C.V.O. CA’S NEWS & VIEWS VOL. 21 NO. 11 / MAY 2018Overview of International Tax – CA Deepesh...

C.V.O. CA’S NEWS & VIEWS VOL. 21 NO. 11 / MAY 2018

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From the desk of Chairman

NEWS BULLETINCOMMITEE

ChairmanCA Dinesh Shah

Office BearerCA Sunil Dedhia

AdvisorCA Manoj Shah

ConvenorCA Harsh Dedhia

Jt. ConvenorCA Jigar Chheda

MembersCA Hitesh Pasad

CA Bhavin DedhiaCA Kaushik GadaCA Nikita GogriCA Sagar MaruCA Virav DedhiaCA Zalak Savla

Sp. InviteesCA Rakesh Vora

C O N T E N T S

ASSOCIATION NEWS

Forth ComingEvents ........................... 4

Events inRetrospect ..................... 4

A R T I C L E S

Land Mark Judgmentsand Pronouncementunder RERDA,2016 – Part I ............... 5

The Foreign ExchangeManagement (CrossBorder Merger)Regulations, 2018 –An Overview .................. 8

Around the World:Emphasis onSubstanceover Form ................... 13

LEGAL UPDATES

Direct TaxesUpdate ......................... 15

Updates onGST ............................. 16

Update on SEBI &Corporate Law ............. 17

FEMA Updates ............ 22

UnreportedDecisions –Income Tax .................. 24

What is compassion? It has two components. First, compassion means to put ourselves inanother person's shoes, and ask ourselves the following: "What if I were that person? Howwould I feel?" So, compassion means to develop an awareness of the suffering of anotherperson.Compassion has a second component. Once we have an awareness of the suffering, we mustrespond appropriately. To do nothing is not compassion. So compassion also means toembrace the "Golden Rule" - treat others as we desire to be treated. Never do to others whatwe would not like them to do to us.

On a more general level, compassion means to have genuine concern for all of humanity,not just our own tribe, such as spouse and children. Compassion also means to practicerandom acts of kindness and expect nothing in return.Finally, compassion means to believe in the dignity, respect, equality, justice of everyone. Itmeans to live peacefully and avoid engaging in violent behaviour, we can agree to disagree,and still live peacefully.We live in a world lacking in compassion. The sad reality of humanity is that the vastmajority of people ignore the suffering of others. Perhaps many turn a blind eye for theirown survival. Witnessing the suffering of another person can evoke raw emotion of fear orsadness or repulsion. Too often, people are detached or willfully blind.We often learn compassion only after we have suffered ourselves - perhaps experiencingsickness, accident, illness, job loss, marriage breakdown, death of a loved one, prejudice,discrimination, social scorn, bad luck.If we are unable to help, we must not make their plight worse.Why is there a lack of compassion in the world? Tribalism, individualism, secularism,religious extremism, social darwinism, greed, envy, popular culture, prejudice, racism,hatred, revenge, indifference, the capitalist economy contribute to the general lack ofcompassion. Living in a world focused on success, individualism, material possessions, fame,fortune, me…. doesn't help the cause. Utter greed. Where is the human touch? The sadreality of the free market, capitalist economy is that the corporations focus on maximizationof profits, too often at the expense of shattering personal lives. Even popular culturesocializes the masses to be self-focused.However when people are suffering, perhaps grieving a loss, it is often impossible to feelcompassion for others. The person who suffers focuses on fulfilling basic needs, such assurvival.

"The simplest acts of kindness are by far more powerful than a thousand heads bowing inprayer." - Mahatma Gandhi"Love and Compassion are necessities, not luxuries; without them, humanity cannotsurvive" - Dalai LamaTREAT OTHERS THE WAY YOU WANT TO BE TREATED - REMEMBER!!!! THE SOULIS ON A JOURNEY…(Extracts from an Essay on Compassion by Dave Hood published on Wordpress)

COMPASSION

VOL. 21 NO. 11 / MAY 2018 C.V.O. CA’S NEWS & VIEWS

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Compiled by :CA. Harsh DedhiaCA. Jigar Chheda

ASSOCIATIONNEWS

STUDENTS COMMITTEE

Event 2 DAYS NON RESIDENTIAL REFRESHER COURSEDate 5th & 6th June 2018, Tuesday & WednesdayVenue Chinchpokli MahajanwadiTopics FacultyOverview of International Tax – CA Deepesh ChhedaDiscussion paper on Direct Tax – CA Meghna ChhedaBusiness Etiquette and Communication Skills – CA Rita ShahPath to Success in CA exams – CA Pankti VeeraOverview of Companies Act – CA Deepa BansalDiscussion Paper on Indirect Tax – CA Nihar DharodTally as an Audit tool - – CA Darshan Shah

Fees Rs. 1000/- (inclusive of GST)

COMMITTEE YOUNG AND INDUSTRY MEMBERS COMMITTEEEVENT YOUTH RESIDENTIAL REFRESHER COURSEDate 9 th June 2018 and 10 th June 2018, Saturday and SundayVenue Upper deck , LonavalaFees Details will be announce in due course

STUDENTS COMMITTEE

Event Overview of TDS Provisions andIssues in TDS returns.

Date 18th April 2018, Wednesday

Venue D.R. Ghalla Memorial Hall, Dadar (E)

Speaker CA BhavikChandaria

Attendance 33 Students took the benefit

YOUNG AND INDUSTRY MEMBERSEMPOWERMENT COMMITTEE

Event Car Treasure Hunt

Date 22nd April 2018, Sunday

Start Point 5 Gardens, Matunga

to Juhu Chow patty

Remarks In all 51 Members including familymembers took benefit

FORTHCOMING EVENTS

EVENTS IN RETROSPECT

PROGRAM COMMITTEEEvent Program on Indian Equity MarketDate 3rd May 2018, ThursdaySpeaker CA Nilesh Shah - Impact of Economy

on EquitySudhanshuAsthana - Long Term andWealth Creation Opportunities.

Approximately 310 people attended the programand it was very well received by the audience.

CAPITAL MARKET COMMITTEE

Event Workshop on Basic ofFundamental Analysis of Stocks

Date 5th May 2018, Saturday

Venue Mysore Association Hall, Matunga (C.R.)

CA SudhirBheda Fundamental AnalysisCA Chunky Shah FA in Pharma SectorCA Navin Shah Art of Writing OptionRemarks In all 60 person reap the benefit


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RERDA, 2016 came into force from 1st May, 2016but in true sense majority sections were madeoperative from 1st May, 2017 includingRegistration of Projects and various compliancesthereunder.

We shall be witnessing 1st Anniversary of RERALaws in India on 1st May, 2018. Let us look backthe overall movement and progress ofimplementing RERDA across India. 20 States and7 Union Territories have notified the RERA LawsOut of 28 States and 7 Union Territories. 8 Statesare yet to notify the RERA Laws. Further manyStates notifying the RERA laws are yet to set uptransparent web site for the benefit of consumers.

Once again Maharashtra State has emerged asPioneer State to implement RERDA, 2016 in truespirit and aggressive mode. MahaRera haslaunched Web Site for online registration ofProjects and Agents, Online Complaint Processincluding filing Appeal before Tribunal, Quarterlyupdation of Projects, Correction of status of Projectsetc. However, till date Appellate Tribunal is not yetestablished but the task has been entrusted toMaharashtra Revenue Tribunal recently.MahaRera has moved one step further by formingConciliation Forum wherein both the parties cansettle their disputes amicably through conciliationprocess without undergoing complaint mechanism.

Maharashtra State has set up example andguidelines for all other State and Union Territoriesso far as regulating the affairs of Real EstateIndustry in transparent and speedy manner.

The following Statistical data shows the aggressiveoutlook of MahaRera Authority.a. Till date around 16,000 projects are registered

with MahaRera including 3000 New projects.Many Online Projects which had missed thedeadline of 31stJuly, 2017 for registrationhave been penalized from Rs.50,000/- to Rs.12,00,000/- for delay in registration.

b. There are almost 1025 Rulings/Decisions byMahaRera Authority till date whereby manybenchmark decisions are delivered.

c. There are nearly 230 Adjudication Orderpassed by Adjudicating Officer decidinginterest and compensation to home buyers fordelay in possession including refund of hardearned money of the consumer.

d. Tribunal has delivered around 20 judgmentstill date.

e. MahaRera Authority has passed 16 Suo Motoorders punishing various builders for notobserving rules and regulations whileadvertising their product by levying penaltyon developers ranging from Rs. 2 lakhs toRs. 50 lakhs.

f. Even mischievous Consumers are givendirections to pay due amounts to Promoter inthe interest of Real Estate Sector.

g. Agents are punished for not mentioningMahaRera number and web site address.

h. Huge penalties ranging from Rs.50,000/- toRs.50,00,000/-have been levied on thefollowing ground :-1. Not Registering On Going Project with in

stipulated time.2. Not putting MahaRera Project Number in

all modes of advertisements.3. Not mentioning MahaRera web site

address in all modes of advertisements.4. Non-compliance of directions issued by

MahaRera Authority.5. The wrong act of Architect issuing wrong

certificate of building completion havebeen referred to Institute for necessaryaction for misconduct by Architect.

i. MahaRera has set up two additional offices inDivision Pune and Nagpur for the convenienceof various stakeholders of Real Estate Sector.

j. Central Government has entrusted task of

LAND MARK JUDGMENTS ANDPRONOUNCEMENT UNDER RERDA, 2016

– PART I

Contributed by :CA Ashwin Shah(a member of the association)

he can be reached [email protected]


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regulating RERDA, 2016 for the UnionTerritories of Daman& Diu, Dadra NagarHaveli looking at the performance ofMahaRera Authority.

k. Gujarat and other States Rera Authority havefollowed various circulars, instructions, Formsand orders passed by MahaRera Authoritywhile drafting their Regulations and Rules.

MahaRera Authority has truly acted as aRole Model in implementation of RERDALaws. It is unfortunate that many otherStates have not taken up bold stand whileimplementing new emerging laws forpromotion and regulation of Real EstateSector. The Giant State like West Bengal hasnot even notified Rules to implement truespirit of law.

Currently Real Estate is undergoing recessionarytrend on account of various factors like :-

a. Huge Unsold Inventories.

b. Reduction in Purchasing Power of People onaccount of slowdown of economy.

c. Introduction and side effects ofDemonetization, GST and RERDA since lastquarter of 2016.

d. Deficiencies and inefficiency of ApprovalSystems and lack of Single window approvalresulting in delays in completion of Project.

e. Overburdened Courts and slow process ofJudicial system resulting in no faith in judicialsystem including delayed justice.

However, RERDA Laws intend to bridge variousgaps and perceptions of consumer from Real EstateSector. It is the political will of each State and itsbureaucrats that will decide the fate of RERDAlaws. Maharashtra State has proved that if thelaws are implemented in true spirit, it can bringback the lost confidence of consumer of Real EstateSector. Consumer of Maharashtra are luckyenough as now MahaRera Authority is fullyequipped with transparent web site , speedyredressal mechanism , threat of heavy penalties onPromoter etc. which will ensure that no Promoterwill indulge in any sort of Mal Practices which werecommonly noticed in past. Now customers can relaxas there is someone to hear their grievances and

ensure safety of their hard earned monies.

We shall discuss various Judicial Pronouncementsof High Court , Mumbai and Orders passed byMahaRera Authority during the course ofenforcement and implementation RERDA Laws.

Challenge to RERDA Laws on the ground ofConstitutional Validity of various Sections ofRERDA, 2016:-Many Writ petitions were filed by Promoters ofdifferent States against Union of India mainlychallenging the constitutional validity ofapplication of the RERDA, 2016 to the On GoingProjects along with other Sections under challenge.

Supreme Court transferred all these Petitions toHigh Court, Mumbai vide its order dated 4thSeptember , 2017.

The Extract of Apex Court Order dated 4thSeptember, 2017:-“For the present we feel that it would beappropriate to direct the High Court ofJudicature at Bombay to take up the mattersi.e. W.P. (L) Nos. 1967, 2010, 2011, 2023, 1965,2034, 4419, 4692 and 19157 of 2017 along withother connected matters, if any, pending inthe High Court, together.

We request the Chief Justice of the HighCourt of Bombay to assign the cases to aparticular Bench for expeditious decisions ofthe matters. Let matters be decided withintwo months.”

High Court Mumbai pronounced its detailed 330page Land mark Judgment on 6th December , 2017with Division Bench consisting of two judegesJustice Naresh Patil and Justice R G Ketkar.Eminent Senior Counsel put forward theirarguments in support of their respective claim .

Mr. Darius Khambata, Senior Counsel wasappointed as Amicus Curiae( Friend of Court )with Ms. Naira Jejeebhoy and Pheroze Mehta.

Summary of Matters and Points forconsideration before High Court , Mumbaiwere as under :-

a. It would be illegal, unreasonable, arbitraryand unconstitutional to compel the promoters


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of the ongoing projects to register their projectsunder RERA by applying provisions of RERAretrospectively.

b. RERA fails to take into account the pastagreements entered into between thepromoters and the allottees and the rights andliabilities arising and flowing from suchagreements entered into during MOFARegime.

c. Proviso to Section 6 for extension of Projectwhich restrict the period of extension to oneyear only, be declared as illegal, unreasonable,unconstitutional and contrary to the spirit ofthe provisions of Articles 14, 19(1)(g) and 20 ofthe Constitution.

d. Provisions of Section 8 i.e Revocation of Projectby Authority are unreasonable and adverselyaffects rights of the Promoters.

e. The Provisions of Section 18(1)(a) with regardto option given to allottee asking for Refund ofMoney with interest and compensation orinterest for delayed period in cases of delay inpossession , are highly arbitrary in nature.Their operation is retrospective / retro-active.Its application would seriously prejudice andaffect the rights of the promoter in carryingout trade and business. The provisions ofSection 18(1)(a) have been given retrospectiveeffect and are arbitrary.The penal provisionsare also unreasonable and unconstitutional asa person cannot be punished for the act doneby him prior to enacting the penal provision.The provisions are contrary to Article 20 of theConstitution.

f. Section 18(1)(b) which puts obligations onpromoter to refund the money of allottees inthe event of discontinuance of business orrevocation of Project are ultra vires of Article19(1)(g) of the Constitution and cannot besaved under Article 19(6) of the Constitution.

g. Validity of first Proviso to Section 3(1) puttingrestriction on Promoter not to indulge inmarketing without first getting registration ofProject, Section 3(2)(a) covering land areamore than 500 square meter or number ofapartment more than 8, Explanation toSection 3, Section 4(2)(l)(D) imposing

condition of depositing 70% or 100% of amountrealized from customers, challenged .

h. Validity of the Provisions of Section 22mentioning qualification of adjudicatingmember and Section 46(1)(b) specifyingqualification of Judicial Member of RERAchallenged.

i. Section 71 gives power to authority toadjudicate compensation but presence ofJudicial Member is necessary while exercisingthis powers.

There has been submissions of arguments andcounter arguments by referring variousjudgments of Apex Court and High Court bySenior Counsels on behalf of Promoter, Unionof India and even by Amicus Curiae ( Friend ofCourt ) .

Retrospective and Retroactive terminologieshave been discussed in length. The Courtfurther observed that Legislation i.eParliament has power to enact lawretrospectively or retroactively if it is in thelarger public interest. It is held thatregulation of Real Estate Sector is in theinterest of consumer which is main Preambleand intention while enacting new law “RERDA, 2016 “

We will discuss in Part II various arguments,counter arguments and final verdict of HighCourt, Mumbai while pronouncing thisjudgment detailed in 330 pages.

So keep looking for Next Article to becontinued in Part II…..

Heartiest Congratulationsto our CVOCA member,

CA VIRAV NITIN DEDHIA(Village – Nani Khakhar),

on being elected as “YUVAARAKSHIT MANAGING

COMMITTEE MEMBER”of Mulund KVO Samaj.CA Virav N. Dedhia

CONGRATULATIONS


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GLOSSARY

Abbreviations Full Form

“ECB” External CommercialBorrowings

“FEMA” Foreign ExchangeManagement Act

“JV” Joint Venture

“LRS” Liberialised Remittance Scheme

“NCLT” National CompanyLaw Tribunal

“ODI” Overseas Direct Investments

“RBI” Reserve Bank of India

“SNRR” Special Non-Resident Rupee

“WOS” Wholly Owned Subsidiary

INTRODUCTION

Accelerated globalization, increased internationalcompetition, scouting new market opportunities andgeographical diversification are giving leap tobusiness combinations on global level. Another majormotive for such combination is consolidation ofholdings either in India or in a foreign jurisdiction.The Companies Act, 2013 (herein referred to as “theAct”) read with Rule 25A of the Companies(Compromises, Arrangements and Amalgamations)Rules, 2016 (“Company Merger Rules”) permittedcross border mergers with effect from April 13, 2017.

Section 234 of the Act, interalia, states that “a foreign

THE FOREIGN EXCHANGE MANAGEMENT(CROSS BORDER MERGER)

REGULATIONS, 2018 – AN OVERVIEWcompany, may with the prior approval of the RBI,merge into a company registered under this Act or viceversa”.

In connection with above, RBI had issued draft crossborder regulations and after considering publiccomments, the Foreign Exchange Management(Cross Border Merger) Regulations, 2018 (“theRegulations”) have been notified vide NotificationFEMA 389/2018 RBI on 20th March, 2018.

It is pertinent to note that cross border mergerspending before the competent authority as on date ofcommencement of these regulations shall also begoverned by the Regulations.

IMPORTANT DEFINITIONS

a) ‘Cross Border merger’ means any merger,amalgamation or arrangement between anIndian Company and Foreign Company inaccordance with the Companies Act, 2013 and itsrules.

b) ‘Foreign Company’ means any company or bodycorporate incorporated outside India whetherhaving a place of business in India or not.

Explanation: For the purpose of outboundmergers, the foreign company should beincorporated in a jurisdiction specified inAnnexure B1 to Companies (Compromises,Arrangements and Amalgamation) Rules, 2016.

c) ‘Resultant Company’ means an Indian companyor a foreign company which takes over the assetsand liabilities of the companies involved in thecross border merger.

Contributed by :CA Jini Jain(a member of the association

she can be reached [email protected]

1 In case of outbound cross-border merger, a permitted jurisdiction will mean the resultant entity is located in a jurisdiction:(i) whose securities market regulator is a signatory to the International Organisation of Securities Commission’s Multilateral

Memorandum of Understanding (Appendix A Signatories) or a signatory to a bilateral Memorandum of Understanding with SEBI; OR(ii) whose Central Bank is a member of the Bank of International Settlements (BIS);

AND(iii) not identified in the public statement of the Financial Action Task Force (FATF) as:

a) a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which countermeasures apply; OR

b) a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developedwith the FATF to address the deficiencies.


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d) ‘Inbound Merger’ means a cross border merger where the resultant company is an Indian Company.

e) ‘Outbound Merger’ means a cross border merger where the resultant company is a Foreign Company.

PROVISIONS UNDER FOREIGN EXCHANGE MANAGEMENT (CROSS BORDER MERGER)REGULATIONS, 2018

Deemed RBI Approval

Any transaction undertaken in compliance with provisions of the Regulations shall be deemed to have priorapproval of RBI as required under Rule 25A of Company Merger Rules.

Further, a Certificate from the Managing Director/Whole Time Director and Company Secretary, if any,ensuring compliance to these Regulations shall be furnished along with the application made to NCLT.

Provisions for Inbound and Outbound Merger as per the Regulations

ILLUSTRATION OF INBOUND MERGER

Foreign Transferor Company

INBOUND MERGER

Liabilities &

Assets

Issue of Securities to Non-Resident Shareholders – FEMA Noti No. 20R

Transferred to Indian Transferee company subject to FEMA regulations

Indian Transferee Company

ILLUSTRATION OF OUTBOUND MERGER

Indian Transferor Company

OUTBOUND MERGER

Specified Jurisdictions

Liabilities &

Assets

Issue of Securities to Resident Shareholders – FEMA Noti No. 120 (ODI)

Transferred to Foreign Transferee company subject to FEMA regulations

Foreign Transferee Company


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Particulars Inbound Merger Outbound Merger

Conditions and Compliance of FEMA Regulations Compliance by person residentcompliance for issue including Inbound Investments, in India with ODI regulationsor transfer of security pricing guidelines, entry routes, concerning outbound investments onby the Resultant sectorial caps and reporting acquiring shares of a foreignCompany requirements. company.

Additional compliance is required Resident Individual can acquireregarding transfer of shares under securities of the resultant foreignODI Regulations where company provided the fair market1. The transferor Foreign Company value of foreign securities is within

is a JV or WOS of the the limits prescribed under the LRSIndian Company. (currently, USD 250,000 per

2. The merger results in financial year).acquisition of a step-downsubsidiary of JV/WOSoutside India.

Any Office of Any office outside India of the Any office in India of the IndianTransferor Company foreign company will be deemed company will be deemed to be branch

to be branch office outside India office in India of resultantof the resultant Indian company. Foreign Company.

Guarantees /borrowings The guarantees or borrowings of The guarantees or borrowings ofof transferor company foreign company from overseas Indian company which become the

which become the liabilities of liabilities of the Resultant ForeignResultant Indian Company Company shall be repaid as per theshould comply with the relevant Scheme sanctioned by NCLT.FEMA Regulations relating toECB or trade credit norms or The foreign company shall notother foreign borrowing norms. acquire any liability payable towards

Indian lender in Rupees which is not Compliance should be made in conformity FEMA or its

within 2 years. regulations. NOC to this effectshould be obtained from the Indian

No remittance for repayment lenders.should be made from Indiawithin these 2 years.

It is mentioned that conditionswith respect to end useshall not apply.

Acquisition/Holding of Resultant Indian Company is Resultant Foreign Company isany assets of the permitted to acquire and hold permitted to acquire and hold anyTransferor Company asset outside India to the extent asset in India to the extent permitted

permitted under FEMA guidelines. under FEMA guidelines. Any asset or security not Any asset or security not permitted


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permitted to be acquired or held to be acquired or held under FEMAunder FEMA guidelines should be guidelines should be sold within 2sold within 2 years from the date years from the date of sanction of theof sanction of the Scheme by NCLT. Scheme by NCLT.

Proceeds should be repatriated to Proceeds should be repatriatedIndia immediately on sale of assets. outside India immediately on

sale of assets. Where liability is not permitted

to be held under FEMA regulations, The sale proceeds can be utilizedthe liability can be repaid from for repayment of Indian liabilitythe sale proceeds within 2 years. within 2 years.

Opening of Bank The resultant Indian company The resultant foreign company mayAccounts in the can open a bank account in foreign open a SNRR Account in accordancecountry of currency in the overseas with FEMA Regulations for theTransferor Company jurisdiction for the purpose of purpose of putting through

putting through transactions transactions related to the crossrelated to the cross border border merger for maximum 2 yearsmerger for maximum 2 years from the date of sanction of thefrom the date of sanction of Scheme by NCLT.the Scheme by NCLT.

Valuation The valuation of the Indian company and the foreign company shall be donein accordance with Rule 25A of the Companies Rules, i.e. based oninternationally accepted principles on accounting and valuation.

Compensation Compensation by the resultant company, to a holder of a security may be paidin accordance with the Scheme sanctioned by NCLT.

Regularization of The companies shall ensure that regulatory actions, if any, prior to merger,Contraventions with respect to non-compliance, contravention, violation, as the case may be,

of the Act or the Rules or the Regulations shall be completed.

Reporting Compliance The resultant company and/or the companies involved in the cross bordermerger shall be required to furnish reports as may be prescribed by theReserve Bank, in consultation with the Government of India.

Certain ISSUES to be considered

1) Lack of parity in the definition of Cross border mergerUnder FEMA Regulations, the definition of cross border merger includes merger, amalgamation as well asarrangement (typically would include demergers). However, the Company Merger rules and section 234 ofthe Companies Act, 2013 only refers to “mergers and amalgamation” without any express mention ofdemergers/arrangements. The Companies Act is the main legislation governing merger and amalgamationand hence prima facie whether cross border demergers and other forms of arrangement are permitted is notclear.2

2 It is pertinent to note that the recently the board of Sun Pharmaceuticals Industries Ltd on 14th November, 2017 has approved inbounddemerger from its UAE Subsidiary to Sun Pharmaceuticals Industries Ltd and had filed application for approval to the NCLT and the RBIunder section 234 of the Companies Act. It will be interesting to see how the arrangement will be dealt with by the NCLT and RBI.


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2) Branch Office in an Outbound Merger

In case of an Outbound Merger, any office of the Indian Company shall be deemed to be a branch officeof the Foreign Resultant Company in India and it will have to comply with the Foreign ExchangeManagement (Establishment in India of a branch office or liaison office or a project office or any other placeof business). Accordingly, it will be able to carry on only permissible activities in India under the FEMA.

3) Tax Exposure in an Outbound Merger

As per Section 47(vi) of the Income Tax Act, transfer of a capital asset in a scheme of amalgamation, wherethe amalgamated (i.e transferee) company is an Indian Company is exempt from capital gains. Accordingly,transfer of a capital assets where the resultant company is a Foreign Company may have tax impact.

As per Section 47(vii) of the Income Tax Act, transfer of shares of the amalgamating company and wherethe amalgamated (i.e transferee) company is an Indian Company, the same shall be exempt from capitalgains. Accordingly, shareholders of amalgamating company in case of an Outbound Merger may be subjectto tax.

Further, in an Outbound merger, when there is an issue of shares to shareholders of the Indian Company,tax impact in the hands of such shareholders according to Section 56(2)(x) of Income Tax Act should alsobe analysed.

Also in case of Outbound merger there is a risk that foreign resultant company may be considered to havea Permanent Establishment (“PE”) in India on account of Indian business acquired pursuant merger.Similar implications may arise in foreign jurisdiction in case of Inbound merger.

CONCLUSIONThis is a welcome move for all the multinational corporations seeking to enter into mergers and acquisitions.Itwill pave way for restructuring the landscape of Indian companies who will be able to facilitate expansion withoutbound mergers. This is ofcourse subject to the host jurisdiction of such a foreign company permitting suchschemes with an Indian company. Inclusion of the deemed approval of RBI on fulfilment of the conditions of theRegulations would expedite the process.One may also have to analyse impact of Income tax and Indirect taxesif any involved in such transactions. The notification does bring clarity to some extent and aligns the CompaniesAct provisions with FEMA provisions. However, the way the regulations are made effective and how theproposals are sanctioned by NCLT amidst the complexities will be worthwhile to observe.

FOR ATTENTION OF MEMBERS/SUBSCRIBERS Members are requested to come forward and contribute their articles

in CVO CA’s News & Views, the mouthpiece of our Association. BestArticle contributed by new comer shall be awarded with aspecial prize.

While sending Articles for News & Views, please confirm that thesame are not published/not given for publishing elsewhere. Nocorrespondence shall be made in respect of Articles notaccepted for publication; nor will they be sent back.

The views and opinion expressed or implied in the News andViews are those of the authors and do not necessarily reflectsthose of the association. The opinion expressed herein should notbe construed as legal or professional advice. Neither theAssociation nor the authors/contributors are responsible in anymanner for any personal or professional liability arising due to thedecisions taken by readers on the basis of these views. Theassociation is also not in any way responsible for the result of anyaction taken on the basis of the advertisement published in thejournal.

This is “YOUR” magazine. Please give your feedback/suggestions etc. Kindly intimate change of your address bysending the necessary intimation to the Associations’ Office.

Non receipt of News & Views may be intimated to :CA Harsh Dedhia - 9892444121Email Id - [email protected]

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Members are requested to register themselves to CVO CA YahooGroup by sending E-mail to “[email protected]” to quickly receive the latestupdates and communication from the Association.


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AROUND THE WORLD: EMPHASIS ONSUBSTANCE OVER FORM

The last decade or so have seen tremendous “tax activism” with efforts by various countries to safeguard theirtax bases against the aggressive tax planning measures adopted by multinational companies. The famous“Double Irish” structure used by the American tech giants to avoid paying taxes in any country despitehumungous profits, turned many heads. In the wake of increasing tax avoidance, the Base Erosion and ProfitShifting (BEPS) project was taken up by the OECD to come up with action plans that recommended antiavoidance measures.

Two of the major concerns expressed in the BEPS Action Plans are those of taxation of the Digital Economy(Action Plan 1) and Artificial Avoidance of Permanent Establishment (Action Plan 7). With the world goingdigital and all transactions – from sale of goods to provision of services to licensing of rights to advertising –happening on the web without any physical presence, the Facebooks and Amazons of the world are conductingtheir businesses in nearly all countries and creating substantial value therefrom without paying significanttaxes anywhere. The existing tax regimes, which tax the physical presence in a country, are not equipped toignore the form and look at the substance of these transactions, resulting in significant tax leakages. The BEPSAction Plan 1 makes several recommendations to tackle this exact issue.

Even in case of businesses which do have a physical presence in another country for carrying out their businessactivities in that country, the transactions are structured in such a way so as to avoid the creation of aPermanent Establishment (PE) in that country, thereby escaping tax on the business profits. The operationsin the other country are artificially sliced into smaller activities undertaken by different legal entities belongingto the same group so as to take advantage of the exclusions from the definition of PE in respect of preparatoryand auxiliary activities. Once again, the tax laws cannot normally disregard the form in which thesetransactions are undertaken through separate legal entities to deal with the substance of the transaction. BEPSAction Plan 7 attempts to help address this issue.

Although the final BEPS Action Plans were released after several deliberations in 2015, countries across theworld have been quick to adopt a few measures to tackle some of the tax avoidance problems glaring in theirfaces, especially relating to Digital Economy and Artificial Avoidance of PE. Some of these measures are asunder –

A] Diverted Profit Tax –Diverted Profit Tax (DPT) seeks to attack double non-taxation by taxing profits which are considered tobe diverted from one country to another, either through use of a structure to artificially avoid the creationof a PE or through use of ‘dummy’ entities that lack economic substance, located in low tax jurisdictions.The image illustrates on next page such cases -

While the objective of DPT may be to deal with double non-taxation, since it is implemented by countriesunilaterally, through their domestic tax laws, it could very well result in double taxation.

United Kingdom was the earliest adopter of DPT, implementing it from April 2015, impacted significantlyby the paltry taxes paid by Google and other tech companies despite generating substantial revenues fromthe UK. In November 2016, France also sought to bring DPT with effect from 1st January 2018. The samewas, however, struck down by the constitutional court of France in December 2016. Further, Australiaintroduced DPT with effect from 1st July 2017. The Australian DPT albeit is much wider in scope, also

Contributed by :CA Namrata Dedhia(a member of the association)



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applying to cases where the principal purpose or one of the principal purposes of the transaction is toobtain tax benefit.

Source: www.knect365.com

While India has not introduced a separate tax a la DPT, the provisions of Section 9(1)(i) have beenamended vide Finance Act 2018 to address the issue of artificial avoidance of PE / business connectionto some extent. Another amendment in the form of Explanation 2A to section 9(1)(i) has expanded thescope of business connection to include “Significant Economic Presence” (SEP) which seeks to rope insituations where a physical presence is avoided through use of technology and yet the digital activitiesof the foreign companies are significant enough to create a taxable presence.

B] Digital Tax –Digital Tax or Equalisation Levy is a recommendation of BEPS Action Plan 1, to tackle the taxation issuesarising from the advent of digitalization of businesses. It seeks to tax the revenues of entities, whichconduct their businesses in other countries digitally.

Identifying the potential tax losses from growing e-commerce activities and digital transactions, India wasquick to embrace the recommendation by introducing a 6% Equalisation Levy in Finance Act 2016 ononline advertisement services and certain related services. The scope of this Levy has however not beenfurther expanded since.

In addition to DPT, Australia also levies 10% GST on digital products and imported services in certaincases. Further, Japan charges consumption tax at 8% on digital services provided by foreign suppliers.Most recently, the European Union has proposed a digital tax, also nicknamed as ‘GAFA’ tax, to counterthe tax evasions by Google, Apple, Facebook, Amazon and other tech giants.

With digitalization of business, the need for physical presence is done away with. This has challenged theexisting tax systems by eroding the tax base and impacting tax collections of consumer countries. Add to thatthe eyebrow-raising tax planning by some large multinationals, has resulted in near non-taxation of thesecompanies, causing governments to squirm. Backed by the BEPS Action Plans, countries are increasinglyexpected to implement aggressive measures to claim back their “fair” share of taxes. It is the unilateral action,however, that will lead to double taxation, increased costs and heavy tax litigations across countries.


15

1. DIRECT TAXESUPDATE

Compiled by :CA Haresh P. Kenia

LEGAL UPDATES /DECISIONS

SECTION 92CA OF THE INCOME-TAXACT, 1961 - TRANSFER PRICING -ADVANCE PRICING AGREEMENT (APA)- INDIAN ADVANCE PRICINGAGREEMENT REGIME MOVESFORWARD WITH SIGNING OF 16 APAsBY CBDT IN MARCH, 2018

CBDT PRESS RELEASE, DATED 3-4-2018

The Central Board of Direct Taxes (CBDT) hasentered into 14 Unilateral Advance PricingAgreements (UAPA) and 2 Bilateral AdvancePricing Agreements (BAPA) during the monthof March, 2018. The 2 bilateral APAs havebeen entered into with the United States ofAmerica. With the signing of theseAgreements, the total number of APAs enteredinto by the CBDT has gone up to 219. Thisincludes 199 Unilateral APAs and 20 BilateralAPAs. A total of 67 APAs (9 Bilateral and 58Unilateral) have been signed in the F.Y.2017-18.

The 16 APAs entered into during March, 2018pertain to various sectors of the economy likeTelecommunication, Information Technology,Automobile, Pharmaceutical, Beverage,Trading, Manufacturing and Banking,Finance & Insurance. The internationaltransactions covered in these agreementsinclude payment of royalty fee, provision ofbusiness support services, provision ofcorporate guarantee, contract manufacturing,provision of marketing support services,provision of engineering design services,provision of engineering support services,merchanting trade of agro commodity, import/export of components, provision of IT services,provision of IT enabled services, provision ofinvestment advisory services, availing oftechnical services, etc.

INCOME-TAX (SECOND AMENDMENT)RULES, 2018 - AMENDMENT IN RULE 12AND SUBSTITUTION OF FORM SAHAJ(ITR-1), FORM ITR-2, FORM ITR-3, FORMSUGAM (ITR-4), FORM ITR-5, FORM ITR-6, FORM ITR-7 & FORM ITR-V

NOTIFICATION NO. GSR 332(E) [NO.16/2018 (F.NO.370142/1/2018-TPL], DATED 3-4-2018

The CBDT has notified the Income Tax ReturnForms (ITR) - Form Sahaj (ITR-1), Form ITR-2, Form ITR-3, Form Sugam (ITR-4), FormITR-5, Form ITR-6, Form ITR-7 for theAssessment Year 2018-19.

SECTION 16 OF THE INCOME-TAX ACT,1961 - SALARIES - STANDARDDEDUCTION - CLARIFICATION ONAPPLICABILITY OF STANDARDDEDUCTION TO PENSION RECEIVEDFROM FORMER EMPLOYER

CBDT PRESS RELEASE, DATED 5-4-2018

Finance Act, 2018 has amended Section 16 ofthe Income-tax Act, 1961 ("the Act") to providethat a taxpayer having income chargeableunder the head "Salaries" shall be allowed adeduction of Rs. 40,000/- or the amount ofsalary, whichever is less, for computing histaxable income.

Representations have been received seekingclarification as to whether a taxpayer, whoreceives pension from his former employer,shall also be eligible to claim this deduction.

The pension received by a taxpayer from hisformer employer is taxable under the head"Salaries". Accordingly, any taxpayer who is inreceipt of pension from his former employershall be entitled to claim a deduction of Rs.40,000/- or the amount of pension, whicheveris less, under Section 16 of the Act.


16

2. UPDATE ONGST

Compiled by :

NOTIFICATIONS - CENTRAL TAX :

Notification No. 21/2018-CENTRAL TAX-DATED 18th April, 2018Vide this notification following Rules areamended in The Central Goods and Services TaxRules, 2017.

Rule 89(5): This sub rule is newly substituted.Under the Sub rule, formula is prescribed in thecase of refund on account of inverted dutystructure. Now new formula is prescribed toinclude grant refund in case of inverted dutystructure for services also which hitherto wasrestricted for goods only.

Rule 97: The rule is newly substituted and sameis related to Consumer Welfare fund.# Minor amendment is made to Form GST ITC -03 for calculating the value of capital goods.# Form GSTR-10 is prescribed of Final return.Every registered person whose registration iscancelled is required to furnish a final returnwithin three months of the date of cancellationor date of order of cancellation, whichever islater.

CIRCULARS : CGST : Circular No. 40/14/2018-GST-dated 6th

April, 2018.In the Circular following clarification on issuesrelated to furnishing of Bond/Letter ofUndertaking for exports are given:

* The Exporters shall fill and submit FORM GSTRFD-11 (online LUT) on the common portal. AnLUT shall be deemed to be accepted as soon as anacknowledgement for the same, bearing theApplication Reference Number (ARN), isgenerated online.

* No document needs to be physically submittedto the jurisdictional office for acceptance of LUT.

* If it is discovered that an exporter whose LUThas been so accepted, was ineligible to furnishan LUT in place of bond as per Notification No.37/2017-Central Tax, then the exporter's LUT

CA Bharat K. GosarCA Nitin D. Kenia

Our Association's mouthpiece "News & Views" hasreadership circulation of more than 1400 CharteredAccountant and Student members. We have nowstarted accepting advertisement for staff vacancy.In case you have any vacancy at your office or atany of your client for qualified CharteredAccountants or Students or any administrative job,we will publish your requirement in the Journal. Thiswill be at very nominal cost of Rs. 1,500 for quarterpage advertisement per issue. We will be takingadvertisement on first cum first serve basis.

Kindly contact CVO CA Office on+91-22-24105987 for more details.

SECTION 80-IAC OF THE INCOME -TAXACT, 1961 - DEDUCTIONS - IN RESPECTOF SPECIFIED BUSINESS - STARTUPINDIA - SUPERSESSION OFNOTIFICATION NO. GSR 501(E)[F.NO.5(91)/2015-BE-I], DATED 23-5-2017NOTIFICATION NO. GSR 364(E)[F.NO.5(4)/2018-SI], DATED 11-4-2018

Detailed instructions for claiming deduction bystart-up has been notified as per abovecitation.

SECTION 139A OF INCOME TAX ACT,1961 - PERMANENT ACCOUNT NUMBER-REQUIREMENT FOR OBTAINING PANCARD UNDER SECTION 139A EASEDFOR CORPORATE ASSESSEESCBDT PRESS RELEASE, DATED 14-4-2018

In case of a company, an application forIncorporation, allotment of PermanentAccount Number (PAN) and allotment of TaxDeduction and Collection Account Number(TAN) may be made through a CommonApplication Form submitted to the Ministry ofCorporate Affairs (MCA). In these cases, theCertificate of Incorporation (COI) issued byMCA contains a mention of both PAN andTAN.

Finance Act, 2018 amended section 139A ofthe Income-Tax Act, 1961 and removed therequirement of issuing PAN in the form of alaminated card. Hence, it is clarified that PANand TAN mentioned in the COI issued by MCAshall also be treated as sufficient proof of PANand TAN for the said company assessees.


17

will be liable rejection. In case of rejection, theLUT shall be deemed to have been rejected abinitio.

Circular No. 41/15/2018-GST-dated 13thApril, 2018.Section 68(1) of the CGST Act, 2017 stipulatesthat the person in charge of a conveyancecarrying any consignment of goods of valueexceeding a specified amount shall carry withhim the documents and devices as prescribed inthis behalf. The Circular in details explains theprocedure for interception of conveyances forinspection of goods in movement, and detention,release and confiscation of such goods andconveyances.

Circular No. 42/16/2018-GST-dtaed 13thApril, 2018.The Circular in details gives clarificationregarding procedure for recovery of arrearsunder the existing law ( i.e. central excise duty/service tax and CENVAT credit thereof,CENVAT credit carried forward erroneously andrelated interest, penalty or late fee payablearising as a result of the proceedings ofassessment, adjudication, appeal etc.).

Circular No. 43/17/2018-GST- dated 13thApril, 2018.Circular No. 36/10/2018-GST-dated 13thMarch,2018 dealt with Processing of refundapplications for entities having Unique IdentityNumber. This circular has further clarifiedregarding processing of refund application forUIN Agencies.

Circular No.44/18/2018-CGST-dated 2ndMay, 2018.The Circular in details has dealt with Issuerelated to taxability of 'tenancy rights' underGST.

ORDERS : CGST: Order No. 2 /2018 - GST- dated 31st March,

2018.For bringing uniformity in the rate of GSTapplicable for all kinds of supply of food anddrinks made available in trains, platforms orstations, it is clarified that the GST rate onsupply of food and/or drinks by the IndianRailways or Indian Railways Catering andTourism Corporation Ltd. or their licensees,whether in trains or at platforms (static units),will be 5% without ITC.

3. UPDATE ONSEBI ANDCORPORATELAWCompiled by : CA. Rajen GadaCA. Neha Gada

SEBI

A. REGULATIONS:

1. Securities Contracts (Regulation) (StockExchanges and Clearing Corporations)(Amendment) Regulations, 2018

[Issued by the Securities and Exchange Board ofIndia vide Circular No. LAD-NRO/GN/2018/04dated April 02, 2018]

Clearing Corporation, with regard to CommodityDerivatives, will be required to guarantee forsettlement of trades including good delivery.

2. Securities and Exchange Board of India(Foreign Portfolio Investors) (Amendment)Regulations, 2018

[Issued by the Securities and Exchange Board ofIndia vide Circular No. SEBI/LAD-NRO/GN/2018/05 dated April 05, 2018]

SEBI (Foreign Portfolio Investors) Regulations,2014 has been amended in regards to the someof the following regulations:i. Category I foreign portfolio investor as

eligibility for registration;ii. Non applicability of this regulation for

Category I or Category II foreign portfolioinvestor; and

iii. Result of Exit of some investors from a broadbased fund.

B. MASTER CIRCULAR

1. Master Circular for Debenture Trustees(DTs)[Issued by the Securities and Exchange Board ofIndia vide Circular No. SEBI/HO/MIRSD/DOP2/CIR/P/2018/0000000063 dated April 09, 2018]

This Master Circular is a compilation of thecirculars/communications issued by SEBI up toMarch 31, 2018.


18

The Master Circular is a compilation of all theexisting/applicable circulars issued by theMarket Intermediaries Regulation andSupervision Department of SEBI to DebentureTrustees.

C. CIRCULARS

1. Risk Management norms for commodityderivatives

[Issued by the Securities and Exchange Board ofIndia vide Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2018/52dated March 21, 2018]

SEBI has provided following risk managementnorms in detail for commodity derivatives:

1. Minimum Liquid Net-worth and BaseMinimum Capital

2. Acceptance of Fixed Deposit Receipts(FDRs) as collateral

3. Margin provisions for intra-day crystallisedlosses.

2. Due diligence and reporting requirementsunder Foreign Account Tax ComplianceAct (FATCA) and Common ReportingStandards (CRS)

[Issued by the Securities and Exchange Board ofIndia vide Circular No.IMD/FPIC/CIR/P/2018/53 dated March 21, 2018]

This is in continuation of SEBI circulars No.CIR/MIRSD/2/2015 dated August 26, 2015 andNo. CIR/MIRSD/3/2015 dated September 10,2015 wherein SEBI has informed allintermediaries regarding due diligence andreporting requirements under Rules 114F to114H of the Income-Tax Rules and GuidanceNote on FATCA and CRS issued by theCBDT, New Delhi, vide F.No.500/137/2011-FTTR-III dated August 31, 2015.

The same is available at https://www.sebi.gov.in/legal/circulars/mar-2018/due-diligence-and-reporting-requirements-under-foreign-account-tax -compl iance -ac t - fa tca -and-common-reporting-standards-crs-_38339.html

3. Circular on Prevention of UnauthorisedTrading by Stock Brokers

[Issued by the Securities and Exchange Board ofIndia vide Circular No. SEBI/HO/MIRSD/DOP1/CIR/P/2018/54 dated March 22, 2018]

A consolidated Master Circular is issued toprovide requirements / obligations with regard toPrevention of Unauthorised Trading by StockBrokers prescribed under different circulars.

4. Investor Grievance Redress Mechanism -New Policy Measures

[Issued by the Securities and Exchange Board ofIndia vide Circular No. SEBI/HO/OIAE/IGRD/CIR/P/2018/58 dated March 26, 2018]

Vide the above stated circular SEBI has stated arevised procedure for filing and redressing theinvestor grievances using SCORES, Effectivefrom August 01, 2018.

1. Investors who wish to lodge a complaint onSCORES are requested to registerthemselves on www.scores.gov.in by fillingin the basic details.

2. Upon successful registration, a uniqueuser id and a password shall becommunicated to the investor through anacknowledgement email / SMS.

3. The complainant may use SCORES tosubmit the grievance directly tocompanies / intermediaries and thecomplaint shall be forwarded to the entityfor resolution. The entity is required toredress the grievance within 30 days,failing which the complaint shall beregistered in SCORES

4. In order to enhance ease, speed & accuracyin redressal of investor grievance, theinvestor may lodge a complaint on SCORESwithin three years from the date of cause ofcomplaint, where the investor is not statisfidwith resolving of its complaint.

5. Orders per second limit and requirement ofempanelment of System Auditors foralgorithmic trading in commodityderivatives

[Issued by the Securities and Exchange Board ofIndia vide Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2018/60 dated April 03, 2018]


19

Exchange shall ensure a particular limit on thenumbers of orders per second from a particularCTCL ID/ATS User-ID. It has also been decidedto do away with the requirement ofempanelment of System Auditors by theexchanges for system audit of algorithmictrading.

6. Monitoring of Foreign Investment limits inlisted Indian companies

[Issued by the Securities and Exchange Board ofIndia vide Circular No. IMD/FPIC/CIR/P/2018/61dated April 05, 2018]

FEMA prescribes the various foreigninvestment limits in listed Indian companies.These include the aggregate FPI limit, theaggregate NRI limit and the sectoral cap. TheRBI Master Direction (FED Master DirectionNo. 11/2017-18) dated January 04, 2018provides a compilation of the instructions issuedon Foreign Investment in India and its relatedaspects under FEMA.

SEBI in consultation with RBI has decided toput in place a new system for monitoring theforeign investment limits under this circular.The new system for monitoring foreigninvestment limits in listed Indian companiesshall be made operational on May 01, 2018.

7. Measures to strengthen AlgorithmicTrading and Co-location / ProximityHosting framework

[Issued by the Securities and Exchange Board ofIndia vide Circular No. SEBI/HO/MRD/DP/CIR/P/2018/62 dated April 09, 2018]

SEBI and Secondary Market AdvisoryCommittee (SMAC) of SEBI has decided tointroduce the following measures in connectionwith algorithmic trading and co-location /proximity hosting framework facility offered bystock exchanges:a. Managed Co-location Serviceb. Measurement of Latency for Co-location

and Proximity Hostingc. Free of Charge Tick-By-Tick Data feed

(TBT Feed)d. Penalty on Order to Trade Ratio (OTR)e. Unique Identifier for Algorithms / Tagging

of Algorithms

f. Testing Requirement for Software andAlgorithms

8. Clarification on clubbing of Investmentlimits of Foreign Government/ ForeignGovernment related entities

[Issued by the Securities and Exchange Boardof India vide Circular No. SEBI/HO/IMD/FPIC/CIR/P/2018/66 dated April 10, 2018]

SEBI has clarified on the clubbing of investmentlimits to be applied to Foreign Government/ itsrelated entities under this circular. Few of themare mentioned below in this regard:a. Investment limit as Foreign Portfolio

Investors (FPI)b. Investor groupc. Can two or more Foreign Government

related entities can be permitted toacquireequity shares in an Indian companyup to the prescribed limit of 10%.

d. Investment by a Foreign GovernmentAgency

e. Should World Bank group entity viz.IBRD,IDA, MIGA and IFC be clubbed with theinvestment from a Foreign Governmenthaving ownership in such World Bankgroup entity.

f. Separate investment funds by Provinces/States of some countries with federalstructure shall not be clubbed.

g. Consequences of breach of the permissiblelimit

9. Know Your Client Requirements forForeign Portfolio Investors (FPIs)

[Issued by the Securities and Exchange Board ofIndia vide Circular No. CIR/IMD/FPIC/CIR/P/2018/64 dated April 10, 2018]

SEBI has made certain amendments to KnowYour Client (KYC) requirements of eligibleForeign investors classified as category I, II andIII investing under Portfolio Investment Scheme(PIS) route.

10. Performance disclosure post consolidation/Merger of Schemes

[Issued by the Securities and Exchange Board of


20

India vide Circular No. SEBI/HO/MRD/DP/CIR/P/2018/67 dated April 12, 2018]

In case where there is consolidation / merger ofschemes the performance of the retainedschemes needs to be provided.

11. Investments by FPIs in Government andCorporate Debt Securities[Issued by the Securities and Exchange Board ofIndia vide Circular No. SEBI/IMD/FPIC/CIR/P/2018/70 dated April 12, 2018]

SEBI has in terms of AP DIR Circular of RBI,revised the Corporate Debt investment limitsand limits of longer term FPIs in GovernmentSecurities and State Development Loans.

12. Guidelines for issuance of Debt Securitiesby Real Estate Investment Trusts (REITs)and Infrastructure Investment Trusts(InvITs)"

[Issued by the Securities and Exchange Board ofIndia vide Circular No. SEBI/HO/DDHS/DDHS/CIR/P/2018/71dated April 13, 2018]

SEBI has provided guidelines for issuance ofDebt securities, such securities to be issued bySEBI (Real Estate Investment Trusts)Regulations, 2014 ("REIT Regulations") andSEBI (Infrastructure Investment Trusts)Regulations, 2014 ("Inv IT Regulations") underthe provisions of SEBI (Issue and Listing of DebtSecurities Regulations), 2008.

13. Strengthening the Guidelines and RaisingIndustry Standards for RTA, IssuerCompanies and Banker to an Issue

[Issued by the Securities and Exchange Board ofIndia vide Circular No. SEBI/HO/MIRSD/DOP1/CIR/P/2018/73 dated April 20, 2018]

For Strengthening the Guidelines and RaisingIndustry Standards for RTA, Issuer Companiesand Banker to an Issue, SEBI has providedguidelines in this respect to cover the followingbroad areas:a. Provisions with respect to Payment of

dividend/interest/redemption;b. Provisions with respect to Transfer/

Transmission/ Correction of errors etc; andc. Compulsory Internal Audit of RTAs.

CORPORATE LAW

A. RULES

1. Notification dated March 21, 2018regarding the National FinancialReporting Authority (Manner ofAppointment and other Terms andConditions of Service of Chairperson andMembers) Rules, 2018 dated 21.03.2018

[Issued by Ministry of Corporate Affairs videnotification no. G.S.R.(E)____ dated March 21,2018]

The Central Government has made rules forSection 132 (3) of the Companies Act, 2013relating to "Constitution of National FinancialReporting Authority".

Accordingly, the Central Government has madeThe National Financial Reporting Authority(Manner of Appointment and other Terms andConditions of Service of Chairperson andMembers) Rules, 2018.

2. Notification dated March 23, 2018regarding Companies (Incorporation)Second Amendment Rules, 2018

[Issued by Ministry of Corporate Affairs videnotification no. G.S.R. …… (E) dated March 23,2018]

The Central Government has made amendmentin the Rule 9 of Companies (Incorporation)Rules, 2014 relating reservation of name.

3. Notification dated April 10, 2018 regardingCompanies (Share Capital andDebentures) Amendment Rules, 2018

[Issued by Ministry of Corporate Affairs videnotification no. G.S.R. …… (E) datedApril10,2018]

The Central Government has made amendmentin the Rule 5(3) of Companies (Share Capitaland Debentures) Rules, 2014. The same hasbeen substituted as follows:

"(3) Every certificate shall specify the shares towhich it relates and the amount paid-up thereonand shall be signed by two directors or by adirector and the company secretary, wherever


21

the company has appointed company secretary:

Provided that in case the company has a commonseal it shall be affixed in the presence of personsrequired to sign the certificate."

Explanation:a. For One Person Company:Certificate is to be signed by a director and thecompany secretary or any other personauthorised by the Board for the purpose.

B. CIRCULAR

1. Relaxation of additional fees and extensionof last date of filing of AOC-4 XBRL E-Forms using Ind AS under the CompaniesAct, 2013

[Issued by the Securities and Exchange Board ofIndia vide Circular No.2/2018 dated March 28,2018]

In continuation to the Ministry's GeneralCircular No. 13 /2017 dated 26/10/2017, the lastdate of filing of AOC - 4 XBRL E-forms using IndAS under the Companies Act, 2013 has beenextended to till April 30, 2018 without additionalfees for all the eligible companies who arerequired to prepare or voluntarily prepare theirfinancial statements in accordance withCompanies (Indian Accounting Standards)Rules, 2015 for the financial year 2016-17.

2. Condonation of Delay Scheme 2018

[Issued by the Securities and Exchange Board ofIndia vide Circular No.2/2018 dated March 28,2018]

In continuation to the Ministry's GeneralCircular No. 16/2017 dated 29/12/2017 inregards to Condonation of Delay Scheme, 2018,the Ministry has decided to extend theCondonation of Delay Scheme, 2018 upto April30, 2018.

C. NOTIFICATIONS

1. Notification dated March 21, 2018regarding commencement of CompaniesAmendment Act 2017[Issued by Ministry of Corporate Affairs videnotification no. S.O. 630 (E) dated February 09,2018]

As per Section 1(3) of the Companies Act, 2013,the Central Government appoints March 21,2018 as the date on which the provisions ofSection 132 (3) and Section 132 (11) of the saidAct will come into force.

The aforementioned Sections are with regards toConstitution of National Financial ReportingAuthority which has been notified on March 21,2018.

2. Notification dated 02.04.2018 regardingamendments in the notification numberS.O. ____(E).

[Issued by Ministry of Corporate Affairs videnotification no. S.O. ____ (E) dated April 02,2018]

As per Notification No. S.O. 529(E) dated05.02.2018, provisions of Accounting Standard22 or Indian Accounting Standard 12 relating toDeferred Tax Asset or Deferred Tax Liabilityshall not apply, for seven years with effect fromthe 1st April, 2017, to a Government Company.

However, under this Notification, the words "forseven years" has been omitted.

3. Notification dated 10.04.2018 regardingamendments in the notification numberGSR. ____(E).[Issued by Ministry of Corporate Affairs videnotification no. GSR.____ (E) dated April 10,2018]

The Central Government has amended ScheduleI and substituted paragraph in regards to Rule5(3) of Companies (Share Capital andDebentures) Rules, 2014 [as mentioned above inNotification dated April 10, 2018].

Under this notification, along with abovementioned amendment, an explanation hasbeen added as follows:

"For the purposes of this sub-paragraph it ishereby clarified that on and from thecommencement of the Companies (Amendment)Act, 2015 (21 of 2015), i.e. with effect from the29th May, 2015, company may not be requiredto have the seal by virtue of registration underthe Act and if a company does not have the seal,the provisions of this sub-paragraph shall not beapplicable."


22

4 FEMA UPDATES

Compiled by :CA. Manoj Shah

Liberalised Remittance Scheme for Individuals - Daily Reporting of Transactions

A.P. (DIR Series) Circular No. 23 dated April 12, 2018

In order to improve monitoring and ensure compliances with LRS Limits, AD banks will be required toupload daily transaction wise information undertaken by them under LRS at the close of business of thenext working day. In case no data is to be furnished, AD banks shall upload a 'NIL' report.

Foreign Exchange Management (Cross Border Merger) Regulations, 2018

Notification No. FEMA.389/2018-RB dated March 20, 2018

Reserve Bank of India has notified regulation relating to Merger, Amalgamation and Arrangementbetween Indian Companies and Foreign Companies vide notification dated 20th March 2018.

Full notification can be accessed at -https://rbidocs.rbi.org.in/rdocs/notification/PDFs/CBM28031838E18A1D866A47F8A20201D6518E468E.PDF

Foreign Investment in India

Notification No. FEMA.20(R)(1)/2018-RB dated March 26, 2018

Amendment to Regulation 16.B

The existing sub-regulation 5 shall be substituted with new sub-regulation. Accordingly, foreigninvestment in investing companies not registered as NBFC and in core investing companies both engagedin activity of investing in the capital of other Indian Companies will require prior government approval.Foreign Investment in investing companies registered as NBFC will be 100% under automatic route.

RBI has also made amendments in relation to Sectoral limits and Sector specific conditions in certainSectors.

Amendment has also been made to Schedule 1, whereby issue of capital instruments against swap of capitalinstruments, import of capital goods / machinery / equipment (excluding second hand machinery) or pre-operative / pre-incorporation expenses will be under automatic route if the investee company is in anautomatic sector. Government Approval shall be obtained if Indian Investee company is engaged in sectorunder Government Approval route.

Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India),Regulations, 2018

In supersession of Notification No. FEMA 21/2000-RB dated May 3, 2000, as amended from time to time,the Reserve Bank of India notifies revised regulations.

The revised regulation can be accessed at -https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NTF21R0904182AB07CBE3672402A91BB19E46B81F3D5.PDF


23

Gist of some Compounding Orders passed by Reserve Bank of India

No. Subject Matter Contraventions Compounded

1. Foreign Investment in India - Consideration for Foreign Investment by ForeignFEMA Notification No. 20 Company in Indian Company was received from

third party intermediary i.e. a Transfer wise.

Receipt of sale consideration through channelsother than banking channels is a contravention.

2. Foreign Investment in India - Non-resident investors had invested in 2010 inFEMA Notification No. 20 equity shares of Indian Company which was a

power exchange registered with Central Electricityregulatory Commission (Power Market)Regulations, 2010. At the time of investment it wasunder automatic route.

Subsequently in 2012, foreign investment in powerexchanges was limited to 49% provided no non-resident investor will hold more than 5%.

Non-resident investors applied for post factoapproval. FIPB directed the company to bring downthe shareholding pattern in line with FDI Policywithin one year.

Whereas the company did not comply the conditionsas stipulated for receiving foreign investments inthe company.

This was in contravention to Regulation 5(1)(i) ofFEMA Notification No. 20. Foreign Companyopened a NRO account with bank in India.

3. Overseas Direct Investment related - Indian Company was engaged in business ofFEMA Notification No. 120 providing management and consultancy services to

organizations in various sectors such asHealthcare, Mining, Entertainment and Media.

The Company made Overseas Direct Investment inan entity in Singapore. This Singapore entityraised funds overseas and invested the same inanother Indian Company resulting in ODI-FDIstructure.

FDI through ODI is not a bonafide business activityand is in contravention of Regulation 6(2)(ii) ofFEMA 120.

It further contravened provisions relating to delayin reporting of Step down investment by WOS inSingapore and there was also delay in filing ofAnnual Performance Reports also.


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1. Sec. 22 : Computation of Income fromHouse Property - land does not belong tothe assessee but the superstructurebelongs to the assessee - Assesseereceived composite rent for land andbuilding - rent paid to the land owner canbe reduced from the composite rentalincome.

The assessee had let out two properties duringthe year under consideration. The firstproperty is situated at Karuna Enclave and thesecond at Sputank Road. In respect of both theproperties, the assessee had taken land onlease and constructed buildings thereon.Assessee reduced rent paid to the land ownerfrom the rental income received in respect ofboth the properties. However the AssessingOfficer did not accept the deduction of rentpertaining to land.

CIT(A) confirmed the Assessment Order. Onfurther Appeal, assessee submitted that rentreceived by the assessee in respect of land wasdiverted by overriding title to the landlord.Therefore, Assessing Officer is not justified intaking the rent which relates to land on whichthe superstructure was standing. Further,referring to Section 53A of Transfer of PropertyAct, 1982, assessee submitted that in relation toimmovable property, for the purpose oftransfer, there should be a registereddocument. In this case, there was no registereddocument, therefore, there was no transfer atall. Placing reliance on the judgment of ApexCourt in Balbir Singh Maini (398 ITR 531), itwas submitted that the assessable income fromhouse property is only after reducing the leaserental for acquiring the sub-lease. According tothe Ld. D.R., the lease amount said to be paidto the original landlord cannot be construedlike taxes paid to the local authorities in respectof the property, therefore, that cannot bereduced while computing the income fromhouse property as per Section 23 of the Act.Further the Parliament has allowed 30%

Contributed by :Paras S. Savla, Advocate(a member of the association)

he can be reached [email protected]

Contributed by :CA Bhakti Maru(a member of theassociation)


UNREPORTEDDECISIONS –INCOME TAX

statutory deduction in respect of the annualrent and also interest, if any, for acquiring theproperty and apart from that, the assesseecannot claim any deduction while computingthe income from house property. The Tribunalobserved that all the lease agreements ofvacant land was less than 12 years as providedin Section 269UA(f) of the Act. Therefore, itcannot be construed as a transfer within themeaning of Section 27(iiib) of the Act and thusthe assessee is not the owner of the land both inrespect of Karuna Enclave and in respect of theproperty at 10, Spurtank Road. The Tribunalfurther observed that under common law, landmay belong to one person and building maybelong to another person. Therefore, when theassessee took the land on lease and put upconstruction and let out the building for lease,the lease rent paid or payable in respect of theland to the land owner has to be excluded whilecomputing the annual value of the property. Inrespect of the lease, what was transferred tothe assessee is a right to occupation andenjoyment on the land. The other rightsrelating to ownership continues to remain withthe original owner. What is received orreceivable by the assessee has to confine inrespect of the ownership of the building since,admittedly, the land belongs to third party.

Therefore, the amount payable / paid as a leaserent for occupation and enjoyment of the land,which belongs to third party, has to be necessarilyreduced while computing annual rental valueunder Sections 22 and 23 of the Act.

Shri UppuKarunasesh vs JCIT, Chennai ITAT,ITA Nos.978 And 979/Chennai/2015, orderdt.27th April, 2018

2. Sec 41 -Waiver of loan - Section 41(1) doesnot apply if as the loan is taken not atrading liability and assessee has notclaimed any deduction u/s 36 (1) (iii) of theIT Act for interest paid - it cannot be taxedu/s 28(iv) as it does not apply if the


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receipts are in the nature of cash ormoney.

The assessee had taken loan from Kaiser JeepCorporation (for short 'the KJC') forprocurement of equipments. Later on assesseewas informed that the American MotorCorporation (AMC) had taken over the KJC.AMC also agreed to waive the principal amountof loan advanced by the KJC. The AssessingOfficer held that waiver of principal amountwas taxable u/s 28 or u/s 41. The CIT(A) upheldthe order of Assessing Officer. The Tribunaland High Court decided in favour of theAssessee. Hence the Revenue filed appealbefore Supreme Court. The Supreme Courtobserved that creditor or his successor mayexercise their "Right of Waiver" unilaterally toabsolve the debtor from his liability to repay.After such exercise, the debtor is deemed to beabsolved from the liability of repayment of loansubject to the conditions of waiver. The waivermay be a part waiver i.e., waiver of part of theprincipal or interest repayable, or a completewaiver of both the loan as well as interestamounts. Hence, waiver of loan by the creditorresults in the debtor having extra cash in hishand. It is receipt in the hands of the debtor/assessee. In order to invoke the provision ofSection 28 (iv) of the IT Act, the benefit whichis received has to be in some other form ratherthan in the shape of money. In the presentcase, as a matter of record that the amount ofRs. 57,74,064/- was received as cash receiptdue to the waiver of loan. Therefore, the veryfirst condition of Section 28 (iv) of the IT Actwhich says any benefit or perquisite arisingfrom the business shall be in the form of benefitor perquisite other than in the shape of money,is not satisfied, hence, cannot be taxed undersection 28 (iv). As far as taxability u/s 41(1) isconcerned, it is a sine qua non that thereshould be an allowance or deduction claimed bythe assessee in any assessment for any year inrespect of loss, expenditure or trading liabilityincurred by the assessee. Then, subsequently,if the creditor remits or waives any suchliability, then the assessee is liable to pay taxunder Section 41 of the IT Act. The objectivebehind this section is simple i.e. it ensured that

the assessee does not get away with a doublebenefit once by way of deduction and anotherby not being taxed on the benefit received byhim in the later year with reference todeduction allowed earlier in case of remission ofsuch liability. In the case before Supreme courtthe Assessee had been paying interest at 6 %per annum to the KJC as per the contract butit never claimed deduction for payment ofinterest under Section 36 (1) (iii) of the IT Act.The deduction claimed by the assessee inprevious assessment years was due to thedepreciation of the machine and not on theinterest paid by it. Further the equipmentswere capital assets of the assessee. Thepurchase of equipments had not been debitedto the trading account or to the profit or lossaccount in any of the assessment years. TheSupreme Court held that there is differencebetween 'trading liability' and 'other liability'.Section 41 (1) of the IT Act particularly dealswith the remission of trading liability. Whereasin the instant case, waiver of loan amounts tocessation of liability other than tradingliability. Hence, it cannot be taxed undersection 41 (1) also.

CIT vs Mahindra and Mahindra Ltd. (2018)(SC) (Civil Appeal Nos. 6949-6950 of 2004&others, Order dt.24-04-2018)

3. Sec. 249-Appeal before the CIT(A) - Appealmanually filed - CIT(A) rejected the appealon the ground that there is delay in e-filing of appeal - Appeal to be heard onmerits and delay should be condoned.

The assessee company filed its return of incomefor assessment year 2010-11 on 21.09.10declaring total income at Rs.23,53,105/-.Assessment was completed under section143(3) on 30.03.16 determining the totalincome of Rs.38,53,105/-. Aggrieved by theassessment order the assessee preferred Appealbefore the Ld. CIT(A). The assessee filed itsappeal manually in Form No.35 on 29.04.16.The Ld.CIT(A) dismissed the appeal filed by theassessee by holding that the appeal filed by theassessee is not maintainable as the Central


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Board of Direct Taxes has issued a notificationvide Notification No.SO 637(E) [No.11/2016 (F.No.149/150/2015-TPL)] dated 01.03.16wherein it was mandatory on the assessees tofile all appeals before the first appellateauthority electronically under digitalsignature. The Ld. CIT(A) further observedthat in this connection the Principal DGITSystems vide Notification No.5/16 dated06.04.16 had laid down the procedure, datastructure and standard electronic verificationcode etc. to facilitate filing of appealelectronically. However, considering thehardships/technical glitches in filing the appealelectronically the CBDT extended the period forfiling the appeal electronically till 15.06.16.Since the assessee had filed the appeal in formNo.35 manually, the Ld. CIT(A) has dismissedthe appeal filed by the assessee as notmaintainable and void ab initio. On appeal theTribunal held that during transition period theprovisions of any notification or circularsmandating the assessees to follow certaininstructions should not be strictly applied. TheTribunal noticed that the assessee has filed itsappeal in manual form and such appeal hasbeen filed within the prescribed time under theAct. Therefore, merely because the assesseehad not filed the appeal in electronic form, theassessee's appeal cannot be dismissed ontechnical grounds that too during transitionperiod. The Hon'ble Supreme Court andvarious High Courts have already categoricallystated that when technicalities and substantialjustice is pitted against each other, thesubstantial justice deserves to be prevailed overtechnicalities. The Tribunal held that Ld.CIT(A) erred in dismissing the appeal filed bythe assessee as not maintainable. Hence, it setaside the issue to the file of the Ld. CIT(A)directing him to admit the appeal filed by theassessee by directing the assessee to file itsappeal in electronic format and also to condonedelay in filing such appeal in electronic format.The Tribunal further directed Ld. CIT(A) todecide the issues on merits.

M/s Asterix Reinforced Ltd. Vs. ITO 10(3)(2),Mumbai ITAT, ITA No.426/Mum/2018, orderdt.16-05-2018

4. Notice u/s 143(2) - Reopening ofassessment - notice u/s 143(2) issued onthe day return was filed - notice invalid -reassessment bad in law

Assessee is a company filed return of incomedeclaring NIL income. The case wassubsequently reopened under section 147 ofthe I.T. Act, after recording reasons and noticeunder section 148 of the I.T.Act, was issued on29th March, 2013. Reply to the notice undersection 148 of the Act has been filed by assesseeon 26.11.2013. Notice under section 143(2) wasissued on the same day on 26.11.2013 inresponse to which, assessee-company appearedand the A.O. after discussion made the additionof Rs.10 lakhs on account of unexplainedinvestment under section 68 of the I.T. Act,1961 vide order dated 28.02.2014 under section147 read with section 143(3) of the I.T. Act. Theassessee challenged the addition before theLd.CIT(A). However, the appeal of assessee hasbeen dismissed by the Ld. CIT(A). On furtherappeal, the Assessee filed additional groundchallenging notice u/s 143(2). The Tribunalobserved that assessee filed reply in response tothe notice under section 148 of the I.T. Act on26.11.2013 and submitted before A.O. thatoriginal return filed before him may be treatedas return filed in response to the notice undersection 148 of the I.T. Act. The A.O. on thesame day served notice under section 143(2)upon assessee-company whose signature tallyon the said notice. The Tribunal relied on theDelhi High Court decision in case of DIT vs.Society for Worldwide Interbank FinancialTelecommunications (2010) 323 ITR 249 (Del)wherein it was held that, the provisions ofs.143(2) make it clear that the notice can onlybe served after the AO has examined thereturn filed by the assessee. The Tribunal heldthat notice issued under section 143(2) on thesame day was resultantly invalid and henceentire assessment is vitiated and is liable to bequashed.

Micron Enterprises Pvt. Ltd. Vs. ITO, DelhiITAT, ITA No.901/Del/2016, order dt.14-05-2018.

C.V.O. CA’S NEWS & VIEWS VOL. 21 NO. 11 / MAY 2018Overview of International Tax – CA Deepesh...

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Transcript of C.V.O. CA’S NEWS & VIEWS VOL. 21 NO. 11 / MAY 2018Overview of International Tax – CA Deepesh...