8/13/2019 2-MBL-KA-Feb 11

1/18

Suggested AnswersMaster of Business Law II Year

Examination Held on 07-Feb-2011 (Investment Laws)

1. WHY DO WE NEED A CAPITAL MARKET?

A capital market is necessary to chanalise the savings of the public into desired sectorsof the economy resulting in both growth and a return on savings. Annual savings 33.7%of GDP.

1) The capital market in India is in an organized manner created by the SecuritiesContract regulation Act, 1956. The objectives were set forth:

Regulating the business of dealing in securities to prevent undesirable transactions insecurities and for this purpose recognition and regulation of stock exchanges. Alltransactions and securities must take place on the floor of a recognized stock exchange

except spot contracts.In the year 1992 a separate board called the Securities Exchange Board of India wassetup under Central legislation taking away must of the provisions of SCRA and certainprovisions of the Companies Act 1956 relating to issue of shares this broad based actwas meant to register all intermediaries in the market, prescribe regulations for each ofthem, curb fraud and undesirable practices, permit buyback of shares etc all toprotect investors and promote the growth of the capital market

2) Economic activity hinges on availability capital made available by the suppliers of thecapital namely the savers and investors in the economy.

3) The savers in the economy look for productive parking of their savings in various

sectors of industries and services have a sense of participations, earn a return which ismore than the opportunity cost of capital. They also have platform for speculation,though regulated, and trade in securities.

4) The capital market also values the value created by Corporate houses by way ofdetermining the market value of the shares issued by a company. For eg Thecapitalization of a particular listed company share will show the market value of thecompany. This also helps in making valuations in a merger and acquisition situation.

5) All companies issuing shares to the public must be compulsorily listed on arecognized stock exchange where the trading in the shares take place. We have morethan 7000 listed companies of the various sector in the economy, the price movementsare daily captured in a sensex and enables investors to have full information of the

performance of the companies through interim financial statements and all other pricesensitive information.

6) The market gets divided into (1) Primary market where fresh issues and follow onissues are made by companies to the public and (2) the secondary market where thereis trading of listed shares. Regulations fully protect investors through offer documentsin the primary market.Rs.46,267cr raised through public issues in 2010- 11 (57 issues)

8/13/2019 2-MBL-KA-Feb 11

2/18

8/13/2019 2-MBL-KA-Feb 11

3/18

14) Protecting Shareholders is a continuous exercise having regard to the fact thatgreed drives people in the market to manipulate and rig prices. SEBI is fully consciousof its role in this regard.

2. DISTINGUISH BETWEEN VARIOUS PRODUCTS OF THE CAPITAL MARKET AND

THE REGULATORY ASPECT GOVERNING THE ISSUE OF SUCH PRODUCT.

1) Security is defined in SCRA.

(h ) Securities include

(i ) shares, scrips, stocks, bonds, debentures, debenture stock or other marketablesecurities of a like nature in or of any incorporated company or other body corporate;

(ia ) derivative;

(ib ) units or any other instrument issued by any collective investment scheme to the

investors in such schemes;](ic ) security receipt as defined in clause ( zg ) of section 2 of the Securitisation andReconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;]

( id ) units or any other such instrument issued to the investors under any mutual fundscheme;

(ii ) Government securities;

(iia ) such other instruments as may be declared by the Central Government to besecurities; and

(iii ) rights or interest in securities;Derivative means an instrument, to be settled at a future date, whose value is derivedfrom change in interest rate, foreign exchange rate, credit rating or credit index, priceof securities (also called underlying or a combination of more than one of them andincludes interest rate swaps, forward rate agreements, foreign currecy swaps, foreigncurrency options or such other instruments as may be specified by the Bank from timeto time.

Option insecurities means a contract for the purchase or sale of a right to buy or sell,or a right to buy and sell securities in future, and includes a teji, a mandi , a galli, aput, a call or a put and call in securities.

2) The issue of shares to the public equity, right issue, bonus issue, IDRs areregulated by SEBI under ICDR. ESOPs are also regulated by SEBI.

ICDR Regulationsa) Lay down a regulatory framework for issue of equity shares and other

instruments convertible on a later date into equity shares ( referred to asspecified securities in the ICDR Regulations);

Conditions for bonus issue.

8/13/2019 2-MBL-KA-Feb 11

4/18

Subject to the provisions of the Companies Act, 1956 or any other applicable law forthe time being in force, a listed issuer may issue bonus shares to its members if:

(a) it is authorized by its articles of association for issue of bonus shares, capitalizationof reserves, etc.Provided that if there is no such provision in the articles of association, the issuer shall

pass a resolution at its general body meeting making provisions in the articles ofassociations for capitalization of reserve;

(b) it has not defaulted in payment of interest or principal in respect of fixed deposits ordebt securities issued by it;

(c) it has sufficient reason to believe that it has not defaulted in respect of the paymentof statutory dues of the employees such as contribution to provident fund, gratuity andbonus;

(d) the partly paid shares, if any outstanding on the date of allotment, are made fullypaid up

Restriction on bonus issue.(1) No issuer shall make a bonus issue of equity shares if it has outstanding fully orpartly convertible debt instruments at the time of making the bonus issue, unless it hasmade reservation of equity shares of the same class in favour of the holders of suchoutstanding convertible debt instruments in proportion to the convertible part thereof.

(2) The equity shares reserved for the holders of fully or partly convertible debtinstruments shall be issued at the time of conversion of such convertible debtinstruments on the same terms or same proportion on which the bonus shares wereissued.

American Depositary Receipt

An American Depositary Receipt (ADR) is how the stock of most foreign companiestrades in United States stocks markets. Each ADR is issued by a U.S. depositary bankand represents one or more shares of a foreign stock or a fraction of a share. If investorsown on an ADR they have the right to obtain the foreign stock it represents, but U.S.investors usually find it more convenient to own the ADR. The price of an ADR is oftenclose to the price of the foreign stock in its home market, adjusted for the ratio of ADRsto foreign company shares.Depository banks have numerous responsibilities to the holders of ADRs and to thenon- U.S. company the ADRs represent. The largest depositary bank is The Bank ofNew York. Individual shares of a foreign corporation represented by an ADR are calledAmerican Depositary Shares (ADS).

Global Depositary Receipt

Global Depository Receipt (GDR) certificate issued by international bank, which canbe subject of worldwide circulation on capital markets. GDRs are emitted by banks,which purchase shares of foreign companies and deposit it on the accounts. GlobalDepository Receipt facilitates trade of shares, especially those from emerging markets.Prices of GDRs are often close to values of related shares. Very similar to GDRs areADRs. GDRs are also spelled as Global Depository Receipt.(ADR/GDR are regulated by RBI)

8/13/2019 2-MBL-KA-Feb 11

5/18

What is an IDR?

IDR stands for Indian Depository Receipts, and Standard Chartered is the first companyto come out with an IDR. StanChart derived 12% of its income from India in 2009, andIndia contributed $1.06 billion of its $7.23 billion operating profit last year, and thatmay have something to do with this first.

An Indian Depository Receipt is a way for a foreign company to raise money in India. The foreign company deposits its shares with a custodian, and then the custodianissues depository receipts based on these shares. To that extent, IDRs are derivativeinstruments because they derive their value from the underlying shares. In this case,Standard Chartered Bank, Mumbai is the domestic depository, and it has appointedBank of New York, Mellon as its overseas depository.

From time to time SEBI issues directions as regards trading in derivatives.

3. WHAT IS THE DESIGN OF THE PRIMARY MARKET IN TERMS OF (1)ALLOTMENT FOR CATEGORIES OF INVESTORS (2) PRICING (3) METHOD OFPAYMENT (4) INFORMATION ON DECISION MAKING (5) FOLLOW ON PUBLICOFFERS.

(1) allotment for categories of investors

1) Retail individual bidder means an investor who applies or bids for specifiedsecurities for a value of below Rs.2 laks

2) Non Institutional bidder:- Means an investor other than a retail individualinvestor and qualified institutional buyer.

3) Qualified Institutional bidder:- means

i) A mutual fund, venture capital fund and foreign venture capital investorregistered with the Board ;

ii) A foreign institutional investor and sub- account (other than a sub- accountwhich is a foreign corporate or foreign individual), registered with the Board.

iii) A public financial institution as defined in section 4A of the Companies Act,1956;

iv) A scheduled commercial bank.

v) A multilateral and bilateral development financial institution

vi) A state industrial development corporation

vii)An insurance company registered with the Insurance Regulatory andDevelopment Authority.

Viii) A provident fund with minimum corpus of twenty- five crore rupees;

ix) A pension fund with minimum corpus of twenty- five crore rupeesand

8/13/2019 2-MBL-KA-Feb 11

6/18

x) National Investment Fund set up by resolution No. F.No.2/3/2005- DDIIdated November 23, 2005, of the Government of India published in the Gazetteof India.

4) Eligible employees There is a rebate allowed to retail investors which may go upto 10%. Recent

issues allowed only 5%.

Price fixing basis

The IPO is to be accompanied by an offer document. The Companies Act 1956 bysection 55A has delegated the administration of issue of shares etc. to SEBI. SBI hasrecently come out with a detailed regulation called SEBI (Issue of capital and DisclosureRequirements) Regulation 2009 (ICDR) replacing an earlier Disclosure of InvestorsProtection Guidelines.

Pricing (Clause 28)

1)

An issuer may determine the price of specified securities in consultation withthe lead merchant banker or through the book building process.

2) An issuer may determine the coupon rate and conversion price of convertibledebt instruments in consultation with the lead merchant banker or through thebook building process

3) The issuer shall undertake the book building process in a manner specified inschedule XI.

Differential pricing

An issuer may offer specified securities at different prices, subject to the following:

a) Retail individual investors or retail individual shareholders may be offeredspecified securities at a price lower than the price at which net offer is made toother categories of applicants:

Provided that such difference shall not be more than ten percent of the price at which specified securities are offered to other categories of applicants;

b) In case of a book built issue, the price of the specified securities offered to ananchor investor shall not be lower than the price offered to other applicants;(anchor Investors means qualified Institutional buyer, an application for a value

of ten crore or more in a public issue made through the book building process.

c) In case of a composite issue, the price of the specified securities offered in thepublic issue may be different from the price offered in rights issue and

justification for such price difference shall be given in the offer document.

3. Method of Payment : Identified with demat account; enables blocking the amount ina bank account without actual payment

8/13/2019 2-MBL-KA-Feb 11

7/18

ICDR deals with issuing shares to the public. The core part of it is pricing.

4). Information on decision making

Appointment of merchant banker and other intermediaries.

(1) The issuer shall appoint one or more merchant bankers, at least one of whom shallbe a lead merchant banker and shall also appoint other intermediaries, in consultationwith the lead merchant banker, to carry out the obligations relating to the issue.

(2) The issuer shall, in consultation with the lead merchant banker, appoint only thoseintermediaries which are registered with the Board.

(3) Where the issue is managed by more than one merchant banker, the rights,obligations and responsibilities, relating inter alia to disclosures, allotment, refund andunderwriting obligations, if any, of each merchant banker shall be predetermined anddisclosed in the offer document as specified in Schedule I .

(4) The lead merchant banker shall, only after independently assessing the capability of

otherintermediaries to carry out their obligations, advise the issuer on their appointment.

(5) The issuer shall enter into an agreement with the lead merchant banker in theformat specified in Schedule II and with other intermediaries as required under therespective regulations applicable to the intermediary concerned:

Provided that such agreements may include such other clauses as the issuer and theintermediary may deem fit without diminishing or limiting in any way the liabilities andobligations of the merchant bankers, other intermediaries and the issuer under the Act,the Companies Act, 1956, the Securities Contracts (Regulation) Act, 1956, theDepositories Act, 1996 and the rules and regulations made thereunder or any statutorymodification or statutory enactment thereof:

Provided further that in case of ASBA process, the issuer shall take cognisance of thedeemedagreement of the issuer with Self Certified Syndicate Banks.(6) An issuer shall, in case of an issue made through the book building process, appointsyndicate members and in the case of any other issue, appoint bankers to issue, at allmandatory collection centres as specified in Schedule III and such other collectioncentres as it may deem fit.(7) The issuer shall appoint a registrar which has connectivity with all the depositories:Provided that if issuer itself is a registrar to an issue registered with the Board, thenanotherregistrar to an issue shall be appointed as registrar to the issue:Provided further that the lead merchant banker shall not act as a registrar to the issuein which it is also handling the post issue responsibilities.

Explanation: For the purpose of this regulation, in case of a book built issue, the leadmerchant banker appointed by the issuer shall act as the lead book runner.

What is IPO grading?

8/13/2019 2-MBL-KA-Feb 11

8/18

ICRAs Grading of Initial Public Offerings (IPOs) is a service aimed at facilitatingassessment of equity issues offered to the public. The Grade assigned to any individualIPO is a symbolic representation of ICRAs assessment of the fundamentals of theissuer concerned relative to other listed securities.IPO Grades are assigned on a five-point point scale, where IPO Grade 5 indicates thehighest grading and IPO Grade 1 indicates the lowest grading, i.e a higher score

indicates stronger fundamentals. An IPO Grade is not an opinion on the price of theissue, pre- or post-listing.

1. IPO grading2. Due diligence by the merchant Bank3. Information promoters of issue purpose of issue of shares4. Track record

4 (i) EXCHANGE TRADED FUND (ETF)

Another investment option (apart from Gold, Equity shares, mutual fuds, insurance) forthose interested in tapping the gains of a booming share market is Exchange Traded

Fund or ETF. Today one can trade on index based derivative Eg, National StockExchange (NSE) Index, a basket of 50 shares of listed Companies, that captures theirprice movement. You can buy an NSE Index ETF, just as you buy a share. The price isclose to the index, say Rs 5,000/-. It is traded as a mutual fund. Equity ETFs are listedon stock exchange ETFs may be attractive as investments because of their low costs,efficiency and stock like features.

ETFs are priced continually and can be bought or sold throughout the trading day.Buying/selling ETFS is as simple as buying/selling any other stock on the exchange.Other advantage of ETF is you can buy even one unit and hence take exposure in entireindex at very small amounts, viz Rs 500 aunit. Since the index is not that volatile as anindividual share, the profit margin may not be very high.

ETF can be bought/sold just by a call to the broker or through the internet tradingaccount. This provides investors the power to react swiftly to changes in the market andplace limit orders while trading, ETFs can be held in your DP account with the otherportfolio holdings.

Thus, with ETFs, one can benefit both from the flexibility of a stock as well as thediversification.

Uses

Due to unique structure of ETFs, all types of investors whether retail or institutional,long term or short term, can use it their advantage.

Individuals Corporate

Institutions Use it to build a long term core holding of equity by systematically investing in

various index funds like Nifty ETF, Nifty Junior ETFs, Nifty sharia ETF, bank ETFetc.

If bullish on market, just buy a index ETF and no need to do individual stockpicking.

8/13/2019 2-MBL-KA-Feb 11

9/18

8/13/2019 2-MBL-KA-Feb 11

10/18

Guidelines for Book Building

An issuer company proposing to issue capital through book building shall comply withthe following:

75% Book Building Process

In an issue of securities to the public through a prospectus the option for 75% bookbuilding shall be available to the issuer company subject to the following:

The option of book building shall be available to all body corporate which areotherwise eligible to make an issue of capital to the public.

The book - building facility shall be available as an alternative to, and to the extent ofthe perentage of the issue which can be reserved for firm allotment, as per theseguidelines.

The issuer company shall have an option of either reserving the securities for firmallotment or issuing the securities through book-building process.

The issue of securities through book-building process shall be separatelyidentified/indicated as placement portion category in the prospectus

The securities available to the public shall be separately identified as net offer to thepublic.

The requirement of minimum of 25% of the securities to be offered to the public shallalso be applicable.

In case the book building option is availed of, underwriting shall be mandatory to theextent of the net offer to the public.

8/13/2019 2-MBL-KA-Feb 11

11/18

KEY ANSWERS

M.B.L. PART II EXAM iG Beg. ~ 0 \LAW OF INSURANCE

1) a) Two parties, Premium, Risk, public policy, written form and all essential undersec 10 of Contract Act

b) Nature of Insurance Contract is yat bhavati tat nasyati, Insurable Interest, aleatory contract , contract of uberimma fide, contract of indemnity , not awager contract, special doctrines . Discussion of all these points under Life, Fire and Marine Ins with decided

cases .

2) page 138 139 of Modern Law ofInsurance by Murthy and Sarma, 4th Ed.

3) page 241 to 250 of - Modern Law ofInsurance by Murthy and Sarma, 4th Ed

4) - New India Assurance Company Ltd. v. s Zuari industries Ltd, (2009)9SCC 70(a) Whether flashover and fire was proximate cause of damage in question?

- flashover/fire which started chain of events which resulted in damage - It is evidentfrom chain of events that fire was efficient and active cause of damage.(b) Whether damages caused were covered under fire policy? - if proximate cause ofloss or destruction to any other including other machines, apparatus, fixtures, fittingsetc. or part of electrical installation is due to fire which is started in an electricalmachine or apparatus all such losses because of fire in other machinery or apparatus iscovered by Policy. As long as there is a fire which caused damage claim ismaintainable, even if fire is for a fraction of a second. In fire policy word used thereinis fire and not sustained fire . Repudiation of policy on ground that there was nosustained fire not justified.

-Not followed principle laid down in Everett Am. vs. The London Assurance

- Remedies under Consumer Protection Act, 1986- Jurisdiction/ Limitation

5) Section 45 ofInsurance Act of 1938

6) - Sec 135 ofTP Act- Assignment of the policy along with sale.- Reynor v Preston, (1881)

8/13/2019 2-MBL-KA-Feb 11

12/18

7

a) Consumer Forum Merits of Consumer Forum - Pecuniary Jurisdiction -

Territorial Jurisdiction- Imprisonment - Enforceability- Merits and Demerits Insurance Ombudsman Redressal of Public Grievances Rules, 1998; Merits and

Demerits.

b) Nomination -Sec. 39. IA 1938Married Women s Property Act 1874, sec.6

AssignmentLIC Insurance Act 1938 : See 38.Assignment and transfer of msurancepolicies and Married Women s Property Act 1874, sec.6

Fire Ins Sec135 ofTP Act, 1882 Marine Ins Sees. 17, 52 53 of MIA 1963

8/13/2019 2-MBL-KA-Feb 11

13/18

NATIONAL LAW SCHOOL OF INDIA UNIVERSITY , BANGALORE

M BL PART II SUPPLEMENTARY EXAMINATION (FEB ) 2011

Law Relating To Foreign Trade Answer Keys

1. a) Critically evaluate the concept of 'seaworthiness' under the Carriage of Goods bySea Act, 1925.

The carrier is required to provide seaworthy vessel to transport goods by sea.Therefore, the concept of seaworthiness plays a central role in the liabilityregime provided by the Hague Rules, 1923. The concept of seaworthinessgenerally means the ability of the ship to complete the voyage stipulated by thecontract of carriage. Falls within the ambit of this concept is the concept ofcargo worthiness of the ship. The latter expression refers to the kind of facilityto be provided by the carrier to transport specific type of goods. For example,

providing proper refrigeration system in case of perishable goods. Besides thisobligation is non-derogable one.

b) Discuss the nature of liability of the consignor for damages and expenses directlyor indirectly caused by shipment of dangerous goods under the Hague Rules.

Under Article IV of the Hague Rules, the carrier is entitled to claim damagesfor any loss suffered or damage caused due to the dangerous nature of thecargo. However, this right does not exist if the carrier had accepted the cargowith knowledge that it was dangerous. In the case of Effort Shipping Co., Ltd

(The Giannis NK ) case the court held that the words goods of dangerousnature were to be given a wide interpretation and were not restricted to goodswhich were liable to cause only direct physical damage.

2. Critically evaluate the liability of the air carrier for damage caused to the goods andpersonal injury caused to passengers under the (a) Warsaw Convention and (b) theamended Warsaw Convention.

Under Art.20 (2) of the Warsaw Convention, the carrier is not liable for damage tothe goods caused by negligent pilotage. The Hague Protocol (the amendedWarsaw Convention) 1955 abolished this dichotomy and the air carrier shall be

held liable, unless the carrier proves that he and his servants have taken allnecessary measures to avoid the damage.

Under the Warsaw Convention, the maximum compensation payable by a carrier is1,25,000 francs and this is doubled under the amended Warsaw Convention. Thecompensation payable with respect to the goods (i.e 250 francs per kilogram)remains the same.

8/13/2019 2-MBL-KA-Feb 11

14/18

3. A Multimodal transport operator (MTO) registered in India enters into a contractof carriage with a consignor to transport goods from Mumbai to Hamburg inGermany. The cargo was damaged in the course of carriage by sea due to themishandling of the cargo by the crew. Discuss the liability of multimodal transportoperator.

The issue in the present problem is whether the multimodal transport operator(MTO) shall be held liable for an act/negligence of the sea carrier under the IndianMultimodal Transportation of Goods Act, 1993. The MTO as per the Indian Act,enters into a contract of carriage in his own name and as principal. Therefore, hemust be considered as the principal contractual party to the contract. Thus, hisliability is independent of the liabilities of the carriers of the constituent segments.However, if it is clearly proved that the damage occurred in a particular segment,the legal regime of that segment will be applicable. In the present problem, factsare very clear that the damage was caused during sea carriage (COGSA). Underthe Carriage of Goods by Sea Act, 1925 the carrier is exempted from liability

because of nautical fault. So, it may not be fair to hold the MTO liable.

4. What is meant by 'nachfrist principle'? Discuss the scope of this concept under theVienna Convention on International Sale of Goods, 1980.

Under the principle of nachfrist of the CISG, 1980 a party to a contract may begiven additional period of reasonable length to perform his obligation. This right isavailable both to the seller as well as buyer under Articles 47 and 63 of the CISG,respectively.

The concept interalia underscores the ideal of the CISG that contractual obligationsshould be performed in good faith and parties shall resort to avoid the contract aslast resort. A successful application of nachfrist principle requires an unambiguousnotice by the party not in breach.

5. 'A', a seller entered into a contract with 'B', a buyer to supply certain quantity of silkmaterials from certain places in Mysore, quite well known for this purpose. Soonthereafter, because of a strange disease, the silkworms in that region perished in largescale. As a result, silk materials became scarce and the price doubled. Hence, 'A'could not supply the agreed quantity of silk materials. 'B' filed a suit against' A'.Discuss the liability of' A' under the Indian law (Indian Sale of Goods Act and the

Indian Contract Act) and the Vienna Convention on International Sale of Goods,1980.

The doctrines of frustration of contract and force majeure stand distinctlydifferent with respect to the legal effect of economic hardship. The CISG, in Art.79takes a lenient view of the economic situation. Here, the failure of A was due toan impediment beyond its control. Hence, A will not be liable.

8/13/2019 2-MBL-KA-Feb 11

15/18

a. The Common Law follows the doctrine of frustration of contract underwhich the issue is whether the contract is physically or legally possible to

perform, though it would impose undue hardship on the seller. So, A will be held liable.

6. Critically evaluate the definition of foreign arbitral award in India with specialreference to the commercial reservation clause.

In Kamani case, the Bombay High Court was of the opinion that technical andadvisory service contract did not qualify as commercial contract. This reasoningwas followed in the Indian Organic case by the same court. However, the IndianSupreme Court in R M Investment case favored a more flexible and broadinterpretation of the word Commercial based on the general legal perceptions inIndia (Art.301 of the Indian Constitution) and the explanation to the wordCommercial in the UNCITRAL Model Law on International CommercialArbitration, 1985 (footnote to Art.I)

7. Write short notes on:

a) Renusagar v. General Electric Company case;

In the Renusagars case, the Supreme Court held that the doctrine of public policy in the context of the NY Convention should be narrowly construed. Thedoctrine, hence, would encompass the fundamental law and policy of India, theinterest of India and justice and morality.

b) Right to cure under the CISG.

Right to cure is a concept recognized in the CISG, 1980. According to Art.34 ofthe Convention the seller may cure any lack of conformity in the documents ifhe had handed over documents before the stipulated time. But the seller cannotexercise this right if exercise of this right would inconvenience the buyer. The

buyers right to claim damages is not affected. Similarly, the seller may exercisethis right in connection with delivery of goods (Art.37), with similar conditions.

8/13/2019 2-MBL-KA-Feb 11

16/18

Strictly for nternal Purposes NLSIU 2 11 onfidential Page 1 of 3

NATIONAL LAW SCHOOL OF INDIA UNIVERSITYBANGALORE

MBL PART II SUPPLEMENTARY EXAMINATION (FEB) 2011TAXATION OF CORPORATIONS COMMODITIES

Key Hint Answers

Answer anv 4 QuestionsPART A

4 X ] 0 = 40 Marks

1. There are exceptions to income earned Previous Year is taxed in the Assessment Year as mentioned below:Shipping business of Non ResidentPersons leaving India during the current assessment year or shortly after its expiry and he has no present intention ofreturning to India.Individuals/AOP/BOI/AJP formed for a particular event/purpose likely to be dissolved in the same Assessment Yearin which it is formed or immediately after such assessment year, the Assessing Officer can make assessment of thetotal income of such person up to the date of dissolution.Persons likely to transfer the property to avoid taxDiscontinued business any sum received after the discontinuance shall be deemed to be the income of the recipientand charged to tax accordingly in the year of receipt.

2. Income tax does not define these terms. Hence the meaning depends upon natural meaning of concepts and decidedcases. Income is defined uls 2(24) of IT Act. Any income which is supposed to appreciate the capital is a capital income.Nature of income depends on the receiver, referencing to circulating capital and ordinary course of business, substance vform.

Income in disposition of fixed assets and in pursuanceof fixed capitalAutomatic increase in capital accumulationTo be credited in capital account

Not to be calculated in assessable income

receipt in substitution of a source of income

Revenue ReceiptEarned in usual course of business, henceregular in flowIncome in assistance with the workingcapital and current assetsNo increase in capital accumulationTo be credited in final profit and lossaccount

Chargeable under Income Tax Actreceipt in substitution of an income

amount received under an agreement ascomoensation for loss of future orofit

3. Broad Features of taxation of Companies under Income Tax Act are: Company has a separate legal entity and l imited liability. Corporate veil can be lifted if evade tax Residential status, classification (domestic and foreign) with flat rates, Avail carry forward and set off of losses in certain cases, tax incentives are provided for economic growth, tax avoidance, presumptive tax on book profits, MAT, Tonnage Tax, DDT, Withholding tax, TDS/TCS, etc.,

4. Salient features are mentioned below:Status Jurisdiction .5 OlA < 4 ..- Stttftt8 Jurisdiction

n-This is continental systemJurisdictional connection is the source of income

ion is the-Only income from domestic sources is taxedTerritorial rule ofjurisdiction follows schedular systemFrance and some middle east countries follow this method

-Economically advanced countries follow this method

8/13/2019 2-MBL-KA-Feb 11

17/18

Strictly for nternal Purposes

India follows mix of both the methods (hybrid)

NLSIU 2 onfidential Page of 3

5. Service tax is a central tax governed by Finance Act 1994 contained in Chapter V (sections 64-96) It is indirect tax levied on certain cervices and is a consumption based destination tax and value added tax.

(Service tax and Vat are mutually exclusive.). There is no separate statute

Constitutional Amendment 2003 inserted Article 268C and entry 92C in the seventh schedule of IndianConstitution

Payable by service provider except in few cases, tax is payable by service receiver, under reverse charge method. Governed and administered by CBECS and provides for voluntary self compliance by levy of flat rate on about

117 Taxable Services Service provider can avail cenvat credit of service tax paid on input services and excise duty paid on inputs and

capital goods. The credit can be utilised for payment of service tax on output services. Exemption from paying service tax is available to Small Service Providers, SEZ, services provided byRBI, etc.,

6. As per Section 2(f) of the CE Act provides inclusive definition (a process incidental/ancillary for completion of themanufactured product) understood based on judicial decisions. This is relevant for identifying the taxable event. In thecase Union ofIndia V. Delhi Cloth and General Mills Co. Ltd; SC ofIndia held Manufacture means:

a new and identifiable product must emerge identity ofthe original article should be lost

commercially it has to be different commodity.this test does not apply in case of deemed manufacture . Reference to deemed manufacture/produced.

PARTBAnswer v 4 Questions 4 X IO = 40 Marks

7. There are number of sources of tax laws; First source is the Basic Act, identified by title and year and sometimes also by number; Each Act establishes

basis of tax, who pays it, when payable, when and how it is collected and other details of the taxing authority. Then Constitution of India and its Articles having direct bearing on the tax statute. Other Acts (Companies Act, Partnership Act, LLP Act, Hindu and other Personal Laws, etc.,) which affect the

levy and incidence of tax. Judicial decisions published in AIR, tax law reports like ITR, etc., Decisions by Appellate Tribunal, CBDT, Settlement Commission, etc., Circulars issued by CBDT, both circulars and press notes reliable being indicative of official policy.

8. Wealth tax is on non-productive assets and tax rate is 1 on amount by which net wealth exceeds15 lakhs (currently 30 lakhs)Specific exemptions mentioned in Section 5

Any property held by assessee under trust/other legal obligation for any public purpose of charitable/religiousnature in India.

Interest in the coparcenary property of any HUF of which he is a member. One building in the occupation of a former ruler. Jewellery in the possession of a former ruler. Assets belonging to Indian Repatriates One house or a part of house belonging to an individual or HUF or a plot of land not exceeding 500 Sq meters. Any residential property, which has been let for a minimum period of 300days in a year is also exempted from

wealth tax

9. The provisions contained in Sections 245N to 245 V cefl~.al illthe Income Tax govern AAR. AAR is a quasi judicial authority with its Headquarters at Delhi. Central Government constitute AAR consisting

of one Chairman (retired Judge of SC of India) two other Members (one from IRS who is qualified to be amember of the CBDT and other from ILS or is qualified to be an Additional Secretary to the Government ofIndia.)

Mention qualified applicants to file applications before AAR(Section 245N(b) Ruling shall be binding as aforesaid unless there is a change in law or facts on the basis of which the advance

ruling has been pronounced on the applicant who had sought it; in respect of the transaction in relation to which

8/13/2019 2-MBL-KA-Feb 11

18/18

Strictly for nternal Purposes NLSIU 2 onfidential Page 3 of 3

the ruling had been sought; and on the Commissioner, and the IT authorities subordinate to him, in respect of theapplicant and the said transaction.

The procedure prescribed is simple, inexpensive, expedi tious and authoritative. (reference to application @Rs.2500. Applicant may withdraw application within ninety days from the date of application. AR shallpronounce the advance ruling within six months after the receipt of the application.)

10. The provis ions contained in Section 245A- 245M contained in the Income Tax based on the Wanchoo Commissionrecommendations govern sc.

Settlement Commission is a quasi judicial authority. Constituted by Central Government consisting of Chairman and as many Vice-Chairman and other members as

thinks fit. Bench for which Chairman is the Presiding Officer is called Principal Bench and other benches areAdditional Benches)

Reference to immunity from Prosecution Penalty, levy/waive of interest, impact of amendment 2007 FinanceAct

Application only in respect of case . Tax on undisclosed income should be above Rs 3 lakhs (currently it isother cases 10 lakhs and 50 lakhs in case of search cases)

Tax should be paid on or before making the applicat ion in the prescribed Form. Order of Settlement commission to be conclusive

11. The provisio~s contained in Section 144 contained in the Income Tax provides for Best Judgment Assessment~ exe assessment

Applicability-If a Person fails to make returns/revised return or has not made a return U/S 139 OR-fails to comply to the terms of notice/direction under 142 OR-having made return fails to comply with all terms of notice issued under section 143;AO after taking all relevant material which is gathered give opportunity of hearing toassessee makes assessment of Total Income/Loss to the best of his judgment anddetermines the sum payable on such terms. Opportunity is not required if u/s 142(1) priornotice to making of assessment.Types: Discretionary and Compulsory

Principles-involvement of guess work-assessment to be just, fairand non arbitrary-adhere to principles ofnatural justice

12. Brief Facts [2003] 263 ITR 706 (SC)/ [2003] 132 Taxman 373 (SC)- Agreement between Govt. of India and Govt. of Mauritius in respect of avoidance of double taxation and prevention

of fiscal evasion with respect to taxes on income and capital gains and for the encouragement of mutual trade and

investment. CBDT circular No. 621, 682 and 789Principles of Fiscal Residence, Treaty Shopping, Rule in McDowell; reference to report of the Working Group onNon-Resident Taxation, JPC ReportSC Held Circular is void and efficacious.Double taxation agreement between India and Mauritius is valid in law and attempt by resident of a third party to takeadvantage of existing provisions ofDTAC is per se not illegal

PARTCAnswer both Questions 2 X 20 = 20 Marks

13. Reference Case: Rosbanlal Oil Mills (P) Ltd V CCE (1998) (103) ELT 96] (1997 (94) ELT 230 (Tri) Del]Appeal to Collector (Appeals) dismissed; prepare memo to CEGATS condoned and grant exemption since not hisfault/negligence and satisfactorily explain the reasons for delay and filed the required Certi ficate. Should not bepenalized for the delay on part of Directorate. Not entitled to the benefit in respect of that quantity for which fai led to

produce the required Certificate. But avail in respect of that quantity for which produced the required Certificate.

14. Reference Case: Collector of Customs v. Sun Industries (1988)35 ELT 241(SC). Section 2(18) of Customs ActLucas TVS v Asst Collector (987)

Drawback is concerneq; exporter is entitled the moment the goods are loaded on ship in completion of theformalities and duty in connection tbere with is paid.

Proof that goods had reached a place outside India Unloading in a foreign port is not required to constitute 'export'