such change, make a declaration of such change to the company in Form No.MGT.4 in duplicate.

(2) Every person holding and exempted from furnishing declaration or acquiring a beneficial interest in shares of a company not registered in his name (hereinafter referred to as "the beneficial owner") shall file with the company, a declaration disclosing such interest in Form No. MGT.5 in duplicate, within 30 days after acquiring such beneficial interest in the shares of the company.

If  where any change occurs in the beneficial interest in such shares, the beneficial owner shall, within a period of 30 days from the date of such change, make a declaration of such change to the company in Form No.MGT.5 in duplicate

(3) Where any declaration under section 89 is received by the company, the company shall make a note of such declaration in the register of members and shall file, within a period of thirty days from the date of receipt of declaration by it, a return in Form No.MGT.6 with the Registrar in respect of such declaration with fee.

Closure of register of members or debenture holders or other security holders.-

(1) A company closing the register of members or the register of debenture holders or the register of other security holders shall give at least seven days previous notice and in such manner, as may be specified by Securities and Exchange Board of India, if such company is a listed company or intends to get its securities listed, by advertisement at least once in a vernacular newspaper in the principal vernacular language of the district and having a wide circulation in the place where the registered office of the company is situated, and at least once in English language in an English newspaper circulating in that district and having wide circulation in the place where the registered office of the company is situated and publish the notice on the website as may be notified by the Central Government and on the website, if any, of the Company.

(2) The provisions contained in sub-rule (1) shall not be applicable to a private company provided that the notice has been served on all members of the private company not less than seven days prior to closure of the register of members or debenture holders or other security holders.

Penalty:

 If a company does not maintain;

• a Register Of Members or
• a Register Of Debenture holders
• other security holders or
• fails to maintain them in accordance with the provisions of sub-section (1) or sub-section (2),

Company & Every officer of the company

Fine which shall not be less than Rs.50,000/- but which may extend to Rs3,00,000/- andFailure is a continuing one- fine which may extend to Rs.1000/- for every day, after the first during which the failure continues

Service Tax on Legal Services under Reverse Charge Mechanism

Posted In Service Tax | Articles | No Comments »

 CA Tarannum Khatri

Definition of legal service

As per Notification No.  25/2012-Service Tax, Dated – 20^th June, 2012

"Legal service" means any service provided in relation to advice, consultancy or  assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority"

(Before 1/7/2012 representative service was exempt) Service providers:

• Individual advocate
• Partnership firm of advocate
• Arbitral tribunal.

According to notification no 25/2012 dated 20/6/12,

If an individual advocate or partnership firm of advocates provides service to

1. Individual advocate
2. Partnership firm of advocates
3. Any person other than business entity
4. A business entity with a turnover not more than 10 lacks in preceding financial year,

The service is exempt from levy of service tax.

What is business entity?

Any person (individual, firm, HUF, company etc) carrying out any activity relating to industry, commerce or business or profession.

That means utilization of legal service for personal purposes is exempt.

When to pay the tax and by whom?

If business entity that has turnover more than 10 lacks in preceding financial year receives legal service, business entity has to pay whole service tax under reverse charge mechanism.

Some advocates provide service related to income tax, vat, pf, esic matters, all these services are covered under legal services because it is assistance in any branch of law.

If lawyer provides service other than legal service, it is taxable as per taxability of that service. Exemption is only for legal service.

Cenvat credit:

If business entity pays service tax under reverse charge, it can take cenvat credit for it and utilize it for payment of service tax and excise.

Legal service is input service as per definition (rule 2(1) of cenvat credit rules, 2004)

Let's understand the concept from following chart:

Service provider	Service receiver	Who will pay service tax?
Individual advocate	Individual advocate	exempt
Firm of advocate	Individual advocate	exempt
Firm of advocate	Firm of advocate	Exempt
Individual/firm of advocate	Person utilize service for personal purposes	Exempt
Firm of advocate	Business entity having turnover less than 10 lacks preceding f.y.	Exempt
Firm of advocate	Business entity having turnover of more than 10 lakhs preceding f.y.	Business entity under reverse charge-100%
Firm of advocate	Business entity outside India	Exempt
Arbitral tribunal	Firm of advocate	exempt

Companies Act – 2013: Secretarial Audit

Posted In Company Law | Articles | No Comments »

Introduction

Secretarial Audit is a process to check compliance with the provisions of various laws and rules/regulations/procedures, maintenance of books, records etc., by an independent professional to ensure that the company has complied with the legal and procedural requirements and also followed due processes. It is essentially a mechanism to monitor compliance with the requirements of stated laws and processes.

Timely examination of compliance reduces risks as well as potential cost of non-compliance and also builds better corporate image. Secretarial Audit establishes better compliance platform by checking the compliances with the provisions of various statutes, laws, rules & regulations, procedures by an independent professional to make necessary recommendations/ remedies. The primary objective of the Compliance Management backed Secretarial Audit is to safeguard the interest of the Directors &officers of the companies, shareholders, creditors, employees, customers etc. With the introduction of concept of 'Secretarial Audit' in Companies Act, 2013, it has gained wider importance and an area of professional opportunity among Company Secretaries.

A Company Secretary in Practice has been assigned the role of Secretarial Auditor in section 2(2)(c)(v) of The Company Secretaries Act 1980, which is the only statute in the country, carving out 'Secretarial Audit' as an area of practice.

A practicing Company Secretary (PCS) is the competent, fit and proper professional to conduct Secretarial Audit. A significant area of competence of PCS is "Corporate laws" owing to intensive and rigorous coaching, examinations, training and continuing education programs. PCS is a highly specialized professional in matters of statutory, procedural and practical aspects involved in proper compliances under corporate laws. Strong knowledge base makes PCS a competent professional to conduct Secretarial Audit.

The Institute of Company Secretaries of India realizing the importance of this topic has already introduced "Secretarial Audit, Compliance Management and Due Diligence" as one of the subject in its Professional curriculum w.e.f. 01^st September, 2013.

Background

The concept of Secretarial Audit is not new in Indian context. The Ministry of Corporate Affairs has already released CORPORATE GOVERNANCE VOLUNTARY GUIDELINES, 2009 on December 21, 2009. The preamble to Guidelines states that "These guidelines provide for a set of good practices which may be voluntarily adopted by the Public companies. Private companies, particularly the bigger ones, may also like to adopt these guidelines."

The Guidelines, amongst other things, recommend the introduction of Secretarial Audit. Companies, which do not adopt these guidelines, either fully or partially, are expected to inform their shareholders about the reasons for not adopting these Guidelines.

The earlier Companies Act, 1956 provides for a compliance certificate to be issued by a Company Secretary in practice and annexed to Board Report by certain class of Companies. As per Section 383A of the Companies Act, 1956, every Company having a paid-up capital of not less than Rs. 10 lakhs or more but less than Rs. 5 crore shall be required to file a compliance certificate given by a practicing Company Secretary with the Registrar of Companies within 30 days from the date on which its annual general meeting was held with the requisite fees and a copy of such certificate was attached with Board's report.

Provisions in Companies Act, 2013

The Companies Act, 2013 has now introduced the Secretarial Audit as a new class of audit in addition to Statutory Audit, Internal Audit and Cost Audit prescribed in the act. Section 204 of the Act read with The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 notified w.e.f. 01^st April, 2014 deals with provisions relating to Secretarial Audit.

1.         Applicability

The requirements of Secretarial Audit are not applicable on all companies.  According to Sub-Section 1 of Section 204 of the Act, every listed company and a company belonging to other class of companies as may be prescribed shall annex with its Board's report made in terms of sub-section (3) of section 134, a secretarial audit report, given by a company secretary in practice, in such form as may be prescribed.

Rule 9 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 prescribes the other class of companies as under:

(a)     every public company having a paid-up share capital of 50 crore rupees or more;

• or

(b)     every public company having a turnover of 250 crore rupees or more.

2.      Duties, Rights and Powers of Company Secretary in Practice conducting Secretarial Audit

According to Sub-Section 2 of Section 204 of the Act, it shall be the duty of the company to give all assistance and facilities to the company secretary in practice, for auditing the secretarial and related records of the company. Further, a company secretary in practice conducting secretarial audit has been granted similar powers and rights as that granted to statutory auditor. (Section 143(14) of the Act).

The report of Board of Directors prepared under Section 134(3) of the Act shall include explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the company secretary in practice in his secretarial audit report. (Sub-Section 3 of Section 204 of the Act).

3.      Punishment for Default

According to Sub-Section 4 of Section 204 of the Act, if a company or any officer of the company or the company secretary in practice, contravenes the provisions of section 204 of the Act, the company, every officer of the company or the company secretary in practice, who is in default, shall be punishable with fine which shall not be less than 1 lakh rupees but which may extend to 5 lakh rupees.

Further, the provision of Section 143 mutatis mutandis applying to company secretary in practice in conduct of secretarial audit, if the company secretary in practice, in the course of the performance of his duties as secretarial auditor, has reason to believe that an offence involving fraud is being or has been committed against the company by officers or employees of the company, he shall immediately report the matter to the Central Government within such time and in such manner as may be prescribed. If company secretary in practice conducting Secretarial Audit u/s 204 of the Act do not comply with such provisions, he shall be punishable with fine which shall not be less than 1 lakh rupees but which may extend to 25 lakh rupees. (Sub-Section 15 of Section 143 of the Act).

4.      Reporting Requirements

Rule 9 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 provides that the format of the Secretarial Audit Report shall be in FormNo.MR – 3. The format of the report (MR – 3) is also available in the aforesaid Rules. The scope of reporting is very broad and the Company Secretary in practice has to ensure compliances of following statutory provisions in addition to Secretarial standards issued by The Institute of Company secretaries of India, the Listing Agreement and The Companies Act, 2013(including the rules made thereunder):

1. The Securities Contracts (Regulation) Act, 1956 ('SCRA') and the rules made thereunder;

2. The Depositories Act, 1996 and the Regulations and Bye-laws framed thereunder;

3. Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder to the extent of Foreign Direct Investment, Overseas Direct Investment and External Commercial Borrowings;

4. The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 ('SEBI Act'):

• The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;
• The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992;
• The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009;
• The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999;
• The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008;
• The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 regarding the Companies Act and dealing with client;
• The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009; and
• The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998;

5. any other laws as may be applicable specifically to the company.

Conclusion-   While the Companies Act, 2013 has opened up a significant area of practice for Company Secretaries, it casts immense responsibility on Company Secretaries, and poses a great challenge to justify fully, the faith and confidence reposed in them.The reporting clause of MR-3 – "I/We hereby report that in my/our opinion, the company has, during the audit period covering the financial year ended on_____, _____ complied with the statutory provisionslistedhereunder and also that the Company has proper Board-processesand compliance-mechanism in place to the extent, in the mannerand subject to the reporting made hereinafter …………………." cast an enormous responsibility on the part of Company Secretary in practice.It, therefore, becomes imperative for the PCS that he exercises great care and caution while issuing the Secretarial Audit report and also adheres to the highest standards of professional ethics and excellence in providing his services. Secretarial Audit is to be on the principle of "Prevention is better than cure" rather than post mortem exercise and to find faults.

Also, there is no cap proposed on maximum number of secretarial audits which a practicing company secretary could conduct. A cap of reasonable number of secretarial audits would be desirable for equity, quality and efficiency.

ICSI suggestions to Ministry

The regulator of profession of Company Secretary believes that the legislative intention of this section 204 of the Act is that every listed company, big or small, and every big company needs secretarial audit. It does not envisage distinction between private and public companies. The need for a company to have secretarial audit company can be linked to scale of operations or presence which can be determined in terms of paid up capital, turnover, number of employees, number of shareholders, outstanding borrowings, kinds of business etc. and has no link whether a company is public or private. In fact, we had moved to a regime where the law endeavors to provide level playing field to all kinds of market participants. In fact Companies Act, 2013 has done away with most of the exemptions/relaxations available to private companies under the earlier law. This is found on the profound realization that serious misdemeanor have been noticed in many private companies. The exclusion of private companies, irrespective of their size, from secretarial audit gives a message that the matters covered under such audit such as compliance with applicable laws is not important. It is at least as important as the financial audit which is compulsory for every company. That is why it is part of the Corporate Governance Voluntary Guidelines, 2009 of Ministry of Corporate Affairs which is applicable to all companies.

The Institute of Company Secretaries of India has made a representation (dated 02^nd April, 2014) to the Ministry of Corporate Affairs for amending the rules relating to Secretarial Audit and making it applicable to all those companies which are at least subject to 'Internal Audit' u/s 138 of the Act.Now, the new Government of 16^thLokSabhawill be tested, how it comes up with this representation/suggestion of ICSI.

Note :-

Reference to Act means Companies Act, 2013 unless stated otherwise.

Views are personal and may not be relied as an opinion on any statutory act, section or rule.

-CA. Amit G. Chandani,  ACA, ACMA, Lic. ICSI, B.Com-  (@) amitgchandani@icai.org

ONE PERSON COMPANY – Legal Provisions & Brief Comparison

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Riya Dani

ONE PERSON COMPANY – Taking Entrepreneurship to Next Level

1. Introduction:

The Companies Act, 2013 passed by the Lok Sabha provides for the concept of a One Person Company (OPC) in India as against the existing structure of a private company requiring a minimum of two shareholders and two directors. This concept was first recommended in India by Dr. J.J. Irani committee in 2005 and was subsequently inserted in the Companies Bill so as to provide an option to persons who can independently carry out business under the company structure.

2. Definition:
As defined in Section 2 (62) of the Companies Bill, 2013, "One Person Company" means a company which has only one person as a member.

3 . Applicable Sections:

(i) Definition of One Person Company (Sec.2(62))

(ii) Definition of Financial Statement (Sec.2(40))

(iii) Definition of Private Company (Sec.2(68))

(iv) Formation of One Person Company (Sec.3)

(v) Memorandum (Sec. 4(1)(f))

(vi) Registered Office of One Person Company (Sec.12(3) Proviso)

(vii) Annual Return (Sec.92(1) Proviso)

(viii)  Annual General Meeting (Sec.96(1))

(ix) Applicability of Chpt VII (Management & Administration) (Sec.122)

(x) Financial Statement, Board's Report, etc. (Sec.134)

(xi) Copy of Financial Statement to be filed with Registrar (Sec.137(1))

(xii) Company to have Board of Directors (Sec.149)

(xiii) Appointment of Directors (Sec.152)

(xiv) Meetings of Board (Sec. 173)

(xv) Contract by One Person Company (Sec.193)

4. Prerequisites:

(i) Only one person is required as a member/ shareholder.

(ii) One Person company can be registered only as a Private Company.

(iii) One Person Company may be either a Company limited by share or a Company limited by guarantee or an unlimited Company.

(iv) An OPC limited by shares shall comply with following requirements:

a.   Shall have minimum paid up capital of Rs.1,00,000/-.
b.   Restricts the right to transfer its shares.
c.   Prohibits any invitations to public to subscribe for the   securities of the company.

(v) An OPC is required to give a legal identity by specifying a name under which the activities of the business could be carried on.

(vi)  As specified in the Companies (Incorporation) Rules, 2014, only a natural person who is an Indian citizen and resident in India shall be eligible to incorporate a One Person Company and shall be a nominee for the sole member of a One Person Company. Non-resident Indians or individuals who do not reside in India for over 182 days cannot incorporate a OPC.

Points to Remember:

• No person shall be eligible to incorporate more than a One Person Company or become nominee in more than one such company.

• Where a natural person, being member in One Person Company, becomes a member in another such Company, by virtue of his being a nominee in that One Person Company, such person shall meet the prerequisites within a period of one hundred and eighty days.

• No minor shall become member or nominee of the One Person Company or can hold share with beneficial interest.

• Such Company cannot be incorporated or converted into a company under section 8 of the Act.

• Such Company cannot carry out Non-Banking Financial Investment activities including investment in securities of anybody corporates.

• No such company can convert voluntarily into any kind of company unless two years have expired from the date of incorporation of One Person Company, except threshold limit (paid up share capital) is increased beyond fifty lakh rupees or its average annual turnover during the relevant period exceeds two crore rupees.

5. Reservation of Name:

An application for the reservation of a name shall be made in Form No. INC.1 along with the fee as provided in the Companies (Registration offices and fees) Rules, 2014.

Points to Remember:

• The proposed name should not be identical or too nearly resemble with the words like Private, Limited, LLP, Company, Co., Corporation, types and cases of letters. Also, using different phonetic spellings or spelling variations, misspelled words, addition of internet related designation or words like New, Modern, Shri, Om, Jai, 'British India' etc., different combination of same words, Hindi or English translation or transliteration of the name of an existing Company or LLP in Hindi or English shall be disregarded.

• The proposed name shall be considered undesirable if it attracts the provisions of Section 3 of the Emblems and Names (Prevention and Improper Use) Act, 1950 (12 of 1950), includes name of registered trademark which is subject of an application for registration or includes word or words offensive to any section of people.

• If the company's main business is financing, leasing, chit fund, investments, securities or combination thereof, such name shall not be allowed unless the name is indicative of such related financial activities, viz., Chit Fund or Investment or Loan, etc.

• If a foreign company is incorporating its subsidiary company in India, then the original name of the holding company along with the addition of word India or name of any Indian state or city may be allowed if it is so available.

• The proposed name should be in consonance with the principal objects of the Company as set out in the Memorandum. If any company has changed its activities which are not reflected in its name, it shall change its name in line with its activities within a period of six months from the change of activities after complying with all the provisions as applicable to change of name.

• In case the key word used in the name proposed is the name of a person other than the name(s) of the promoters or their close blood relatives, No objection from such other person(s) shall be attached with the application for name.

• The applicant shall declare in affirmative or negative whether they are using or have been using in the last five years, the name applied for incorporation of company or LLP in any other business constitution like Sole proprietor or Partnership or any other incorporated or unincorporated entity. No Objection Certificate from other partners and associates for use of such name by the proposed Company or LLP, as the case may be, and also a declaration as to whether such other business shall be taken over by the proposed company or LLP or not shall be required.

• The names released on change of name by any company shall remain in data base and shall not be allowed to be taken by any other company including the group company of the company who has changed the name for a period of three years from the date of change subject to specific direction from the competent authority in the course of compromise, arrangement and amalgamation.

• Also, if the proposed name is identical with the name of a company which is struck off in pursuance of action under section 248 of the Act, then the same shall not be allowed before the expiry of twenty years from the publication in the Official Gazette being so struck off.

6. Memorandum:

(i) The memorandum of One Person Company shall indicate the name of the other person, with his prior written consent in the prescribed form, who shall, in the event of the subscriber's death or his incapacity to contract become the member of the company.

(ii) The written consent of such person shall also be filed with the Registrar in Form No INC.2 along with consent of such nominee obtained in Form No INC.3 and fee as provided in the Companies (Registration offices and fees) Rules, 2014 at the time of incorporation of the One Person Company along with its memorandum and articles.

(iii) Such other person may withdraw his consent in such manner as may be prescribed. The sole member shall nominate another person as nominee within fifteen days of the receipt of the notice of withdrawal and shall send an intimation of such nomination in writing to the Company, along with the written consent of such other person so nominated in Form No INC.3.

(iv)  The member of One Person Company may at any time change the name of such other person nominated by him at any time for any reason including in case of death or incapacity to contract of nominee and nominate another person after obtaining the prior consent of such another person in Form No INC.3. On receipt of such intimation, the Company shall file with the Registrar, a notice of such change in Form No INC.4 along with fee as provided in the Companies (Registration offices and fees) Rules, 2014 and with the written consent of the new nominee in Form No.INC.3 within thirty days of receipt of intimation of the change.

(v) It shall be the duty of the member of One Person Company to intimate the company the change, if any, in the name of the other person nominated by him by indicating in the memorandum or otherwise within such time and in such manner as may be prescribed, and the company shall intimate the Registrar any such change within such time and in such manner as may be prescribed.

(vi) Any such change in the name of the person shall not be deemed to be an alteration of the memorandum.

7. Director:

(i) Where no provision is made in the articles of a company for the appointment of the first director, an individual being member shall be deemed to be its first director until the director or directors are duly appointed by the member.

(ii) Every One Person Company shall have a minimum of one director and maximum of fifteen directors. A company may appoint more than fifteen directors after passing a special resolution. Such class or classes of companies as may be prescribed shall have at least one woman director.

8. The words ''One Person Company'' shall be mentioned in brackets below the name of such company, wherever its name is printed, affixed or engraved.

 9. Financial Statements:

The Financial Statements of a One Person Company includes-

(i) a balance sheet as at the end of the financial year;

(ii) a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year;

(iii) cash flow statement for the financial year;

(iv) a statement of changes in equity, if applicable; and

 (v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv)

• A One Person Company shall file a copy of the financial statements duly adopted by its member, along with all the documents which are required to be attached to such financial statements, within one hundred eighty days from the closure of the financial year.

10. Reporting:

The report of the Board of Directors containing explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report shall be attached to the financial statement.

11. Annual Return: Under proviso to Section 92(1) of the Act, the annual return shall be signed by the company secretary, or where there is no company secretary, by the director of the company.

12. Non-Applicability of Sections:

The following Sections shall not apply to One Person Company:

(i)  Power of Tribunal to call meetings of members, etc. (Sec.98)

(ii)  Calling of extraordinary general meeting (Sec.100)

(iii)  Notice of Meeting (Sec.101)

(iv)  Statement to be annexed to notice (Sec.102)

(v)   Quorum for meetings (Sec.103)

(vi)  Chairman of Meetings (Sec.104)

(vii)  Proxies (Sec.105)

(viii) Restrictions on voting rights (Sec.106)

(ix)   Voting by show of hands (Sec.107)

(x)    Voting through Electronic Means (Sec.108)

(xi)   Demand for Poll (Sec.109)

(xii)  Postal Ballot (Sec.110)

(xiii) Circulation of Member's Resolution (Sec.111)

(xiv) Quorum for meetings of Board (Sec.174)

13. Meeting:

(i) A One Person Company may conduct at least one meeting of the Board of Directors in each half of a calendar year and the gap between the two meetings shall not be less than ninety days.

(ii) The provisions of Section 174 (Quorum for meetings of Board) will not apply to One Person Company in which there is only one director on its Board of Directors.

Note: As per Companies (Management and Administration) Rules, 2014, One Person Company and other companies having members upto two hundred are not required to transact any business through postal ballot.

(iii) where the company is having only one director, all the businesses to be transacted at the meeting of the Board shall be entered into minutes book  maintained under section 118;

(iv) such minutes book shall be signed and dated by the director;

(v) the resolution shall become effective from the date of signing such minutes by the director.

14. Resolutions:

(i) the resolution required to be passed at the general meetings of the company shall be valid if the resolution is agreed upon by the sole member, communicated to the company and entered in the minutes book maintained under section 118

(ii) such minutes book shall be signed and dated by the member

(iii) the resolution shall become effective from the date of signing such minutes by the sole member.

15. Penalty:

If One Person Company or any officer of such company contravenes the provisions of Companies (Registration offices and fees) Rules, 2014, One Person Company or any officer of the One Person Company shall be punishable with fine which may extend to ten thousand rupees and with a further fine which may extend to one thousand rupees for every day after the first during which such contravention continues.

16. Issue of Share Certificate (where shares are not in demat form):

 As per Companies (Share Capital & Debentures) Rules, 2014, every share certificate shall be issued under the seal of the company, which shall be affixed in the presence of and signed by one director or a person authorized by the Board of Directors of the company for the purpose and the Company Secretary, or any other person authorized by the Board for the purpose.

17. Contracts:

(i) Where One Person Company limited by shares or by guarantee enters into a contract with the sole member of the company who is also the director of the company, the company shall, unless the contract is in writing, ensure that the terms of the contract or offer are contained in a memorandum or are recorded in the minutes of the first meeting of the Board of Directors of the company held next after entering into contract.

(ii) This shall not apply to contracts entered into by the company in the ordinary course of its business.

(iii) The company shall inform the Registrar about every contract entered into by the company and recorded in the minutes of the meeting of its Board of Directors within a period of fifteen days of the date of approval by the Board of Directors.

18. Mandatory Conversion:

(i) Criteria for Conversion: Where the paid up share capital of an One Person Company exceeds fifty lakh rupees or its average annual turnover during the relevant period (the period of immediately preceding three consecutive financial years) exceeds two crore rupees, it shall not be entitled to continue as a One Person Company.

(ii) Time Limit for Conversion: Such One Person Company requires to convert itself, within six months of the date on which its paid up share capital is increased beyond fifty lakh rupees or the last day of the relevant period during which its average annual turnover exceeds two crore rupees as the case may be, into either a private company with minimum of two members and two directors or a public company with at least of seven members and three directors in accordance with the provisions of section 18 of the Act.

(iii) Alteration of Memorandum: The One Person Company shall alter its memorandum and articles by passing a resolution in accordance with sub-section (3) of section 122 of the Act to give effect to the conversion and to make necessary changes incidental thereto.

(iv) Intimation to the Registrar: The One Person Company shall within period of sixty days from the date of applicability, give a notice to the Registrar in Form No.INC.5 informing that it has ceased to be a One Person Company and that it is now required to convert itself into a private company or a public company by virtue of its paid up share capital or average annual turnover, having exceeded the threshold limit.

(v)  Penalty for Non-Compliance: If One Person Company or any officer of the One Person Company contravenes the provisions of these rules, One Person Company or any officer of the One Person Company shall be punishable with fine which may extend to ten thousand rupees and with a further fine which may extend to one thousand rupees for every day after the first during which such contravention continues.

19. Conversion of Private Company into One Person Company:

(i) A private company other than a company registered under section 8 of the Act having paid up share capital of fifty lakhs rupees or less or average annual turnover during the relevant period (the period of immediately preceding three consecutive financial years) is two crore rupees or less may convert itself into one person company by passing a special resolution in the general meeting.

(ii) Before passing such resolution, the company shall obtain No objection in writing from members and creditors.

(iii) The one person company shall file copy of the special resolution with the Registrar of Companies within thirty days from the date of passing such resolution in Form No MGT.14.

(iv) The company shall file an application in Form No INC.6 for its conversion into One Person Company along with fees as provided in the Companies (Registration offices and fees) Rules, 2014, by attaching the following documents, namely:-

(a) The directors of the company shall give a declaration by way of affidavit duly sworn in confirming that all members and creditors of the company have given their consent for conversion, the paid up share capital company is fifty lakhs rupees or less or average annual turnover is less than two crores rupees, as the case may be;

(b) The list of members and list of creditors;

(c) The latest Audited Balance Sheet and the Profit and Loss Account; and

(d) The copy of No Objection letter of secured creditors.

(v) On being satisfied and complied with requirements stated herein the Registrar shall issue the Certificate.

20. Cessation of Sole Member:

(i) On the death of the sole member, the person nominated by such member shall be the person recognised by the company as having title to all the shares of the member;

(ii) The nominee on becoming entitled to such shares in case of the member's death shall be informed of such event by the Board of the company;

(iii) Such nominee shall be entitled to the same dividends and other rights and liabilities to which such sole member of the company was entitled or liable;

(iv) on becoming member, such nominee shall nominate any other person with the prior written consent of such person who, shall in the event of the death of the member, become the member of the company  and the company shall file with the Registrar an intimation of such cessation and nomination in Form No INC.4 along with the fee as provided in the Companies (Registration offices and fees) Rules, 2014 within thirty days of the change in membership and with the prior written consent of the person so nominated in Form No.INC.3.

21. Taxation:

The OPC is charged at a base tax rate of 30%. Other taxes like minimum alternative tax (base tax rate 18.5%) and dividend distribution tax (base tax rate 15%) are also applicable.

22. Comparison of Provisions Applicable to OPC, Sole Proprietorship and Private Companies :-

One Person Company	Sole Proprietorship	Private Company
1. Governing Law
Companies Act, 2013.Income Tax Act, 1961.	Income Tax Act, 1961.	Companies Act, 1956. Income Tax Act, 1961.
2. Liability
Limited to the extent of unpaid amount of shares held by the sole member.	Unlimited. Risk is higher as compared to OPC or Private Company.	Limited to the extent of unpaid amount of shares held by the member.
3. Registration
Mandatory.	Not applicable.	Mandatory.
4. Number of Members Required
Only one member is required to incorporate a OPC.	Only one person required to form a Sole Proprietorship.	At least two persons are required to incorporate a private company.
5. Number of Directors Required
At least one director required. The sole member can be the director.	Not applicable.	At least two directors are required.
6. Separate Legal Entity
Separate Legal Status. Has an identity distinct from the members of the OPC.	No distinct entity. Owner and the Proprietorship are not distinguishable.	Separate Legal Status. Has an identity distinct from the members of the Private Company.
7. Perpetual Succession
Death of the sole member does not affect the OPC. The nominee becomes the member of the OPC in such an event.	Death of the owner amounts to death of the Sole Proprietorship.	Death of the members does not affect the Company. Members may come and go, a Company stays on.
8. Credibility
Credibility of a OPC can be evaluated on the basis of the past commitments of the OPC.	Credibility of Sole Proprietorship can be evaluated on the basis of the credibility of the Owner.	Credibility of a Company can be evaluated on the basis of the past commitments of the Company.
9. Annual Meetings
Holding of Annual Meeting is not mandatory.	Not applicable.	Holding of Annual Meetings is mandatory.
10. Name Clause
The words "One Person Company" in brackets has to be mentioned below the name of the Company wherever it is printed or engraved.	Not applicable.	The name of the Company must end with "Private Limited".
11. Taxation
Base tax rate of 30% applicable.	Slab Rates as applicable to an individual. Benefit of Tax Deduction under Section 80C can be claimed.	Base tax rate of 30% applicable.
12. Mandatory Conversion
When the paid up Capital of the OPC exceeds the prescribed limit, it becomes mandatory for OPC to convert to Private or Public Company.	Not Applicable.	Not Applicable as long as all the conditions of Private Company are complied with.

 23. Conclusion: - One Person Company will be really helpful for Small entrepreneurs who wants to give their business a distinct identity with lesser legal compliance and benefits in comparison to Private Companies while at the same time limiting the liabilities to the extent of Capital Contribution.

(Author is a CA Final Student and Registered with ICAI)

Immediate Changes (Companies Act, 2013)

Sl.No.	Agenda	Brief description
1.	Stationery requirements	The Company's (i) letterhead {business letters}, (ii) billheads, (iii) letter papers, (iv) notices; and (v) other official publications to capture these additional requirements: 1. Company's former name(s) (since the last two years) to be reflected in the above listed documents for the next two years (since April 1, 2014), 2. Corporate Identity Number, 3. Telephone number, 4. Fax number (if any), 5. Email address, and 6. Website addresses (if any). The documents listed below which are to be prepared with regard to the meetings of the Directors and the Shareholders also need to capture the above mentioned requirements as they are to be issued on the Company's letterhead: 1. Board meeting notice, 2. Board meeting extract, 3. Shareholders meeting notice, and 4. Shareholders meeting extract. The Company's promissory notes, bills of exchange and such other documents need to bear its name.
2.	Requirement of a woman director to be appointed	The following class of companies need to have mandatory representation of at least one woman on their Board: 1. Every listed company. 2. Every public company having a paid up share capital of 100 crore (approx. US$ 163 million) or more or turnover of 300 crore.(approx.US$ 491 million) All companies have been provided a compliance period of 1 year to appoint such a woman Director.
3.	A resident Director to be appointed	All companies are required to appoint at least one director who has been resident in India for a minimum period of 182 days in the previous calendar year (the provision does not insist that such person should be an Indian citizen).
4.	All directors to procure their respective digital signature certificate.	Each director is required to procure a digital signature certificate. In case of a proposed director, the said person needs to procure a digital signature certificate prior to applying for his DIN. The DIN application prescribes for the proposed director to digitally sign his/her application by using his/her digital signature certificate.
5.	Cessation from the Board	1. A Director who does not attend any meetings of the Board in a year (with or without leave of absence) will automatically lose office. 2. Recognizing that Board positions are held by employees, for the first time, the New Act provides that an employee will cease to hold Board position upon separation of employment with the Company as well as any affiliate Company such as the holding or subsidiary or any associate Company. 3. A Director can resign upon giving notice in writing with reasons to the board. 4. In the event of a Director's resignation, two separate filings are to be made with the RoC. A director resigning from a Company needs to file an e-form with the ROC along with detailed reasons for his/her resignation. The company also has to file an e-form with the RoC to intimate the resignation of the Director. 5. Further, the details of the resignation should be mentioned in the board's report which is to be placed by the Board before the ensuing shareholders meeting.
6.	Senior management requirements	The New Act requires prescribed class of companies to have Key Management Personnel ("KMP") such as Managing Director ("MD") or Chief Executive Officer, Chief Financial Officer and Company Secretary ("CS"). The KMP will generally be considered as 'officers in default' for any non-compliances by the Company. The KMP have to be in the age group of 21 to 70 years.
7.	MD provisions	The MD's appointment by the Board should be ratified at the ensuing shareholders meeting and also by the authorities if his/her appointment is in variance with the prescribed thresholds. In case of any fraud in the Company and if the MD or his/her predecessors have received excess payments as per its restated accounts, the Company can recover the same from such persons.
8.	Board meeting and related requirements	1. First board meeting should be held within 30 days of the incorporation. 2. A Company needs to hold a minimum of four Board meetings in each year and not more than 120 days should have expired between two Board meetings. Seven days clear notice should be given for each Board meeting, which can be waived for shorter notice by all the directors. 3. Each director needs to attend at least one board meeting every year.
9.	Powers of the Board	As per the Old Act, certain powers of the Board were to be exercised only at a physical meeting of the Board (as opposed to passing resolution by circulation/unanimous written consent). The New Act has expanded such powers to be exercised only at a physical Board meeting to include additional matters such as 1. issue of shares, 2. approval of financial statements, 3. diversification of the business of the Company, takeover of other companies, etc. 4. to approve amalgamation, merger or reconstruction Additionally, the restriction on the Board to exercise certain powers without the prior approval of the shareholders has now been extended even to private limited companies.
10.	Proxy rules	One person cannot represent as proxy for more than 50 members.
11.	Venue of the EGM	The venue of the EGM needs to be a place within India.
12.	Financial year	The new Act has defined the financial year and has made it uniform i.e. April to March. The new Act does not permit extension of financial year. Companies which are holding/subsidiary of a foreign entity and require consolidation outside India, would have to apply to the National Company Law Tribunal ("NCLT") to allow a different financial year.
13.	Financial statement	1. Consolidated financial statement to be prepared for all companies that have one or more subsidiaries and laid before AGM. 2. A separate statement containing salient features of the financial statements of its subsidiaries to be attached along with financial statement.
14.	Mandatory auditor rotation	Mandatory auditor rotation requirement is for listed and prescribed classes of companies. The rules in this regard are to be prescribed.
15.	Audit committee and Nomination and remuneration committee	The new Act has introduced appointment of a audit committee (which will oversee the appointment of auditors) and a nomination and remuneration committee (which will oversee the appointment of Directors). These committees are required to be constituted by the following companies: 1. every listed company and a public company having a paid up capital of Rs.10 crore or more (approx. US$ 16 million). 2. every listed company and a public company having a turnover of Rs.100 crore or more (approx. US$ 163 million). 3. every listed company and public company having loans, borrowings, debentures or denominations and deposits exceeding Rs. 50 crores (approx.US$ 8 million). The audit committee shall consist of 3 or more Directors with independent Directors forming a majority. The nomination and remuneration committee shall consist of 3 or more non executive Directors having 1 ½ of Independent Directors.
16.	Auditor requirements an 'internal auditor'.	1. Statutory auditors are to be appointed for a period of five years and their appointment has to be ratified at the AGM held every year. In listed companies and other prescribed class of companies, unconnected auditors should be appointed every five years and no auditor can hold office for more than two terms of five years each. The statutory auditor is restricted from rendering other services to the Company such as --- the internal auditor, book keeper, provide investment banking/advisory services, etc. The New Act requires that certain prescribed class of companies should mandatorily have internal auditors. 2. Auditors can audit maximum of 20 companies and out of which not more than 10 can be public companies.
17.	Auditors report requirements	1. Any qualifications, reservations or adverse remarks relating to the maintenance of accounts and other matters. 2. Whether the Company has adequate internal financial controls system in place and the operating effective of such controls.
18.	Directors report requirements	1. Extracts of Annual Report 2. Number of meetings of the board 3. Declarations by independent directors 4. Explanations or comments by the board on every qualification, reservation or adverse remark made by the Company Secretary in his Secretarial Audit Report. 5. Particulars of loans, guarantees or investments 6. Particulars of contracts or arrangements with related party 7. Material changes and commitments affecting the financial position of the Company which have occurred between the end of financial year of the Company to which financial statement relates to. 8. Statement indicating development and implementation of a risk management policy for the Company. 9. Details about Corporate Social Responsibility initiatives.
19.	Number of directorships	A person cannot become director in more than 20 companies of which not more than 10 can be public companies.
20.	Related party transactions	As a relaxation step, the need to obtain prior approval of the regulatory authorities for certain related party transactions has been done away with. It will now suffice to obtain either the Board or the shareholders approval depending on the nature of the related party transaction. This will help large corporations having multiple subsidiaries in India with common directors who enter into related party transactions in India. The below activities have been added to the related party transactions- 1. Selling or otherwise disposing of or buying, property of any kind. 2. Leasing of property of any kind. 3. Appointment of any agents for purchase or sale of goods, materials, services or property. 4. Appointment of any related party to any office or place of profit of the Company or its subsidiary. 5. Contract for underwriting the subscription of securities or derivatives.
21.	Stakeholders relationship committee	The new Act has introduced new provisions in relation to protecting the stakeholders by requiring the appointment of a Stake Holders Relationship Committee. This committee would be mandatory for a company which has more than 1000 shareholders or debenture holders and other security holders. This committee would consider and resolve the grievances of stakeholders.
22.	Amendments to the Company's MoA and AoA.	Every alteration made in the memorandum or articles of the Company shall be noted in every copy of the memorandum or articles.
23.	Auditor's rights	The auditor is required to mandatorily attend shareholders meetings of the Company, unless exempted by the Company. Any qualifications in the audit report have to be mandatorily read out at the shareholders meeting. The auditor is further authorized to attend all the general meeting and express his/her opinion about proceeding concerning their functions.
24.	Acknowledgement of notices	The Company needs to receive and acknowledge all communications and notices addressed to it.
25.	Pro rata issuance of shares	For any increase of subscribed share capital, an offer is to be made on pro rata basis to all existing shareholders including any employee stock option ("ESOP") holders by sending letters of offer unless varied by a previous resolution of the shareholders in respect of the ESOP holders. The ESOP holders should however be holding options/shares in the Indian Company and not in any parent or affiliate foreign Company to be eligible to receive this offer.
26.	Corporate Social Responsibility ("CSR") requirements	2% of the average net profits of the last three financial years are to be mandatorily spent on CSR activities by an Indian Company if it satisfies any of the following: 1. It has a net worth of INR 5,000,000,000 (~USD 83 million) or more; or 2. It has a turnover of INR 10,000,000,000 (~USD 166 million) or more; or 3. It has a net profit of INR 50,000,000 (~USD 830,000) or more. Companies which meet any of the above thresholds should constitute a CSR committee of the Board. Such committee should consist of three or more directors including an 'independent director'. A private limited Company which has a minimum prescribed two directors can be constituted by just the two directors and need not have an 'independent director' on its committee. Further, the CSR Policy of the Company should be posted on the website (if any) maintained by such Company.
27.	Additional disclosures in annual return	The annual return to be filed every year with the ROC after the Annual General Meeting ("AGM") should have additional disclosures on the Board and shareholders meetings held in that year along with attendance details of the participants, the remuneration paid to directors and key managerial personnel, etc. Additionally, the annual return should be signed by the CS of the Company or in his/her absence, by a CS in private practice.
28.	Increased powers to regulatory authorities	Under the Old Act, the ROC could undertake investigation of a Company on scrutiny of the regulatory filings made by the Company. However, under the New Act the authorities have been given the power to act on the basis of 'any information' received by them. Further, wide ranging powers including the powers granted to civil courts such as to call for records, administer oath and compel deposition of witnesses, etc., have been given to the authorities.
29.	Legal recognition to various authorities	The New Act recognises the establishment of a specialised investigation agency viz., the Serious Frauds Investigation Office ("SFIO").The New Act also establishes specialised courts to try Company law disputes viz., the National Company Law Tribunal and the Appellate Tribunal. For the first time, a Mediation and Conciliation Panel has been established under the New Act to mediate disputes pending before these specialised tribunals.
30.	Legal recognition to other forms of companies	Similarly, for the first time, the New Act recognises certain additional categories of companies such as 'One Person Company' (similar to 'proprietary firm' but these can be formed only by an Indian citizen and resident), 'Small Company' (which has paid in share capital and turnover less than the prescribed thresholds and are hence exempted from certain compliances under the New Act) and 'Dormant Company' (which can be formed for a future project, to hold assets/intellectual property, etc., subject to undertaking certain basic compliances).
31.	Provisions on fraud prevention and consequences a. Fraud and auditor's obligations b. Punishment for fraud	1. If the statutory auditor detects any fraud in the Company, he is to mandatorily report the same directly to the authorities. If any loss has occurred due misleading or incorrect statements in the audit reports, the auditor has to pay damages to the other concerned stakeholders and statutory bodies. If the auditor has acted in a fraudulent manner or colluded with Company's management, then the partners concerned and the audit firm will have joint and several responsibility. 2. The New Act imposes very strict punishment on persons involved in perpetrating a fraud in a Company. The prescribed punishment is (i) imprisonment for a term not less than six months which may extend to ten years along with (ii) fine being not less than the amount involved in the fraud and which may extend to three times the amount involved. The New Act however clarifies that non-executive directors will not be liable if he/she had acted diligently, if the acts or omissions were done without his/her knowledge, etc.
32.	Key changes in secretarial practices	1. A compulsory secretarial audit will be required for listed and other prescribed class of companies; 2. Statutory registers, minutes of meetings, books of account, etc., may be maintained in electronic form; 3. Share certificates to be returned within 1 month of registering a transfer of shares; 4. Notice calling a shareholders meeting to contain details of all business to be transacted at the said meeting along with disclosure of interest by the directors/KMP (and their relatives) including any holdings in excess of 2% by such persons in other companies with whom the Company has business and being subject matter of the shareholders meeting; 5. Register of directors to include details of each director's shareholding in the Company or any affiliate companies; 6. Notice of Board meeting for appointment of an MD requires disclosures on the proposed remuneration to be paid along with other terms and conditions relating to the appointment; 7. Register of members to show resident and non-resident shareholders separately; 8. Documents filed at time of original incorporation of the Company have to be maintained till dissolution of the Company; 9. A Company cannot undertake or commence business till the minimum subscribed share capital has been infused by the subscribers and the registered office address of the Company has been verified with the ROC; 10. First statutory auditor to be compulsorily appointed within 30 days by the Board or within 90 days by the shareholders.

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Regards,

Pawan Singla , LLB

M. No. 9825829075

On Tuesday, 15 April 2014 1:20 AM, CA. VMV SUBBA RAO <vmvsrao@gmail.com> wrote:

Bombay HC upholds service tax levy on AC restaurants; Differs from Kerala HC ratio

 

Bombay HC dismisses writ filed by Indian Hotels and Restaurant Association, upholds validity of service tax levy on air-conditioned restaurants serving liquor u/s 65(105)(zzzzv) of Finance Act; Rejects assessee's challenge to Parliament's competence to tax sale / purchase of goods by way of / as part of any service, covered under "State List" read with Article 366(29A)(f) of Indian Constitution; Tax on sale / purchase of goods and tax on services two distinct concepts; To say that Parliament is denuded of its competence to tax restaurant services entails violence to plain language of Constitutional provisions; Service tax does not tax sale of goods, but services provided in such sale; Entry 54 in List II does not envisage service tax on services rendered by restaurant to any person, as referred u/s 65(105)(zzzzv); Rejects Kerala HC's single Judge ruling in Kerala Classified Hotels and Resorts Association for want of categorical finding that tax in question covered by State List; HC accepts Revenue's reliance on SC ruling in Tamil Nadu Kalyana Mandapam pertaining to catering services  : Bombay HC

--

Best Wishes

CA. V.M.V.SUBBA RAO
Chartered Accountant
Door No.24-2-1885,
I Floor, Flat No.5,
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Central Avenue, MSR Nagar,
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India
Mobile:+91 - 0 9390221100
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e-Mail: vmvsr@rediffmail.com
           vmvsr@yahoo.co.uk
http://pdicai.org/MyPage/203038.aspx

http://vmvsraoco.icai.org.in/

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