Age of 70 years isn’t an automatic mid-stream disqualification for Managing Director

SRIDHAR SUNDARARAJAN V. ULTRAMARINE & PIGMENTS LTD. (2015) TAXMAN.COM 249 (BOMBAY HIGH COURT) 

Section 196(3) does not operate as an aberration in the appointment of any Director made prior to the coming into force of the 2013 Act, even in a case where the Managing Director crosses the age of 70 years during the term of his appointment; it also does not interrupt the appointment of a Managing Director appointed after 1st April 2014 where at the date of such appointment or re-appointment the Managing Director was below the age of 70 years but crossed that age during his tenure


Issue :
On 1st April 2014, the Companies Act, 2013 (“the 2013 Act”) was brought into force. It introduced a new clause in Section 196(3)(a) of the 2013 Act that apparently sets a lower and upper age limit of 21 years and 70 years Respectively, on the appointments and ‘continued employment’ of Managing Directors, Whole Time Directors and Managers.


The issue in the instant case was whether there would be a mid-stream disqualification for Managing Director on attaining age of 70 years? , i.e., Whether section 196(3)(a) interrupts an appointment of any Managing Director made prior to the coming into force of the 2013 Act, if such Managing Director crosses the age of 70 years during the term of his appointment?


The High Court held as under :

• Under Companies Act, 1956, there was no ‘discontinuance’ of Managing Directorship at the age of 70; the section applied only to his appointment and reappointment. Sections 269(2) and 267 of the 1956 Act are now sought to be merged in Section 196(3), and also further modified (to eliminate the previous regime of Central Government’s approval). It shows that the age of 70 years was never an automatic mid-stream disqualification even under the 1956 Act. It only required a certain precautionary measure at the commencement of the term, i.e., at the time of appointment (or reappointment), i.e., a special resolution.
• There is nothing to suggest that the rationale behind this has in any way changed in the 2013 Act. It cannot be constructed that with the advent of the 2013 Act, every Managing Director at age 70 must, as it were, step down the bus.
• The only conclusion that one can draw is that the word ‘continue’ is correctly used in its strict sense in relation to clauses (b), (c) and (d) of Section 196(3), i.e., as a cessation eo instante on the occurrence of any of the events those sub-clauses contemplate, but in the context of Section 196(3)(a), it means, and can only mean ‘appointment’ and ‘reappointment’.
• Section 196(3) does not operate as an aberration in the appointment of any Director made prior to the coming into force of the 2013 Act, even in a case where the Managing Director crosses the age of 70 years during the term of his appointment; it also does not interrupt the appointment of a Managing Director appointed after 1st April 2014 where at the date of such appointment or re-appointment the Managing Director was below the age of 70 years but crossed that age during his tenure.
• There is no mid-tenure cessation of Managing Directorship as a result of Section 196(3)(a). All that Section 196(3)(a) does is to sound a note of caution in the public interest and to demand from the company a special resolution when a person who has already crossed the age of 70 at the date is proposed to be appointed or reappointed.

RBI cuts repo rate by 50 bps

RBI in a surprise move cut repo rate by 50 bps due to lower than expected inflation. This will put pressure on banks to cut base rates by at least 30 bps immediately. It is expected of banks to announce base rate cuts over the next 1-2days. The focus of the governor’s speech was on transmission of policy rates and reiterated that he would like banks to compute rates based on marginal cost. He also said that the government should also help in making it easier for banks to transmit policy rate cuts by various ways such as cutting rates on small savings. NBFCs with a high proportion of borrowings from banks will benefit from base rate cuts by banks.

Key measures

• RBI cut the repo rate by 50bps. Bond yields have corrected from 7.8% in end June to 7.6% currently. Banks will have the benefit of booking mark to market gains on their AFS bond books following the fall in yields. That benefit will be offset by pressure on banks to cut base rates.

• PNB, BOI, Union and Axis have more leeway to cut base rates compared to SBI and BoB as SBI and BoB banks have a lower duration AFS portfolio. RBI expects banks to transmit monetary policy rate cuts of 125 bps since Jan 2015. Banks have cut base rates by 30 bps on an average. It is believed that there will be pressure on them to cut by at least 50-60bps more. As such, bond gains may not be enough to wipe out the negative impact of base rate cuts for most banks.

• RBI has announced reduction in SLR by 0.25% every quarter to 19% by March 2017 from the current 21.5%.

• The securities that banks can hold under HTM (Held to Maturity) have been reduced to 21.5% from current 22%. After this cut the proportion of HTM has been aligned to the level of SLR which is also 21.5%. The lower proportion of HTM will be positive for banks in the current environment of falling rates as banks will have a higher proportion of securities which they will mark to market. From now on HTM and SLR will move in tandem.

• RBI has now mandated banks to disclose divergences from RBI norms that RBI auditors find in banks’ accounts on asset / NPL classification and provisioning. These divergences have to be reported in notes to accounts where they exceed a specified threshold. Separate guidelines will be issued later. So banks will have to disclose where RBI has found flaws in their NPL classification and income recognition – this will be an important disclosure and will have an impact on stock prices.

• RBI has said that they will lower risk weights on affordable housing loans to individuals. Detailed guidelines will be issued later. This is positive for housing financiers that have a large proportion of affordable housing loans – LICHF, HDFC, SBI, ICICI Bank (in that order). It is not known if RBI changes its definition of affordable housing. Currently for the purpose of risk weights, all housing loans upto Rs2M with LTV of 90% or less qualify for a low 50% risk weight. For loans above Rs2M, a risk weight of 50% is allowed only if the LTV is 80% or less. (Notably the definition of affordable housing for the purpose of issuing SLR/priority is different from the definition used while calculating risk weights. For the purpose of issuing long term bonds, RBI defines affordable housing as loans of Rs4M in non-metro towns with value of property not exceeding Rs5M and Rs5M in metros with value of property not exceeding Rs6.5M). We do not know which definition RBI will use for these guidelines but most likely the former.

Private companies can take loan from relatives of its directors

The Companies (Acceptance of Deposits) Rules, 1975 allowed private companies to borrow any loan or to accept deposits from directors, shareholders and relatives of directors. However, the Companies Act, 2013 restricted private companies from accepting deposits from relative of directors. Now, MCA has made an amendment to the Companies (Acceptance of Deposits) Rules, 2014 (‘Deposit Rules’). Amendments have been made to allow private companies to accept deposits from relative of its directors subject to condition that:

The relative of the director of the private company from whom money is received, furnishes to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others and the company shall disclose the details of money so accepted in the Board's report

Service provider can't ask revenue to recover taxes from service-recipient even if recipient agrees to pay Service Tax

Undoubtedly, service tax burden can be transferred by contractual arrangement to other party; but, on that account, assessee cannot ask revenue (except under reverse charge) to recover tax dues from a third party or to wait for discharge of liability by assessee till it has recovered amount from its customers (i.e., service recipients).

Facts :

• The assessee, Delhi Transport Corporation (DTC), entered into contracts with agencies (contractors/advertisers) providing space to such parties for display of advertisements on bus-queue shelters and time-keeping booths.
• The agreement provided that it shall be the responsibility of the contractor/advertiser to pay advertisement tax or any other taxes directly to the concerned authority in addition to the quoted license fee.
• Assessee didn’t pay service tax to the department as it, by way of contract, casted responsibility on the contractor/advertiser to pay the same. However, service tax was also not paid by the contractor/advertiser.
• The Department raised demand of service tax on assessee under 'Sale of Advertising Space or Time Services'.

The High Court held in favour of revenue as under :

• Though assessee's services were taxable, but the service tax burden could have been transferred by way of a contract.
• The ruling of Supreme Court in the case of Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran (2012) 35 STT 664/21 taxmann.com 20 cannot detract from the fact that in terms of the statutory provisions it is the assessee which is to discharge the liability towards the revenue on account of service tax. Undoubtedly, the service tax burden can be transferred by contractual arrangement to the other party. But, on account of such contractual arrangement, the assessee cannot ask the revenue to recover the tax dues from a third party or wait for discharge of the liability by the assessee till it has recovered the amount from its contractors.
• Hence, demand was confirmed with interestas contractor/advertiser didn’t pay the service tax to the Department, though they were contractually liable to pay the same.

RBI issues FAQs on Forex facilities and 'Liberalised Remittance Scheme' for residents

Are you planning to travel abroad and you are not sure how much foreign exchange can you buy when travelling on private visits to country outside India? You are not sure as how much foreign currency can be carried in cash for travelling abroad? You want to know how much Indian currency can be brought in while coming into India? 

Now RBI has released FAQs in respect of Forex facilities including Liberalized Remittance Scheme for general guidance and to answer these type of queries. Certain FAQs are highlighted as under:

• How much foreign exchange can one buy when traveling abroad on private visits to a country outside India?

For private visits abroad, other than to Nepal and Bhutan, any resident can obtain foreign exchange upto an aggregate amount of USD 2,50,000, from an Authorised Dealer or Full-Fledged Money Changers (FFMCs), in any one financial year, irrespective of the number of visits undertaken during the year.

This limit has been subsumed under the Liberalised Remittance Scheme w.e.f. May 26, 2015. If an individual has already remitted any amount under the Liberalised Remittance Scheme in a financial year, then the applicable limit for travelling purpose for such individual would be reduced from USD 250,000 by the amount so remitted.

• How much foreign currency can be carried in cash for travel abroad?

Country of travel                                        Limit of Forex

Travelers proceeding to Iraq and Libya         Upto USD 5000

ii. Travelers proceeding to Islamic republic  Upto USD 25000

iii. For Haj/Umrah pilgrimage                      USD 250, 000 or                                                                   specified limit.

iv. Others                                                   Upto USD 3000                                                                     and balance in                                                                     bank draft

• How much Indian currency can be brought in while coming into India?

Returning from                  Limit of Forex 

Nepal/Bhutan                    Upto USD 25,000 in Denomination not                                    exceeding of Rs. 100

Others                               Upto USD 25,000

Pakistan/ Bangladesh         Upto USD 10,000 per person

• What is the Liberalised Remittance Scheme (LRS) of USD 2,50,000 ?

Under the LRS, all resident individuals, including minors, are allowed to freely remit upto USD 2,50,000 in financial year for any permissible current or capital account transaction or a combination of both.

Further, resident individuals can avail of foreign exchange facility for the purposes mentioned in Para 1 of Schedule III of FEM (CAT) Amendment Rules 2015, within the limit of USD 2,50,000 only. If an individual has remitted any amount under LRS in a financial year, then the applicable l limit for such individual would be reduced from USD 250,000 by the amount so remitted. In case of remitter being a minor, the LRS declaration form must be countersigned by the minor’s natural guardian.

Cost of additions or improvements on habitable house is also eligible for section 54F relief

Mrs. Rahana Siraj v. CIT [2015] 58 taxmann.com 333 (Karnataka high Court)

Where asset acquired by assessee is habitable, cost of any addition or improvements made on that asset would also be eligible for exemption under section 54F

Facts

• Assessee earned capital gain on sale of a residential house property. She invested the sale proceed to purchase a habitable house property and also spent some amount to make addition or improvement to said property. Accordingly, she claimed exemption under section 54F.
• The exemption so claimed by assessee was disallowed to the extent amount was spent towards making addition or improvement to habitable house property. The contention of the revenue was that no exemption under section 54F could be available in respect of the amount invested by way of improvement to a habitable house property.
• Aggrieved by the order of appellate authorities, assessee filed the instant appeal before the High Court

The High Court held in favour of assessee as under-

• As per section 54F, it is the ‘cost of the new asset’ which is to be taken into consideration while determining the capital gain exemption and not the "consideration for acquisition of the new asset".
• In law, it is permissible for an assessee to acquire a vacant site and carry out construction thereon; the cost of the new asset would be cost of land plus (+) cost of construction.
• On the same analogy, even though assessee purchased a new asset, which was habitable but required additions, alternations, modifications and improvements and if money was spent on those aspects, it would be included in the cost of the new asset.
• The approach of the authorities that once a habitable asset is acquired, any additions or improvements made on that habitable asset are not eligible for deduction, is contrary to the statutory provisions.
• Hence, amount spent towards making addition or improvement in habitable house property would also be eligible for Section 54F exemption.

Department of Income Tax Receives 2.06 Crore Returns for financial year 2014-15 as on 07.09.2015

In the Financial Year (F.Y.) 2015-16, Department of Income Tax Receives 2.06 Crore Returns on the E-Filing Portal as on 07.09.2015 Registering an Increase of 26.12% over the Corresponding Period of the Preceding F.Y. 2014-15; 32.95 Lakh E-Returns Verified Through Electronic Verification Code;

As on 07.09.2015 Central Processing Centre Processed 45.18 Lakh Returns Relating to the A.Y. 2015-16 and Issued Refunds to 22.14 Lakh Tax Payers for the A.Y.2015-16: Income-Tax Department Thanks the Taxpayers for Making E-Enabled Initiatives a Success

It has been the constant endeavor of the Income-tax Department to make compliance simpler for the taxpayer through the use of technology. E-filing of returns, refund banker scheme and the newly introduced e-verification of Income-tax returns for the Assessment year 2015-16 are some of the key initiatives undertaken by the Department for making filing of returns simple and easy for the common taxpayer.

The Income Tax Department would like to acknowledge and thank the taxpayer for the widespread support for its e-Governance initiatives.

The taxpayers have come forward in greater numbers for e-filing of returns in the current year. In the Financial Year (F.Y.) 2015-16, the Department has received 2.06 crore returns on the e-filing portal as on 07.09.2015 which is an increase of 26.12% over the corresponding period of the preceding the F.Y. 2014-15, when 1.63 crore returns were e-filed. The peak filing rate in the F.Y. 2015-16 touched 3,475 returns per minute as compared to 2,901 returns per minute in the F.Y. 2014-15.

To facilitate the taxpayers by providing end-to-end e-enabled services and reduce compliance burden, the Department offered the facility of electronic verification of Income Tax Return for the A.Y. 2015-16 through an electronic verification code (EVC). In the short period since its introduction, 32.95 lakh e-returns have been verified through EVC. Use of EVC has dramatically reduced the time taken for processing of e-filed returns for the A.Y. 2015-16. As on 07.09.2015 Central Processing Centre had processed 45.18 lakh returns relating to the A.Y. 2015-16 and issued refunds to 22.14 lakh tax payers who had claimed refunds for the A.Y.2015-16.

The Department remains committed to improving taxpayer services through enhanced use and further improvement in technologies.

Illegally encroached land is not a capital asset; profit arising on its sale is taxable as income from other source

ITO v Bhagwan T. Fatnani[2015] 58 taxmann.com 227 (Mumbai - Tribunal)

Property illegally encroached by assessee would not be considered as 'Capital asset' under section 2(14) and, consequently, gain arising from transfer of such property could not be assessed as capital gain but as income from other sources.

Facts:

• The assessee had shown long-term capital gain from sale of unauthorisedly encroached school land for which he had no title/right.
• The Assessing Officer held there was no capital asset owned by assessee as he did not have legal right or title over the asset and, therefore, the income declared was not chargeable under section 45 but under section 56 as income from other sources.
• On appeal, CIT (A) reversed the findings of AO. Aggrieved with the CIT(A) order, revenue filed the instant appeal before Tribunal.

The Tribunal held in favour of revenue as under:

• The assessee pleaded that the definition of capital asset under Section 2(14) has used words property of 'any kind' and it is not necessary that it should be lawfully acquired property. This proposition could not be accepted because the legislature in its wisdom has used this word for lawful property only.
• If the plea of the assessee was allowed, then any person will encroach upon a Government land by showing the same in his balance sheet and shall claim capital gains, which is not permissible.
• Under the charging section of capital gains, the crucial requirements are that there must be a transfer and such transfer must be of a capital asset. The primary school land was encroached upon/illegally occupied by the assessee and there was no transfer of any capital asset.
• Capital gains under section 45 accrue only if there is a sale or any transfer of the capital asset. But in the instant case, there was no transfer as such the assessee encroached upon the school land. Accordingly, the said land could not be called as capital asset owned by assessee.
• Since it was not a case of sale or transfer of capital asset, there was no question of capital gains. Hence, profit arising on sale of encroached land would be taxable as income from other source.

Uniform allowance paid to employees isn’t exempt if no dress code has been specified for employees

Facets Polishing Works (P.) Ltd. v. ITO [2015] 58 taxmann.com 373 (Ahmedabad - Tribunal)

No exemption under section 10(14) shall be granted in respect of uniform allowance paid to employees if there was no dress code and the employees were free to wear any dress.

Facts

• Assessee paid uniform allowance to its employees. The allowance so paid was claimed as deduction under Section 10(14) and not included in the salary of the employees for the purpose of deduction of tax at source under Section 192;
• b) The Assessing Officer disallowed the claim and included the allowance for purpose of deduction of tax at source;
• CIT(A) affirmed the disallowance.

The Tribunal held in favour of revenue as under:

• The following two conditions must be satisfied to avail exemption under Section 10(14):
• the allowance should be given to meet expenses incurred for performance of official duties;
• the expenditure must be actually incurred.
• In the instant case, the assessee was unable to satisfy any of the conditions as there was no dress code for the employees and they were free to wear any dress;
• Therefore, allowance could not be said to be granted to meet the expenses incurred for official purposes. Further, assessee was unable to establish that the expenditure was actually incurred;
• Hence, uniform allowance paid to employees must be included in their salary for the purpose of deduction of tax at source under Section 192.

Scrutiny Assessment Guidelines - FY 2015-16

Please find below the guidelines issued by CBDT with regards to captioned subject.

Instruction No. 08/2015

Government of India

Ministry of Finance

Department of Revenue (CBDT)

North-Block, IT (A-II) Division, New Delhi

Dated- 31st of August, 2015

To

All Pr. Chief-Commissioners of Income-tax/Chief-Commissioners of Income-tax

All Pr. Directors-General of Income-tax/Directors-General of Income-tax

Subject : Compulsory manual selection of cases for scrutiny during the Financial Year 2015-2016-regd:-

1. In super session of earlier Instructions on the above subject, the Board hereby lays down the following procedure and criteria for manual selection of returns/cases for scrutiny during the financial-year 2015-2016:-

(a) Cases involving addition in an earlier assessment year in excess of Rs. 10 lakhs on a substantial and recurring question of law or fact which is either confirmed in appeal or is pending before an appellate authority.

(b) Cases involving addition in an earlier assessment year on the issue of transfer pricing in excess of Rs. 10 crore or more on a substantial and recurring question of law or fact which is either confirmed in appeal or is pending before an appellate authority.

(c) All assessments pertaining to Survey under section 133A of the Income-tax Act, 1961 (‘Act’) excluding those cases where books of accounts, documents etc. were not impounded and returned income (excluding any disclosure made during the Survey) is not less than returned income of preceding assessment year. However, where assessee retracts the disclosure made during the Survey, such cases will not be covered by this exclusion.

(d) Assessments in search and seizure cases to be made under section(s) 158B, 158BC, 158BD, 153A & 153C read with section 143(3) of the Act and also for the returns filed for the assessment year relevant to the previous year in which authorization for search and seizure was executed u/s 132 or 132A of the Act.

(e) Returns filed in response to notice under section 148 of the Act.

(f) Cases where registration u/s 12AA of the IT Act has not been granted or has been cancelled by the CIT/DIT concerned, yet the assessee has been found to be claiming tax-exemption under section 11 of the Act. However, where such orders of the CIT/DIT have been reversed/set-aside in appellate proceedings, those cases will not be selected under this clause.

(g) Cases where the approval already granted u/s 10(23C)/35(1)(ii)/35(1)(iii)/10(46) of the Act has been withdrawn by the Competent Authority, yet the assessee has been found claiming tax-exemption/benefit under the aforesaid provisions.

(h) Cases in respect of which specific and verifiable information pointing out tax-evasion is given by Government Departments/Authorities. The Assessing Officer shall record reasons and take prior approval from jurisdictional Pr. CCIT/CCIT/Pr. DGIT/DGIT concerned before selecting such a case for scrutiny.

2. Computer Aided Scrutiny Selection (CASS): Cases are also being selected under CASS on the basis of broad based selection filters. List of such cases shall be separately intimated in due course by the Pr.DGIT(Systems) to the jurisdictional authorities concerned.

3. It is reiterated that the targets for completion of scrutiny assessments and strategy of framing quality assessments as contained in Central Action Plan document for Financial-Year 2015-2016 have to be complied with and it must be ensured that all scrutiny assessment orders including the cases selected under the manual criterion are completed through the AST system software only. Further, in order to ensure the quality of assessments being framed, Pr. CCsiT/CCsiT/Pr. DsGIT/DsGIT should evolve a suitable monitoring mechanism and by 30th April, 2016, such authorities shall send a report to the respective Zonal Member with a copy to Member (IT) containing details of at least 50 quality assessment orders from their respective charges. In this regard, IT Authorities concerned must ensure that cases selected for publication.