Attached Newsletter is an attempt to cover monthly issues relevant in the context of transactions - covers SEBI, Companies Act, Income Tax, Stamp duty and other regulatory changes

1. TRANSACTION ADVISORS
Missive
Volume IX – December 2011

2. Dear Patron Topics Page No
Corporate law 1
Here we are with the Ninth successive issue of our monthly ‘Missive’.
SEBI 2
FEMA 3
India's internet users crossed 100 million in September 2011, a growth of 13 per cent
International Taxation 6
against last year, according to a survey conducted by Internet and Mobile
Transfer Pricing 6
Association of India and IMRB. This news would be music to ears for PE & VC funds
Recent Transactions that 7
that have been making host of investments in E-Commerce businesses in India.
made headlines
With leading E-Commerce players now investing in supply chain and back-end
systems in an effort to facilitate a smoother movement of the product or service
from the supplier to the consumer, the industry is also starting to exhibit signs of
maturity. It is expected that the Indian E-Commerce shall be witnessing lot of action
in coming months with number of funds chasing so many startups. “Don’t ask what the meaning
of life is ….. You define it”
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,
Akhil Bansal
Editor, Knowledge Management Team

3. Corporate Law § Filing of a simple compliance report as per the notified Form-B
(copy enclosed) and no other details of cost records are required to
XBRL Filing due date extended to 31.12.2011 or 60 days from due date, be filed with the Government
whichever is later
§ On applicability of rules for the first time, cost records and cost
MCA has issued general circular number 69/2011, which extends the due details, statements, schedules, etc. to be kept in good order for the
date for filing Balance Sheet and Profit and Loss Account in extensible next eight financial years
Business Reporting Language (XBRL) mode without any additional fee due
to delay by those Phase-I class of companies (excluding exempted class) § If more than one products of a company are under cost audit for
whose Balance Sheet date for FY 2010-11 is on or after 31.03.2011. The which it has appointed either same or separate cost auditors, then
Filing due date has been extended up to 31.12.2011 or within 60 days of they may either submit separate cost audit report for each product
their due date of filing, whichever is later. group or submit only one consolidated report containing details of
each product group
Impact: In case of a company whose financial year is ending on 31-03-
2011 and if its date of AGM is 30th September 2011, then its Due date for
filing financial statements is 30 days from the AGM date i.e. up to 30th Corporate Law News Snippets & Decisions
October, 2011. Hence, as per the time lines provided in the circular, the
company can file its financial statements in XBRL mode without additional § Cabinet had cleared Companies Bill 2011; likely to be tabled for
fees up to 30th November, 2011 or 60 days from its due date of filing consideration and passage in the ongoing Winter Session. Bill
financial statements, which is 29th December, 2011 (i.e. 60 days from due retains the provision for rotation of auditors every five years. Also,
date of filing- 30th October, 2011) whichever is later. NCLT and NCLAT to replace Corporate Tribunals.
§ EPF dues from a company under liquidation has to get priority
Cost Accounting Records and Cost Audit – clarifications regarding [Employees Provident Fund Commissioner Vs. O.L. of Esskay
applicability and compliance requirements [General Circular No. 68/2011, Pharmaceuticals Limited (Supreme Court)]
dated the November 30, 2011.]
§ Director can’t be held liable for all wrongs in a company [Mrs. Anita
In connection with the recently issued circulars/notifications concerning Malhotra Vs. Apparel Export Promotion Council & ANR. (Supreme
cost accounting records and cost audit, following clarifications are issued: Court)]
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4. SEBI entities, it has been decided to mandate listed entities to submit
Business Responsibility Reports, as a part of their Annual Reports,
Review of limits for foreign institutional investors (FII) investments in describing measures taken by them along the key principles
Government Securities and Corporate Bonds [PRESS RELEASE [F. No. enunciated in the ‘National Voluntary Guidelines on Social,
9/2/2009-ECB], dated 17-11-2011.] Environmental and Economic Responsibilities of Business’ framed
by the Ministry of Corporate Affairs (MCA). To start with, the
The policy has been reviewed in the context of India’s evolving requirement will be applicable to top 100 companies in terms of
macroeconomic situation, the need for enhancing capital flows and making market capitalisation and would be extended to other companies in
available additional financial resources for India’s corporate sector. It has a phased manner.
now been decided to:
§ Tenure for conversion of warrants issued along with public/rights
§ Increase the current limit of FII investment in Government issues: Presently, the Regulations are silent on the tenure of
Securities by US $ 5 billion raising the cap to US $ 15 billion. warrants offered along with public/rights issues. It has been
decided to specify a maximum tenure of 12 months for warrants
§ Increase the current limit of FII investment in corporate bonds by issued along with public/rights issue of securities to avoid the
US $ 5 billion raising the cap to US $ 20 billion. possible misuse.
Impact: The last enhancement in these investment limits for FII was done § Review of policy on ‘Anchor Investors’: The concept of Anchor
on September 23, 2010. The present enhancements would increase Investors (AIs) was introduced by SEBI in June 2009 as a class of
investments in debt securities and help in further development of the committed investors who can be relied upon to anchor an issue of
Government securities and the Corporate bond markets in the country. capital in all market conditions, adverse or otherwise. To make the
concept more effective, it has been decided to prescribe a
minimum allotment size of Rupees Five crore and maximum
SEBI Board discusses Tenure for conversion of warrants issued along with number of AIs, slab-wise.
public/rights issues, Disclosures where Funds are shown as promoters,
Review of net worth for Debenture Trustees etc. [PR No. 145/2011] § Disclosures where Funds are shown as promoters: Considering the
constraints in disclosure by investee companies regarding Funds
The Board took the following decisions: (such as Venture Capital Funds, etc.) which are shown as one of the
promoters of such investee company, it has been decided to specify
§ Business Responsibility Reports: In order to assess fulfilment of the a separate set of disclosures for them.
environmental, social and governance responsibilities of listed
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5. § Review of net worth for Debenture Trustees : The Board approved FEMA
amendment to Regulation 7A of the SEBI (Debenture Trustee)
Regulations, 1993 to increase the net worth requirement of Export of Goods and Software – Realization and Repatriation of export
Debenture Trustees from existing Rupees One crore, which was proceeds – Liberalization [RBI/2011-12/241 A.P. (DIR Series) Circular
fixed as back as 2003, to Rupees Two crore. The Board also No.40, Dated- November 01, 2011.]
approved to grant a time period of two years to existing Debenture
Trustees, from the date of notification of Regulations, to the new RBI had earlier enhanced the period of realization and repatriation to India
level. of the amount representing the full export value of goods or software
exported, from six months to twelve months from the date of export. This
relaxation was available up to September 30, 2011. RBI has now decided to
SEBI News Snippets extend the above relaxation w.e.f. October 01, 2011 till September 30,
2012.
§ SEBI had allowed Mutual Funds to participate in repo corporate
debt securities [CIRCULAR No. CIR / IMD / DF / 19 / 2011, Dated-
November 11, 2011] RBI liberalizes FDI rules related to transfer of shares RBI/2011-12/247 A.P.
(DIR Series) Circular No. 43
§ SEBI has advised Stock Exchanges / Depositories to conduct an
annual System Audit as per the System Audit Framework and the RBI has told that transfer of shares between Indians and non-residents will
system audit report along with comments of Stock Exchanges / not require its permission in several key areas like financial services.
Depositories should be communicated to SEBI. Amending the Regulations, RBI said that its prior permission would not be
necessary where the company whose shares are being transferred is
engaged in any financial service. Besides, the RBI permission has also been
done away with for transfer of shares between residents and non-residents
in cases where the Foreign Investment Approval Board (FIPB) has already
given its clearances and the SEBI guidelines have been adhered to.
Impact: These steps have been taken as a measure to further liberalize
and rationalize the procedures and policies governing foreign direct
investment in India. However, it is to be noted that the transactions will
have to comply with the SEBI regulations, FDI sectoral caps, and the
pricing guidelines as specified by RBI.
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6. Foreign investment in India by SEBI registered FIIs in other securities The all-in-cost ceilings include arranger fee, upfront fee, management fee,
RBI/2011-12/244 A.P. (DIR Series) Circular No. 42, Dated- November 03, handling/ processing charges, out of pocket and legal expenses, if any. The
2011 change in the all-in-cost ceiling will come into force immediately. The
enhancement in all-in-cost ceiling is applicable up to March 31, 2012 and
In April 2011, the limit for FII investment in non-convertible debentures / subject to review thereafter.
bonds issued by Indian companies in the infrastructure sector was
enhanced from USD 5 billion to USD 25 billion. On a review it has been
decided to make some amendments in the policy, some important Interest Rates on Export Credit in Foreign Currency [RBI/2011-12/258
provisions are as under: DBOD. DIR.No. 52 /04.02.001/2011-12, Dated- November 15, 2011.]
§ FIIs are now also allowed to invest in non-convertible debentures / Keeping in view the tight liquidity conditions and widening of credit spreads
bonds issued by NBFCs categorized as ‘Infrastructure Finance due to recent developments in international financial markets, RBI has
Companies’(IFCs) by RBI within the overall limit of USD 25 billion. decided to increase the ceiling rate on export credit in foreign currency by
banks to LIBOR plus 350 basis points from the present ceiling rate of LIBOR
§ The lock-in-period of three years for FII investment stands reduced plus 200 basis points with immediate effect, till March 31, 2012, subject to
to one year up to an amount of USD 5 billion within the overall limit the express condition that the banks will not levy any other charges viz.
of USD 25 billion. service charge, management charge etc except for recovery towards out of
pocket expenses incurred. The revision in the rates of interest would be
applicable only to fresh advances and are subject to review after March 31,
Trade Credits for Imports into India – Review of all-in-cost ceiling 2012.
[RBI/2011 -12/257 A. P. (DIR Series) Circular No. 44]
On a review of developments in the global financial markets and the fact “Set-off” of export receivables against import payables – Liberalization of
that domestic importers are experiencing difficulties in raising Trade Credit Procedure [RBI/2011-12/264 A.P. (DIR Series) Circular No. 47, Dated-
within the existing all-in-cost ceiling, RBI has been decided to revise the all- November 17, 2011.]
in-cost ceiling for Trade Credits as under:
RBI has been allowing requests from the exporters through their Authorised
All-in-cost over 6 Dealer Category 1 banks for “set-off” of export receivables against import
Maturity Period month LIBOR*
payables in respect of the same overseas buyer and supplier subject to
Existing Revised
Upto one year certain terms and conditions.
More than one year and 200 bps 350 bps
upto three years
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7. As a measure of further liberalization, it has been decided to delegate External Commercial Borrowings (ECB) Policy modified – Parking of ECB
power to AD Category – I banks to deal with the cases of “set-off” of export proceeds [A.P. (DIR Series) Circular No. 51 & 52]
receivables against import payables, subject to certain conditions
On a review of the developments in the global financial markets and
§ The import is as per the Foreign Trade Policy in force. current macro-economic conditions, it has been decided, in consultation
§ Invoices/Bills of Lading/Airway Bills and Exchange Control copies of with the Government of India, to modify certain aspects of the ECB policy as
Bills of Entry for home consumption have been submitted by the under:
importer to the Authorized Dealer bank.
§ Payment for the import is still outstanding in the books of the (i) Enhancement in all-in-cost ceiling
importer.
§ Both the transactions of sale and purchase may be reported The all-in-cost for ECBs has been revised as under:
separately in ‘R’ Returns.
§ The relative GR forms will be released by the AD bank only after the
entire export proceeds are adjusted / received.
§ The ” set-off” of export receivables against import payments should
be in respect of the same overseas buyer and supplier and that
consent for ”set-off” has been obtained from him.
§ The export / import transactions with ACU countries should be kept
outside the arrangement.
§ All the relevant documents are submitted to the concerned AD
bank who should comply with all the regulatory requirements The enhancement in all-in-cost ceiling is applicable up to March 31, 2012
relating to the transactions. subject to review thereafter.
Impact: This move will benefit several Indian parties who have import and (ii) Parking of ECB Proceeds
export transaction with the same overseas party. The circular is in line
with netting-off permitted through AD Banks to Units in Special Economic The proceeds of the ECB raised abroad for Rupee expenditure in India, such
Zones. The above circular seems to relate primarily to ‘Set-off’ relating to as, local sourcing of capital goods, on-lending to Self-Help Groups or for
import and export of goods. The cases falling outside the above micro credit, payment for spectrum allocation, etc., is to be brought
liberalisation would continue to require prior approval of the RBI vide an immediately for credit to Rupee accounts with AD Category I banks in India.
application made to them through the AD Bank. In other words, ECB proceeds meant only for foreign currency expenditure
can be retained abroad pending utilization.
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8. International Taxation § When non-resident technology partner does not pass on
proprietary right to assessee on transfer of knowhow, the royalty
Significant Decisions paid by the assessee under a knowhow transfer agreement is
revenue expenditure [ACIT Vs Modi Revlon Pvt Ltd (ITAT Delhi)]
§ Expenditure on ‘Application Software’ is revenue – [CIT vs. Asahi
India Safety Glass Ltd (Delhi High Court)] § Non-resident lessor does not have PE or business connection in
India on account of leased assets used in India but delivered outside
§ Taxpayer did not constitute a Construction PE under the DTAA as India, provided the lease agreement is entered on principle to
the contract carried on by the Taxpayer did not exceed the principle basis [DCIT vs. M/s Calcutta Test House Pvt. Ltd. (ITAT
threshold period provided under the DTAA Income Tax [CIT vs. M/s Delhi) ]
BKI/HAM v.o.f. (Uttarakhand High Court)]
§ Commission paid to a foreign agent without deduction of tax for
§ B/F business loss , unabsorbed depreciation and loss incurred by a services rendered outside India cannot be disallowed under the
non-eligible unit shall not be adjusted while computing the profit Income-tax Act [Dy. CIT VS M/s. Divi’s Laboratories Ltd. (ITAT
eligible for relief u/s. 10A of the Income Tax Act [CIT vs. Yokogawa Hyderabad)]
India Ltd (Karnataka High Court)]
§ Proof of service outside India pre-requisite for beneficial tax claim [
§ Transfer of shares by initial subscribers to a MOA does not amount ITAT Pune Madhukar Vinayak Dhavale Vs. ITO, International
to a change in shareholding as per section 79 of the Income-tax Act, taxation (ITAT Pune)]
1961 and therefore, benefit of brought forward loss is available
[ITO V. M/s. S-Net Freight (India) P. Ltd. (ITAT Chennai)] Transfer Pricing
§ Payment made for supply of software is not ‘royalty’ since it is § Comparable rejected by TPO without giving cogent reasons must be
copyrighted software and not copyright in the software [DCIT v. presumed to be comparable and Departmental Representative
ABAQUS Engineering Pvt Ltd (ITAT Chennai)] cannot argue to the contrary [ACIT vs. Maersk Global Service Center
(ITAT Mumbai) ]
§ Capital gains on sale of Indian Companies shares by Mauritius
Company to German Company not chargeable to tax in view of § Assessee to ‘keep and maintain’ information and documents in
Article 13.4 of the India-Mauritius Tax [TreatyRe -Ardex respect of international transaction entered into with AE [ITAT
Investments Mauritius Ltd. (AAR)] Mumbai ACIT vs. Smith & Newphew Healthcare (P) Ltd. (ITAT
Mumbai)]
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9. Recent Transactions that made Headlines
§ Synopsys to Acquire Magma Design
§ SABMiller to acquire Foster's this month
§ SAP to Acquire Cloud-Based Software Company Success Factors for
$3.4B
§ Siemens to acquire eMeter to enhance smart grid offering
§ Facebook Buys Gowalla Team
§ Tata Capital's PE fund acquires 10% stake in Ginger Hotels: reports
§ Bharti Telecom buys 14.9 lakh Airtel shares
§ Delphi Automotive eyes acquisitions: Reports
§ Polaris Software to acquire stake in Indigo Tx Software
§ Lucha Libre USA announces partnership with Reliance Broadcast
Network
§ Jaypee Group to acquire Andhra Cements for Rs 2.35bn
§ India Cements acquires coal mine in Indonesia: Reports
§ Huawei to buy out Symantec in JV for US$530mn
§ Aditya Birla Group in talks to buy part of Jaypee cement business:
Reports
§ Portman Holdings acquires stake in Tuscan Estate
§ Goldman Sachs buys 32mn Suzlon shares: Reports
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10. ©Copyright AMinds Advisors Private Limited , All rights reserved
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Structuring, Financial Re-structuring, Regulatory, Private Equity
and other funding opportunities
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in this newsletter, we welcome your queries
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TRANSACTION ADVISORS
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 advise. No person shall act upon the information contained in this
publication without obtaining specific professional advise. 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