Loan given by Holding Co. to Subsidiary Co. does not always attract Sec.185
CA Nitesh More
There is a general conception that if subsidiary co do not utilize loan given by its holding co for its principal business, provisions of sec 185 is attracted each & every time. In other words, if loan given or guarantee given or security provided by holding co to its subsidiary is not exempted by the Rule 10 of the Companies (Meetings of Board and its Powers) Rules, 2014, Sec 185 is violated.
The above view is not correct. One should first examine whether the provision of 185 is attracted by examining shareholding & directorship of holding and subsidiary company. There can be many instances when the basic provisions of sec 185 is not attracted, if any loan is given by holding co to Its subsidiary co.. This can be explained as follows:
LOAN GIVEN BY HOLDING CO. TO SUBSIDIARY CO. & VICE VERSA: Let us first examine provision of sec 185:
Provisions of Section 185(1): "Save as otherwise provided in this Act, no company shall, directly or indirectly, advance any loan, including any loan represented by a book debt, to any of its directors or to any other person in whom the director is interested or give any guarantee or provide any security in connection with any loan taken by him or such other person.
Explanation: For the purpose of this section, the expression "to any other person in whom director is interested" means –
(a) Any director of the lending company, or of a company which is its Holding Company or any partner or relative of any such director;
(b) Any firm in which any such director or relative is a partner;
(c) Any private company of which any such director is a director or member;
(d) Any body corporate at a general meeting of which not less than twenty five percent two or more such directors, together or
(e) Any body corporate, the Board of directors, managing director or manager, whereof of the total voting power may be exercised or controlled by any such director, or by is accustomed to act in accordance with the directions or instruction of Board, or of any director or directors, of the lending company.
Let us take an example & examine a situation:
Example: H Ltd has given a loan of Rs 10 crores to S Ltd. There is neither any common director nor any common shareholder in between these two companies. Examine applicability of sec 185.
Ans: Assuming that there is neither any common shareholder nor any common director in holding co and subsidiary company, Sec. 185 is not attracted.
SUCH LOAN WILL NOT BE COVERED IN CLAUSE (a),(b),(c),(d) & (e)
• Clause (a) (as applicable for individual) or
• Clause (b) (as applicable for Firm),
• Clause (c) (for Pvt Ltd co., only if director is a director or member),
• Clause (d) (only if the director either by himself or two or more such directors hold 25% or more of total voting power in the borrowing company,
• Clause (e) (only if borrowing company /its Board/Directors are accustomed to act as per the Directors of the board/Directors of the lending company. It is very difficult to prove that the board of subsidiary co has not only actually acted, but also accustomed to act as per the Directors of the board/Directors of the lending company.
Note: Any interest of director (or other person) in his "personal capacity (not holding as nominee of company)" is relevant to attract Sec. 185. Interest of holding co. in subsidiary is not relevant.
SPECIFIC EXEMPTIONS PROVIDED TO LOAN GIVEN BY HOLDING CO TO SUBSIDIARIES:
There can be many instances when the loan or security provided by holding company to subsidiary is attracted by the provisions of sec 185. Let us illustrate such situations:
Example 1: When subsidiary company is a pvt Ltd Co. & some shares of subsidiary co is held by one or more director(s) of holding Co.
Example 2: When subsidiary company is a pvt Ltd Co. & One of the director of holding co is also a director in subsidiary Co.
Example 3: When one or more of such directors hold 25% or more of total voting power in the subsidiary company
In such cases, Rule 10 provides specific exemptions from attractions of sec 185 provisions subject to some conditions mentioned in the said Rule. Rule 10 of the Companies (Meetings of Board and its Powers) Rules, 2014 states the following:
(1) Any loan made by a holding co to its wholly owned subsidiary co or any guarantee given or security provided by a holding co in respect of any loan made to its wholly owned subsidiary co is exempted from the requirements under this section; and
(2) Any guarantee given or security provided by a holding company in respect of loan made by any bank or financial institution to its subsidiary company is exempted from the requirements under this section:
Provided that such loans made under sub-rule (1) and (2) are utilised by the subsidiary company for its principle business activities.
Conclusion:
1) Every loan by holding co to its subsidiary co is not attracted by sec 185 even if money is not utilized for principal business activities.
2) One should first examine whether the basic provision of 185 is attracted by examining shareholding & directorship pattern of holding and subsidiary company.
3) If provisions of sec 185 is attracted, than one should examine whether such loan is exempted under Rule 10 of the Companies (Meetings of Board and its Powers) Rules, 2014.
4) If it is not exempted under Rule 10, than only there will be violation of sec 185.
Section 185 & 186 of Companies Act, 2013 Simplified Practical Aspects with Examples
CA Gaurav Mittal
The section 185 of Companies Act,2013 was notified on 12th September 2013 and was applicable from that day itself. If there is any deviation from the conditions laid under this section then the Auditor is required to report the same in his Audit Report. A non qualified report would hold auditor in default.
The lending company and the receiver both would be liable for the penalty under the same section.
Now let us understand the basic of section 185 and 186
Section 185:- This primarily deals with the subject of person to whom company cannot give loan.
Section 186:- This section enlists the exceptions and specifies the limits up to which a company can give loan.
The section 185 of CA, 2013, restrict the company on giving loans, guarantee or provide security to Directors or any other person in whom Director is interested.
The ways via which a director can be interested has been covered via 5 inclusions:-
Point 1 & 2
The inclusion in point 1 and 2 covers the Director and his relatives too.
It Says
1) Any Director of Lending Company.
2) Any Relative of Director.
3) Director of a Company which is its holding company.
4) Any firm in which such director is partner or relative is a partner.
5) Any partner of such Director.
Point 3,4 & 5
The inclusion in point 3,4 & 5 only include Director but not his relatives.
It Says
1) Any PRIVATE Limited company in which such director is a Director or member.
2) Body corporate in which such Director or Directors hold more than 25% shares.
3) Body Corporate, MD, BOD or manager accustomed to act in accordance with direction of board or Director of lending company.
- A body corporate does not include a co-operative society. But it includes a foreign company.
EXCEPTION TO SECTION 185
1) WD/WTD
a) As a part of service extended to all of its employee.
b) Any Scheme Approved by members by special resolution.
2) Given in ordinary Course of Business
How to check ordinary Course
a) Is the company engaged in lending activity regularly.
b) Lend not only to Directors and related parties but also to Arm Length Parties or unrelated parties.
KEY TAKEAWAY :- All NBFC may not be engaged in lending activities in ordinary course.
NOW LET US UNDERSTAND THE SECTION WITH THE HELP OF PRACTICAL EXAMPLES
EXAMPLE 1
Company A has two Directors Mr. X and Mr. Y. Both holds 50% share each of Company.
Company A wish to give loan to following and have asked for your views on same.
A) Loan to Director X.
B) Loan to a relative of Director Y.
C) Director of company D which is the holding company of A.
D) A partner of Director of Holding Company.
E) A partner of Director of company A.
F) To a firm in which Mr. X is a partner.
G) To a firm in which relative of Mr. Y is a Partner.
SOLUTION 1
| S No | Loan To | Whether Co Can | Reason |
| 1 | Loan to Director X. | NO | Included in definition |
| 2 | Loan to a relative of Director Y. | NO | Do |
| 3 | Director of company D which is the holding company of A. | NO | Do |
| 4 | A partner of Director of Holding Company. | YES | A partner of Director of Holding co is not included. |
| 5 | A partner of Director of company A. | NO | Included in definition |
| 6 | To a firm in which Mr. X is a partner. | NO | Included in definition |
| 7 | To a firm in which relative of Mr. Y is a Partner. | NO | Included in definition |
EXAMPLE 2 (PRIVATE LTD CO WITH COMMON DIRECTOR)
| Particulars | Company A (Pvt Ltd or Ltd) | Company B (Pvt Ltd) |
| Directors Cum share holder | A (shareholding 60.0%) B (shareholding 40.0%) | B (Shareholding 75.% ) D (Shareholding 25% ) |
| Only Share Holder | Nil | Nil |
A and B are Husband and wife. D is their Son.
Company B wish to avail loan from Company A, Whether Possible?
SOLUTION 2
Company A cannot give loan to company B as it would be in contravention of Section 185 and would attract penalty.
Planning
1) Mr B should resign from the post of Director of Company A and gift his shares to Mr A (gift of shares is tax free). They shall appoint another Director in the company.
As B resigns and transfer the shares then the provisions of section 185 wont apply and company A would be able give loan to company B.
OR
2) Converting Company A into a LLP.
OR
3) Converting Company B into a Public Limited Company and Mr B reducing his shareholding in Company B to less than 25%.
EXAMPLE 3 (Private Ltd Co To Public Ltd Co)
| Particulars | Company A Pvt Ltd or Ltd | Company B (Ltd) |
| Directors Cum share holder | A (shareholding 60.0%) B (shareholding 20.0%) C (Shareholding 15.0%) | B (Shareholding 10.0% ) A (Shareholding 10.0% ) C (Shareholding 5.0%) |
| Only Share Holder | D (Shareholding 15.0%) | Others (75.0%) |
Company B wish to avail loan from Company A, Whether Possible?
SOLUTION 3
No it is not possible to advance loan to company B as Director A, B and C collectively are holding 25% of shares of Company B. And hence get covered under the clause 4 of interested party to Director.
PLANNING
1) Either Mr A or Mr B or Mr C should resign from the post of Director of Company A. This would bring down the holding of shares to less than 25% and will enable the borrowing between two Companies.
OR
2) Converting Company A into a LLP.
OR
3) Either Mr A or Mr B Or Mr C should give up atleast 1% of their share held in Company B to bring down the holding under 25%.
AMOUNT ALREADY EXISTING ON 12Th SEPTEMBER 2013
Q. In Case any amount is outstanding on 12th September as a loan to Director or anyone in whom Director is interested.
A. The loan can still continue to appear in the books of accounts of Company; however it can't be renewed and is to be repaid on the end of the term. If it's a loan repayable on demand then still it is suggested to make a formal agreement with tenure specified in it.
Q. Company A holds more than 5 % share of company B and have common Director. Company B has availed a loan from bank and because company A holds more than 5% of share of company B it has to be give corporate guarantee for company B to bank.
A. These types of cases are common between related private limited companies. Banks usually takes corporate Guarantee of the companies. In such a case again company cannot renew the Guarantee given to Bank.
However, the CC limits of a company are renewed each year and new Sanction ticket is issued. In such a case corporate Guarantee also gets renewed. It is advised to approach bank and get the clause of Corporate Guarantee removed.
KEY POINTS
The section is applicable only at the time of granting the loan and any change in circumstances thereafter will not make the section applicable.
Thus, section 185 will not be attracted in respect of a loan given to an employee, who does not fall within the ambit of specified persons as listed above, but who subsequently becomes a member of the board, because at the time of the loan, no contravention was involved.
KEY POINT IN CONVERSION OF A COMPANY INTO A LLP
As per Sec 47(xiiib) of Income tax Act, for tax neutrality of such conversion, turnover of Private Limited Company in any of last 3 years must not exceeds 60 Lakhs. So, if turnover exceeds 60 Lakhs than such conversion will be subject to income tax.
Any capital gain arising in transfer of capital asset would be taxable in hands of company.
Any Gain arising to shareholder on surrendering of shares would be taxable in hands of shareholders.
SECTION 186
Specified transactions are covered under the Section
a) Loans to any person or other body corporate;
b) Guarantee or security given in connection with a loan to any other body corporate or person; and
c) Acquisition by way of subscription, purchase or otherwise, the securities of any other body corporate.
LIMITS UPTO WHICH LOAN CAN BE GIVEN
Higher of
A) 60 % of ( Share Capital + Free Reserves + Security Premium); or
B) 100% of (Free Reserves + Security Premium)
However, if company wishes to invest or give loan to a amount higher than the above then a prior approval of Shareholders is required.
Also shareholders cannot give blanket permission.
KEY POINT
If as on 1.4.2014 the company has given loan or guarantee in Excess of limits specified then it has to file a Special resolution for this by 31st March 2015.
Q. Whether various Advances would also be considered under this section?
Loan is lending of money with absolute promise to repay whereas advances is to be adjusted against supply of goods and services. Genuine trade advances given to suppliers against orders for supply of goods will not be considered as loans and hence will be out of purview of Section 186. Similarly, advances given to employees against current month's salary will also not be in the nature of loans.
LOANS AND INVESTMENT BETWEEN HOLDING & SUBSIDIARY COMPANY
Section 185:- Section 185 Exempts loan between Holding Company and Subsidiary Company.
(1) Any loan made by a holding company to its wholly owned subsidiary company or any guarantee given or security provided by a holding co in respect of any loan made to its wholly owned subsidiary co is exempted from the requirements under this section; and
(2) Any guarantee given or security provided by a holding company in respect of loan made by any bank or financial institution to its subsidiary company is exempted from the requirements under this section:
Provided that loans made under sub-rule (1) and (2) are utilized by the subsidiary company for its principle business activities.
SECTION 186:-
Loan or guarantee given and security provided to its wholly owned subsidiary company or a JV, exempted from calculating the limits prescribed under section 186.
(Author may be contacted at mittalgaurav05@gmail.com)
Provisions Relating To Disclosure Of Interest Under Companies Act, 2013
PC Agrawal
We are uploading herewith a chart showing provisions relating to disclosure of interest by directors and Key Managerial Persons (KMPs) under section 184(1), 184(2), 189(2) of Companies Act, 2013 read with Rules 9 & 16 of Chapter XII – The Companies (Meetings of Board and its Powers) Rules, 2014 at a glance which could be useful to all.Download Chart of provisions relating to disclosure of interest
Extract of Rule -9
9. Disclosures by a director of his interest.-(1) Every director shall disclose his concern or interest in any company or companies or bodies corporate (including shareholding interest), firms or other association of individuals, by giving a notice in writing in Form MBP 1.
(2) It shall be the duty of the director giving notice of interest to cause it to be disclosed at the meeting held immediately after the date of the notice.
(3) All notices shall be kept at the registered office and such notices shall be preserved for a period of eight years from the end of the financial year to which it relates and shall be kept in the custody of the company secretary of the company or any other person authorised by the Board for the purpose.
Extract of Rule -16
16. Register of contracts or arrangements in which directors are interested.—(1) Every company shall maintain one or more registers in Form MBP 4, and shall enter therein the particulars of—
(a) company or companies or bodies corporate, firms or other association of individuals, in which any director has any concern or interest, as mentioned under sub-section (1) of section 184:
Provided that the particulars of the company or companies or bodies corporate in which a director himself together with any other director holds two percent or less of the paid-up share capital would not be required to be entered in the register;
(b) contracts or arrangements with a body corporate or firm or other entity as mentioned under sub-section (2) of section 184, in which any director is, directly or indirectly, concerned or interested; and
(c) contracts or arrangements with a related party with respect to transactions to which section 188 applies.
(2) The entries in the register shall be made at once, whenever there is a cause to make entry, in chronological order and shall be authenticated by the company secretary of the company or by any other person authorised by the Board for the purpose.
(3) The register shall be kept at the registered office of the company and the register shall be preserved permanently and shall be kept in the custody of the company secretary of the company or any other person authorised by the Board for the purpose.
(4) The company shall provide extracts from such register to a member of the company on his request, within
seven days from the date on which such request is made upon the payment of such fee as may be specified in the
articles of the company but not exceeding ten rupees per page.
Hon'ble Delhi High Court has passed a judgement in the case of SONY INDIA PVT. LTD where stay application of the assessee was rejected in one day by observing as under:-
"Having said that this is a case in which technically no fault could be found with the assessing officer, we feel that there was an element of impropriety in his action in issuing the garnishee order under section 226(3) on 17.2.2014, the very day on which he rejected the stay application filed by the petitioner under section 220(3). It is expected of him, having rejected the stay application, to wait for a reasonable period before he takes coercive steps to recover the amounts since the petitioner, faced with an order rejecting the stay application, may need some time to make arrangements to pay the entire tax demand or come up with proposals for paying the same in instalments. That opportunity was not afforded by the assessing officer in the present cases. The assessing officer is a prospector of the revenue and he is no doubt expected to protect the interests of the revenue zealously, but such zeal has to be tempered with the rules of fair play and an anxiety to ensure that a opportunity is not lost to the assessee to make alternative arrangements for clearing the tax dues, once the stay applications filed under section 220(3) are rejected. Taking away the amount of Rs.43.87 crores from the bank account of the petitioner may perhaps not be legally faulted, but taking into account the haste with which the assessing officer acted in the present case it seems to us that there was an element of arbitrariness in the action of the assessing officer"
SEBI Chairman urges Industry to understand intention behind new disclosure and governance norms
SEBI Chairman urges Industry to understand the intention behind new disclosure and governance norms / Its time Industry takes steps to strengthen Capital Markets: U K Sinha, Chairman, SEBI
"Corporates should run their own Pension Funds for their non-EPFO category employees and invest funds in the equity market", urged Mr U K Sinha, Chairman, Securities & Exchange Board of India while speaking at CII's 5th Capital Markets Summit held in Mumbai today. Mr Sinha suggested that this would make reliable, long-term capital available for investment. He further explained that it is not easy for the Government to make drastic changes and requested industry to come forward and take steps to improve market depth.
While acknowledging regulatory hurdles to IPOs, Chairman also pointed out that reluctance on part of companies to comply with prescribed governance norms is equally responsible for the lack-lustre IPO market. He advised companies not to push back but project best practices to attract domestic and international investors.
Mr Sinha announced that SEBI is adopting measures to ensure that filing of information just once with SEBI would be adequate compliance through Annual Information Memorandum. This should be operational within three months. On adoption of other facilitative initiatives, Mr Sinha announced that KYC across the Financial Sector would be integrated with the co-operation of all other financial sector Regulators.
Mr Sinha also announced that revised ESOP Guidelines which would soon be issued by SEBI would be progressive and would resolve existing anomalies. He also mentioned that minimum public shareholding norms would be made neutral vis-Ã -vis ownership.
Speaking at the Summit Mr. Nimesh Kampani, Chairman, CII National Committee on Capital Markets & Chairman, JM Financial Group suggested some exclusive tax benefits be offered on mutual fund investments, instead of clubbing them under 80C. Tax exemptions that will help channelize savings into the system as well as providing long term funds should be granted.
He further added whether Investor awareness, financial literacy could be one of the constituents of the mandatory CSR that the companies now have to undertake under the Companies Act.
Ms Chitra Ramakrishna, Managing Director & CEO, National Stock Exchange, upheld the recent Corporate Governance rules as the next stage of governance model which will help instil confidence amongst investors and said that CII and the exchanges could work together to implement the new Corporate Governance norms.
Mr Ashish kumar Chauhan, Managing Director & CEO, Bombay Stock Exchange, said FTA framework looks promising and was of the view that India should have Double Taxation Agreements with far-east Countries will help increase foreign retail investor participation, since they have a large Indian Diaspora.
Mr. Atul Joshi, Managing Director and CEO, India Ratings & Research suggested that India should consider raising municipal bonds to deepen & widen bond markets in India.
Source- CII Media Release, Dated- Jun 04, 2014
ICAI – Increase Tax tax exemption limits & abolish surcharge
Posted In Income Tax | 11 Comments »
CA Sandeep Kanoi
ICAI in its pre-budget memorandum on Direct Taxes recommended Abolition of Surcharge on Income Tax and Further suggested that Exemption Limit in Rate of Tax for Individual and HUF should be increased from 2 Lakh to 3 Lkah (Basic Exemption Limit) from 5 Lakh to 10 Lakh (10% Tax) and from 10 Lakh to 20 Lakh (20% tax).
First Schedule – Surcharge
Issue - The Finance Act, 2013 levied a surcharge@10% on an individual with total income exceeding Rs.1 crore and for corporate (domestic companies), surcharge@10% only if, the total income exceeded Rs.10 crores. While levying this additional surcharge the Finance Minister in his speech had
mentioned that the additional surcharges will be in force for only one year, that is Financial Year 2013-14.
mentioned that the additional surcharges will be in force for only one year, that is Financial Year 2013-14.
Suggestion- Since the intent of the Ministry of Finance, while introducing these additional surcharges, was to limit it only for the financial year 2013-14, these surcharges should be abolished from the financial year 2014-15 and onwards.
Rates of Taxation
Issue / Justification - With regard to rates of taxation for individual and HUFs, the Parliamentary Standing Committee on Direct Taxes Code had observed the following:
"When the present Income Tax Act was enacted way back in 1961, the per capita income of this country was extremely low. During the course of five decades of the working of the Income Tax Act, the national per capita income has increased multifold, widening the scope for taxing various incomes. At the same time, the absolute number of poor has also increased manifold, warranting much larger government outlays. The aspirations of the people for better living standards and their expectation from government to deliver the same has also simultaneously increased. It is therefore, necessary that these challenges in a growing economy and a developing society are kept in mind, while formulating a new Direct Tax Law.
84. A Direct Tax by definition is a levy on the income A Direct Tax by definition is a levy on the incomes, profits and wealth earned and generated by individuals and entities. Thus, a direct tax by its very nature and scope cannot be imposed on everybody. It has necessarily to be a focussed levy which should reflect and tap the rising incomes and prosperity in a growing economy. The tax rates and structure should therefore be tailored in a way that will ensure sufficient buoyancy and dynamism. As the economy expands and diversifies, the tax policies cannot remain caught in a time-warp. Ways and means of augmenting revenue would have to be found not merely by broadening the base but also by deepening the trunk to tap both potential as well as concealed incomes and wealth. In this regard,there are three distinct categories of income, which require to be tapped or brought to book, namely (a) untaxed/non-taxed income; (b) potential income; (c) concealed income.
85. On the whole, the Committee would expect the tax policy and procedures to be fair, just and equitous, bringing fiscal stability at least over the medium-term, obviating the need to make changes in rates structure etc. during every Budget. Fiscal stability together with certainty will no doubt go a long way in sustaining economic growth and development. Needless to say, governance standards would, in the final count, determine the efficacy and the credibility tax policies carry with taxpayers.
86. The Committee find from the information made available that tax collected in the income slab of 0-10 lakh is Rs. 21,094 crore and the total number of taxpayers is about 2.76 crore; while the corresponding figures for the income slab of 10-20 lakh is Rs. 10,185 crore with only 3.35 lakh taxpayers; the same for the more than 20 lakh income slab is Rs. 53,170 crore tax collected with a mere 1.85 lakh taxpayers. The Committee further find that in the income slab of 0-2 lakh, the number of taxpayers is around 2.02 crore, which decreases to 56.73 lakh in the next income slab of 2-4 lakh. With regard to the percentage of taxpayers in different income slabs, it is 89% (0-5 lakh), 5.5% (5-10 lakh), 4.3% (10-20 lakh) and 1.3% (above 20 lakh). On the corporate tax side, the tax collected in the slab of 0 to 100 crore is Rs. 44,016 crore, Rs. 23,421 crore in 100-500 crore slab; and Rs. 54,558 crore in the above 500 crore slab. The extent of revenue foregone for the above slabs has been found to be Rs. 23,200 crore, Rs. 11,779 crore and Rs. 27,895 crore respectively. The figures mentioned above only seek to confirm the view that the tax structure and the prevailing tax regime is regressive – both for individual as well as corporate tax payers. The Committee desire that the character of the tax regime should change and it should be made more progressive. This would entail greater relief for small taxpayers – both individuals and corporate and moderately higher rates for taxpayers in the higher bracket.
87. The Committee find it astonishing that almost 90% comprise of individual taxpayers in the 0-5 lakh income slab without commensurate tax yield; which translates into nearly 3 crore assesees. In a belated recognition of this paradox, the Department has exempted taxpayers in the lower income slab (0-5 lakh) from filing tax returns, thereby reducing the Department‟s processing burden. The Committee find it absurd that the Department should diffuse their energies and spread their resources thin over handling such a large number of individuals with low income potential. The argument that more taxpayers have to be brought within the tax net for widening the tax base can hold water only to the extent that this approach brings in more taxpayers and tax revenue from the higher income brackets, rather than simply adding to the numbers in the lower segments.
88. Keeping in view the inflationary trends in the economy and the imperative to leave more disposable incomes in the hands of individual tax payers, particularly those in the lower income bracket, the Committee would recommend that the tax slab attracting „nil‟rate, that is, full exemption from tax on income should be raised to three lakhs from the proposed two lakhs. Higher exemption limit may be considered for women and senior citizens. The age for senior citizens should be relaxed from 65 years to 60 years. As reasoned earlier, higher exemption limit would go a long way in minimising the compliance and transaction costs of the Income Tax Department, which can now focus their attention and re-orient their resources on the higher income groups, untaxed or concealed incomes, and categories and sectors that are avoidance or evasion prone. The revenue gap, if any, could be easily bridged by way of stringent measures to curb and bring to book unaccounted money and through realisation of huge tax arrears and by way of savings from the proposed transition to the investment-linked incentive / exemption regime.
89. Thus, in the light of reasons cited above and in pursuance of the wellrecognised and widely accepted rationale of moderate tax rates inducing better tax compliance and with a view to giving some relief to the small tax payers, the Committee would recommend the following revised tax slabs :
| Slab (lakhs) | Tax rate |
| 0-3 | Nil |
| 3-10 | 10% |
| 10 -20 | 20% |
| beyond 20 | 30% |
ICAI's Suggestion :-
In line with the recommendations of the Standing Committee on Finance on DTC and for the reasons mentioned therein, the following tax slabs are suggested:
| Slab (lakhs) | Tax rate |
| 0-3 | Nil |
| 3-10 | 10% |
| 10 -20 | 20% |
| beyond 20 | 30% |
Source- Pre-Budget Memorandum of ICAI on Direct Taxes
ICAI – Definition of Accountant do not require Changes
CA Sandeep Kanoi
ICAI has in its Pre-Budget Memorandum Presented to Ministry of Finance suggested that porposed changes in Definition of the term "accountant" in the Direct Taxes Code, 2013 are not required and claimed that ICAI is a premier body formed by MCA only to train chartered accountants to gain expertise in accounting and auditing ICAI. There is much more which can be elaborated like difference in the focus of the syllabi on the basis of which expertise is tested, effective steps taken by ICAI to ensure the quality of audit, guidance provided by ICAI in the field of auditing and accounting and the like. However, it is felt that the very fact that the mother Act itself does not allow the Cost Accountants and Company Secretary to conduct audit is good enough ground to convince one that the definition of "Accountant" does not require any change.
Please find below the Justification and suggestion submitted by ICAI to Government of India against the porpsed change in Definition of the term "accountant" in the Direct Taxes Code, 2013 :-
ICAI Suggestion on Proposed Definition of 'Accountant' in Direct Taxes Code, 2013 in Pre-Budget Memorandum 2014
| Section | Issues/Justification | Suggestion |
| Definition of the term "accountant" in the Direct Taxes Code, 2013 | The Institute of Chartered Accountants of India (ICAI) is a statutory body established by the Chartered Accountants Act, 1949 for the regulation of the profession of Chartered Accountants in India exclusively form to regulate in the matter of accounts on audit and its professionals. The ICAI has achieved recognition as the premier accounting body in India and today it is the second largest accounting body in the world. However, the proposed definition of "Accountant" under clause 320(2) of the Direct Taxes Code, 2013 which includes the "Cost Accountants" and "Company Secretaries" has been a cause of major concern to the entire profession. Before the Code enacts into a Bill and then law of the land, we would like to place on record our anguish and concern not only for the profession but for the country as a whole since issuance of audit certificates by persons who have not authorized to do so by the Acts of Parliament. With regard to the definition of the term "Accountant" in the Direct Taxes Code Bill, 2010, the Standing Committee had made the following observations and had suggested widening of the definition of the term "Accountant" on the request made by ICSI and ICWAI: "17.9 The Committee observed that the Ministry's reasoning for non-inclusion of related professionals in the definition of accountant is a very strict construction of the term. In the view of the Committee, the suggested amendment may provide the Small and Medium Enterprises (SMEs) a wider and cost effective scope for selection of professionals and will be an important initiative towards simplified tax compliance regime. The Ministry may therefore re-consider the suggestion to widen the scope of the definition of "accountant". Observations of the Ministry of Finance Although, the Institute of Cost Accountants and Institute of Company Secretaries have suggested inclusion of terms "Cost Accountant" and "Company Secretary" in the definition of "accountant", the Ministry of Finance had not accepted their suggestion on the ground that "an accountant for the purposes of tax matters is required to deal with all financial matters and audit all financial ledgers, books, records and statements of a company or firm etc whereas a cost accountant deals primarily with estimates of cost for projects and monitoring the project to ensure that these are within the budget. Therefore, a cost accountant may not have the expertise to deal with all the financial statements and matters. Further, the question here is not of giving privilege to any particular The Institute of Chartered Accountants of India profession rather the most suited profession for dealing with the matters relating to direct taxes has to be assigned the work. Accordingly, the suggestion is not acceptable. Under clause 304(3) (F) of the DTC, the Board may prescribe any person with specified educational qualification to act as an authorized representative. The same procedure is followed under the current Act. Accordingly, this will be considered at the time of framing of subordinate legislation." As per the Report of the Standing Committee on Finance on Direct Taxes Code Bill, 2010 the Ministry of Finance had protested this change. We, by way of our letter dated 16-05-2012 had appreciated the stand taken by the Ministry of Finance in this regard. A copy of the same is enclosed for your reference. Since the provisions of the proposed Direct Taxes Code are not in alignment with the view of the Ministry of Finance, it is difficult to understand the reason of change of opinion of the Ministry of Finance. Recognization of all three professionals by the Companies Act, 2013 Audit of Financial Accounts is the exclusive domain of chartered accountants is a well known fact and is even recognized by the Companies Act, 2013(as also the erstwhile Act of 1956). Section 141(1) clearly provides that a person shall be eligible for appointment as an auditor of a company only if he is a chartered accountant. While considering the domains of other two professionals, section 143(14) of the said Act also provides that the provisions of section 143 shall mutatis mutandis apply to: (a) the cost accountant in practice conducting cost audit under section 148; or (b) the company secretary in practice conducting secretarial audit under section 204. It may be noted that the Ministry of Corporate affairs is very clear about the domains of all the three professionals and has, thus, assigned the right task to the right professional who are suppose to carry out the assigned task in a professional manner. Implications of Conduct of audit by non-chartered accountants Conducting of tax audit by non-chartered accountants having limited knowledge of the principles of accounting, auditing and tax procedures thereof would result into complexities not only for the assessees as also for the Government including but not limited to inaccurate computation of income, leading to leakage of revenue. While processing the data provided by the Income-tax Department in respect of tax audits conducted by chartered accountants, it was observed that a number of tax audit reports were filed by the assessees by quoting wrong membership details of the Chartered Accountants. The fact of alleged misuse of membership details of chartered accountants was also reported to CBDT vide letter no. DTC/2011-12/Rep-07, dated 16th December, 2011 and subsequently vide Letter no. DTC/2012-13/Rep-09, dated 15th June, 2012. As per our knowledge, action has been taken against those assesses who avoided getting their accounts audited and tried escape tax. The Ministry may be very well aware of the tentative figure of the involved revenue leakage. Such cases are a LIVE examples of the implications of getting the tax audit done by "Cost Accountants" and "Company Secretaries" who do not have expertise to do the same and are thus as good as fake audits. | Difference in scope of service of CA, CS and CWA a) Section 2(2) of the Chartered Accountants Act, 1949 permits a chartered Accountant to conduct a financial audit or issue certificates based on financials of an assessee. b) Section 2(2) of the Cost and Works Accountant Act,1959 restricts the domain of services of cost accountant to services relating to costing or auditing of cost accounting and related statements only. A Cost Accountant is in no case eligible to conduct a financial audit. The argument that such activities can be included in the residuary clause also will not hold good since residuary clause cannot go beyond the main function like a doctor cannot be called to do the job of an advocate. c) The Company Secretaries Act, 1980 restricts the domain of services of Company Secretary to secretarial services relating to Companies only. A Company Secretary is in no case eligible to conduct a financial audit or issue certificates based on accounts of a company or any other assessee. In fact the Income tax Act covers a wide range of assessees other than companies also like individuals, HUF, firms, Co-operative societies and so on. There is no doubt that ICAI is a premier body formed by MCA only to train chartered accountants to gain expertise in accounting and auditing ICAI. There is much more which can be elaborated like difference in the focus of the syllabi on the basis of which expertise is tested, effective steps taken by ICAI to ensure the quality of audit, guidance provided by ICAI in the field of auditing and accounting and the like. However, it is felt that the very fact that the mother Act itself does not allow the Cost Accountants and Company Secretary to conduct audit is good enough ground to convince one that the definition of "Accountant" does not require any chan |
50% of additional depreciation allowable in 1st year and balance in next year on usage of asset for less than 180 days
IT/ILT : In terms of section 32(1)(iia), there is no restriction on assessee to carry forward additional depreciation and, thus, where only 50 per cent of additional depreciation is allowed in year of purchase of machinery as it was put to use for lass than 180 days during said year, balance 50 per cent of additional depreciation can be claimed in subsequent assessment year
IT/ILT : Where assessee gave loan to its subsidiary company located abroad to acquire another foreign company, in view of fact that at time of conversion of loan into cumulative redeemable preferential shares, there was fall in value of loan due to difference in foreign exchange conversion rate, said loss being in course of acquiring a capital asset, it was to be treated as capital loss not eligible for deduction
IT/ILT: Where assessee advanced loan to its AE located abroad, in view of order passed in case of Siva Industries & Holdings Ltd. v. Asstt. CIT [2011] 46 SOT 112 (URO)/11 taxmann.com 404 (Chennai), Assessing Officer was to be directed to adopt LIBOR method of rate of interest for purpose of determining ALP of loan transaction in question
TDS Certificate to supersede Form 26AS in case of variation between two; ITAT comes in rescue of assessee
IT: Assessee, by furnishing TDS certificates bearing full details of tax deducted at source, had discharged primary onus on it towards claiming credit in respect of tax so deducted
Case was to be remanded either to CIT(A) or AO if relevant docs were filed for first time before Tribunal
IT : Where it was only before Tribunal, relevant documents were produced by assessee for first time, matter ought to be remitted either to Commissioner (Appeals) or Assessing Officer
Binjusaria Properties Pvt. Ltd vs. ACIT (ITAT Hyderabad)
S. 2(47)(v): Despite handing over possession & receiving advance, development agreement is not a "transfer" for capital gains purposes if developer has not performed his part of the contract
A transaction is deemed to be a "transfer" u/s 2(47)(v) of the Act if the conditions of s. 53A of the Transfer of Property Act are satisfied. For s. 53A, 'willingness to perform' of the transferee is something more than a statement of intent; it is the unqualified and unconditional willingness on the part of the vendee to perform its obligations. Unless the party has performed or is willing to perform its obligations under the contract, and in the same sequence in which these are to be performed, it cannot be said that the provisions of s. 53A of the TOP Act will come into play. On facts, a reading of the 'Development Agreement-cum-General Power of Attorney' indicates that what was handed over by the assessee to the developer is only 'permissive possession'. The agreement specifically provides that the assessee has permitted the developer to develop the land and that the consideration receivable by the assessee from the developer is '38% of the residential part of the developed area'. That being so, it is only upon receipt of such consideration in the form of developed area by the assessee in terms of the development agreement, the capital gains becomes assessable in the hands of the assessee. Further, the facts show that even as on date, there was no developmental activity on the land. The process of construction has not been even initiated and no approval for the construction of the building is obtained. This is due to lapse on the part of the transferee. While the assessee has fulfilled its part of the obligation under the development agreement, the developer has not done anything to discharge the obligations cast on it under the develop agreement. Mere receipt of refundable deposit cannot be termed as receipt of consideration. Consequently, s. 53A does not apply. As a result, there is no "transfer" u/s 2(47)(v) of the Act (Fibars Infratech, Vijaya Productions 134 ITD 19 (TM) followed, Chaturbhuj Dwarkadas Kapadia 260 ITR 491 (Bom) distinguished)
CIT vs. Baljeet Securities Pvt. Ltd (Calcutta High Court)
Expl to s. 73: Speculation loss on transactions in derivatives can be set off against the gains of delivery shares
Under the Explanation to s. 73 where any part of the business of a company consists in the purchase and sale of shares of other companies, such company shall, for the purposes of the section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. Therefore, the entire transaction carried out by the assessee was within the umbrella of speculative transaction. There was, as such, no bar in setting off the loss arising out of derivatives from the income arising out of buying and selling of shares.
CBDT's instruction on maintainability of appeal has retro-effect by virtue of sec. 268A, rules HC
IT : In terms of Instruction 2 dated 24-10-2005 and by virtue of retrospective operation of provisions of section 268A, revenue could not file appeal against Tribunal's order deleting penalty imposed under section 158BFA as monetary effect was less than Rs. 4 lakh
HC raps AO for disallowing freight exp. alleging Sec. 194C TDS default when exp. didn't exceed prescribed limit
IT: Where assessee paid freight charges not in excess of Rs. 20,000 in regard to single transaction or in excess of Rs. 50,000 per annum to a particular career, it was not required to deduct tax at source under section 194C while making said payments
No penalty on declaration of income during search without an independent enquiry by AO to prove concealed income
IT : In absence of concrete material on record indicating that assessee had concealed particulars of income, Assessing Officer could not pass penalty order merely on basis of declaration of undisclosed income by a partner of assessee-firm in course of search proceedings
FAQs on Section 185 of Companies Act 2013 along with planning
CA Nitesh More
Q1: What are the prohibitions on sec 185?
Ans: • No company can directly or "indirectly" advance loan to its "directors" or to "other persons in whom directors are interested".
• No company can give any guarantee or provide any security in connection with any loan taken by him or such other person.
• Company can't give loan represented by a book debt to above mentioned person".
Q2: What is the meaning of word "indirect" under sec 185?
Ans: The word 'indirect' used means that the co does not give a loan to director through the agency of one or more intermediaries. The word 'indirect' cannot be read as converting what is not a loan into a loan. [Dr. Fredie Ardeshir Mehta V Union of India (1991) 70 Comp Cas 210]
Q3: What is the meaning of phase, "other persons in whom directors are interested".
Ans: (a) INDIVIDUAL: Director of lending co., or holding co. or any partner or relative of any "such director";
(b) FIRM: in which any such director or relative is a partner;
(c) PVT LTD CO: of which such director is a director or member;
[Note - Relative of Director are not covered under this sub clause]
(d) BODY CORPORATE at a general meeting of which at least 25 % of voting power may be exercised or "controlled" by such director, or by two or more such directors, together; or
[Note - Relative of Director also not covered under this sub-clause]
[Note - Relative of Director also not covered under this sub-clause]
(e) BODY CORPORATE Board, MD or manager, whereof is accustomed to act in accordance with directions or instructions of Board, or of any director or directors, of lending company.
Q4: What is the meaning of word "control"?
Ans: "Control" has been defined as to include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholding or management rights or shareholders agreements or voting agreements or in any other manner. [ u/s 2(g)]
Q5: What are the exceptions to sec 185?
Ans: a) MD/WTD - The giving of any loan to a Managing or Whole-time director-
(i) as a part of the conditions of service extended by the company to all its employees; or
(ii) Pursuant to any scheme approved by the members by a special resolution;
b) ORDINARY COURSE - A company which in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan and in respect of such loans an interest is charged at a rate not less than the bank rate declared by RBI.
Q6: What is the meaning of the term "ordinary course of lending"?
Ans: TWO TEST(MY VIEW):
• If the company is engaged in lending activities regularity &
• Lend not only to directors/directors' entities but also to "arms' length parties/unrelated parties"
Q7: What is the meaning of word "Loan"?
Ans: Loan has not been defined under Co Act. Any transaction of giving money to be returned in money with or without interest can be treated as "loan".
Q8: Is advance covered by sec 185?
Ans: ADVANCE NOT COVERED BY SEC 185. Normally an advance is not repayable as an advance. It usually conveys an idea of a prepayment, that is, paying something in advance before it is actually due.
Q9: Are All NBFCs engaged in "lending activities in ORDINARY COURSE"?
Ans: May not be. Refer tests under Q6.
Q10: What is the penalty u/s 185?
Ans: • Lender Company – Fine Rs. 5 lakhs to Rs. 25 lakhs &
• Receiver: Director or other person to whom any loan is advanced or guarantee or security is given -Imprisonment upto 6 months or fine Rs. 5 lakhs to Rs. 25 Lakhs, or both.
Q11: Are guarantee & letter of comfort covered by sec 185?
Ans: Guarantee has been covered, however, letter of comfort is not covered by sec 185.
Q12: What is the difference between guarantee & letter of comfort?
Ans: • In case of Guarantee, guarantor undertakes the liability of principal debtor, whereas
• In case of letter of Comfort, intention is to give introduction of debtor, without undertaking the liability of principal debtor
Q13: Is Loan given before 12th Sep, 2013 affected by sec 185?
Ans: • Existing loan/guarantee/security provided before 12th Sep, 2013 is not affected by above provisions. However, it should not be renewed & should be repaid on due date.
• "Loan repayable on demand" should be repaid on demand.
• "Loan repayable after fixed period" should be repaid on expiry of Fixed period.
Q14: If there any contravention of Sec 185 if share application money/advance for property/goods/services is given to specified person u/s 185 on or after 12th Sep, 2013?
Ans: No, there is no contravention. However, private placement provisions have to be complied, if share application money is given on or after 1st April, 2014.
Q15: Can Loan given by subsidiary to holding co. & Vice versa?
Ans: Assuming that directors of subsidiary co. (as well as "other persons in whom directors are interested") do not hold any shares in holding co, Sec. 185 is not attracted.
MAY NOT COVERED IN
• Clause (a) (as applicable for individual) or
• Clause (b) (as applicable for Firm),
• Clause (c) (for Pvt Ltdco.,only if director is a director or member),
• Clause (d) (only if the director either by himself or two or more such directors hold 25% or more of total voting power in the borrowing company,
• Clause (e) (only if borrowing company /its Board/Directors are accustomed to act as per the Directors of the board/Directors of the lending company.
Kindly note that to attract Sec. 185, any interest of director (or other person) in his "personal capacity (not holding as nominee of company)" is relevant. Interest of holding co. in subsidiary is not relevant.
Same will be position in case of vice versa relationship.
Q16: What are the specific exemptions provided to loan given by holding co to subsidiaries?
Ans: Rule
(1) Any loan made by a holding co to its wholly owned subsidiary co or any guarantee given or security provided by a holding co in respect of any loan made to its wholly owned subsidiary co is exempted from the requirements under this section; and
(2) Any guarantee given or security provided by a holding company in respect of loan made by any bank or financial institution to itssubsidiary company is exempted from the requirements under this section: Provided that such loans made under sub-rule (1) and (2) are utilised by the subsidiary company for its principle business activities.
Q17: What are the planning for sec 185?
Ans: 1) Convert both Lender co & receiver co to LLP or
2) Convert other co (to whom loan is given) to public Ltd to enjoy 25% limit or
3) Rearrange shareholding pattern & directorship pattern:
a) Appoint new directors in lender Co, who personally neither hold any share in other co nor are directors in other co. If their relatives holds shares or are directors than there is no problem or
b) One can gift shares to other relative to rearrange shareholding pattern
Q18: What are the benefits if private Ltd Co is converted into LLP as mentions in Q17?
Ans: 1) LLP is not a company, hence limit of audit of 20 company will not be applicable.
2) As Companies Act will not be applicable, you can transfer fund from one LLP to another group LLP.
3) Many of exemption which Pvt Ltd company enjoy under old Companies Act has been withdrawn, which are not applicable to LLP.
4)Compliances under new companies Act for Pvt Ltd Companies has been substantially increased, which are not applicable for LLPs.
5) There is heavy penalty for non compliances under New Company Act. Penalty of Rs 50,000 is a small amount for a single violation.
6) Cost benefit analysis suggests that these should be converted into LLP.
7) However, as per Sec 47(xiiib) of Income tax Act, for tax neutrality of such conversion , turnover of Pvt Ltd company in any of last 3 years must not exceeds 60 lakhs. So, if turnover exceeds 60 lakhs than such conversion will be subject to income tax.
Q 19: How to rearrange shareholding & Directorship pattern as referred in Q17 above?
Ans: Suppose A,B,C,D are 4 members in a family. They have 2 Cos: A Pvt Ltd & C Pvt Ltd.
i) We can appoint A& B as directors of A Pvt Ltd. & gift all shares in name of C & D in A Pvt Ltd to A & B.
ii) We can appoint C& D as directors of C Pvt Ltd & gift all shares in name of A & B in C Pvt Ltd to C & D.
Q20: Is there any extra care while rearranging directorship & shareholding patter?
Ans: It is suggested to appoint dependent relative in Lender Company as director.
Clause d states that BODY CORPORATE at a general meeting of which at least 25 % of voting power may be exercised or"controlled" by such director, or by two or more such directors, together is covered by sec 185. "Control" has been defined as to include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholding or management rights or shareholders agreements or voting agreements or in any other manner. [ u/s 2(g)].
Dependent relatives are not expected to control relative on which they are dependent. If dependent relatives are appointed in lender company & the relative on whom they are dependent is appointed as director in the company to which loan is to be given, there will be comparatively less chances to attract sec 185.
Potla Nageswara Rao vs. DCIT (Andhra Pradesh High Court)
S. 2(47)(v): Transfer under a development agreement takes place on handing over possession. Capital gains are chargeable to tax even if no consideration is received by assessee
In AY 2003-04, the assessee entered into an agreement with Bhavya Constructions pursuant to which he agreed to transfer the land in consideration of the developer giving him four flats in the developed area. The assessee received a token advance and handed over possession of the land. The developer obtained the approval of the municipality to the plan for construction on the property. The AO held that the capital gains was assessable in AY 2003-04 while the assessee claimed that the same was assessable in AY 2004-05 when the consideration was received. The CIT(A) upheld the claim of the AO. The Tribunal (included in file), relying on Chaturbhuj Dwarkaddas Kapadia 260 ITR 491 (Bom), Dr.T. K. Dayalu 202 Taxman 531(Kar) & Maya Shenoy 124 TTJ (Hyd) 692, held that as the assessee had handed over possession of the property to the developer, it was a clear case of transfer by exchange within the meaning of s.2(47)(v) read with s. 53A of the Transfer of Property Act. It was held that the fact that the consideration was received in a later year was not relevant. On appeal by the assessee to the High Court, HELD dismissing the appeal:
Contrast with the view taken in Binjusaria Properties (ITAT Hyd), Fibars Infratech (ITAT Hyd), General Glass 108 TTJ 854 (Mum) etc that if the willingness of the developer to perform his obligations cannot be ascertained, there is no "transfer" u/s 2(47)(v) r.w.s. 53A. See also Charanjit Singh Atwal (ITAT Chd)The assessee's contention that no transfer takes place on the date of the agreement and handing over of possession if consideration is not received by the assessee is not acceptable because s. 53A of the Transfer of Property Act, 1882, which is engrafted in the definition of "transfer" in s. 2(47) of the Income-tax Act does not contemplate any payment of consideration. Payment of consideration on the date of agreement of sale is not required. It may be deferred for a future date. The element of factual possession and agreement are contemplated as transfer within the meaning of the aforesaid section. When the transfer is complete, automatically, consideration mentioned in the agreement for sale has to be taken into consideration for the purpose of assessment of income for the assessment year when the agreement was entered into and possession was given. Here, factually it was found that both the aforesaid aspects took place in the previous year relevant to the assessment year 2003-04. Hence, the Tribunal has rightly held that the appellant is liable to pay tax on the capital gain for the assessment year.
No addition on basis of 'e-mail' unearthed during search without any material to prove undisclosed income
June 6, 2014[2014] 45 taxmann.com 205 (Bombay)
IT : Where Assessing Officer made addition to assessee's income in respect of additional sale consideration received on sale of land merely on basis of an e-mail recovered during course of search action at premises of another person and there was no independent material available supporting such an addition, Tribunal was justified in deleting addition so made
Binjusaria Properties Pvt. Ltd vs. ACIT (ITAT Hyderabad)
S. 2(47)(v): Despite handing over possession & receiving advance, development agreement is not a "transfer" for capital gains purposes if developer has not performed his part of the contract
A transaction is deemed to be a "transfer" u/s 2(47)(v) of the Act if the conditions of s. 53A of the Transfer of Property Act are satisfied. For s. 53A, 'willingness to perform' of the transferee is something more than a statement of intent; it is the unqualified and unconditional willingness on the part of the vendee to perform its obligations. Unless the party has performed or is willing to perform its obligations under the contract, and in the same sequence in which these are to be performed, it cannot be said that the provisions of s. 53A of the TOP Act will come into play. On facts, a reading of the 'Development Agreement-cum-General Power of Attorney' indicates that what was handed over by the assessee to the developer is only 'permissive possession'. The agreement specifically provides that the assessee has permitted the developer to develop the land and that the consideration receivable by the assessee from the developer is '38% of the residential part of the developed area'. That being so, it is only upon receipt of such consideration in the form of developed area by the assessee in terms of the development agreement, the capital gains becomes assessable in the hands of the assessee. Further, the facts show that even as on date, there was no developmental activity on the land. The process of construction has not been even initiated and no approval for the construction of the building is obtained. This is due to lapse on the part of the transferee. While the assessee has fulfilled its part of the obligation under the development agreement, the developer has not done anything to discharge the obligations cast on it under the develop agreement. Mere receipt of refundable deposit cannot be termed as receipt of consideration. Consequently, s. 53A does not apply. As a result, there is no "transfer" u/s 2(47)(v) of the Act (Fibars Infratech, Vijaya Productions 134 ITD 19 (TM) followed, Chaturbhuj Dwarkadas Kapadia 260 ITR 491 (Bom) distinguished)
CIT vs. Baljeet Securities Pvt. Ltd (Calcutta High Court)
Expl to s. 73: Speculation loss on transactions in derivatives can be set off against the gains of delivery shares
Under the Explanation to s. 73 where any part of the business of a company consists in the purchase and sale of shares of other companies, such company shall, for the purposes of the section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. Therefore, the entire transaction carried out by the assessee was within the umbrella of speculative transaction. There was, as such, no bar in setting off the loss arising out of derivatives from the income arising out of buying and selling of shares.
Regards,
Editor,
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Latest: ACIT vs. Bilakhia Holdings P. Ltd (ITAT Ahmedabad)
A transfer of shares under a family arrangement is for a determinable "consideration" & is not "voluntary". Consequently, the shares are not received under a "gift" & the transferee cannot claim benefit of cost, and holding period, of the transferor
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