SPN Missive March 2014

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Dear Patron, …

Dear Patron,

Here we are with the Thirty forth successive issue of our monthly ‘Missive’.

We trust you will enjoy reading this Missive, even while soaking in the contents. We would very much appreciate your feedback which consistently helps us in improving and upgrading the contents.

Thanks and regards,

Knowledge Management Team

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  • 1. MISSIVE Volume XXXIV March 2014
  • 2. Topics Page No Direct Tax 1 Transfer Pricing 5 Service Tax 7 Central Excise 8 Value Added Tax 8 Customs 9 FEMA 10 Company Law 12 Transactions that made headlines 14 Never hold your head high with pride or ego, even the winner of a gold medal gets his medal only when he puts his head down!!! Index Dear Patron Here we are with the Thirty fourth successive issue of our monthly ‘Missive’. We trust you will enjoy reading this Missive, even while soaking in the contents. We would very much appreciate your feedback which consistently helps us in improving and upgrading the contents. Thanks and regards, Knowledge Management Team
  • 3. 1 DIRECT TAX CBDT Circular No. 5/2014 dated 11 February 2014 Disallowance under section 14A read with Rule 8D The current circular clarifies that the legislative intent is to allow only that expenditure which is relatable to earning of exempt income and it, therefore, follows that the expenses which are relatable to the earning of exempt income have to be considered for disallowance, irrespective of whether any such income has been earned during the tax year or not. The circular further explains that the heading of the Section, which reads as “Expenditure incurred in relation to income not includible in Total income”, as also the language of Rule 8D which refers to, “income from which does not or shall not form part of total income”, support that it is immaterial that the taxpayer should have earned the exempt income during the tax year under consideration for attracting disallowance under the Section. Key Highlights of Interim Budget of 2014- 15 No change in tax rates The existing income tax rates for the tax year 2013-14 will continue for tax year 2014-15 as well. Tax holiday for the power sector comes to an end The Income Tax Act was amended by Finance Act 2013 to extend the tax holiday for undertakings engaged in power generation, transmission or distribution if it begins to generate power or starts transmission or distribution before 31 March 2014 or undertakes substantial renovation and modernization of existing network of transmission or distribution line before 31 March 2014. This being an Interim Budget, no further extension has been proposed. Concessional tax rate u/s 115BBD may come to an end Concessional tax rate of 15% on dividend received from foreign company shall not be available after 31 March 2014, i.e. dividends earned from 1 April 2014 onwards would be subject to regular tax rates. New approach on tax benefits for funding scientific research A Research Funding Organization (RFO) is planned to be set up that would fund research projects selected through a competitive process. Contributions to RFO shall be eligible for tax benefits. At this stage, this is only a proposal and for implementing this, changes to the ITA need to be made. Oswal Agro Mills Ltd. vs. Commissioner of Income-tax (ITA No. 41/2000) (Delhi High Court) Section 43B doesn't apply to contractual liability to pay customs duty to the importer of goods Facts
  • 4. 2 Oswal Agro Mills Ltd. (hereinafter referred to as the “assessee”) engaged in manufacturing and trading of products like de-oiled meals, industrial hard oils, edible oils etc. claimed an expenditure u/s 43B of Income Tax Act, 1961 of Rs 1,60,33,064 and Rs 1,64,87,375 w.r.t AY 1986- 87 and 1987-88 respectively on account of additional custom duty ( payable by the assessee as per the terms of agreement with the supplier “importers”) which is disputable and pending before the Supreme Court via writ petition filed by the importers. Assessing Officer and Tribunal disallowed the claim made by the assessee. Assessee is in appeal before the High Court. Held High Court held against the assessee and disallowed the expenditure so claimed based on the following findings: 1. The liability in question is “contingent liability” as defined under AS-29 and the same would be payable by the assessee (as per the terms of agreement with the importers) only when the importers shall be called upon to pay the additional custom duty. Since, the Writ petition with respect to the same is pending before the Supreme Court, hence, the liability is contingent upon the happening of an uncertain future event i.e. outcome of the Writ petition so filed. 2. Held that a liability actually existing in the relevant accounting year could be deductible as expenditure for the purposes of Income Tax, however, contingent liabilities did not constitute expenditure and could not be the subject matter of deduction even under the mercantile system of accounting. 3. It was further explained that expenditure is what is paid out and is something which is gone irretrievably. As per the facts of the case, the bank guarantee provided by the assessee cannot be said to be expenditure as the same has not been encashed nor appropriated by the customs authorities. Also, since the ownership of the bank guarantees remained with the assessee, therefore, the amount covered by the bank guarantees would not qualify for deduction from the total income as per the provisions of section 43B. Director of Income-tax vs. E Funds IT Solution (ITA Nos. 735/2011 and others) (Delhi High Court) Indian subsidiary providing back office services to foreign enterprise shall not be deemed as its PE merely because it is being indirectly controlled by it Facts E Funds Corporation and E Funds IT Solutions Inc (assessee) are companies incorporated and residents of US engaged in the business of electronic payments, ATM management etc. E Fund India (Indian Affiliate) is an Indian company and an indirect wholly owned subsidiary of E Funds Corporation. The Indian affiliate supported the assessee as their back office and also carried out data entry operations with respect to the above businesses of the assessee. The Tax authority contended that the assessee had taxable presence in India by way of business connection as well as a PE as defined under Article 5 of India-USA DTAA. Tribunal upheld the Authority’s contention that a PE exists but
  • 5. 3 disputed the method of attribution so adopted. Both appealed to the High Court against Tribunal’s order. Held High Court held that no PE of the taxpayer exists in India based on the following findings: 1. Business connection did exist in India as the Indian affiliate was providing information to the taxpayers for the purpose of entering into contracts with third parties. Also, the said contracts were being performed partly or fully by the subsidiary as an assignee or sub- contractor. However, the taxpayers could avail the more beneficial provisions under the DTAA. 2. As per Article 5(6) of the DTAA, the existence of a subsidiary does not, by itself, constitute the subsidiary a PE of its parent, unless the contrary is proved. 3. The competent authorities of the two countries had agreed, under the Mutual Assistance procedure (MAP) provided in the DTAA, to taxation of income of the taxpayers in India based on a formula. This did not imply that the taxpayer have conceded to a PE presence in India. Whether or not a PE exists is a matter of law and has to be determined based on merits of the case. 4. The taxpayers did not have any assets or a licensed office as their presence in India. There was no evidence that the taxpayers had “right to use” or “disposal right” over the premises of the Indian affiliate. Hence, it would not constitute fixed place PE in India. Reliance was also placed on the SC decision in case of Morgan Stanley and Co. 5. None of the employees of the taxpayers have visited India even for a short period. Even the two employees of the taxpayers who were transferred to the Indian affiliate were working for the Indian affiliate and their entire expenditure was also to be borne by Indian affiliate. Hence, they were not rendering any services in India on behalf of the foreign taxpayers. Therefore, subsidiary cannot be contended to constitute a service PE as well. 6. Indian affiliate does not constitute agency PE of the taxpayer as it was not authorized to conclude contracts on behalf of the taxpayer and did not maintain any stock or merchandize or secure orders on behalf of the taxpayer. M/S. KOSTUB INVESTMENT LTD. vs CIT (ITA No. 10/2014) (Delhi High Court) Amount spent on the higher education of son of a Director is deductible as “business expenditure” u/s 37 of Income Tax Act 1961 Facts The appellant company claimed an expense of INR 23,16,942 from the computation of total income as the same was incurred for the higher education of an employee who happens to be the son of the Director. AO disallowed the expenditure so claimed and CIT (A) upheld the same. The Assesse is in appeal before the High Court. Held
  • 6. 4 High Court is of the opinion that the expenditure claimed by the assessee to fund the higher education of its employee to the tune of `2316,942/- had an intimate and direct connection with its business, i.e. dealing in security and investments. The assessee furnished its resolution authorizing disbursement of the expenses to fund Dushyant Poddar’s MBA. It secured a bond from him, by which he undertook to work for five years after return within a salary band and he had in fact worked after graduating from the University for about a year before starting his MBA course. Whilst there may be some grain of truth that there might be a tendency in business concerns to claim deductions under Section 37, and foist personal expenditure, such a tendency itself cannot result in an unspoken bias against claims for funding higher education abroad of the employees of the concern. We do not see any such intent in the statute which prescribes that only expenditure strictly for business can be considered for deduction. Necessarily, the decision to deduct is to be case-dependent. BBC World News Limited vs. ADIT (Delhi High Court), Writ Petition (Civil) No. 9064/2011 Extended time limit of 6 years under section 149(1)(b) requires data for prima facie computation of income escaping assessment. Facts BBC World News Limited (formerly known as BBC World Ltd.), a company resident of and incorporated in United Kingdom, a wholly owned subsidiary of BBC Commercial Holdings Limited which in turn is a wholly owned subsidiary of the British Broadcasting Corporation, has filed the present writ petition for setting aside reassessment proceedings initiated in respect of the assessment year 2003-04, by issue of notice dated 30th March, 2010 under Section 148 of the Income Tax Act, 1961. Held High Court held that reassessment is invalid based on the following grounds: 1. In the present case reassessment proceedings have been initiated after four years from the end of the relevant assessment year and as per the first proviso to section 147 of the Act, it has to be shown that there was failure on the part of the assesse to disclose fully and truly all facts necessary for the assessment. In the reasons to believe, it is mentioned that absence of “crucial information” relating to income and expenditure on account of the activities of the petitioner in India had resulted in improper computation of income for the AY 2003-04. Once it is held that the said details were furnished, the reassessment notice would fail and falter. 2. AO had contended that there was non application of mind by the AO in the original assessment proceedings, which was apparent as the assessment order was passed on 24th March 2006, merely 2 days after the purported submissions dated 22nd March 2006 running into 407 pages were filed by the petitioner. Court held that once detailed submissions were made, AO had to apply his mind and form an opinion. Added to it, the issue of method of attribution of income to Indian PE had been examined in the immediately preceding AY by the same AO. Also, the original assessment order further records and mentions the manner and mode of attributing income to the PE in India. Hence, it is merely a case of change in opinion.
  • 7. 5 3. As per the mandate of section 149(1)(b), income escaping assessment should be or likely to exceed 1 lac rupees. This requires prima facie computation of income escaping assessment. This in turn required examination of data and figures relating to "Indian operations”. If we accept the stand of the revenue, then the said data details were not available in the records for AY 2003-04. In the absence of the said details, the averment made in the reasons to believe will only be a guess work or surmise and not cogent or reliable material to form prima facie view. Commissioner of Income Tax- II vs M/s Maruti Suzuki (India) Limited (Delhi High Court) vide Writ petition (Civil) No. 5086/2013 Constitutional validity of Section 254(2A) w.r.t. the power of Tribunal to grant stay against demand for a period exceeding 365 days Facts CIT filed a writ petition with the High Court impugning orders passed by ITAT, extending the stay of recovery of demand in favour of the assessee beyond period of 365 days, in respect of the stay applications filed by Maruti Suzuki (India) Limited and Bose Corporation India Pvt Ltd. The Revenue contended that Tribunal does have power to grant stay of demand pending consideration of the appeal but the same could be exercised within the four corners of Section 254(2A) which prohibits extension beyond period of 365 days. Held High Court held as below: 1. The amendment made to the third proviso vide Finance Act 2008 w.e.f. 1st October 2008, adding the words “not attributable to the assessee”, clearly highlights the intention of the legislature that in any case, tribunal cannot extent stay beyond the period of 365 days from the date of first order of stay. 2. In case default and delay is due to lapse on the part of the revenue, the tribunal is at liberty to conclude hearing and decide the appeal, if there is likelihood that the third proviso to Section 254(2A) would come into operation. 3. An assessee can file writ petition in the High Court pleading and asking for stay as High Court in exercise of powers provided under Articles 226 and 227 of the Constitution, may grant stay and issue directions to the Tribunal as may be required. TRANSFER PRICING DCIT vs. Panasonic AVC Networks India Co Ltd (I.T.A. No. : 4620/Del/2011) Adjustment to profit margin for “capacity underutilization” can be made. The Delhi bench of ITAT held that- Rule 10 B (1)(e)(ii) of the Income Tax Rules 1962 provides that the net profit margin realized in a comparable uncontrolled transaction is adjusted for differences in enterprise entering into such transactions, which could materially affect the net profit margin in open market. Capacity underutilization by enterprises is certainly an important factor affecting net profit margin in the open market because
  • 8. 6 lower capacity utilization results in higher per unit costs, which, in turn, results in lower profits. Thus such an adjustment cannot be denied. In choosing comparables, there cannot be a cherry picking for deciding parameters of rejection. The parameters for rejection of a comparable have to be broad enough of being general application. If a comparable is being sought to be rejected on the ground of its differences vis- à-vis the tested party, similar criteria must be adopted for deciding suitability of other comparables as well. All the comparables must face the same test on which comparability of a particular comparable is being sought to be rejected. Tata Communications Limited Vs DCIT ITA (TP) no. 3121/Mum./2013; ITA(TP) no. 3122/Mum./2013 The Income Tax Appellate Tribunal in this case held that the Commissioner cannot exercise the revisionary jurisdiction under section 263 on the order passed under section 92CA (3) by the TPO. Therefore the order passed by the Assessing Officer cannot be set aside as the order of the TPO under section 92CA (4) is binding on the Assessing Officer. Lummus Technology Heat Transfer BV vs. DCIT (I.T.A. No. : 6227/Del/2012) Unaudited segmental accounts can be relied upon for comparing profitability of controlled transactions with uncontrolled transactions. While size is relevant in entity level comparison, it is not relevant in transaction level comparison within the same entity In applying the Transactional Net Margin Method under Rule 10B(1)(e) it is not necessary that the net profit computations, in the case of internal comparables (i.e. assessee’s transactions with independent enterprise), have to be based on the audited books of accounts or the books of accounts regularly maintained by the assessee. All that is necessary for the purpose of computing arm’s length price, under TNMM on the basis of internal comparables, is computation of net profit margin, subject to comparability adjustments affecting net profit margin of uncontrolled transactions, on the same parameters for the transactions with AEs as well as Non AEs. As long as the net profits earned from the controlled transactions are the same or higher than the net profits earned on uncontrolled transactions, no ALP adjustments are warranted. IJM (India) Infrastructure Ltd vs. ACIT (ITAT Hyderabad) Held - Transfer Pricing provisions do not apply if the AE is assessed in India & there is no chance of shifting of profits outside India or erosion of tax base In the present case, there is no possibility of shifting of profits outside India or erosion of country’s tax base because the PE profits of
  • 9. 7 the AE are assessable to tax in India. Therefore, the transactions with the AEs are outside the purview of the transfer pricing regulations Tilda Riceland Pvt Ltd vs. ACIT (ITA No. : 6279/Del /2012 In this case it was held that there is no bar on reliance of private database under section 10D(3). Rule 10 D(3) is only illustrative in nature and merely describes the information required to be maintained by the assessee under section 92D The logic employed by the Transfer Pricing Officer that since databases compiled by private entities is not included in rule 10D (3), such databases cannot be relied upon by the assessee is clearly fallacious in as much as an item not being included in illustrative list of required documents does not take outside the ambit of ‘acceptable document’ for the required purposes. It was open to the TPO to, if he had any doubts, call for further information from this database supplier and examine authenticity of the data so furnished. Thus the rejection of data as unreliable on a technical ground is not tenable in law. TNS India Pvt. Ltd. v. ACIT [TS-21-ITAT- 2014(HYD)-TP] The taxpayer was engaged in conducting quantitative and qualitative market research. It had entered into several international transactions with its associated enterprises (AEs), of which the disputed transaction was that of payment of management fees. The other international transactions were accepted as having arm’s length pricing, after being aggregated and benchmarked using Transaction Net Margin Method (TNMM). The Transfer Pricing Officer (TPO) challenged the management fee transaction and determined its arm’s length price (ALP) to be NIL. However, the Tribunal, in principle, allowed the claim of management fees. It observed that since the TPO had not examined whether or not the payment of management fee was in accordance with the pricing methodology laid out in the inter-company service agreement, the matter relating to quantification of the claim was restored back to the TPO. SERVICE TAX Amendments in mega exemption notification Loading and unloading, packing, storage and warehousing of Rice have been exempted from levy with effect from 17 March 2014 Transportation of Rice, either by rail or vessel or a goods transport agency, was exempt from levy vide entry number 20 (i) and 21 (d) of mega exemption notification. However, loading and unloading, packing, storage and warehousing of Rice were not exempt. By virtue of entry number 40 in mega exemption notification, with effect from 17 February 2014, loading and unloading, packing, storage and warehousing of Rice would also be exempt from service tax levy. Specified services provided by Cord Blood Banks have been exempted from levy with effect from 17 February 2014
  • 10. 8 Services provided by cord blood banks by way of preservation of stem cells or any other service in relation to such preservation has been exempted from levy of service tax by introducing new entry numbered 2A in the mega exemption notification Notification No. 4/2014-Service Tax dated 17th February, 2014 Levy of service tax on services provided by an authorized person or sub-brokers to the member of a commodity exchange for the period 10.09.2004 to 30.6.2012 The central government has issued notification 3/2014-ST dated 3 February 2014 to waive past dues of service tax payable on services provided by the authorized person or sub- broker to a member of a recognized or registered association in relation to a forward contract. Prior to Introduction of Negative List there was common practice not to charge service tax on services provided by sub-broker to member of recognized association or a registered association in relation to forward contracts. This has been done under section 11C of the Central Excise Act, made applicable to service tax by section 83 of the Finance Act 1994. The said section 11C provides that where duty/tax was not levied by prevalent practice, it can be notified as waived for that period. Those who paid it can apply for refund. Notification No. 03/2014-Service Tax dated 3rd February, 2014 CENTRAL EXCISE Amendment in notification no. 12/2012 dated 17.03.2012 The central government has issued notification 3/2014-CE dated 3 February 2014, by which it has exempted di-calcium phosphate (DCP) of animal feed grade from excise duty; and also provided a concessional rate of duty (12%) for iron and steel for construction of railway or tramway tracks. Notification No. 03/2014-Central Excise dated 3rd February, 2014 VALUE ADDED TAX Withdrawal of AR-1 Form Filing of Audit Report in its current format in AR- 1 has been withdrawn with immediate effect. F.3 (384)/Policy/VAT/2013/1307-1319 dated 14th February, 2014 Online details of invoice and GR in respect of goods procured from outside Delhi The details of Invoice and Goods Receipt (GR) Note in respect of all goods purchased or received as stock transfer or received on consignment agreement from outside Delhi shall be submitted online by dealers, using their login id and password, before the goods physically enter the boundary of Delhi. The details shall be submitted by all dealers, except dealers exclusively dealing in Tax Free Goods, having GTO > Rs. 1 crore in 2012-13 or on any date in the current financial year on which the dealer attained/attains the lower limit of GTO of Rs. 1 crore. For furnishing online details, the Form T-2 shall be filled for each vehicle entering Delhi and by each dealer whose goods are carried in that vehicle. F.7 (433)/Policy-II/VAT/2012/1332-1342 dated 28th February, 2014
  • 11. 9 CUSTOMS Amendment in notification no. 12/2012 dated 17.03.2012 The CBEC has issued notification 4/2014- Customs dated 3 February 2014, to exempt customs duty on tunnel boring machines and parts required for assembly of tunnel boring machines. Notification No. 04 /2014-Customs dated 3rd February, 2014 Conversion Rate for Foreign Exchange Rate of exchange of conversion of each of the following foreign currency into Indian currency or vice versa shall, with effect from 21st February, 2014 be the rate mentioned against it in the given tables: SCHEDULE-I S. No. Foreign Currency Rate of exchange of one unit of foreign currency equivalent to Indian rupees (For Imported Goods) (For Export Goods) 1. Australian Dollar 56.65 55.15 2. Bahrain Dinar 170.40 161.05 3. Canadian Dollar 57.10 55.70 4. Danish Kroner 11.70 11.35 5. EURO 86.85 84.85 6. Hong Kong Dollar 8.10 8.00 7. Kuwait Dinar 228.40 215.30 8. New Zealand Dollar 52.25 50.95 9. Norwegian Kroner 10.45 10.15 10. Pound Sterling 105.30 103.00 11. Singapore Dollar 49.95 48.75 12. South African Rand 5.85 5.45 13. Saudi Arabian Riyal 17.15 16.20 14. Swedish Kroner 9.75 9.45 15. Swiss France 71.35 69.40 16. UAE Dirham 17.50 16.55 17. US Dollar 62.95 61.95 SCHEDULE-II S. No. Foreign Currency Rate of exchange of 100 units of foreign cu equivalent to Indian rupees (For Imported Goods) (For Export G 1. Japanese Yen 62.00 60.50 2. Kenya Shilling 74.70 70.35 Notification No.13/2014-Customs (N.T.) dated 20th February, 2014 CASE LAWS Global Waste Management Cell vs. CCE Business Auxiliary Services The activity of the appellant providing comprehensive sanitation assistance to Municipal Corporation cannot be liable under Business Auxiliary Services since Municipal Corporation was not doing business of
  • 12. 10 providing sanitation work to be supported by auxiliary service. Manjit Singh vs. CCE (2013) Maintenance and Repair services Repairs and maintenance work carried out by the appellant in respect of property of municipality is not taxable under the category of “management maintenance or repairs services” since municipal roads are not immovable properties under the Transfer of Properties Act. FEMA A.P. (DIR Series) Circular No. 100 dated February 4, 2014 Third party payments for export / import transactions A. P. (DIR Series) Circular No.70 dated November 8, 2013, permitted to allow third party payments for export of goods & software / import of goods subject to the conditions stated therein. In view of the difficulties faced by exporters / importers in meeting the condition “firm irrevocable order backed by a tripartite agreement should be in place” specified in the abovementioned Circular, it has been decided that this requirement may not be insisted upon in case where documentary evidence for circumstances leading to third party payments / name of the third party being mentioned in the irrevocable order/ invoice has been produced. This shall be subject to conditions as under:  AD bank should be satisfied with the bona-fides of the transaction and export documents, such as, invoice / FIRC.  AD bank should consider the FATF statements while handling such transaction. Further, with a view to liberalising the procedure, the limit of USD 100,000 eligible for third party payment for import of goods, stands withdrawn. All other terms & conditions mentioned in the A. P. (DIR Series) Circular No.70 dated November 8, 2013, remain unchanged. A.P. (DIR Series) Circular No. 102 dated February 11, 2014 Foreign Direct Investment – Reporting under FDI Scheme: Amendments in form FC-GPR In order to further capture the granular details of FDI as regards Brownfield/Greenfield investments and the date of incorporation of investee company, Form FC-GPR has been revised. Accordingly, the details of FDI should, henceforth, be reported in the revised Form FC-GPR, which is annexed to this circular. A.P. (DIR Series) Circular No. 105 dated February 17, 2014 External Commercial Borrowings (ECB) Policy – Reporting Arrangements
  • 13. 11 In order to capture details of the financial hedges contracted by corporates, of their foreign currency exposure relating to ECB and their foreign currency earnings and expenditure, (Part-E) of the format of ECB-2 Return has been modified and the same has been given in the Annex, annexed to this Circular. The reporting in the modified ECB-2 Return will be applicable from the return of the month April 2014 onwards. There is no change in the reporting procedure and corporates raising ECB shall continue to submit ECB-2 Return on a monthly basis duly certified by the designated AD Category-I bank so as to reach Department of Statistics and Information Management (DSIM) of Reserve Bank of India within seven working days from the close of month to which it relates. A.P. (DIR Series) Circular No. 107 dated February 20, 2014 Foreign Direct Investment (FDI) into a Small Scale Industrial Undertakings (SSI) / Micro & Small Enterprises (MSE) and in Industrial Undertaking manufacturing items reserved for SSI/MSE In terms of the Schedule 1 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, an Indian company which is a small scale industrial unit and which is not engaged in any activity or in manufacture of items included in Annex A, may issue shares or convertible debentures to a person resident outside India, to the extent of 24% of its paid - up capital provided that such company may issue shares in excess of 24% of its capital if:  it has given up its small scale status,  it is not engaged or does not propose to engage in manufacture of items reserved for small scale sector, and  it complies with the ceilings specified in Annex B to Schedule I of the Notification, ibid. With the promulgation of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, the extant policy for foreign direct investment (FDI) in Small Scale Industrial unit and in a company which has de-registered its small scale industry status and is not engaged or does not propose to engage in manufacture of items reserved for small scale sector, has since been reviewed and it has been decided that:  a company which is reckoned as Micro and Small Enterprises (MSE) (earlier Small Scale Industries) in terms of MSMED Act, 2006 and not engaged in any activity/sector mentioned in Annex A to schedule 1 to the Notification, ibid may issue shares or convertible debentures to a person resident outside India, subject to the limits prescribed in Annex B to schedule 1, in accordance with the entry routes specified therein and the provision of Foreign Direct Investment Policy, as notified by the Ministry of Commerce & Industry, Government of India, from time to time.  any Industrial undertaking, with or without FDI, which is not an MSE, having an industrial license under the provisions of the Industries (Development & Regulation) Act, 1951 for manufacturing items reserved for manufacture in the MSE sector may issue shares in excess of 24 per cent of its paid up capital with prior approval of the Foreign Investment Promotion Board of the Government of India.
  • 14. 12 Further, in terms of the provisions of MSMED Act, (i) in the case of the enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the Industries (Development and Regulation) Act, 1951, a micro enterprise means where the investment in plant and machinery does not exceed twenty five lakh rupees; a small enterprise means where the investment in plant and machinery is more than twenty five lakh rupees but does not exceed five crore rupees; (ii) in the case of the enterprises engaged in providing or rendering services, a micro enterprise means where the investment in equipment does not exceed ten lakh rupees; a small enterprise means where the investment in equipment is more than ten lakh rupees but does not exceed two crore rupees. COMPANY LAW Amendments in Schedule VII of the Companies Act, 2013 [Order dated 27th February, 2014] The Central Government has made the following amendments to Schedule VII of the Companies Act, 2013, in exercise of powers conferred by sub section (1) of section 467 of Companies Act, 2013 with effect from 1st April, 2014: Previously notified items and entries in Schedule VII shall be substituted by the following items and entries namely:- (i) Eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation and making available safe drinking water; (ii) Promoting education, including special education and employment enhancing vocation skills especially among children, woman, elderly and the differently abled and livelihood enhancement projects; (iii) Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups; (iv) Ensuring environmental sustainability, ecological balance, protection for flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water; (v) Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries, promotion and development of traditional arts and handicrafts; (vi) Measures for the benefit of armed forces veterans, war widows and their dependents;
  • 15. 13 (vii) Training to promote rural sports, nationally recognized sports, paralympic sports and Olympic sports; (viii) Contribution to the prime ministers relief fund or any other fund set up by the central government for socio-economic development and relief and welfare of the Scheduled castes and Scheduled Tribes, other backward classes, minorities and women; (ix) Contribution and funds provided to technology incubators located within academic institutions which are approved by Central Government; (x) Rural development projects. Effective date of provisions of section 135 and Schedule VII of Companies Act, 2013 [Order dated 27th February, 2014] The Central Government has appointed the 1st day of April, 2014 as the date on which the provisions of section 135 and Schedule VII of the Companies Act, 2013 shall come into force, in exercise of powers conferred by sub section (3) of section 1 of the Companies Act, 2013. Companies (Corporate Social Responsibility Policy) Rules, 2014 [Order dated 27th February, 2014] The Central Government has notified the rules relating to corporate social responsibility which are known as Companies (Corporate Social Responsibility Policy) Rules, 2014 in exercise of powers conferred by sub section (1) and (2) of section 469 of Companies Act, 2013 with effect from 1st April, 2014. Clarification with regard to Section 185 of the Companies Act, 2013 [Circular No 3/2014] Section 372A of the Companies Act, 1956, specifically exempts any loans made, any guarantee given or security provided or any investment made by a holding company to its wholly owned subsidiary. Whereas, Section 185 of the Companies Act, 2013 prohibits guarantee given or any security provided by holding company in respect of any loan taken by its subsidiary company except in the ordinary course of business. In order to maintain harmony with regard to applicability of Section 372A of the Companies Act, 1956 till the same is repealed and Section 185 of the Companies Act,2013 is notified, any guarantee given or security provided by a holding company in respect of loans made by a bank or financial institution to its subsidiary company, exemption as provided in clause (d) of sub-section (8) of section 372A of the Companies Act, 1956 shall be applicable till section 186 of the Companies Act, 2013 is
  • 16. 14 notified. This clarification will, however, be applicable to cases where loans so obtained are exclusively utilized by the subsidiary for its principal business activities. Use of word ‘National’ in the names of Companies or Limited Liability Partnerships (LLPs) [Circular No. 2/2014] As per the Circular, no company should be allowed to be registered with the word ‘National’ as part of its title unless it is a government company and the Central/State Government has a stake in it. This should be stringently enforced by all Registrar of Companies (ROCs) while registering companies. Similarly, the word ‘Bank’ may be allowed in the name of an entity only when such entity produces a ‘No Objection Certificate' from the RBI in this regard. By the same analogy the word “Stock Exchange" or "Exchange" should be allowed in name of a company only where ‘No Objection Certificate' from SEBI in this regard is produced by the promoters. TRANSACTIONS THAT MADE HEADLINES  GSN acquires social bingo game creator Bash Gaming for around $160M  Hitachi to acquire 76% stake in IT firm Micro Clinic India  Piccadily Agro buys 89% stake in wine maker Nirvana Biosys  JSW Steel to acquire 50% stake in Vallabh Tinplate for $7.4M  Facebook buys Whatsapp for $19B:  Quatrro sells game testing firm Babel Media to Irish company Keywords for $8.8M  Lodha Group acquires second London asset for $150M  IDBI-led consortium in talks to sell over 38% in rating agency CARE for more than $140M  Asian Paints hikes stake in Singapore arm to 96.7%, gets it delisted from SGX  DLF sells Aman Resorts back to founders for $358M
  • 17. www.spnagrath.com A-380, Defence Colony, New Delhi – 110024, India. This publication is intended as a service to clients and associates and to provide them with details of the important Transaction updates. It has been prepared for the general guidance on matters of interest only, and does not constitute professional advice. No person shall act upon the information contained in this publication without obtaining specific professional advice. Due care has been taken while compiling the information, however, no representation (express or implied) is given as to the accuracy or completeness of the information contained in this publication