Stocks

31 December 2014

No clubbing of interest-free loan given by husband to his wife from whom she had purchased assets

Shah Rukh Khan v. Assistant Commissioner of Wealth Tax (2014) 52 taxmann.com 252 (Mumbai - Tribunal)

'Shahrukh Khan' gave interest-free loan to his wife, Gauri Khan, who in turn, purchased a residential house and jewellery from said loan amount. The department clubbed the value of loan amount in the net wealth of 'Shahrukh Khan'. Extending cash loan, to wife does not come within the definition of asset as provided under Section 2(ea) of the wealth tax Act, thus, it could not be said that there was a transfer of asset; the impugned loan amount was not includible in net wealth of assessee.

Facts:
  • Shahrukh Khan (assessee) gave interest free loan to his wife, Gauri Khan, who, in turn, purchased residential house and jewellery in her name from such loan amount.
  • The Assessing Officer ('AO') opined that the loan given by the assessee to his wife would be treated as indirect "transfer of asset" within the meaning of section 4(1)(a)(i) of the Wealth Tax Act. Accordingly, he clubbed the value of loan amount in the net wealth of the assessee.
  • On appeal, the CIT(A) affirmed the view of the AO against which the assessee had filed the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under:
  • Section 4(1)(a)(i) of the Wealth-tax Act, 1957 provides as under: In computing the net wealth of an individual, there shall be included, the value of any asset which are held by spouse of such individual to whom such assets have been transferred by the individual, directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live apart.
  • Extending cash loan, to wife does not come within the definition of asset as provided under Section 2(ea) of the wealth tax Act, thus, it could not be said that there was a transfer of asset as alleged by the department.
  • The instant case was not of tax avoidance as in the instant case assessee gave the loan to his wife and the same was duly declared. There is distinction between the term "transfer" and "loan". In act of transfer, some legal interest is created in the transferee over the subject matter of transfer, whereas in case of lending, except a possessory interest, which may be momentary also, no other interest is created.
  • In the instant case, the wife of assessee was having independent source of income, filing her return and even subsequently repaid part of the loan. Therefore, there was no "transfer of asset" or "colourable device", as assessee was not the owner of "any asset" which was transferred to the wife, rather a new property was purchased from a third party out of the interest free cash loan taken by the wife from her husband.
  • The CIT(A) had opined that it amounts to indirect transfer of asset within meaning of Section 4(1)(a)(i) of the Wealth Tax Act. This angle of CIT(A) was on weak footing as in the instant case there was no transfer of asset rather interest-free loan was given by the assessee to his wife.
  • Thus, the impugned loan amount was not includible in wealth of assessee. Accordingly the order of CIT(A) was to be reversed.

30 December 2014

Call centre services to recipients located abroad were export of services even when Indian TelCos were involved

WNS GLOBAL SERVICES (P.) LTD. V. COMMISSIONER OF CENTRAL EXCISE (2014) 52 taxmann.com 131 (Mumbai - CESTAT)
 
When call centre services were provided electronically to recipient located outside India, data had to be delivered to telecom authorities for transmission abroad and merely because of involvement of telecom authorities in India, it could not be said services were not exported.

The issues that arose for the consideration of the CESTAT was:
  • Whether call centre services provided by assessee to recipients located outside India would be deemed as 'exports' if they were not directly exported from premises of assessee but were routed through telecom service provider?
  • Whether the use of leased telecom lines for exporting call centre services electronically was 'input service' and, thus, was eligible for credit?

The CESTAT held in favour of assessee as under:
  • When data was transmitted through electronic medium, it had to be first transmitted to a server of telecom authorities in India and, thereafter, up-linked/transmitted to foreign service recipient. In the instant case, foreign service recipient had received output service and had made payment in convertible foreign exchange to assessee. Hence, said activity was export of service.
  • Exports were undertaken electronically and to undertake export, assessee needed dedicated lines from their office premises to telecom authorities. Without these dedicated lines, assessee could not deliver output service and therefore, leasing of telecom lines by telecom authorities was an eligible input service.

29 December 2014

Board’s Circulars have prospective effect only and not retrospective effect

Uttam Galva Steels Private Limited Vs. CCE Raigad [2014 (12) TMI 619–Government of India]

Uttam Galva Steels Pvt. Ltd. (the Appellant) was engaged in the manufacturing activity and the final products which were cleared on payment of duty included the products namely ‘H.R. Pickled Oils’ (Pickled Oils) and ‘HR Pickled and oiled coils’ (Pickled Coils). Pickled Oils and Pickled Coils were cleared for home consumption as well as exported under Rebate claim/ Bond.

The Appellant had filed various Rebate claims during the period of December 2009 to April 2010 involving an amount of Rs. 3,18,72.034/- but inadvertently mentioned the Tariff Classification of Pickled Coils as 72083940 in the Rebate claims which was similar to Tariff Classification of H.R. Coils declared as input in the Appellant’s application for Central Excise Registration.

However, the Appellant clarified that the inputs i.e. H. R. Coils received in the factory are subjected to the process of slitting, pickling, oiling and trimming and explained the processes involved in detail. Accordingly, it was contended that the process undertaken by the Appellant amounts to manufacture in terms of Sub Heading Note No. 3 of Chapter 72 of the Central Excise Tariff Act, 1985 which provides that the process of hardening and tempering, in respect of flat rolled products, amounts to ‘manufacture’.

The Department took a view that since the Appellant did not reveal that the process of pickling and oiling amounts to hardening and tempering, therefore the process of pickling and oiling carried out by the Appellant does not amount to manufacture.

Thereafter, the Adjudicating Authority rejected the entire Rebate Claim on the ground that process undertaken by the Appellant does not amount to manufacture in terms of Circular No. 927/17/2010-CX dated June 24, 2010wherein it was clarified that ‘mere undertaking the process of oiling and pickling as preparatory steps do not amount to manufacture’. Later on, the Commissioner (Appeals) also upheld the same.

Being aggrieved, the Appellant filed a Revision Application before the Central Government under Section 35EE of Central Excise Act, 1944, wherein it was held that:
  • The Apex Court in the case of M. Bags Manufacturer Vs. Collector of Central Excise [1997(94) ELT 3(S.C.)] and various subsequent judgements had stipulated that the Board’s circular can have only prospective effect which is evidently the law of the land. Hence, rejection of the Rebate claims on the sole ground that the process does not amounts to manufacture by applying the Board’s Circular retrospectively i.e. prior to June 24, 2010 cannot be held sustainable and hence, liable to be set aside.
  • In Ajinkya Enterprises, Pune, it has been held that once the duty on final product has been accepted by the Department, the Cenvat credit availed need not be reversed even if the activity does not amount to manufacture.
In view of above findings, the Government set aside the Orders of the Lower Authorities and allowed Revision application.

28 December 2014

Where assessee-company at time of filing its e-return had inadvertently filled column regarding details of audit under section 44AB wrongly as 'No', penalty could not be levied under section 271B

Sujata Trading (P.) Ltd. v. Income-tax Officer, [2014] 50 taxmann.com 397 (Mumbai - Tribunal)

Facts:
  • The assessee-company e-filed its return of income. In the said return of income, the assessee was required to answer whether it was liable for audit under section 44AB and if yes, it was required to furnish certain information regarding same.
  • The Assessing Officer noticed that the assessee had answered the said question as 'No' and, consequently, it did not furnish the details relating to auditor. Hence, he took the view that the assessee did not get its accounts audited under section 44AB and, accordingly, he initiated penalty proceedings under section 271B.
  • On appeal, the CIT(A) also confirmed said penalty. The aggrieved assessee filed the instant appeal.

The ITAT held in favour of assessee as under :
  • The assessee had filed the return of income under e-filing procedure. 'Part A-01' of the return of income requires the assessees who would be liable for audit under section 44AB to furnish certain information. The same is optional for the assessees who are not liable for audit under section 44AB.
  • The information to be given in 'Part A-01' contains the details to be furnished in Form No. 3CD. It was seen from the copy of e-return filed by the assessee that the assessee had duly furnished all the details under 'Part A-01' of the return of income, meaning thereby, there appeared to be some truth in the submission of the assessee that it had obtained the tax audit report before the due date for filing return of income.
  • Hence, it was viewed that the assessee could have obtained the audit report under section 44AB before filing the return of income and it had inadvertently filled the relevant column wrongly as 'No'. Since the assessee could have obtained the tax audit report before the due date for filing return of income, there was no justification for levying penalty under section 271B. Accordingly, the order of CIT(A) was to be set aside and he was to be directed to delete the penalty levied in the hands of the assessee under section 271B.

27 December 2014

Entity set-up for providing housing and other infra facilities is charitable in nature; entitled to registration

Jaipur Development Authority v. CIT (2014) 52 taxmann.com 25 (Jaipur - Tribunal)

Facts:
  • The assessee ('Jaipur Development Authority') was wholly owned and controlled by Government of Rajasthan.
  • It was formed for planning, coordinating and supervising proper, orderly and rapid development of the areas in Jaipur region and of executing plans, projects and schemes for such development, so that housing, community facilities, civil amenities and other infrastructural facilities were created in such region.
  • The registration was granted to the assessee under section 12AA. During the relevant year, the CIT withdrew the registration by observing that the objects of the assessee were not charitable but came under the purview of last limb of section 2(15) of the Act, i.e., 'Advancement of any other object of general public utility'.

The Tribunal held in favour of assessee as under:
  • The Jaipur Development Authority was a tool of State Government for coordinated and planned development in Jaipur region. In practical, the main work of Jaipur Development Authority was construction of roads, sewerage, parks, play grounds, provide plots for educational, health and cultural institution for over all development of the community.
  • By making planned development it provides smooth transportation so that air pollution can be minimized and save time of the public. If it would be left in the hands of private operator, these facilities would not be provided on similar price as provided by the Jaipur Development Authority. The intention of the institution was not to earn profit but recover the cost of the establishment as well as other expenditure to implement its objects.
  • The CIT can cancel the registration in two situations, viz, if the activities of the institution are not genuine and if the activities assessee not carried out in accordance with the objects of the institution.
  • In the instant case, as the assessee was a government authority, its object was to prove civil amenities and infrastructure and no trade or business, therefore, withdrawal of registration by the CIT was not justified.

26 December 2014

Finance Minister Shri Arun Jaitley Asks the Indian Revenue Service (IRS-Customs & Central Excise) Officer Trainees to be Both Firm and Fair in Their Dealing with the Tax Assesses; Asks Them to Maintain High Level of Ethics, Morality and Credibility in Public Life

The Union Finance Minister Shri Arun Jaitley asked the Indian Revenue Service (IRS-Customs &Central Excise) officer trainees to be both firm and fair in their dealing with the tax assesses. He said that they have to maintain a fine balance between what taxes are to be charged and what not to be charged. The Finance Minister said that those officers who are the face of Government before the public have to be acceptable. The Finance Minister Shri Jaitley was speaking after inaugurating the Professional Training Programme of 66th Batch of Officer Trainees of Indian Revenue Service (IRS) (Customs &Central Excise) here today. The Finance Minister Shri Jaitley further asked the officer trainees to abreast themselves during the 18-month long training programme with the new regime of indirect taxes especially after implementation of Goods & Service Tax (GST). He asked the trainees to maintain high level of ethics, morality and credibility in public life.

Speaking on the occasion, the Minister of State for Finance Shri Jayant Sinha asked the IRS officer trainees to work hard with integrity and have a mind set of serving the people with integrity. They must keep in mind that they are public servant and try to provide best possible costumer service to make the life easier for people at large. He asked them to use latest tools of technology in efficient discharge of their duties. He called for the need of raising the tax to Gross Domestic Product (GDP) ratio in the country which is quite low at 15.5% while in case of developed countries, it is above 30%. He asked the officer trainees to remove the bottlenecks at the structure level in order to improve the overall system in the Government rather than doing fire fighting and fixing the problems all the time.

Earlier, the Chairman Central Board of Excise and Customs (CBEC) Shri Kaushal Srivastava administrative the oath to newly recruited IRS trainees. He said that the Government has approved the setting-up of the new campus of National Academy of Customs, Central Excise and Narcotics (NACEN) in Andhra Pradesh.

Among others present on the occasion include Shri Shakti Kanta Das, Revenue Secretary, Members of CBEC, Shri G. Sreekumar Menon, DG, NACEN and the senior officers of Department of Revenue.


Press Information Bureau
Government of India
Ministry of Finance

Microeconomics

The study of the behavior of small economic units, such as that of individual consumers or households. Opposite of Macroeconomics.

25 December 2014

Amalgamation and Demerger

DEFINITIONS:
Amalgamation (Section 2(1B) of Income-tax Act, 1961): Means merger of either one or more companies with another company or merger of two or more companies to form one company in such a manner that:
  • All the property/liability of the amalgamating company/companies becomes the property/liability of amalgamated company.
  • Shareholders holding minimum 75% of the value of shares in the amalgamating company (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company.
Demerger (Section 2(19AA)): means the transfer of one or more undertakings to any resulting company pursuant to a scheme of arrangement under Sections 391 to 394 of the Companies Act, 1956 in such a manner that:
  • All the property/liability of the undertaking becomes the property/liability of the resulting company.
  • All the property/liabilities are transferred at book value (excluding increase in value due to revaluation).
  • The resulting company issues shares to the share holders of demerged company on a proportionate basis, except where resulting company is a share holder of the demerged company.
  • Share holders holding minimum 75% of the value of shares become share holders of the resulting company (other than shares already held therein immediately before the demerger by, or by a nominee for, the resulting company or its subsidiary).
  • The transfer of an undertaking is on a going concern basis.
  • The demerger is in accordance with the conditions notified under Section 72A(5) of IT Act, 1961.
Undertaking: includes any part of an undertaking or a unit or division of an undertaking or a business activity taken as a whole, but excludes individual assets or liabilities or combination of both not constituting a business activity.

De-merged Company: means the company whose undertaking is transferred to a resulting company pursuant to a demerger.

Resulting Company: means one or more companies (including wholly owned subsidiary thereof) to which the undertaking of the demerged company is transferred in a demerger and the resulting company in consideration of such transfer of undertaking, issues shares to the shareholders of the demerged company and includes any authority or body or local authority or public sector company or a company established, constituted or formed as a result of demerger.

Provisions applicable to Company
Capital Gain (Sections 47(vi) and 47(vid))
  • Gains arising on transfer of a capital asset in a scheme of amalgamation/demerger to the amalgamated/resulting company being an Indian company is exempt.

Carry forward of accumulated loss and/or unabsorbed depreciation (Section 72A)
  • Accumulated loss and unabsorbed depreciation of an amalgamating company can be carried forward by the amalgamated company for set off against its profits, in case of:
    1. Amalgamation of company owning an industrial undertaking or a ship or a hotel with another company; or
    2. Amalgamation of a public sector company or a company engaged in the business of operating aircraft with another public sector company or company engaged in similar business; or
    3. Amalgamation of a banking company with a specified bank.
  1. Amalgamated company has to fulfil the following conditions to avail the benefit:
    1. it continuously holds 3/4th of the book value of the fixed assets acquired in a scheme of amalgamation for at least five years from the date of amalgamation;
    2. it continues to carry on business of amalgamating company for at least five years from the date of amalgamation;
    3. it achieves at least the level of 50% of the installed capacity before the end of 4 years from the date of amalgamation and maintains that level till the 5th year.
  2. Amalgamating company has to fulfil the following conditions:
    1. it was engaged in the business in which the accumulated loss has occurred or the unabsorbed depreciation remains unabsorbed for three or more years.
    2. It has continuously held 3/4th of the book value of fixed assets held by it two years prior to amalgamation.
  • Accumulated loss and unabsorbed depreciation of a demerged company can be carried forward by the resulting company for set off against its profits (Section 72A(4)):
    1. Where it is directly relatable to undertaking transferred, it should be such relatable amount.
    2. Where it is not directly relatable to the undertaking transferred, it should be apportioned in the ratio of assets retained by the demerged company and transferred to resulting company.

Carry forward of accumulated loss and/or unabsorbed depreciation of the banking company in a Scheme of amalgamation with banking institution (Section 72AA)
  • In a scheme of amalgamation of a banking company with a banking institution sanctioned and brought into force by the Central Government u/s. 45(7) of the Banking Regulation Act, 1949, the accumulated loss and unabsorbed depreciation of the banking company can be carried forward by the banking institution for set off against its profits.

Reorganisation in case of firm/proprietorship to company and private company/unlisted public company to LLP [Section 72A(6)]
  • In cases where a firm/proprietary concern is succeeded by a company fulfilling all conditions laid down u/s. 47(xiii)/47(xiv), accumulated losses and unabsorbed depreciation of the firm/proprietary concern can be carried forward by the company for set off against its profits.
  • In case conditions specified in section 47(xiii)/(xiv) are not complied with, any set off of business loss or allowance for depreciation claimed by the successor company will be deemed to the income of the successor company in the year in which such conditions are not complied with.
  • Similar provisions are also applicable to private company or unlisted public company succeeded by a limited liability partnership fulfilling conditions laid down u/s. 47(xiiib).

Allowability of expenditure relating to amalgamation/demerger (Section 35DD)
  • An Indian company will be allowed a deduction of 1/5th of the expenditure incurred for the purposes of amalgamation or demerger for five years from the year in which amalgamation/demerger takes place.

Depreciation in the year of amalgamation/demerger (fifth proviso to Section 32(1))
  • Depreciation to amalgamated company and amalgamating company in the year of amalgamation and depreciation to demerged company and the resulting company in the year of demerger shall be apportioned in the ratio of the number of days for which the assets were used.

Written Down Value (‘WDV’) [Sections 32 and 43(6)(c)]
  • WDV in the hands of amalgamated company shall be the WDV of the block of assets in the hands of the amalgamating company immediately before amalgamation.
  • WDV in the hands of the resulting company shall be the WDV of transferred assets of the demerged company immediately before demerger.
  • WDV in the hands of the demerged company shall be the WDV of the block of assets before demerger less WDV of assets transferred to the resulting company.

Provisions applicable to Share holders
  • Capital Gains arising on transfer of shares of amalgamating company in exchange of shares of amalgamated company, being an Indian company is exempt [Section 47(vii)].
  • Acquisition of shares of the resulting company by the share holders of demerged company pursuant to demerger will not be taxed either as capital gains or deemed dividend. [Sections 47(vid) and 2(22)(v)].
  • Period of holding of shares of the amalgamated/resulting company will include the period for which the shares in the amalgamating/demerged company were held by the share holder. [Sections 2(42A)(c) and 2(42A)(g)].
  • Cost of acquisition of shares of:
    • The amalgamated company will be the cost incurred for acquiring shares of amalgamating company. [Section 49(1)].
    • The resulting company in case of demerger will be the [Section 49(2C)]:
      Original cost of shares of demerged company X net book value of assets transferred to resulting company/ net worth of the demerged company before demerger.

      Net worth = Paid-up Share Capital + General Reserve as per books of demerged company immediately before demerger.

    • The demerged company will be the original cost of shares of demerged company as reduced by the cost of shares of the resulting company as computed above [Section 49(2D)].

Capital Gains

Capital Gains

  1. Preconditions for charge u/s. 45

    Income under the head “Capital Gains” can be charged only if the following three conditions are satisfied
    1. There must be a “capital asset” [for definition of “capital asset” refer S. 2(14)]; [section 2(14) has been amended by Finance Bill, 2014 as follows w.e.f. 1-4-2015 :—

      capital asset” means––
      1. property of any kind held by an assessee, whether or not connected with his business or profession;
      2. any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992, but does not include––
        1. Any stock-in-trade [other than the securities referred to in sub-clause (b)
        2. Personal effects of the assessee;
        3. Agricultural land in a rural area (Definition of agricultural land as amended by Finance Act, 2013, w.e.f. 1st April, 2014);
        4. 6½% Gold Bonds, 1977 or 7% Gold Bonds, 1980 or National Defence Bonds, 1980 issued by the Central Government;
        5. Special Bearer Bonds, 1991 issued by the Central Government;
        6. Gold Deposit Bonds issued under Gold Deposit Scheme 1999.

          Explanation 1 – "property" includes any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever.

          Explanation 2 – (a) the expression “Foreign Institutional Investor” shall have the meaning assigned to it in clause (a) of the Explanation to section 115AD;
          (b) the expression “securities” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956
    2. There must be a “transfer” of such capital asset [for meaning of “transfer”, refer Ss. 2(47), 47 & 46(1)]; and
    3. There must arise either profits or gains or loss out of such transfer. 


  2. Year of Chargeability

    Capital Gains are generally charged to tax in the year in which “transfer” takes place (For exception to this general rule, refer column (4) of Table 3) 


  3. Mode of Computation
3.1 Income under the head Capital gains is to be computed as follows:
a) In respect of capital assets other than depreciable assets as per S. 48
b) In respect of depreciable assets other than mentioned in (c) as per S. 50
c) in respect of depreciable assets of an undertaking engaged in generation or generation and distribution of power as per S. 50A
d) In respect of slump sale as per S. 50B

3.2 Capital gains u/s. 48 are computed as follows:
a) Full value of consideration received or accruing as a result of the transfer of capital asset [also refer column 5 of Table 3] a
b) Less Expenditure incurred wholly & exclusively in connection with transfer [Expenditure by way of Securities Transaction Tax is not allowable] b
c) Less Cost of acquisition and cost of improvement (refer tree diagram below) c
d) * d
Income/Loss chargeable u/s. 45 r.w.s. 48 [a-b-(c-d)]
* Section 51 amended by Finance (No. 2) Bill, 2014 w.e.f. 1-4-2015 whereby where any sum of money, received as an advance or otherwise in the course of negotiations for transfer of a capital asset, has been included in the total income of the assessee for any previous year in accordance with the provisions of clause (ix) of sub-section (2) of section 56, then, such sum shall not be deducted from the cost for which the asset was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition. 

Exceptions to S. 48:
  1. In case of a non-resident, Capital Gains on transfer of shares in or debentures of an Indian company are to be computed firstly by converting cost of acquisition, full value of consideration and expenses incurred in connection with transfer into originally utilised foreign currency and reconverting the capital gains so computed into Indian rupees.

    Rule 115A prescribes the rates of conversion and reconversion for the purpose of calculation of capital gains in the above case. The rates of conversion and reconversion are as follows:
Cost of acquisition The average of telegraphic transfer (TT) buying rate and TT selling rate (as on the date of acquisition) of the foreign currency utilised in the purchase of asset
Expenditure incurred wholly and exclusively in connection with transfer consideration The average of TT buying rate and TT selling rate as on the date of transfer
Full value of consideration The average of TT buying rate and TT selling rate as on the date of transfer
For reconverting the capital gains TT buying rate as on the date of transfer
  1. The benefit of indexation of cost will not be available for computation of Capital Gains on transfer of Bonds/Deb.
  2. While calculating long-term capital gains (other than those covered under (a) and (b) above) cost of acquisition and cost of improvement are required to be indexed at prescribed indices (refer Table 2)
3.3 Capital gains u/s. 50 are computed as follows:
a) Opening W.D.V. of the Block of Assets ‘a’
b) Less Full value of consideration received or accruing as a result of transfer or transfers of asset falling within the concerned block of assets during the relevant previous year ‘b’
c) Less Expenditure incurred wholly and exclusively in connection with such transfer or transfers. This deduction would not be available in a case where the entire block ceases to exist as such, for the reason that all the assets in that block are transferred during the year. ‘c’ ’c’
d) Add Actual cost of any asset falling within the concerned block of assets acquired during the relevant previous year. ‘d’
Resultant figure a+c+d-b
If the resultant figure is negative, the same is chargeable as deemed short-term capital gains u/s. 50.
If the resultant figure is positive and the entire block ceases to exist as such (for the reason that all the assets in that block are transferred during the year) the resultant figure indicates deemed short-term capital loss (refer CBDT Circular No. 469 dated 23-9-1986 — reported in 162 ITR (Stat) 21, 30).
If the resultant figure is positive and the block continues to exist (For the reason that at least one asset in the block continues to be owned by the assessee) then there will be no gains or losses and the assessee will be entitled to claim depreciation on the resultant figure.

3.4 Capital Gains u/s. 50B
Profit arising on slump sale of one or more undertakings would be chargeable to tax as Long-Term Capital Gain in the year of transfer if such undertakings have been owned and held by the assessee for at least 36 months before the date of transfer or as Short-Term Capital Gain if held for a shorter period.
The networth (as defined) of the undertakings would be regarded as the cost of acquisition and improvement. No indexation would be allowed in respect of such cost.

3.5 Indexation
In case the capital asset is a long-term capital asset, the cost of acquisition is to be increased by cost inflation index. The prescribed cost inflation index is given in column (2) of Table 2 below. Column (4) gives the multiplying factor in case of capital asset sold in financial year 2013-14.
For example, if cost of acquisition of an asset acquired in F.Y. 1994-95 is 50,000, its indexed cost of acquisition in F.Y. 2013-14 would be 1,81,274 (i.e., 50,000 x 3.625483)
  1. Exempt Capital Gains

    Refer sections 10(33), 10(37), 10(38), sections 54 to 54GB and section 115F

    By Finance (No. 2) Bill, 2014 w.e.f. 1-4-2015 – Long term gain from sale of listed units of Business trust will be exempt u/s 10(38). However the provisions of this clause shall not apply in respect of any income arising from transfer of units of a business trust which were acquired in consideration of a transfer referred to in clause (xvii) of section 47. 

  2. Rate of Tax on Capital Gains

    Refer “Rates of Tax” for relevant assessment year
TABLE
Sr. No. Capital Asset Minimum Holding Period for "Long-Term"
1 Listed security in a recognized stock exchange in India (other than a unit) 12 months
2 Unlisted security 36 months
3 Units of Unit Trust of India 12 months
4 Unit of an equity oriented fund 12 months
5 Units of a Mutual Fund specified u/s. 10(23D) 36 months
6 Any other Capital Asset 36 months
Proviso has been inserted in section 2(42A) w.e.f. 1st day of April, 2015 by Finance (No. 2) Bill, 2014 which states that capital gain arising on unlisted shares of a company and units of a Mutual Fund specified under clause (23D) of section 10 transferred during the period beginning on the 1st day of April, 2014 and ending on the 10th day of July, 2014 will be considered as short-term if the said shares/units were held for not more than twelve months.

Capital Gains on Specific Transfers

(‘C.A.’ refers to Capital Asset) TABLE
Section Particulars of transfer Capital Gains assessable in the hands of Year in which chargeable Amount deemed to be the full value of consideration for the purpose of S. 48
45(1A) Moneys/other assets received from insurance co. towards damage/destruction of C.A. due to certain specified natural calamities The person receiving the money/assets Year in which moneys/other asset is received from insurance co. Value of moneys/FMV of assets received from insurance co.
45(2) Conversion of C.A. into stock-in-trade The owner of such asset Year in which sale or transfer of stock-in-trade takes place FMV of the asset on date of conversion
45(2A) Transfer of Securities made by depository.
(Refer note 1)
The beneficial owner of the securities Year in which such securities are transferred Amount of consideration received
45(3) Transfer of C.A. by a person to firm/AOP/BOI as his capital contribution or otherwise The partner or the member so transferring Year in which asset is so transferred The amount recorded in the books of the firm / AOP / BOI
45(4) Transfer of C.A. by way of distribution thereof on dissolution of firm/AOP/BOI or otherwise The firm/ AOP/BOI Year of distribution FMV on the date of distribution
45(5) Transfer of C.A. by compulsory acquisition under any law OR transfer where consideration determined/ approved by Central Govt./RBI (a) Initial compensation
(b) Enhanced compensation



The transfer or   
The transferor
Year in which initial compensation is first received Year in which enhanced compensation is first received Proviso inserted w.e.f. 1-4-2015 - any amount of compensation received in pursuance of an interim order of a court, Tribunal or other authority shall be deemed to be income chargeable in the year in which the final order of such court, Tribunal or other authority is made. Amount of initial compensation as reduced by order of any Court/Tribunal/ other authority Enhanced amount (cost of acquisition and improvement are deemed to be NIL) as reduced by order of any Court/Tribunal or other authority
45(6) Transfer of units referred to in S. 80CCB(2) by way of repurchase The transferor Year in which repurchase takes place The repurchase price
46(2) Distribution of assets of a Company to its share holders on its liquidation The share holder Year in which the share holder receives any money or other assets Moneys received from the Co. + Market value of other assets on the date of distribution less amount assessed as deemed dividend u/s. 2(22)(c)
46A Purchase by a company of its own shares/specified securities (buy back of shares) The share holder or the holder of the specified securities Year in which such shares or other specified securities purchased by the company Amount received from the company
Proviso to s. 47(iii) Shares, debentures, warrants allotted to employees under Employees Stock Option Plan or Scheme framed in accordance with guidelines issued by the Central Government The employee Year in which shares, debentures, warrants are transferred under a gift or an irrevocable trust to the employee FMV on the date of its transfer
50B Slump sale of Capital assets or business undertaking The transferor Year in which slump sale takes place The value received/receivable as the sale
50C Transfer of land or building The transferor Year in which asset is transferred Higher of : (i) sale consideration (ii) value adopted/ assessed/ assessable by State Government for stamp duty valuation
Note :
  1. As per Circular No. 768, dated 24th June, 1998, FIFO method shall be followed in case dematerialised securities. Where the investor has more than one security account, FIFO method shall be followed account wise.
  2. As per Section 55A the AO may refer to the Valuation Officer for ascertaining the fair market value of the asset under following circumstances:
    1. Where in view of the AO the value of the asset claimed by the assessee in accordance with the estimate made by a registered valuer, is less than is FMV or (w.e.f. 1-7-2012, section 55A, clause (a) is amended as follows:

      Where in view of the AO, the value of the asset claimed by the assessee in accordance with the estimate made by a registered valuer is at variance with its fair market value)
    2. Where in view of the AO the value of the asset claimed by the assessee is less than the FMV by so much percentage or by so much amount as may be prescribed or
    3. Having regard to the nature of the asset and other relevant circumstances, it is necessary to do so.

      The amendment in clause (a) above is with effect from 1st July, 2012.
  3. As per newly introduced section 50D (with effect from 1st April 2013), where the consideration received or accruing as a result of the transfer of a capital asset by an assessee is not ascertainable or cannot be determined, then, for the purpose of computing income chargeable to tax as capital gains, the fair market value of the said asset on the date of transfer shall be deemed to be the full value of the consideration received or accruing as a result of such transfer.
  4. The definition of agricultural land has been amended and divided into three categories based on population and shortest aerial distance. Notification by Central Government now not required. 

  COST OF ACQUISITION TABLE 4



* Provision deeming cost of acquisition of self generated goodwill as Nil not applicable to professional firms and cases of notional transfers; e.g., when a person becomes a partner [CBDT Cir. No. 495 of 22-9-1987 168 ITR (St) 87, 105, 106.]
** In case of any capital asset (other than goodwill, trademark, brand name, tenancy rights, stage carriage permit, loom hours or right to manufacture etc.), acquired by the assessee (or the previous owner) before 1-4-1981, the fair market value of the asset as on 1-4-1981 may, at the option of the asses­see, be treated as cost of acquisition.
Note: Where the cost to the previous owner cannot be ascertained the cost of acquisition to the previous owner means the fair market value on the date on which the capital asset became the property of the previous owner. [Sec. 55(3)] The provisions of section 49(2AAA) are inserted by Finance Act, 2010.

24 December 2014

Port will be considered as place of removal in cases of Export

Central Excise v Inductotherm India P. Ltd. 2014 (36) STR 994 (Gujarat High Court)

The Gujarat High Court in the above case has held that Cenvat credit in respect of input services availed under the category of Cargo Handling Services is allowed as the same is inclusive in the definition of ‘input service’.

In the present case, the Appellant is engaged in manufacturing of Induction Melting and Heating Furnace, Induction Welding equipment’s and Spare parts which are classifiable under Chapter Heading 8514, 8515 and 8454 of the Schedule to the Central Excise Tariff Act, 1985 and is availing the cargo handling services for the clearance of final product from the port for the purpose of export under Cenvat Credit Rules, 2004.

The High Court held that in the present case ‘input service’ has to be interpreted in light of the requirement of business and cannot be read restrictively so as to confine ‘place of removal’ only up to the factory gate or only up to depot of manufacturers and accordingly any services availed by the exporters until the goods left India from the port are the services used in relation to clearance of final products up to place of removal.

Therefore, Cenvat credit of cargo handling services will be allowed as the same has been utilized for the purpose of export where the place of removal will be considered to be the port.

Contingency

  • An event that may or may not occur. 
  • A condition that must be met in order for a contract to be legally binding. 
  • Real Estate: A provision or provisions in a contract that must be met for the contract to be considered enforceable. For example, a buyer may offer a contract that is contingent upon the buyer's obtaining suitable financing; if financing is not obtained, the buyer may back out of the agreement without penalty.

Operating Income

A measure of a company's earning power from ongoing operations, equal to earnings before deduction of interest payments and income taxes. also called operating profit or EBIT (earnings before interest and taxes).

CPC (TDS) advisory for use of Digital Signatures on TRACES

The Centralized Processing Cell (TDS) has released a new feature on its web-portal TRACES, where a Digital Signature Certificate (DSC) can be used for availing various services offered by the portal.

You are advised to take note of the following key information in this regard:
  • Under Information Technology Act, 2000, a "Digital Signature" means authentication of any electronic record by a subscriber by means of an electronic method or procedure in accordance with the provisions of section 3.
The Digital Signature keeps record of the person who is availing the facility.
  • Please exercise caution in use of Digital Signature and should not be shared in any circumstances. If shared, the person using DSC shall also be liable to consequences.
  • In accordance with the Information Technology Act, 2000, every subscriber shall exercise reasonable care to retain control of the private key corresponding to the public key listed in his Digital Signature Certificate and take all steps to prevent its disclosure to a person not authorised to affix the digital signature of the subscriber.
  • TRACES has provided facility for Admin and Sub-users to facilitate authorised Sub-users to carry out activities on TRACES and submit to the Admin user. The Admin user has the rights to approve the activities using the DSC.
  • It is therefore, advised to refrain from using the Digital Signature of any person other than the Authorised Person appointed by the deductor, for carrying out any activity on TRACES.

Please note that the "Authorised Person" is referred to as "Person Responsible" in accordance with Section 204 read with Section 200 of the Income Tax Act, 1961 and other relevant provisions for deduction of tax.

Due date to Deposit Pre-2005 Currency Notes extended to June 30, 2015

Soliciting cooperation from the public in withdrawing these notes from circulation, the Reserve Bank of India has urged them to deposit the old design notes in their bank accounts or exchange them at a bank branch convenient to them. The Reserve Bank of India has stated that the public can do so till June 30, 2015. Earlier, in March 2014, it had set the last date for public to exchange these notes was January 01, 2015.

The Reserve Bank has stated that the notes can be exchanged for their full value. It has also clarified that all such notes continue to remain legal tender.

Explaining the move, the Reserve Bank said that now the notes in Mahatma Gandhi series have been in circulation for a decade. A majority of the old notes have also been withdrawn through bank branches. It has, therefore, decided to withdraw the remaining old design notes from circulation. Not having currency notes in multiple series in circulation at the same time is a standard international practice, the Reserve Bank has pointed out.

The Reserve Bank will continue to monitor and review the process so that the public is not inconvenienced in any manner.

23 December 2014

Commission paid to affiliate on import of furnace oil was illegal as it was purchased in breach of law

Overseas Trading & Shipping Co. (P.) Ltd. v. ACIT [2014] 51 taxmann.com 374 (Supreme Court)

Where purchases of furnace oil from sister concern, its storage and consequent sale were in complete breach of Solvent, Raffinate & Slop [Acquisition, Safe, Storage & Prevention of Use in Automobiles] Order, 2000, payment made by assessee to sister concern could not be allowed under section 37(1).

Facts:
  • The assessee entered into a contract with a foreign company for purchase of furnace oil. It failed to get licence for storage and sale of solvents, as required by the Solvent, Raffinate & Slop [Acquisition, Sale, Storage & Prevention of Use in Automobiles] Order, 2000 (‘SRS order’).
  • After realizing that any import in absence of valid license would attract criminal/penal proceedings, it approached its sister concern who had said licence. It transferred the contract of import in the name of its sister concern and made payment for said purpose by claiming it as commission.
  • The AO disallowed the commission.
  • On appeal CIT(A) allowed said payment which was subsequently reversed by the Tribunal. Further the High Court upheld the order of Tribunal. The assessee filed the Special leave petition before Supreme court against impugned order of High Court.

The Supreme Court dismissed the Special Leave Petition against the order of High Court, wherein the High Court held as under:
  • When the SRS order prohibits importation of goods, its acquisition, storage and sale, without a valid licence, assessee could not import such furnace oil without issuance of requisite licence.
  • Even assuming that the sister concern had a licence for importing the furnace oil, the assessee diverted its contractual obligation for averting the payment of damages, yet nothing was brought on the record to explain as to how the sum termed as 'commission' for performing the contractual obligation was needed to be paid to the sister concern.
  • It also emerged from record that not only the assessee got contract executed through its sister concern even by a valid licence held by the sister concern, the subsequent purchases from the sister concern of the very furnace oil, its storage and consequent sale appeared to be in complete breach of the SRS Order.
  • Even the nomenclature used as 'Commission' was not taken into consideration and if the character of payment in substance was to be looked at, nowhere it emerged that there was any valid claim for allowing the impugned sum (paid as commission) which was a consideration for transfer of contractual obligation.
  • Even if there was no loss to the revenue because the revenue had recovered tax on the said amount from the sister concern, then also, when from the record itself, it showed that the transaction was in contravention of SRS order and entire modus was also apparent from the paper book produced by the assessee, disallowance by the Tribunal invoking its statutory power required to be sustained.

21 December 2014

Norms of Corporate Fraud Reporting

Section 143 of Companies Act, 2013 read with Rule 13 of Companies (Audit and Auditors) Rules, 2014 mandates that if an auditor of a company, in the course of performance of his duties as an auditor, encounters an offence involving frauds committed by officers or employees of a company against such company he should immediately report it to the Central Government.

In view of representations received from stakeholders, an amendment of Section 143 of Companies Act, 2013 is included in the Companies (Amendment) Bill, 2014 passed by the Lok Sabha on 17.12.2014. The amendment proposes to enable prescription or thresholds beyond which fraud shall be reported to the Central Government. Below such threshold, it will be reported to the Audit committee. 

Press Information Bureau
Government of India
Ministry of Corporate Affairs 

Sale on principal-to-principal basis to be included in 'turnover' for purpose of tax audit under section 44AB

Attara Gas Service v. CIT (2014) 50 taxmann.com 445 (Allahabad High Court)

Sale of gas cylinders to consumers was to be included in turnover for purpose of Section 44AB when assessee was appointed as a distributor on principal-to-principal basis for sale of such cylinders.

Facts:
  • The assessee was a distributor of Indian Oil Cooking Gas and was also engaged in sale of gas stoves and spare parts.
  • The assessee did not include the turnover from sale of cylinders for computing the threshold limit prescribed under section 44AB. By including such sales, the turnover of assessee would exceed the threshold limit prescribed under section 44AB.
  • Thus, the Assessing Officer (AO) issued a show-cause notice to assessee on the ground that it did not get its accounts audited under section 44AB.
  • The assessee contended that it had sold gas cylinders on commission basis as the ownership of same remained with the Indian Oil Corporation. Therefore, sale of gas cylinders could not be included in its turnover to compute the threshold limit prescribed under section 44AB. The Assessing Officer did not agree with assessee's reply and imposed a penalty on it under section 271B.
  • The appellate authorities affirmed the order of AO. Aggrieved assessee filed the instant appeal before the High Court.

The High Court held in favour of revenue as under:
  • The agreement clearly indicated that the assessee was appointed as a distributor on principal-to-principal basis for sale of gas cylinders to consumers and it was not selling gas cylinders on commission basis.
  • Consequently, the sale of gas cylinders was liable to be included in the turnover of the assessee. Since the turnover exceeded the threshold limit prescribed under Section 44AB, the books of account were liable to be audited.
  • Since the books of account were not audited, penalty proceedings were rightly initiated. The explanation given by the assessee for non-compliance with the provision of section 44AB was neither sound nor justifiable.

20 December 2014

Income Tax returns and information provided to tax authorities are exempt from disclosure under RTI Act

Naresh Trehan v. Rakesh Kumar Gupta [2014] 51 taxmann.com 548 (Delhi)

Issue

Whether the Income-tax returns and other information provided to Income Tax Authorities by a taxpayer are personal and confidential in nature and, therefore, cannot be placed in public domain through RTI Act?


The High Court held as under-
  • Income-tax returns and other information provided to Income Tax Authorities by individuals and unincorporated assessees are confidential in nature and cannot be placed in public domain, as it would be exempt under section 8(1)(j) of Right to Information Act, 2005 (RTI Act).
  • In cases of widely held companies, most information relating to their income and expenditure would be in public domain and, therefore, it is only confidential information that would be exempt from disclosure under section 8(1)(d) of RTI Act.
  • Information furnished by an assessee in income-tax return can be disclosed only where it is necessary thing to do so in public interest and where such interest outweighs in importance any possible harm or injury to assessee or any other third party. However, information furnished by corporate assessees that neither relates to another party nor is exempt under section 8(1)(d) RTI Act can be disclosed.

19 December 2014

Lumpsum amount paid for transfer of know-how wasn’t royalty if payment wasn’t made for any particular period

CIT v. The Andhra Petrochemicals Ltd. [2014] 51 taxmann.com 451(AP)

Assessee had entered into an agreement with UK based company for supply and installation of machinery, which involved transfer of technical know-how. It had paid lumpsum amount in connection with transfer of technical know-how. Such payment could not be treated as royalty as it was not made for any particular period.

Facts:
  • Assessee entered into an agreement with UK based Co. to supply and install certain machinery, which involved transfer of technical know-how.
  • The AO treated the payment inconnection with transfer of technical know-how as royalty. The assessee pleaded that the such payment couldn’t be treated as royalty on following grounds:
    • It was paid in lumpsum and not year after year for the use of patent or any facility;
    • The transfer of technical know-how or patent was for the limited purpose of installation and fixing the machinery.
  • On appeal, the CIT(A) dismissed the appeal of assessee. Further, the Tribunal set aside the order of AO by holding that amount paid to UK Co. couldn’t be treated as royalty.Aggrieved by the order of tribunal, the revenue filed the instant appeal.

The High Court held in favour of assessee as under:
  • Though the royalty is required to be paid periodically during the subsistence of the arrangement, it is quite possible for the parties to agree for payment of a lumpsum amount. However, a lumpsum payment would be deemed as royalty, only when it is for a fixed period for which the facility can be utilised.
  • A lumpsum payment without mentioning the period is prone to take away such amount from the definition of royalty.
  • Royalty, by its very nature, is a sum payable to the owner of a design, invention or trademark by another for using it. It is clearly opposed to an outright transfer.
  • In the instant case, the amount paid in lumpsum was not for any particular period. It was paid for transfer of technical know-how for limited purpose of installation and fixing of machinery. Thus, such lumpsum payment could not be treated as royalty.

18 December 2014

Sum received by international news agency on distribution of news and related photos in India is royalty

Agence France Presse v. ADIT, International Taxation, New Delhi [2014] 51 taxmann.com 186 (Delhi - Tribunal)
 
Facts:
  • The assessee, an International News Agency, was having its headquarter in France. It had been distributing its news and photos connected with news in India through various Indian News agencies. 
  • There were two categories of payments received by assessee from India - one for transmission of news and the other for transmission of related photos. 
  • The Assessing Officer (‘AO’) as well as the CIT(A) held that copyright subsisted in news-reports and photographs circulated by the assessee in terms of Copyright Act, 1957. Hence, the payments received by the assessee would qualify as 'royalties' under section 9(1)(vi) and Article 13(3) of the India-France Treaty (‘DTAA’). 
  • The assessee submitted that no copyright subsisted in the work of the assessee as news reports as well as photographs provided by the assessee lacked originality and were devoid of any creativity.

The Tribunal held in favour of revenue as under:
  • On a perusal of Article 13 of DTAA, it was evident that 'royalty' cover within its fold payments pertaining to copyright of literary, artistic work, etc. Since these terms had neither been defined nor illustrated under Income-tax Act nor under DTAA, reliance was to be placed on relevant provisions of the Indian Copyright Act, 1957 to understand their true meaning and context. 
  • To appreciate the distinction between mere reporting of facts from news stories, it would be worthwhile to analyse the recent reporting about Malaysia Airlines Flight 370 flight that disappeared on 8 March, 2014. In one of the newspapers i.e. 'Strait Times', the catchline read as Malaysia's MH 370 report shows delayed response, offers no new clues' while, another newspaper 'The New York Times' reported this incident with the catchline Questions Over Absence of Cellphone Calls From Missing Flight's Passengers'. It was to be pointed out that, the piece reported by the first newspaper consisted of news inputs as well as photographs from AFP while as the latter one consisted of news inputs from 'New York Times News Service'. 
  • From a reading of the above news-item, it is evident that, even though the factum or news remains to be imbedded in a fact its reporting or form of an expression makes it unique. Thus, such news-reports as well as archived data being in the nature of 'original literary works' meet the statutory requirements for copyright outlined under section 13(1)(a) of the Indian Copyright Act, 1957. Hence, copyright subsisted in such news item/news story. 
  • Section 2(c)(i) of the Indian Copyright Act, 1957 categorically includes photographs as artistic work. As per terms of usage of assessee's photos for news items or non-news items, it could not be denied that it had an intrinsic value of its own and when used for 'news items'; it helped to assist in conveying the message in the news story. Hence, copyright subsisted in such photographs/ image under consideration. Therefore, sum received by international news agency on distribution of its news and related photos in India was taxable as royalty.

Provision of No Bail for offences under Companies Act, 2013 removed

As we all aware that Under the Prevention of Terrorism Act (POTA) there was a Harsh Provision regarding bail which says that that any person arrested for terrorism will not get bail till either the Public Prosecutor consents to the bail or the court gives a finding that the person is innocent on the face of it.

If we read Section 212(6) of the Companies Act we will realise that UPA Government has enacted POTA provision of bail in Companies Act, 2013.

This kind of draconian provisions was sought to be deleted from the statute by the Companies (Amendment) Bill 2014 which the Lok Sabha passed yesterday.

While addressing Lok Sabha Shri Arun Jaitley said that

Having removed it from there, they brought in the POTA bail provision under Section 212 (6) of the Companies Act, which says:

“Notwithstanding anything contained in the Code of Criminal Procedure… .the following offences which attract the punishment for fraud as provided in….to a person accused of those offences…no person shall be released on bail unless the prosecutor has been given notice where the prosecutor opposes it, the court is satisfied that reasonable grounds for believing that the person is not guilty of the offences.”

Verbatim, full stop for full stop, comma for comma, they incorporated the POTA provision into the bail provision of this Act. Now this language exists in the narcotics law. When we invite the rest of the world to come to India, form a company, do business and invest in India, are we trying to say that in case you commit any of these offences you will never get bail or you will indefinitely never get bail?

Relevant Extract from Unedited Speech of Minister of Corporate Affar Shri Arun Jaitley given in Lok Sabha on 17.12.2014

I would request any hon. Member, if he has a copy, to pick up section 212(6) of this Act. I am referring to an extraneous fact when in 2004 the UPA came to power, there was a law which the NDA had enacted called the Prevention of Terrorism Act (POTA).

The UPA’s main criticism of POTA was that some of the provisions are very repressive and so they repealed POTA. When they repealed the anti-terrorism law, they incorporated most of the provisions under the Unlawful Activities Prevention Act. But one provision the UPA said that they would not agree to put in the Unlawful Activities Prevention Act was regarding a harsh bail provision. The POTA said that any person arrested for terrorism will not get bail till either the Public Prosecutor consents to the bail or the court gives a finding that the person is innocent on the face of it. Now finding of innocence is not possible till the trial is held. So, the UPA’s own case was that this is not a provision we can agree with and, therefore, they removed that provision from the anti-terrorism law. Having removed it from there, they brought in the POTA bail provision under Section 212 (6) of the Companies Act, which says:

“Notwithstanding anything contained in the Code of Criminal Procedure… .the following offences which attract the punishment for fraud as provided in….to a person accused of those offences…no person shall be released on bail unless the prosecutor has been given notice where the prosecutor opposes it, the court is satisfied that reasonable grounds for believing that the person is not guilty of the offences.”

Verbatim, full stop for full stop, comma for comma, they incorporated the POTA provision into the bail provision of this Act. Now this language exists in the narcotics law. When we invite the rest of the world to come to India, form a company, do business and invest in India, are we trying to say that in case you commit any of these offences you will never get bail or you will indefinitely never get bail? Therefore, most companies said that it is safer for them to switch over to a limited liability partnership than continue to do business.

Now, if you look at the other provisions of the Act, all offences under grievous laws relating to terrorism, narcotics, sedition, prevention of corruption etc., they say that ordinary courts will not try these cases and there will be special courts. So, all offences against a company will go to a Special Court. The ordinary Magistrate’s jurisdiction is taken away. Are we trying to induce investors to come and invest in India or are we trying to scare them away from the country? We have, therefore, brought in an amendment that extremely harsh offences will be before a Special Court and the rest will be before the normal courts of the land. If a man wants to wind up a company, there has to be a provision in law. The case relating to winding up these days normally goes to a single judge of the High Court as one judge in every High Court is a company law judge. If somebody says that there is a commercial insolvency or any other reasoning or the company itself wants to be wound up, it goes to a single judge, there is a procedure to be followed and it gets wound up.

This Bill says that simple company matters and other matters go to a single judge, appeals go to a Division Bench and some extraordinary matters also go to a Division Bench. A company to be wound up has to go to a full Bench of three judges. What is the rationale? That is why I said either some of the provisions are oppressive or some of the provisions like having one judge or two judges or three judges could have even come by an oversight.

Now, let me give you another oversight provision. There are offences companies commit. If there is a company which does not follow the procedure and starts collecting deposits, it is a punishable offence. In the Act, we forgot to make it an offence.

So it is the case of an oversight. If I run through each of these 14, the first two, requirement of capital and seal, the international standard practice now in corporate laws across the world is that you have done away with these requirements. So, here it has been brought at parity with international laws. The next provision, section 76 says, we forgot to provide for an offence where somebody collects deposits in violation of law. We did not make it an offence under the Companies Act; so it has been made an offence