Jaitley Removes Provision of No Bail for offences Under Companies Act, 2013
CA Sandeep Kanoi
As we all aware that Under the Prevention of Terrorism Act (POTA) there was a Harsh Provision regarding bail which says that that any person arrested for terrorism will not get bail till either the Public Prosecutor consents to the bail or the court gives a finding that the person is innocent on the face of it.
If we read Section 212(6) of the Companies Act we will realise that UPA Government has enacted POTA provision of bail in Companies Act, 2013.
This kind of draconian provisions was sought to be deleted from the statute by the Companies (Amendment) Bill 2014 which the Lok Sabha passed yesterday.
While addressing Lok Sabha Shri Arun Jaitley said that
Having removed it from there, they brought in the POTA bail provision under Section 212 (6) of the Companies Act, which says:
"Notwithstanding anything contained in the Code of Criminal Procedure… .the following offences which attract the punishment for fraud as provided in….to a person accused of those offences…no person shall be released on bail unless the prosecutor has been given notice where the prosecutor opposes it, the court is satisfied that reasonable grounds for believing that the person is not guilty of the offences."
Verbatim, full stop for full stop, comma for comma, they incorporated the POTA provision into the bail provision of this Act. Now this language exists in the narcotics law. When we invite the rest of the world to come to India, form a company, do business and invest in India, are we trying to say that in case you commit any of these offences you will never get bail or you will indefinitely never get bail?
Relevant Extract from Unedited Speech of Minister of Corporate Affar Shri Arun Jaitley given in Lok Sabha on 17.12.2014
I would request any hon. Member, if he has a copy, to pick up section 212(6) of this Act. I am referring to an extraneous fact when in 2004 the UPA came to power, there was a law which the NDA had enacted called the Prevention of Terrorism Act (POTA).
The UPA's main criticism of POTA was that some of the provisions are very repressive and so they repealed POTA. When they repealed the anti-terrorism law, they incorporated most of the provisions under the Unlawful Activities Prevention Act. But one provision the UPA said that they would not agree to put in the Unlawful Activities Prevention Act was regarding a harsh bail provision. The POTA said that any person arrested for terrorism will not get bail till either the Public Prosecutor consents to the bail or the court gives a finding that the person is innocent on the face of it. Now finding of innocence is not possible till the trial is held. So, the UPA's own case was that this is not a provision we can agree with and, therefore, they removed that provision from the anti-terrorism law. Having removed it from there, they brought in the POTA bail provision under Section 212 (6) of the Companies Act, which says:
"Notwithstanding anything contained in the Code of Criminal Procedure… .the following offences which attract the punishment for fraud as provided in….to a person accused of those offences…no person shall be released on bail unless the prosecutor has been given notice where the prosecutor opposes it, the court is satisfied that reasonable grounds for believing that the person is not guilty of the offences."
Verbatim, full stop for full stop, comma for comma, they incorporated the POTA provision into the bail provision of this Act. Now this language exists in the narcotics law. When we invite the rest of the world to come to India, form a company, do business and invest in India, are we trying to say that in case you commit any of these offences you will never get bail or you will indefinitely never get bail? Therefore, most companies said that it is safer for them to switch over to a limited liability partnership than continue to do business.
Now, if you look at the other provisions of the Act, all offences under grievous laws relating to terrorism, narcotics, sedition, prevention of corruption etc., they say that ordinary courts will not try these cases and there will be special courts. So, all offences against a company will go to a Special Court. The ordinary Magistrate's jurisdiction is taken away. Are we trying to induce investors to come and invest in India or are we trying to scare them away from the country? We have, therefore, brought in an amendment that extremely harsh offences will be before a Special Court and the rest will be before the normal courts of the land. If a man wants to wind up a company, there has to be a provision in law. The case relating to winding up these days normally goes to a single judge of the High Court as one judge in every High Court is a company law judge. If somebody says that there is a commercial insolvency or any other reasoning or the company itself wants to be wound up, it goes to a single judge, there is a procedure to be followed and it gets wound up.
This Bill says that simple company matters and other matters go to a single judge, appeals go to a Division Bench and some extraordinary matters also go to a Division Bench. A company to be wound up has to go to a full Bench of three judges. What is the rationale? That is why I said either some of the provisions are oppressive or some of the provisions like having one judge or two judges or three judges could have even come by an oversight.
Now, let me give you another oversight provision. There are offences companies commit. If there is a company which does not follow the procedure and starts collecting deposits, it is a punishable offence. In the Act, we forgot to make it an offence.
So it is the case of an oversight. If I run through each of these 14, the first two, requirement of capital and seal, the international standard practice now in corporate laws across the world is that you have done away with these requirements. So, here it has been brought at parity with international laws.
The next provision, section 76 says, we forgot to provide for an offence where somebody collects deposits in violation of law. We did not make it an offence under the Companies Act; so it has been made an offence.
Compiled by CA Sandeep Kanoi
Advertisement expenditure incurred by agent to popularize the business of the channel run by the foreign principal is allowable as there is a direct business between the expenditure and the assessee's business as agent. The fact that the foreign principals also benefited does not entail right to deny deduction under section 37(1)
Advertisers who advertise on these channels act through media houses and advertising agencies and they work to media plans designed in the manner so as to maximise value for the advertiser. They will evaluate expenditure with channel penetration in the market place inasmuch as only channels with high viewership would justify the higher advertising rates which is normally sold in seconds. Merely having high quality content will not ensure high viewership. This content has to be publicized. The great reach of the publicity, the higher chances of larger viewership. The larger the viewership, the better chances of obtaining higher advertisement revenue. The higher advertisement revenue, the higher will be commission earned by the assessee. Accordingly, we have no doubt that there is a direct nexus between advertising expenditure and revenue albeit the fact that there may be a lean period before revenue picks up notwithstanding high amount spent on such publicity. This justifies the higher expenditure vis-a-vis revenue noticed by the department. Read more of this post
TPO cannot question commercial expediency of payment to AE. RBI approval to a transaction implies it is at arms' length price
We are of the opinion that the TPO was incorrect in going into the business expediency of payment of royalty and arriving at the conclusion of the quantum of the royalty. We find support for this proposition in the decision of Hon'ble Delhi High Court in CIT vs. EKL Appliances (345 ITR 241) (Del) wherein the Hon'ble Delhi High Court had occasion to consider the disallowance of royalty by TPO and held that if the expenditure has been incurred or laid out for the purposes of business it is no concern of the TPO to disallow the same on any extraneous reasons. In the case of Ericsson India Pvt. Ltd. vs. DCIT (ITA No. 5141/Del/2011) the Delhi High Court decision in CIT vs. EKL Appliances (supra) was followed wherein it was held that "it would be wrong to hold that the expenditure should be disallowed only on the ground that these expenses were not required to be incurred by the assessee". Read more of this post
sum paid without deduction of tax shall not be disallowed if payee files Form No. 15G/H belatedly
December 19, 2014[2014] 50 taxmann.com 411 (Bangalore - Trib.)
IT : Section 40(a)(ia) not applicable where assessee had not deducted tax at source as it was well aware that recipient had no taxable income, though declarations in Form 15G/H were obtained late
CHENNAI, DEC 19, 2014: THE issue before the Bench is - Whether if assessee makes wrong claim of royalty payment which actually pertained to earlier AYs and was also allowed by the Revenue, it is a fit case to attract penalty if the assessee fails to give valid reasons for committing such an error of making claims twice against same TDS certificates. YES is the answer of the High Court.
Facts of the case
The assessee company was engaged in the business of leather chemical manufacture and trading. It had claimed deduction of royalty which was paid to M/s Bayer AG Germany under the agreement. As no TDS was paid during the year the same was added back at first instance and in the computation it was claimed as deduction on the basis of TDS payments. The same was done as per the provisions of section 40(a)(i). The assessee was asked to file full details of TDS payments made in respect of this royalty payments. After verifying these details it was noticed that some of the TDS certificates pertain to the earlier year and the part of the royalty payment attributable to these certificates had already been claimed and allowed as deduction to the assessee in the earlier years. When asked about this the assessee had admitted the error and stated that in AY 2002-03 a sum which had been already claimed in earlier year was again inadvertently claimed as deduction in the computation of income. Thus an addition was made and penalty for concealment was levied.
On appeal, CIT(A) allowed the appeal holding that it was a bona fide mistake and that the assessee had admitted his mistake, there was no scope for levying penalty. On further appeal, Tribunal on the basis of decision of SC in MAK Data (P) Ltd v. CIT (2013) 358 ITR 593 (SC), concluded that the possibility of an inadvertent mistake of this nature was remote and the scope of passing entries in the books of accounts twice was also remote, as the assessee had claimed deduction for royalty expenses paid to M/s Bayer AG Germany under an agreement taking into account the provisions of Section 40(a)(ia). It also held that the assessee had claimed the deduction twice while filing the return of income and the error was unearthed during the course of assessment proceedings under Section 143(3) on a scrutiny by the assessing officer, failing which the error would not have surfaced leading to loss of revenue. It further held that since the assessee did not take proper care to furnish accurate particulars of income, the decision of the Supreme Court relied upon by the Revenue clearly justified the levy of penalty and taking a lenient view would encourage the assessee to perpetuate such mistakes and therefore the levy of penalty for claiming deduction twice on the ground of payment of royalty, was absolutely justified.
Held that,
++ the assessee had claimed the deduction for the royalty payment for the second time, when it was in fact claimed in the preceding assessment year and allowed, and the said error of computation was unearthed during the course of assessment proceedings under Section 143(3) by the original authority, for which a notice was issued under Section 143(2) and the order of the original authority dated 28.3.2005, as extracted in the earlier portion of this order, clearly shows that when the TDS certificates in respect of the royalty paid to M/s Bayer AG Germany was asked to be furnished, after verifying the details, it was noticed that some of the TDS certificates pertained to the earlier year and part of the royalty payment attributed to these certificates had already been claimed and allowed as deduction to the assessee in the earlier years. Thereafter, when the assessee was further questioned, with a cryptic reply by way of the letter dated 14.3.2005, no cogent and reliable evidence were shown by the assessee, as such a huge amount could not have been claimed as deduction by inadvertence for the second time. The said plea has also been repelled by the SC in MAK Data (P) Ltd case, as the assessee should first show by cogent and reliable evidence that there was neither concealment of particulars of income nor furnished inaccurate particulars of income. We find that the plea taken by the assessee in the letter dated 14.3.2005 is only cursory and does not give any acceptable explanation for the wrong computation, as the error was detected by the original authority only during the proceedings u/s 143(3) and she has also recorded a categorical finding that the assessee suppressed the income by making a wrong claim of royalty payment, which actually pertained to earlier assessment years, which was claimed and allowed and therefore thought it fit to levy penalty under Section 271(1)(c);
++ we are not inclined to be guided by the decision in Gem Granites case, as the facts in the present case are clearly distinguishable, because huge amount had been claimed during the preceding assessment year based on TDS certificates and when such of those documents were sought to be verified by the original authority in the scrutiny assessment in respect of various issues, the one relating to royalty payment was also verified on the basis of TDS certificates and the wrong computation was unearthed as has been pointed out by us in the earlier portion of this order. In our view, the department was justified in imposing the penalty u/s 271(1)(c), as the explanation offered by the assessee is no explanation at all in the eye of law. We also find that the facts of the present case have been thoroughly examined by the Tribunal and has rightly held against the assessee. Therefore, we find no question of law, much less a substantial question of law arising for consideration on merits in this appeal. Accordingly, the tax case appeal fails and it is dismissed. No costs.
No income arises on allotment of shares at concessional rate till expiry of lock-in-period on such shares
December 19, 2014[2014] 52 taxmann.com 103 (Andhra Pradesh)/[2014] 367 ITR 616 (Andhra Pradesh)
IT : Where shares were allotted at concessional rate, no income would accrue or arise until expiry of lock in period
Mere shortage in jewellery found during survey wouldn't be deemed as undisclosed investment by jeweller
December 19, 2014[2014] 51 taxmann.com 422 (Kolkata - Trib.)/[2014] 33 ITR(T) 66 (Kolkata - Trib.)
IT: Merely because shortages had been noticed as compared to books, it could not be said that any undisclosed investment/money was made by assessee
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