Overseas securities pricing gets easier
Publication:Economic Times Delhi;
Date:Nov 28, 2008;
Section:EFM;
Page Number:7
Our Bureau NEW DELHI THE government on Thursday loosened rules covering the pricing of securities issued overseas by Indian companies in a move which is seen helping corporates and underwriters in difficult stock market conditions. The finance ministry said it has changed the rules so that companies can price their overseas securities to reflect the most recent value of their shares in the local market: it will now be at least an average of the highest and lowest price of the share in the two weeks preceding the decision to raise capital abroad. Earlier, it was the average share price covering the preceding two months or six months, with the higher of the two prices being the floor price for the overseas issue. The new regulation covers shares issued by Indian companies in the US and Europe as well as convertible bonds denominated in a foreign currency. Overseas investors have pulled out a record $13.5 billion from Indian stocks so far this year, causing the benchmark Sensex index on the Bombay Stock Exchange to drop by 56%. This contrasts with the sharp rise in stock prices last year, when foreign investors bought a record $17.2 billion. Introducing more market-driven rules will help generate greater interest among underwriters, besides helping the companies, the head of the Indian unit of top European bank said. Underwriters pay the share issuer in advance and assume the risk of selling the securities to investors for a profit. Another rule which required share issuers to not count the 30 days preceding the decision to raise capital has been scrapped. Aimed mainly to prevent price manipulation in the domestic market, the rule is seen as not relevant in a bearish market
Friday, November 28, 2008
Solve issues on taxability of AEs
Solve issues on taxability of AEs
Vivek Mishra UNDERthe service tax law, the liability to pay service tax arises on collection of service charges. Therefore, accrual of income or recording of book entries were not relevant for service tax purposes. However, through the amendments introduced by the Finance Act, 2008, it has been provided that for transactions between associated enterprises (AEs), the liability to pay service tax will arise on accrual or collection basis, whichever is earlier. This amendment is apparently an anti-avoidance measure. It seeks to cover transactions between AEs wherein service tax has not been paid on the ground of non-receipt of payment even though the transaction has been recognised as revenue/expenditure in the statement of profit and loss account. The concept of AE has been borrowed from the transfer pricing provisions under the Income Tax Act. These provisions broadly provide that two entities would qualify as AEs if one entity is managed or controlled by the other or if the two entities are under common control or management. Further, the amendments to the service tax rules provide that in case of transactions between AEs, payment received for the taxable service would include any amount debited or credited to any account in the books of account of a person liable to pay service tax. This would have a significant impact on the cash flow of the AE providing the taxable services. Take this example. Company X and company Y are AEs. X provides taxable services to Y in June 2008 worth Rs 1 million and passes an entry debiting Y for this amount on July 1 2008. The amount is received by X on November 1 2008. Prior to this amendment, X would have been liable to pay tax on this amount by 5 December 2008. However, as a result of the amendment, X is liable to pay service tax on Rs 1 million by 5 August 2008, the due date for payment of service tax for July 2008. Further, this would set back the cash flow of X as it would need to deposit service tax on Rs 1 million without having collected such amount from Y. The amendment has ostensibly been introduced as an anti-avoidance measure. However, the amendment has created certain ambiguities in the operation of service tax provisions which should be clarified at the earliest to avoid unnecessary litigation. Some of these ambiguities are discussed below. 1. One of the conditions to qualify as export of services under the Export of Service Rules, 2005 is that payment for the service should have been received in convertible foreign currency. Now, in case of export of services between AE, the liability to pay service tax has been shifted from collections to accrual basis. At the time of such accrual, the service may not qualify as export as the payment for the service has not been received. Thus, the issue that arises is whether on such accrual the Indian entity would be required to pay service tax and subsequently on receipt of payment initiate refund proceeding to recover output service tax paid or whether such accrual would be treated as a receipt of convertible foreign currency for the purpose of export rules. 2. With regard to accrual entries made in relation to AE, would the Indian entity be required to pay service tax on the opening balance in the account of the AE as on 10 May 2008 or does this amendment apply only to accrual entries made post 10 May 2008. As per the Cenvat Credit Rules, 2004 credit of service tax paid on input services is available only if the value of input service and service tax has been paid. Given that in case of import of taxable service from an AE, service tax is payable on an accrual basis, an issue that arises is whether the Indian enterprise would be permitted to avail credit of service tax paid on such input service imported though the payment for the value of input service has not been made. Provisions permitting a service provider to adjust excess service tax deposited, where the service charges and service tax thereon is refunded to the service recipient, will not be applicable since there will be no refund of these amounts in case the tax is paid on accrual basis. So, the introduction of the deeming fiction in relation to AE has resulted in various anomalies which should be clarified at the earliest to avoid unnecessary litigation.
Vivek Mishra UNDERthe service tax law, the liability to pay service tax arises on collection of service charges. Therefore, accrual of income or recording of book entries were not relevant for service tax purposes. However, through the amendments introduced by the Finance Act, 2008, it has been provided that for transactions between associated enterprises (AEs), the liability to pay service tax will arise on accrual or collection basis, whichever is earlier. This amendment is apparently an anti-avoidance measure. It seeks to cover transactions between AEs wherein service tax has not been paid on the ground of non-receipt of payment even though the transaction has been recognised as revenue/expenditure in the statement of profit and loss account. The concept of AE has been borrowed from the transfer pricing provisions under the Income Tax Act. These provisions broadly provide that two entities would qualify as AEs if one entity is managed or controlled by the other or if the two entities are under common control or management. Further, the amendments to the service tax rules provide that in case of transactions between AEs, payment received for the taxable service would include any amount debited or credited to any account in the books of account of a person liable to pay service tax. This would have a significant impact on the cash flow of the AE providing the taxable services. Take this example. Company X and company Y are AEs. X provides taxable services to Y in June 2008 worth Rs 1 million and passes an entry debiting Y for this amount on July 1 2008. The amount is received by X on November 1 2008. Prior to this amendment, X would have been liable to pay tax on this amount by 5 December 2008. However, as a result of the amendment, X is liable to pay service tax on Rs 1 million by 5 August 2008, the due date for payment of service tax for July 2008. Further, this would set back the cash flow of X as it would need to deposit service tax on Rs 1 million without having collected such amount from Y. The amendment has ostensibly been introduced as an anti-avoidance measure. However, the amendment has created certain ambiguities in the operation of service tax provisions which should be clarified at the earliest to avoid unnecessary litigation. Some of these ambiguities are discussed below. 1. One of the conditions to qualify as export of services under the Export of Service Rules, 2005 is that payment for the service should have been received in convertible foreign currency. Now, in case of export of services between AE, the liability to pay service tax has been shifted from collections to accrual basis. At the time of such accrual, the service may not qualify as export as the payment for the service has not been received. Thus, the issue that arises is whether on such accrual the Indian entity would be required to pay service tax and subsequently on receipt of payment initiate refund proceeding to recover output service tax paid or whether such accrual would be treated as a receipt of convertible foreign currency for the purpose of export rules. 2. With regard to accrual entries made in relation to AE, would the Indian entity be required to pay service tax on the opening balance in the account of the AE as on 10 May 2008 or does this amendment apply only to accrual entries made post 10 May 2008. As per the Cenvat Credit Rules, 2004 credit of service tax paid on input services is available only if the value of input service and service tax has been paid. Given that in case of import of taxable service from an AE, service tax is payable on an accrual basis, an issue that arises is whether the Indian enterprise would be permitted to avail credit of service tax paid on such input service imported though the payment for the value of input service has not been made. Provisions permitting a service provider to adjust excess service tax deposited, where the service charges and service tax thereon is refunded to the service recipient, will not be applicable since there will be no refund of these amounts in case the tax is paid on accrual basis. So, the introduction of the deeming fiction in relation to AE has resulted in various anomalies which should be clarified at the earliest to avoid unnecessary litigation.
Thursday, November 27, 2008
norms for SEZs eased
Social infrastructure norms for SEZs eased
New Delhi: In a move that would help developers of special economic zones, particularly of IT/ITeS SEZs, enhance the commercial viability of projects, the government has allowed them to build more and larger housing facilities, offices and other required social infrastructure in the ‘non-processing area’ and avail tax benefits for it.
Half the total area of each SEZ comprises the non-processing area that houses only social amenities, while the other half is the processing area where industrial units are located.
The ceilings on housing and office space in the non-processing area of SEZs were imposed to prevent SEZs from becoming a pure-play realty business. But the curbs were affecting the commercial viability of SEZs, according to the commerce ministry.
The ministry had even mooted amendments to the rules saying developers should be permitted to build over and above the ceiling limits, but by forgoing the tax and duty exemptions for such extra constructions.
After several rounds of inter-ministerial deliberations and Empowered Group of Ministers (EGoM) meetings in August and October this year, the government has now decided that the Board of Approval (BoA) for SEZs can approve the construction of social amenities according to the enlarged overall ceilings in each category of social infrastructure. As per the new norms, developers would even be able to claim the duty drawback, and benefits of tax exemption or concessions, sources said.
However, there are some riders. Construction of social amenities as per the relaxed norms would be permitted only in a phased manner and would depend on the employment generation, increased focus on exports and building of infrastructure in the area housing industrial units.
Besides, the BoA will apply the new norms on a case-by-case basis, depending on the location of the zone and the projected number of employees. Earlier, due to the differences between the commerce and finance ministries on the easing of such norms, the government had asked Delhi Development Authority (DDA) for its expert opinion to help in arriving at a consensus.
As per the suggestions of the DDA, the overall ceilings in each category will be revised upwards in proportion with the available area of land and the floor area ratio as well as the norms prescribed by the local town planning authorities.
The ceiling on social amenities has been causing problems to SEZ developers. For instance, an IT/ITeS SEZ, with a minimum area of 10 hectares, could allocate only...
10,000 square metres (sq m) for housing and 1,000 sq m for office space. Since most IT/ITeS SEZ have around 15,000-20,000 employees, they would need much more floor area than these limits.
The scene was no different for sector specific (with a minimum area of 100 hectares) and multi-product SEZs (minimum area of 1,000 hectares). While sector specific SEZs could allocate only a maximum of 750,000 sq.m (or 7,500 units) of housing space and 50,000 sq m of office space, for multi-product SEZs it was 25 lakh sq m (or 25,000 units) for housing and 200,000 sq m for office space.
“If all the employees of SEZ were to be settled inside the zone, then the permitted floor area for housing and other facilities should be much higher. These ceilings on the number and size of social amenities are limiting factors. Many employees who cannot be accommodated inside the zone will settle outside, creating a burden on the existing housing and infrastructure facilities,” a representative of the Export Promotion Council for EOUs and SEZs Panel for SEZ Developers.
The commerce ministry had said the curbs on social amenities would prevent developers from fully using the permissible construction on the SEZ land as per individual state policies. More over, such restrictions would also result in higher prices of the available built up space, the ministry had said.
But the revenue department had objected to allowing developers to build social amenities (like entertainment and recreational facilities, shopping malls, hotels, business and residential complexes, hospitals and educational institutions) in excess of what is permitted. The department had said removal of these restrictions would lead to increased real estate development activities in SEZs, which are mainly meant for boosting exports and generating employment....
disclose info on processing fees
Banks must disclose info on processing fees: RBI
Mumbai, Nov. 26
The Reserve Bank of India has asked all banks/ financial institutions to ensure that all information relating to charges/fees for processing are always disclosed in the loan application forms.
Further, banks must inform ‘all-in-cost’ to the customer to enable him compare the rates charged with other sources of finance.
Under its guidelines on ‘Fair Practices Code for Lenders — Disclosing all information relating to processing fees / charges,’ the RBI said, loan application forms should include information about the fees/charges, if any, payable for processing; the amount of such fees refundable in the case of non-acceptance of application; pre-payment options and any other matter which affects the interest of the borrower, so that a meaningful comparison with that of other banks can be made and informed decision can be taken by the borrower.
The RBI’s directive comes in the wake of it coming across some banks levying, in addition to a processing fee, certain charges which are not initially disclosed to the borrower.
Mumbai, Nov. 26
The Reserve Bank of India has asked all banks/ financial institutions to ensure that all information relating to charges/fees for processing are always disclosed in the loan application forms.
Further, banks must inform ‘all-in-cost’ to the customer to enable him compare the rates charged with other sources of finance.
Under its guidelines on ‘Fair Practices Code for Lenders — Disclosing all information relating to processing fees / charges,’ the RBI said, loan application forms should include information about the fees/charges, if any, payable for processing; the amount of such fees refundable in the case of non-acceptance of application; pre-payment options and any other matter which affects the interest of the borrower, so that a meaningful comparison with that of other banks can be made and informed decision can be taken by the borrower.
The RBI’s directive comes in the wake of it coming across some banks levying, in addition to a processing fee, certain charges which are not initially disclosed to the borrower.
warrant conversion norm
RBI to ease warrant conversion norm
NEW DELHI: Companies looking to raise funds from foreign investors by way of convertible warrants may soon be allowed to issue shares against these
instruments at any time up to 18 months, under a relaxation of rules being considered by the Reserve Bank of India (RBI). Convertible warrants are loans that are subsequently exchanged for shares on pre-agreed terms. Like an option, a warrant gives its holder or buyer the choice to purchase a fixed quantity of shares of the issuing company at an agreed price at or before a future date. The central bank had, last December, made it mandatory for companies to issue shares within 180 days of receiving money from foreign investors. Its move was aimed at plugging a loophole in foreign exchange regulations which was being misused by mainly real estate companies. RBI’s decision, however, created confusion for companies that planned to issue convertible warrants. This is because the stock market
regulator Sebi’s guidelines allowed warrants to be converted into shares in 18 months. Some companies had requested the finance ministry to clarify the rules following the RBI order. The finance ministry has written to the central bank asking it to make an exception in the case of convertible warrants, a ministry official said, adding the central bank was expected to issue a clarification. “The matter requires clarification. In fact, the government or RBI should come out with separate guidelines dealing with the issue,” said Punit Shah, executive director, tax and regulatory services for PricewaterhouseCoopers’ financial services practice. Mr Shah said clear rules on the conversion of warrants into shares were absent under current foreign direct investment (FDI) regulations or under Foreign Exchange Management Act (FEMA) rules. The RBI move was primarily aimed at plugging a loophole in the FEMA regulations being misused by real estate firms to raise funds abroad when the government’s rules clearly barred real estate companies from raising foreign debt.
NEW DELHI: Companies looking to raise funds from foreign investors by way of convertible warrants may soon be allowed to issue shares against these
instruments at any time up to 18 months, under a relaxation of rules being considered by the Reserve Bank of India (RBI). Convertible warrants are loans that are subsequently exchanged for shares on pre-agreed terms. Like an option, a warrant gives its holder or buyer the choice to purchase a fixed quantity of shares of the issuing company at an agreed price at or before a future date. The central bank had, last December, made it mandatory for companies to issue shares within 180 days of receiving money from foreign investors. Its move was aimed at plugging a loophole in foreign exchange regulations which was being misused by mainly real estate companies. RBI’s decision, however, created confusion for companies that planned to issue convertible warrants. This is because the stock market
regulator Sebi’s guidelines allowed warrants to be converted into shares in 18 months. Some companies had requested the finance ministry to clarify the rules following the RBI order. The finance ministry has written to the central bank asking it to make an exception in the case of convertible warrants, a ministry official said, adding the central bank was expected to issue a clarification. “The matter requires clarification. In fact, the government or RBI should come out with separate guidelines dealing with the issue,” said Punit Shah, executive director, tax and regulatory services for PricewaterhouseCoopers’ financial services practice. Mr Shah said clear rules on the conversion of warrants into shares were absent under current foreign direct investment (FDI) regulations or under Foreign Exchange Management Act (FEMA) rules. The RBI move was primarily aimed at plugging a loophole in the FEMA regulations being misused by real estate firms to raise funds abroad when the government’s rules clearly barred real estate companies from raising foreign debt.
guidelines for smaller exchanges
Sebi to unveil guidelines for smaller exchanges in Dec
Chandigarh: The guidelines and procedures for setting up of smaller exchanges to cater the financial requirement of small and medium enterprises are being given final touches by the Sebi and are likely to be announced towards middle of December 2008 to actively provide alternate finance window.
Addressing the Assocham Conference on “Financing the Future Giants” on Wednesday in Chandigarh, T C Nair, wholetime member, Sebi said in the initial phase, three-four licences will be provided to the companies who have the net worth income of Rs100 crore.
He said the BSE and NSE have evinced their desire to set up such exchanges and the objective would be to mobilise resources from the public on the lines of the Alternate Investment Market (AIM) set up in London.
Nair further said, “The downswing in the stock market is an high opportunity for the investors and there was no reason to have panic. In last October, there were 1,100 FIIs operating in India which had raised to 1,500 FIIs in October 2008. It is true that they have withdrawn their money to meet their global requirements, yet keeping in view the strong fundamentals of the Indian economy, the stock markets are bound to be recovering sooner than later.”
However, he said the biggest threat due to global meltdown is to the small and medium enterprises whose contribution has been as high as 47% of the manufacturing sector and 8% of the progress are truly innovative.
Chandigarh: The guidelines and procedures for setting up of smaller exchanges to cater the financial requirement of small and medium enterprises are being given final touches by the Sebi and are likely to be announced towards middle of December 2008 to actively provide alternate finance window.
Addressing the Assocham Conference on “Financing the Future Giants” on Wednesday in Chandigarh, T C Nair, wholetime member, Sebi said in the initial phase, three-four licences will be provided to the companies who have the net worth income of Rs100 crore.
He said the BSE and NSE have evinced their desire to set up such exchanges and the objective would be to mobilise resources from the public on the lines of the Alternate Investment Market (AIM) set up in London.
Nair further said, “The downswing in the stock market is an high opportunity for the investors and there was no reason to have panic. In last October, there were 1,100 FIIs operating in India which had raised to 1,500 FIIs in October 2008. It is true that they have withdrawn their money to meet their global requirements, yet keeping in view the strong fundamentals of the Indian economy, the stock markets are bound to be recovering sooner than later.”
However, he said the biggest threat due to global meltdown is to the small and medium enterprises whose contribution has been as high as 47% of the manufacturing sector and 8% of the progress are truly innovative.
Job Working Activity
Service Tax on Job Working Activity
November 27, 2008
For the purpose of "Business Auxiliary Service" the definition of section 65(19)(v) of Finance Act, 1994 (Service Tax) provides that an activity of "production or processing of goods for, or on behalf of, the client" is a taxable activity. However an activity which is amounting to manufacture within the meaning of section 2(f) of Central Excise Act, 1944 is excluded from the scope of service tax under "Business Auxiliary Service"
There is a wide confusion over applicability and taxability of job working activity because, there is wide gap in different interpretation of provisions of the provisions of service tax relating to Job working activity under Business Auxiliary Service.
It happens in generally that a principle who buys excise duty paid material (goods) and send the same to job worker for further processing. Many times the activity undertaken by the job worker is not amounting to manufacture.
In the present case the job worker was engaged in the following FBE Coating activities:
The process of FBE coating undertaken by the appellant is as under:
(a) Duty paid bars received from the customers, are cleaned in Short Blasting Machine using steel shot of abrasives.
(b) Bars are heated to around 220 to 240 C in induction heater.
(c) Epoxy powder is sprayed over the heated bars by Electrostatic Spray guns housed inside the Coating Booth.
(d) Epoxy powder on contact with hot bars melts and fuses with the shot blasted heated bar surface making a strong corrosion protection bond with bars.
(e) Bars are then cooled in a free flowing water quench tunnel.
(f) Thereafter Coated Bars are inspected to check quality of Coating and then dispatched back to the respective customers.
The FBE coated bars are returned to their customers and used in civil construction job like construction of dams, bridges, canals, channels, pipelines etc. The said coating is essentially carried out on the bars for the purpose of protecting them from corrosion.
After hearing the arguments and analyzing the provisions in details with reference to amendments made in the provisions with effect from June 2005, honorable CESTAT held that:
"…..In the present case, the appellant is a company having expertise in the FBE coating and are professional in the fields. Their services are being used by the main contractors in furtherance of providing their service to the State Road Development Corporation Ltd. As such, the said main contractors instead of themselves doing the job of epoxy coating are getting the same done from the appellants by utilizing their services.
….Having discussed the various issues in the preceding paragraphs, we hold that the appellants are liable to pay service tax in respect of the activity undertaken by them during the relevant period."
However, having the facts of the case, CESTAT gave the following reliefs to the appellant:
1 Benefit of Cenvat credit as per Cenvat Credit Rules, 2004 allowed on inputs and input services.
2 Penalty is waived by invoking the provisions of section 80
November 27, 2008
For the purpose of "Business Auxiliary Service" the definition of section 65(19)(v) of Finance Act, 1994 (Service Tax) provides that an activity of "production or processing of goods for, or on behalf of, the client" is a taxable activity. However an activity which is amounting to manufacture within the meaning of section 2(f) of Central Excise Act, 1944 is excluded from the scope of service tax under "Business Auxiliary Service"
There is a wide confusion over applicability and taxability of job working activity because, there is wide gap in different interpretation of provisions of the provisions of service tax relating to Job working activity under Business Auxiliary Service.
It happens in generally that a principle who buys excise duty paid material (goods) and send the same to job worker for further processing. Many times the activity undertaken by the job worker is not amounting to manufacture.
In the present case the job worker was engaged in the following FBE Coating activities:
The process of FBE coating undertaken by the appellant is as under:
(a) Duty paid bars received from the customers, are cleaned in Short Blasting Machine using steel shot of abrasives.
(b) Bars are heated to around 220 to 240 C in induction heater.
(c) Epoxy powder is sprayed over the heated bars by Electrostatic Spray guns housed inside the Coating Booth.
(d) Epoxy powder on contact with hot bars melts and fuses with the shot blasted heated bar surface making a strong corrosion protection bond with bars.
(e) Bars are then cooled in a free flowing water quench tunnel.
(f) Thereafter Coated Bars are inspected to check quality of Coating and then dispatched back to the respective customers.
The FBE coated bars are returned to their customers and used in civil construction job like construction of dams, bridges, canals, channels, pipelines etc. The said coating is essentially carried out on the bars for the purpose of protecting them from corrosion.
After hearing the arguments and analyzing the provisions in details with reference to amendments made in the provisions with effect from June 2005, honorable CESTAT held that:
"…..In the present case, the appellant is a company having expertise in the FBE coating and are professional in the fields. Their services are being used by the main contractors in furtherance of providing their service to the State Road Development Corporation Ltd. As such, the said main contractors instead of themselves doing the job of epoxy coating are getting the same done from the appellants by utilizing their services.
….Having discussed the various issues in the preceding paragraphs, we hold that the appellants are liable to pay service tax in respect of the activity undertaken by them during the relevant period."
However, having the facts of the case, CESTAT gave the following reliefs to the appellant:
1 Benefit of Cenvat credit as per Cenvat Credit Rules, 2004 allowed on inputs and input services.
2 Penalty is waived by invoking the provisions of section 80
PARTNERSHIP
INCORPORATION OF LIMITED LIABILITY PARTNERSHIP
INTRODUCTION:
Sec.2 (d) of the Limited Liability Partnership Bill 2008 ('Bill' for short) includes the limited liability partnership registered under the Limited Liability Partnership Act in the definition of a body corporate. Chapter III of the bill provides for the incorporation of the limited liability partnership.
INCORPORATION DOCUMENT:
Sec. 11(1) provides that for incorporation of a limited liability partnership, two or more persons associated for carrying on a lawful business with a view to profit shall subscribe their names to an incorporation document. The incorporation document shall-
Be in a form as may be prescribed;
· State the name of the limited liability partnership;
· State the proposed business of the limited liability partnership;
· State the address of the registered office of the limited liability partnership;
· State the name and address of each of the persons who are to be partners of the limited liability partnership of incorporation;
· State the name and address of the persons who are to be designated partners of the limited liability partnership on incorporation;
· Contain such other information concerning the proposed limited liability partnership as may be prescribed.
Besides there shall be filed along with the incorporation document, a statement in the prescribed form, made by either an advocate or a Company Secretary or a Chartered Accountant or a Cost Accountant, who is engaged in the formation of the limited liability partnership and by any one who subscribed his name to the incorporation document, that all requirements of this Act and the rules made there under have been complied with, in respect of incorporation and matters precedent and incidental thereto. The incorporation document is similar that of the document prescribed for the companies to be registered under the Companies Act, 1956. The Companies Act provides that the Memorandum and Articles of the Association shall be accompanied along with the incorporation document. Even though the bill provides for the limited liability partnership agreement, the same is not made compulsory to file along with the incorporation document. The partnership agreement is necessarily to be filed along with the incorporation document. The Government has to consider this aspect while giving shape this bill as an act.
NAME OF LIMITED LIABILITY PARTNERSHIP:
Every limited liability partnership shall have either the words 'limited liability partnership' or the acronym 'LLP' as the last words of its name. No limited liability partnership shall be registered by a name which, in the opinion of the Central Government is-
Undesirable; or
· Identical or too nearly resembles to that of any other partnership firm or limited liability partnership or body corporate or a registered trade mark, or a trade mark which is subject of an application for registration, of any other person under the Trade Marks Act, 1999.
As like in the Companies Act, the name is to be reserved for limited liability partnership. A person may apply in such form and manner and accompanied by such fee as may be prescribed to the Registrar for the reservation of a name set out in the application as-
The name of a proposed limited liability partnership; or
· The name to which a limited liability partnership proposes to change its name.
Upon receipt of an application and on payment of prescribed fee, the Registrar may, if he is satisfied, subject to the rules prescribed by the Central Government in the matter, that the name to be reserved is not one which may be rejected on any ground reserve the name for a period of three months from the date of intimation by the Registrar.
REGISTERED OFFICE:
Every limited liability partnership shall have a registered office to which all communications and notices may be addressed and where they shall be received. A document may be served on a limited liability partnership or a partner or designated partner thereof by sending it by post under a certificate of posting or by registered post or by any other manner, as may be prescribed, at the registered office and any other address specifically declared by the limited liability partnership for the purpose in such form and manner as may be prescribed.
DESIGNATED PARTNERS:
Every limited liability partnership shall have at least two designated partners who are individuals and at least one of them shall be a resident in India. In case of a limited liability partnership in which all the partners are bodies corporate or in which one or more partners are individuals and bodies corporate, at least two individuals who are partners of such limited liability partnership or nominees of such bodies corporate shall act as designated partners. If the incorporation document specifies who are to be designated partners, such person shall be designated partners on incorporation, or states that each of the partners from time to time of limited liability partnership is to be designated partner, every partner shall be a designated partner.
An individual shall not become a designated partner unless he has given his prior consent to act as such to the limited liability partnership in such form and manner as may be prescribed. His consent shall be filed with the Registrar by the limited liability partnership in such form and manner as may be prescribed within thirty days of his appointment. An individual eligible to be a designated partner shall satisfy such conditions and requirements as may be prescribed.
INCORPORATION:
The incorporation document shall be filed in such manner and with such fees, as may be prescribed with the Registrar or the State in which the registered office of the limited liability partnership is to be situated. The incorporation document may also be filed electronically. The Registrar under the Companies Act shall be Registrar for this purpose.
When all the requirements have been complied with the Registrar shall retain the incorporation document and register the incorporation document and give a certificate that the limited liability partnership is incorporated by the name specified therein. The Registrar may accept the statement filed along with the incorporation document as sufficient evidence that the requirements have been complied with. The certificate shall be signed by the Registrar and authenticated by his official seal. The certificate shall be conclusive evidence that the limited liability partnership is incorporated by the name specified therein.
EFFECT OF REGISTRATION:
On registration, a limited liability partnership shall by its name, be capable of-
Suing and being sued;
· Acquiring, owning, holding and developing or disposing of property, whether moveable or immovable, tangible or intangible;
· Having a common seal, if it decides to have one; and
· Doing and suffering such other acts and things as bodies corporate may lawfully do and suffer.
CONCLUSION:
The process of incorporation of a limited liability partnership is the simplified one and the professionals may play a vital role in this work. The professionals are to be careful in making the statement which is to be attached with the incorporation document since the bill provides for punishment. The bill provides that if a person makes a statement which he knows to be false or does not believe to be true shall be punishable with imprisonment for a term which may extend to two years and with fine which shall not be less than ten thousand rupees but which may extend to five lakh rupees.
INTRODUCTION:
Sec.2 (d) of the Limited Liability Partnership Bill 2008 ('Bill' for short) includes the limited liability partnership registered under the Limited Liability Partnership Act in the definition of a body corporate. Chapter III of the bill provides for the incorporation of the limited liability partnership.
INCORPORATION DOCUMENT:
Sec. 11(1) provides that for incorporation of a limited liability partnership, two or more persons associated for carrying on a lawful business with a view to profit shall subscribe their names to an incorporation document. The incorporation document shall-
Be in a form as may be prescribed;
· State the name of the limited liability partnership;
· State the proposed business of the limited liability partnership;
· State the address of the registered office of the limited liability partnership;
· State the name and address of each of the persons who are to be partners of the limited liability partnership of incorporation;
· State the name and address of the persons who are to be designated partners of the limited liability partnership on incorporation;
· Contain such other information concerning the proposed limited liability partnership as may be prescribed.
Besides there shall be filed along with the incorporation document, a statement in the prescribed form, made by either an advocate or a Company Secretary or a Chartered Accountant or a Cost Accountant, who is engaged in the formation of the limited liability partnership and by any one who subscribed his name to the incorporation document, that all requirements of this Act and the rules made there under have been complied with, in respect of incorporation and matters precedent and incidental thereto. The incorporation document is similar that of the document prescribed for the companies to be registered under the Companies Act, 1956. The Companies Act provides that the Memorandum and Articles of the Association shall be accompanied along with the incorporation document. Even though the bill provides for the limited liability partnership agreement, the same is not made compulsory to file along with the incorporation document. The partnership agreement is necessarily to be filed along with the incorporation document. The Government has to consider this aspect while giving shape this bill as an act.
NAME OF LIMITED LIABILITY PARTNERSHIP:
Every limited liability partnership shall have either the words 'limited liability partnership' or the acronym 'LLP' as the last words of its name. No limited liability partnership shall be registered by a name which, in the opinion of the Central Government is-
Undesirable; or
· Identical or too nearly resembles to that of any other partnership firm or limited liability partnership or body corporate or a registered trade mark, or a trade mark which is subject of an application for registration, of any other person under the Trade Marks Act, 1999.
As like in the Companies Act, the name is to be reserved for limited liability partnership. A person may apply in such form and manner and accompanied by such fee as may be prescribed to the Registrar for the reservation of a name set out in the application as-
The name of a proposed limited liability partnership; or
· The name to which a limited liability partnership proposes to change its name.
Upon receipt of an application and on payment of prescribed fee, the Registrar may, if he is satisfied, subject to the rules prescribed by the Central Government in the matter, that the name to be reserved is not one which may be rejected on any ground reserve the name for a period of three months from the date of intimation by the Registrar.
REGISTERED OFFICE:
Every limited liability partnership shall have a registered office to which all communications and notices may be addressed and where they shall be received. A document may be served on a limited liability partnership or a partner or designated partner thereof by sending it by post under a certificate of posting or by registered post or by any other manner, as may be prescribed, at the registered office and any other address specifically declared by the limited liability partnership for the purpose in such form and manner as may be prescribed.
DESIGNATED PARTNERS:
Every limited liability partnership shall have at least two designated partners who are individuals and at least one of them shall be a resident in India. In case of a limited liability partnership in which all the partners are bodies corporate or in which one or more partners are individuals and bodies corporate, at least two individuals who are partners of such limited liability partnership or nominees of such bodies corporate shall act as designated partners. If the incorporation document specifies who are to be designated partners, such person shall be designated partners on incorporation, or states that each of the partners from time to time of limited liability partnership is to be designated partner, every partner shall be a designated partner.
An individual shall not become a designated partner unless he has given his prior consent to act as such to the limited liability partnership in such form and manner as may be prescribed. His consent shall be filed with the Registrar by the limited liability partnership in such form and manner as may be prescribed within thirty days of his appointment. An individual eligible to be a designated partner shall satisfy such conditions and requirements as may be prescribed.
INCORPORATION:
The incorporation document shall be filed in such manner and with such fees, as may be prescribed with the Registrar or the State in which the registered office of the limited liability partnership is to be situated. The incorporation document may also be filed electronically. The Registrar under the Companies Act shall be Registrar for this purpose.
When all the requirements have been complied with the Registrar shall retain the incorporation document and register the incorporation document and give a certificate that the limited liability partnership is incorporated by the name specified therein. The Registrar may accept the statement filed along with the incorporation document as sufficient evidence that the requirements have been complied with. The certificate shall be signed by the Registrar and authenticated by his official seal. The certificate shall be conclusive evidence that the limited liability partnership is incorporated by the name specified therein.
EFFECT OF REGISTRATION:
On registration, a limited liability partnership shall by its name, be capable of-
Suing and being sued;
· Acquiring, owning, holding and developing or disposing of property, whether moveable or immovable, tangible or intangible;
· Having a common seal, if it decides to have one; and
· Doing and suffering such other acts and things as bodies corporate may lawfully do and suffer.
CONCLUSION:
The process of incorporation of a limited liability partnership is the simplified one and the professionals may play a vital role in this work. The professionals are to be careful in making the statement which is to be attached with the incorporation document since the bill provides for punishment. The bill provides that if a person makes a statement which he knows to be false or does not believe to be true shall be punishable with imprisonment for a term which may extend to two years and with fine which shall not be less than ten thousand rupees but which may extend to five lakh rupees.
replacement cost
Term of the Day - replacement cost
The amount it would cost to replace an asset at current prices. If the cost of replacing an asset in its current physical condition is lower than the cost of replacing the asset so as to obtain the level of services enjoyed when the asset was bought, then the asset is in poor condition and the firm would probably not want to replace it.
The amount it would cost to replace an asset at current prices. If the cost of replacing an asset in its current physical condition is lower than the cost of replacing the asset so as to obtain the level of services enjoyed when the asset was bought, then the asset is in poor condition and the firm would probably not want to replace it.
Wednesday, November 26, 2008
Hypothetical tax not an income
Hypothetical tax not an income accruing in India
In a recent judgment involving a foreign national, the Mumbai Income Tax Tribunal has held that hypothetical tax paid by an employer on behalf of the taxpayer is not an income accruing in India and can be claimed as a deduction by the employee from the gross salary.
The assessee, Roy Marshall, was an employee of British Airways. In the computation of total income in the tax return, the assessee deducted hypothetical tax withheld by his employer from gross salary. According to the contract agreement, the company had to bear additional tax burden arising out of his services in India and the assessee would bear only that part of the tax which he would have required to pay in his home country.
During the year, the assessee’s salary income was Rs 77 lakh and the company reimbursed Rs 35 lakh towards tax liability. Total income of the assessee thus became Rs 1.12 crore and with the maximum marginal rate of 44.8 per cent, the total tax liability came to Rs 50 lakh. The company had paid Rs 35 lakh, so the balance tax liability of Rs 15 lakh was borne by the assessee.
Though the taxpayer had paid his total tax dues in India, the income-tax assessing officer held that the hypothetical tax (Rs 35 lakh) should also form a part of the salary income. This became a bone of contention as the assessee may take a hit in his home country. According to the provisions of the Double Taxation Avoidance Agreement, the person may have taken a credit of Rs 15 lakh Indian taxes paid on an income of Rs 77 lakh in his home country tax return. However, if he would have to show that his salary income was Rs 1.12 crore in India, there could have been additional tax burden on him in his home country.
The tribunal relied on the judgment on a similar case of Jaydev H Raja, wherein it was held that the hypothetical tax does not form a part of the salary income taxable in India and the appellant was justified in reducing the same from his taxable salary.
It was held by the tribunal that income arising in India in the hands of the taxpayer is the actual salary plus the incremental tax liability arising on account of the Indian assignment. The amount of hypothetical tax withheld from the salary of the taxpayer is not an income accruing to him in India.
The ruling further held that as long as tax is paid on the income accruing in India, it is not relevant if the taxpayer takes credit of Indian taxes in his home country tax return.
Accordingly, the tribunal held that no deduction was actually claimed by the assessee on account of hypo tax as otherwise misconceived by the revenue authorities and deleted the addition made on this count.
In a recent judgment involving a foreign national, the Mumbai Income Tax Tribunal has held that hypothetical tax paid by an employer on behalf of the taxpayer is not an income accruing in India and can be claimed as a deduction by the employee from the gross salary.
The assessee, Roy Marshall, was an employee of British Airways. In the computation of total income in the tax return, the assessee deducted hypothetical tax withheld by his employer from gross salary. According to the contract agreement, the company had to bear additional tax burden arising out of his services in India and the assessee would bear only that part of the tax which he would have required to pay in his home country.
During the year, the assessee’s salary income was Rs 77 lakh and the company reimbursed Rs 35 lakh towards tax liability. Total income of the assessee thus became Rs 1.12 crore and with the maximum marginal rate of 44.8 per cent, the total tax liability came to Rs 50 lakh. The company had paid Rs 35 lakh, so the balance tax liability of Rs 15 lakh was borne by the assessee.
Though the taxpayer had paid his total tax dues in India, the income-tax assessing officer held that the hypothetical tax (Rs 35 lakh) should also form a part of the salary income. This became a bone of contention as the assessee may take a hit in his home country. According to the provisions of the Double Taxation Avoidance Agreement, the person may have taken a credit of Rs 15 lakh Indian taxes paid on an income of Rs 77 lakh in his home country tax return. However, if he would have to show that his salary income was Rs 1.12 crore in India, there could have been additional tax burden on him in his home country.
The tribunal relied on the judgment on a similar case of Jaydev H Raja, wherein it was held that the hypothetical tax does not form a part of the salary income taxable in India and the appellant was justified in reducing the same from his taxable salary.
It was held by the tribunal that income arising in India in the hands of the taxpayer is the actual salary plus the incremental tax liability arising on account of the Indian assignment. The amount of hypothetical tax withheld from the salary of the taxpayer is not an income accruing to him in India.
The ruling further held that as long as tax is paid on the income accruing in India, it is not relevant if the taxpayer takes credit of Indian taxes in his home country tax return.
Accordingly, the tribunal held that no deduction was actually claimed by the assessee on account of hypo tax as otherwise misconceived by the revenue authorities and deleted the addition made on this count.
cat among the pigeons
Setting the cat among the pigeons
Shardul S Shroff & Akila Agrawal / New Delhi November 24, 2008, 0:45 IST
The change in the creeping acquisition limits allows unscrupulous promoters to make a killing at the expense of small shareholders.
Sebi has, pursuant to its notification dated October 30, 2008, made amendments to the creeping acquisition limits available to promoters of listed companies. Until recently a person holding 15 per cent to 55 per cent stake in a listed company could acquire additional shares or voting rights up to 5 per cent per financial year without having to make a mandatory open offer. Any acquisition of further shares beyond 55 per cent required the acquirer to make an open offer. Pursuant to the recent amendment, Sebi has provided an opportunity to promoters holding more than 55 per cent but less than 75 per cent, to acquire a further 5 per cent stake in the company without making an open offer to the public shareholders. The 75 per cent will be read as 90 per cent for those companies which have a minimum public shareholding limit of 10 per cent pursuant to the first proviso of Regulation 11(2) which is applicable to the entire sub-regulation. This opportunity of acquiring 5 per cent is not available on an incremental basis every financial year but is a one-shot opportunity to further consolidate 5 per cent stake in the company. The amendment also specifies that the 5 per cent increase in shareholding by the promoter beyond 55 per cent shall be only through open market purchases, which surprisingly does not include a bulk deal. Moreover, acquisitions through a block deal or through preferential allotment have been expressly ruled out.
The statements made by the finance minister in the press indicate that the objective of this amendment is to boost the sagging stock market. However, the amendment itself does not prima facie appear to be a short-term measure as there is no specific time period up to which this window of creeping acquisition is available. If the stated purpose of an amendment is to cure a short-term ill, it is only reasonable to expect such an amendment to have an upfront time limitation which is preferable to any surprise move withdrawing the creeping facility.
Moreover, whilst one does appreciate Sebi’s move to boost the stock market during such turbulent times, it is open to debate whether the end justifies the method adopted by Sebi given the objectives of the Takeover Regulations. Any move to enable an existing controlling shareholder to further consolidate its shares should be balanced with the interests of ordinary investors. In the past, creeping acquisitions were originally introduced in the Takeover Regulations in 1997 on the recommendations of the Bhagwati Committee Report to enable persons in control of the company to consolidate their holdings or to build defences against takeover threats, provided it does not unduly affect the interests of shareholders. Prior to the recent amendment, there was a reasonable balance between the interests of the controlling shareholders in a competitive market and those of the small investor as one would assume that on reaching 51 per cent and above, a person can reasonably be assured of control over the company without having to worry about undue takeover threats. At the same time, if the promoter was interested in amassing further voting rights upto the maximum limit permitted under the listing agreement or even 100 per cent pursuant to a delisting offer, he had to provide relevant exit opportunities i.e. a fixed price offer under the Takeover Regulations with complete disclosures on all future plans relating to the target company followed by a delisting offer where the price is determined by the minority shareholders.
By permitting further acquisition of 5 per cent beyond 55 per cent, albeit through a narrow window of open market purchases sans bulk deals, Sebi has now rocked the delicate balance of the Takeover Regulations. Today, a controlling shareholder who holds beyond 55 per cent and is intending to delist the securities of the target company can buy 5 per cent in a depressed market and thereafter make a delisting offer. A delisting offer is deemed successful only if the public shareholding falls below the required minimum. Consequent to the 5 per cent acquisition, it is easier for the controlling shareholder to ensure success of the delisting offer. To further illustrate, an 85 per cent promoter holder can acquire 5 per cent through open market purchases and delist the securities as he needs just one share to be tendered for the offer to be successful. The promoter could always relist the securities after a period of two years and make huge gains as hopefully the bulls will be back in business in a couple of years.
Another change made by Sebi pursuant to the October 30, 2008 amendment is to permit an increase in shareholding or voting rights of the acquirer pursuant to a buyback without having to make an open offer or obtain specific exemption of Sebi, provided the promoter in question holds shares between 55 per cent to 75 per cent/90 per cent as the case may be. This change is welcome given the fact that one need not approach Sebi for an exemption, as has been the practice, for increase in shareholding pursuant to a buyback offer. However, it is necessary to point out that whilst the press release expressly states that the buyback exemption is permitted for 5 per cent per annum, the notification simply states 5 per cent with no reference to ‘per financial year’ which raises questions on the exact intent of Sebi. An even more welcome change would be to expressly exempt any increase in voting rights due to a buyback offer from the purview of Regulations 10,11 and 12 by way of an amendment to Regulation 3 of the Takeover Regulations.
The recent amendments to the Takeover Regulations seem to be a reactive approach to a volatile stock market rather than a strategic change in the policy. If the intention was only to bolster the stock market that could have been achieved by simply increasing the creeping acquisition limits permitted under Section 11(1) to 7.5 per cent or 10 per cent (up to 55 per cent) without having to tamper with fundamental provisions of the Takeover Regulations having a bearing on investor protection issues.
Shardul S Shroff & Akila Agrawal / New Delhi November 24, 2008, 0:45 IST
The change in the creeping acquisition limits allows unscrupulous promoters to make a killing at the expense of small shareholders.
Sebi has, pursuant to its notification dated October 30, 2008, made amendments to the creeping acquisition limits available to promoters of listed companies. Until recently a person holding 15 per cent to 55 per cent stake in a listed company could acquire additional shares or voting rights up to 5 per cent per financial year without having to make a mandatory open offer. Any acquisition of further shares beyond 55 per cent required the acquirer to make an open offer. Pursuant to the recent amendment, Sebi has provided an opportunity to promoters holding more than 55 per cent but less than 75 per cent, to acquire a further 5 per cent stake in the company without making an open offer to the public shareholders. The 75 per cent will be read as 90 per cent for those companies which have a minimum public shareholding limit of 10 per cent pursuant to the first proviso of Regulation 11(2) which is applicable to the entire sub-regulation. This opportunity of acquiring 5 per cent is not available on an incremental basis every financial year but is a one-shot opportunity to further consolidate 5 per cent stake in the company. The amendment also specifies that the 5 per cent increase in shareholding by the promoter beyond 55 per cent shall be only through open market purchases, which surprisingly does not include a bulk deal. Moreover, acquisitions through a block deal or through preferential allotment have been expressly ruled out.
The statements made by the finance minister in the press indicate that the objective of this amendment is to boost the sagging stock market. However, the amendment itself does not prima facie appear to be a short-term measure as there is no specific time period up to which this window of creeping acquisition is available. If the stated purpose of an amendment is to cure a short-term ill, it is only reasonable to expect such an amendment to have an upfront time limitation which is preferable to any surprise move withdrawing the creeping facility.
Moreover, whilst one does appreciate Sebi’s move to boost the stock market during such turbulent times, it is open to debate whether the end justifies the method adopted by Sebi given the objectives of the Takeover Regulations. Any move to enable an existing controlling shareholder to further consolidate its shares should be balanced with the interests of ordinary investors. In the past, creeping acquisitions were originally introduced in the Takeover Regulations in 1997 on the recommendations of the Bhagwati Committee Report to enable persons in control of the company to consolidate their holdings or to build defences against takeover threats, provided it does not unduly affect the interests of shareholders. Prior to the recent amendment, there was a reasonable balance between the interests of the controlling shareholders in a competitive market and those of the small investor as one would assume that on reaching 51 per cent and above, a person can reasonably be assured of control over the company without having to worry about undue takeover threats. At the same time, if the promoter was interested in amassing further voting rights upto the maximum limit permitted under the listing agreement or even 100 per cent pursuant to a delisting offer, he had to provide relevant exit opportunities i.e. a fixed price offer under the Takeover Regulations with complete disclosures on all future plans relating to the target company followed by a delisting offer where the price is determined by the minority shareholders.
By permitting further acquisition of 5 per cent beyond 55 per cent, albeit through a narrow window of open market purchases sans bulk deals, Sebi has now rocked the delicate balance of the Takeover Regulations. Today, a controlling shareholder who holds beyond 55 per cent and is intending to delist the securities of the target company can buy 5 per cent in a depressed market and thereafter make a delisting offer. A delisting offer is deemed successful only if the public shareholding falls below the required minimum. Consequent to the 5 per cent acquisition, it is easier for the controlling shareholder to ensure success of the delisting offer. To further illustrate, an 85 per cent promoter holder can acquire 5 per cent through open market purchases and delist the securities as he needs just one share to be tendered for the offer to be successful. The promoter could always relist the securities after a period of two years and make huge gains as hopefully the bulls will be back in business in a couple of years.
Another change made by Sebi pursuant to the October 30, 2008 amendment is to permit an increase in shareholding or voting rights of the acquirer pursuant to a buyback without having to make an open offer or obtain specific exemption of Sebi, provided the promoter in question holds shares between 55 per cent to 75 per cent/90 per cent as the case may be. This change is welcome given the fact that one need not approach Sebi for an exemption, as has been the practice, for increase in shareholding pursuant to a buyback offer. However, it is necessary to point out that whilst the press release expressly states that the buyback exemption is permitted for 5 per cent per annum, the notification simply states 5 per cent with no reference to ‘per financial year’ which raises questions on the exact intent of Sebi. An even more welcome change would be to expressly exempt any increase in voting rights due to a buyback offer from the purview of Regulations 10,11 and 12 by way of an amendment to Regulation 3 of the Takeover Regulations.
The recent amendments to the Takeover Regulations seem to be a reactive approach to a volatile stock market rather than a strategic change in the policy. If the intention was only to bolster the stock market that could have been achieved by simply increasing the creeping acquisition limits permitted under Section 11(1) to 7.5 per cent or 10 per cent (up to 55 per cent) without having to tamper with fundamental provisions of the Takeover Regulations having a bearing on investor protection issues.
Commercial paper’s back
Commercial paper’s back after Oct break
24 Nov 2008, 0000 hrs IST, Gayatri Nayak, ET Bureau
MUMBAI: With more liquidity released into the system on account of lower cash reserves (CRR), banks’ treasury desks have become more active and
investments have come into focus again. Besides buying government bonds, banks, for the first time, after the liquidity crunch in October, have invested over Rs 7,000 crore in commercial papers (CPs), mutual funds (MFs), bonds and stocks. Ever since the central bank has adopted an accommodative stance by reducing CRR — the portion of cash banks need to compulsorily park with the Reserve Bank of India — in early-October, non-statutory liquidity ratio investments, which are generally guided by commercial consideration, have risen by over Rs 7,000 crore since early-October, from Rs 91,120 crore as on October 10 to Rs 98,170 crore a fortnight back. Since the beginning of 2008-09 until mid-July, banks were actually offloading CPs, corporate bonds, MF schemes and stocks to generate liquidity. Though they have gradually hiked their exposure in these assets since mid-July, investments rose sharply only in the latest two fortnights, particularly in CPs and MF schemes. While they picked up CPs worth Rs 6,034 crore, their MF investments rose by Rs 7,535 crore in the latest fortnights. Data suggests that banks are totally shunning corporate bonds and are going slow on stocks. Though there is no clear cut explanation for this trend, a section of the market says that banks have promised to pick up CPs from cash-starved MFs in order to provide them an additional window of liquidity support. MFs are among the biggest subscribers to CPs that are issued by corporates and NBFCs for a tenure ranging from seven days to up to a year at the prevailing market rates. These are tradable and a bulk of the investments, which are believed to be secondary market purchases by banks. While primary issuances are said to have slowed in the past few weeks. On the other hand, banks, flush with funds after the central bank cut the CRR by about 300 basis points until November 7, 2008 as they now have to park less with the central bank, are now said to be investing their surplus funds in liquid MF schemes, waiting for attractive lending opportunities. Bank investments in government bonds (25% of the deposits mobilised) need to be mandatorily parked with the central bank as SLR, which had dipped to around Rs 10,000 crore a fortnight between August 1 and October 10, have gone up to nearly Rs 45,000 crore a fortnight between October 10 and November 7, 2008.
24 Nov 2008, 0000 hrs IST, Gayatri Nayak, ET Bureau
MUMBAI: With more liquidity released into the system on account of lower cash reserves (CRR), banks’ treasury desks have become more active and
investments have come into focus again. Besides buying government bonds, banks, for the first time, after the liquidity crunch in October, have invested over Rs 7,000 crore in commercial papers (CPs), mutual funds (MFs), bonds and stocks. Ever since the central bank has adopted an accommodative stance by reducing CRR — the portion of cash banks need to compulsorily park with the Reserve Bank of India — in early-October, non-statutory liquidity ratio investments, which are generally guided by commercial consideration, have risen by over Rs 7,000 crore since early-October, from Rs 91,120 crore as on October 10 to Rs 98,170 crore a fortnight back. Since the beginning of 2008-09 until mid-July, banks were actually offloading CPs, corporate bonds, MF schemes and stocks to generate liquidity. Though they have gradually hiked their exposure in these assets since mid-July, investments rose sharply only in the latest two fortnights, particularly in CPs and MF schemes. While they picked up CPs worth Rs 6,034 crore, their MF investments rose by Rs 7,535 crore in the latest fortnights. Data suggests that banks are totally shunning corporate bonds and are going slow on stocks. Though there is no clear cut explanation for this trend, a section of the market says that banks have promised to pick up CPs from cash-starved MFs in order to provide them an additional window of liquidity support. MFs are among the biggest subscribers to CPs that are issued by corporates and NBFCs for a tenure ranging from seven days to up to a year at the prevailing market rates. These are tradable and a bulk of the investments, which are believed to be secondary market purchases by banks. While primary issuances are said to have slowed in the past few weeks. On the other hand, banks, flush with funds after the central bank cut the CRR by about 300 basis points until November 7, 2008 as they now have to park less with the central bank, are now said to be investing their surplus funds in liquid MF schemes, waiting for attractive lending opportunities. Bank investments in government bonds (25% of the deposits mobilised) need to be mandatorily parked with the central bank as SLR, which had dipped to around Rs 10,000 crore a fortnight between August 1 and October 10, have gone up to nearly Rs 45,000 crore a fortnight between October 10 and November 7, 2008.
risk premium
Term of the Day
Investing: (1) Difference between a risk-free return (such as from government bonds) and the total return from a risky investment (such as equity stock). (2) Additional return or rate of interest (above the market interest rate) an investor requires for investing in a proposition or venture. Also called price of risk.
Investing: (1) Difference between a risk-free return (such as from government bonds) and the total return from a risky investment (such as equity stock). (2) Additional return or rate of interest (above the market interest rate) an investor requires for investing in a proposition or venture. Also called price of risk.
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Monday, November 24, 2008
shoe makers turn to India
European shoe makers turn to India as China loses price edge
T E Narasimhan / Chennai November 24, 2008, 0:14 IST
The country's shoe making units in Tamil Nadu and Uttar Pradesh are abuzz with activity. European shoe makers, who were sourcing from China, have now turned to India. Indian units have started getting enquiries and orders from European companies, some of whom have also announced setting up their own manufacturing facility in the country.
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According to industry representatives, Chinese products, which used to be cheaper by around 10 per cent compared to Indian products, are no more cheaper due to the increase in labour costs in China. The costs of labour have risen by around 40 per cent since January 2008 in China. Implementation of the European Union (EU) anti-dumping duty and Chinese currency Yuan appreciating against the US dollar are other reasons stated.
This tilt towards is already reflecting. According to statistics for the first seven months of the current year, European imports of footwear from China fell by 1.7 per cent compared to the same period last year, whereas from India, it rose by 3.5 per cent.
During 2007-08, footwear exports from India was valued at $1,475 million (around Rs 7,300 crore) compared to $1,236.91 million (around Rs 6,150 crore) in the same period last year, an increase of 19 per cent.
Some of the footwear majors now looking at India include Nike, Addidas and Puma, which are expected to route parts of their production and purchase out from China to India.
Growth-Link Overseas, the Hong Kong-based subsidiary of Taiwanese sports shoe major Feng Tay Enterprise, is planning to invest around Rs 300 crore for setting up a manufacturing facility in 275 acres at the Cheyyar Industrial Complex in Tamil Nadu to make Nike footwear. The unit will produce 1 million pairs of footwear every year.
A recent report quoted Herbert Hainer, president, Adidas, saying that as the wage level in China was increasing, the firm plans to transfer part of its manufacture and purchase from China to other countries.
The report added the company had sent its representatives to South East Asian countries including India, where prospects are high.
At present, around 50 per cent of adidas' products are made in China and the company has 264 factories across the country.
Another of Europe's leading shoe brand Fly Flot is also planning to set up a manufacturing plant in India along with Mauritius-based Pavers Foresight Smart Ventures. The new plant is coming up in Tamil Nadu and will produce 1 million pairs in the first phase, with the possibility of raising this to 2 million pairs by 2012.
According to a representative of an Italy-based company, labour costs increased by 40 per cent to an average of $160 (around Rs 8,000) a month. But, in India, it is around Rs 3,500 to Rs 4,000. He noted a recent survey by the China Leather Industry Association (CLIA) estimates labour costs will increase by another 20 per cent
T E Narasimhan / Chennai November 24, 2008, 0:14 IST
The country's shoe making units in Tamil Nadu and Uttar Pradesh are abuzz with activity. European shoe makers, who were sourcing from China, have now turned to India. Indian units have started getting enquiries and orders from European companies, some of whom have also announced setting up their own manufacturing facility in the country.
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According to industry representatives, Chinese products, which used to be cheaper by around 10 per cent compared to Indian products, are no more cheaper due to the increase in labour costs in China. The costs of labour have risen by around 40 per cent since January 2008 in China. Implementation of the European Union (EU) anti-dumping duty and Chinese currency Yuan appreciating against the US dollar are other reasons stated.
This tilt towards is already reflecting. According to statistics for the first seven months of the current year, European imports of footwear from China fell by 1.7 per cent compared to the same period last year, whereas from India, it rose by 3.5 per cent.
During 2007-08, footwear exports from India was valued at $1,475 million (around Rs 7,300 crore) compared to $1,236.91 million (around Rs 6,150 crore) in the same period last year, an increase of 19 per cent.
Some of the footwear majors now looking at India include Nike, Addidas and Puma, which are expected to route parts of their production and purchase out from China to India.
Growth-Link Overseas, the Hong Kong-based subsidiary of Taiwanese sports shoe major Feng Tay Enterprise, is planning to invest around Rs 300 crore for setting up a manufacturing facility in 275 acres at the Cheyyar Industrial Complex in Tamil Nadu to make Nike footwear. The unit will produce 1 million pairs of footwear every year.
A recent report quoted Herbert Hainer, president, Adidas, saying that as the wage level in China was increasing, the firm plans to transfer part of its manufacture and purchase from China to other countries.
The report added the company had sent its representatives to South East Asian countries including India, where prospects are high.
At present, around 50 per cent of adidas' products are made in China and the company has 264 factories across the country.
Another of Europe's leading shoe brand Fly Flot is also planning to set up a manufacturing plant in India along with Mauritius-based Pavers Foresight Smart Ventures. The new plant is coming up in Tamil Nadu and will produce 1 million pairs in the first phase, with the possibility of raising this to 2 million pairs by 2012.
According to a representative of an Italy-based company, labour costs increased by 40 per cent to an average of $160 (around Rs 8,000) a month. But, in India, it is around Rs 3,500 to Rs 4,000. He noted a recent survey by the China Leather Industry Association (CLIA) estimates labour costs will increase by another 20 per cent
Debt fund norms to be overhauled
Debt fund norms to be overhauled
Joydeep Ghosh & Priya Nadkarni / Mumbai November 24, 2008, 0:07 IST
Sebi meets mutual fund body today to consider changes Fixed Maturity Plans (FMPs) may no longer be permitted to announce indicative portfolios and indicative yields to investors if the Securities and Exchange Board of India (Sebi) accepts the recommendations of the Association of Mutual Funds in India (Amfi) at a meeting here on Monday.
This is part of a package of recommendations that Amfi is making to boost investor confidence in FMPs that invest in debt and liquid and liquid- plus funds.
FMPs saw average assets under management (AAUM) fall by Rs 10,718 crore in October, the first time in the last six months.
The proposal to scrap “indicative portfolios” has arisen because investors have sometimes found deviations of as much as 80 per cent between the indicative and actual portfolios. In some cases, the entire corpus has been invested in a single instrument.
Sebi will also consider Amfi’s suggestion of a 3 to 6 per cent exit load for FMPs, a minimum tenure of three months and a faster processing of redemption payouts at transaction (T) plus five days against T+10 specified in the rules (although some smaller redemptions are processed as soon as T+1 or 2).
The draft proposal also includes a host of measures intended to reduce volatility and force fund managers to play safe by reducing the asset-liability mismatch. For instance, the Amfi committee has suggested that liquid funds, which have a maturity between one and three months, must have a minimum 30 per cent allocation to cash, collateralised borrowing and lending obligations (CBLO), bank fixed deposits, treasury bills and others — all safe and liquid instruments.
Amfi has also recommended that 30 per cent of the investment can be made in bank fixed deposits (FDs). At present, funds are allowed to invest up to 15 per cent in bank FDs, 20 per cent with board approval.
Amfi has also said the exit option should be preferred over listing FMPs because the latter does not provide the investor with liquidity. Also, the maturity-mismatch has to be contained at 10 per cent of the tenure of the instrument or one month, whichever is lower
Besides the safety of liquid fund instruments, Amfi has suggested extending their duration to a maximum of 90 days.
Amfi has also recommended that all fixed-rate instruments above three months should be marked to market. Today, all fixed rate instruments beyond six months are marked to market.
For debt funds, the valuation of the underlying papers is currently based on Crisil’s valuation matrix. Amfi has proposed outsourcing these valuations to an independent third party.
Fund managers, however, are divided over these proposals. For instance, most Amfi members felt that the practice of announcing indicative returns should continue.
Others felt some of these moves could make the funds more illiquid. “According to RBI regulations, banks can refuse the overdraft facility against their own FDs. So it doesn’t really make sense to increase the overall exposure cap to FDs,” said a debt fund manager
exports and imports of services
Similarity of treatment in exports and imports of services
key issue in regard to taxation of cross border transactions of services is to ensure that the provisions of indirect tax law across countries are aligned so that there is just the one tax on a particular cross border transaction and, therefore, there is no possibility of either double taxation or double non-taxation.
There are two ways to analyse the situation. The first is to compare whether the provisions of specific countries relating to exportation of services therefrom and their consequent zero rating are matched by corresponding provisions on importation of services and their taxability in the importing countries. The other way to do this is to see whether within one country, the provisions relating to exports and imports of services are broadly similar in nature, in order to conclude that the two are in tandem and hence mutually compatible. It will be interesting to see whether this is indeed the case in India.
The service tax provisions were amended for the first time in 2005 in order to incorporate a taxation code in relation to exports of services, vide the Exports of Services Rules 2005 (Export Rules). While there were erstwhile provisions that did address the issue of zero rating of services prior to these rules, it was only with the introduction of these rules that comprehensive provisions were introduced to precisely determine the exportation of services.
A similar situation has obtained regarding importation of services as well. There has been a great deal of controversy as to the effective date from which importation of services were sought to be taxed. However, here again, it was only with the introduction of the Taxation of Services (Provided from outside India and Received in India) Rules 2006 (Import Rules) that the provisions were codified and formalized. The question that is addressed in this article is whether the Export and Import Rules are mirror images of each other, as they ideally should be.
The Export rules categorise the several taxable services into three different categories. The first category covers 13 services, all of which are related to immovable property. The Export Rules hold that if the immovable property in relation to which such services are provided is situated outside India, such services would be treated as exports simply on that ground.
The second category covers a set of 53 services which are performance based and the Export Rules hold that these services will be treated as exports if they are performed outside India. They also hold that such services will be treated as exports even if partly performed outside India.
The third category is the most important one and extends to all taxable services other than those referred to above. The Export Rules state that such services will be treated as exports if they relate to business or commerce and are provided to a recipient located outside India. The Rules also provide that if the recipient has a commercial establishment or an office in India, the services will be treated as exports only if the order for provision of services is issued by an establishment or office located outside India. Thus, the third category extends the benefit of zero rating to services, based on the condition that the recipient of the services should be located outside the country.
Apart from the above categorisation of services, the Export Rules also incorporate two important additional requirements as well. These are that the services should be provided from India and should be used outside India and that the payment for such services should be received by the service provider in convertible foreign exchange. These two conditions are applicable to all three categories of services. As is well known by now, the particular condition of provision of services from India and its use outside India, even though more liberally worded than was the case earlier, continues to bedevil the service exporters and the taxing authorities alike.
If one were to analyse the Import Rules in alike fashion, it can be seen that a similar set of three categories of services has been incorporated thereunder, with similar underlying conditions. Thus, the set of 13 services in relation to immovable property for the first category and the Import Rules provide that if the immovable property were to be situated in India, the reverse charge mechanism of payment of tax by the importer on such services would apply. Similarly, the second category covers the set of 53 services and the Import Rules hold that if these are performed either wholly or partly in India, the tax consequences would apply.
Finally, the third category of services in the Import Rules is also a mirror image of the third category of services as contained in the Export Rules and the Import Rules similarly hold that if the recipient of such services was located in India and the services were in relation to business or commerce, the service tax on imports would accordingly apply.
As can thus be seen, the aforesaid categorisation of services is identically done in both the Export and Import Rules. To that extent, the two Rules are indeed mirror images. However, if one were to analyse the key common condition in the Export Rules i.e. the provision of services from India and their use outside India, it can be seen that no corresponding provision exists in the Import Rules. Indeed, the significant divergence between the two Rules is the absence of the common condition, referred to above, in the Import Rules.
However, even if one were to analyse the third category of services under the Import Rules, they provide that such services will be treated as imports into India if they are received by a recipient located in India.
Thus, apart from the fact that there is no equivalence of the expression ‘provided from India and used outside India’, as occurring in Export Rules, in the Import Rules, in that there is no expression such as ‘provided from outside India and used in India’, the particular expression incorporated in the third category thereof i.e. services should be received by a recipient located in India, is itself the subject of differing judicial interpretation.
As a result of these materially differently worded provisions, as contained in the Export and Import Rules, it is the position today that notwithstanding that the categorisation of services as contained in these two Rules are identical, the two Rules are not mirror images in terms of their real effect and it is therefore a reality today that the tax consequences in terms of zero rating of exports and a reverse charge payment of tax on imports do not correspond with each other. This situation needs to be addressed through legislative changes in order to avoid unintended tax consequences.
key issue in regard to taxation of cross border transactions of services is to ensure that the provisions of indirect tax law across countries are aligned so that there is just the one tax on a particular cross border transaction and, therefore, there is no possibility of either double taxation or double non-taxation.
There are two ways to analyse the situation. The first is to compare whether the provisions of specific countries relating to exportation of services therefrom and their consequent zero rating are matched by corresponding provisions on importation of services and their taxability in the importing countries. The other way to do this is to see whether within one country, the provisions relating to exports and imports of services are broadly similar in nature, in order to conclude that the two are in tandem and hence mutually compatible. It will be interesting to see whether this is indeed the case in India.
The service tax provisions were amended for the first time in 2005 in order to incorporate a taxation code in relation to exports of services, vide the Exports of Services Rules 2005 (Export Rules). While there were erstwhile provisions that did address the issue of zero rating of services prior to these rules, it was only with the introduction of these rules that comprehensive provisions were introduced to precisely determine the exportation of services.
A similar situation has obtained regarding importation of services as well. There has been a great deal of controversy as to the effective date from which importation of services were sought to be taxed. However, here again, it was only with the introduction of the Taxation of Services (Provided from outside India and Received in India) Rules 2006 (Import Rules) that the provisions were codified and formalized. The question that is addressed in this article is whether the Export and Import Rules are mirror images of each other, as they ideally should be.
The Export rules categorise the several taxable services into three different categories. The first category covers 13 services, all of which are related to immovable property. The Export Rules hold that if the immovable property in relation to which such services are provided is situated outside India, such services would be treated as exports simply on that ground.
The second category covers a set of 53 services which are performance based and the Export Rules hold that these services will be treated as exports if they are performed outside India. They also hold that such services will be treated as exports even if partly performed outside India.
The third category is the most important one and extends to all taxable services other than those referred to above. The Export Rules state that such services will be treated as exports if they relate to business or commerce and are provided to a recipient located outside India. The Rules also provide that if the recipient has a commercial establishment or an office in India, the services will be treated as exports only if the order for provision of services is issued by an establishment or office located outside India. Thus, the third category extends the benefit of zero rating to services, based on the condition that the recipient of the services should be located outside the country.
Apart from the above categorisation of services, the Export Rules also incorporate two important additional requirements as well. These are that the services should be provided from India and should be used outside India and that the payment for such services should be received by the service provider in convertible foreign exchange. These two conditions are applicable to all three categories of services. As is well known by now, the particular condition of provision of services from India and its use outside India, even though more liberally worded than was the case earlier, continues to bedevil the service exporters and the taxing authorities alike.
If one were to analyse the Import Rules in alike fashion, it can be seen that a similar set of three categories of services has been incorporated thereunder, with similar underlying conditions. Thus, the set of 13 services in relation to immovable property for the first category and the Import Rules provide that if the immovable property were to be situated in India, the reverse charge mechanism of payment of tax by the importer on such services would apply. Similarly, the second category covers the set of 53 services and the Import Rules hold that if these are performed either wholly or partly in India, the tax consequences would apply.
Finally, the third category of services in the Import Rules is also a mirror image of the third category of services as contained in the Export Rules and the Import Rules similarly hold that if the recipient of such services was located in India and the services were in relation to business or commerce, the service tax on imports would accordingly apply.
As can thus be seen, the aforesaid categorisation of services is identically done in both the Export and Import Rules. To that extent, the two Rules are indeed mirror images. However, if one were to analyse the key common condition in the Export Rules i.e. the provision of services from India and their use outside India, it can be seen that no corresponding provision exists in the Import Rules. Indeed, the significant divergence between the two Rules is the absence of the common condition, referred to above, in the Import Rules.
However, even if one were to analyse the third category of services under the Import Rules, they provide that such services will be treated as imports into India if they are received by a recipient located in India.
Thus, apart from the fact that there is no equivalence of the expression ‘provided from India and used outside India’, as occurring in Export Rules, in the Import Rules, in that there is no expression such as ‘provided from outside India and used in India’, the particular expression incorporated in the third category thereof i.e. services should be received by a recipient located in India, is itself the subject of differing judicial interpretation.
As a result of these materially differently worded provisions, as contained in the Export and Import Rules, it is the position today that notwithstanding that the categorisation of services as contained in these two Rules are identical, the two Rules are not mirror images in terms of their real effect and it is therefore a reality today that the tax consequences in terms of zero rating of exports and a reverse charge payment of tax on imports do not correspond with each other. This situation needs to be addressed through legislative changes in order to avoid unintended tax consequences.
PEACEFUL EMPATHY
STORY-OF-THE-WEEK
HOME OF PEACEFUL EMPATHY
The ‘Home Of Peaceful Empathy’ or HOPE as it was popularly known was a home for the aged. It had about thirty residents. Some were sick, others were healthy. Some were active, others were confined to wheelchairs. Two things they all had in common: Their children didn’t want to keep them and they all had a limited lease of life left!Every evening, all the residents would sit outside in the garden. The management would put cane chairs outside. Tea and biscuits would be served to them. It was a daily routine that these elderly people looked forward to. Next door lived a young couple and their ten year old son, Bunty. The little boy was very thin and weak. He seemed to have no friends of his age. Every evening he would come to the old age home and chat with the residents. Sometimes he would bring yellow daisies for them. He would put the daisies into the hair of the old women and into the button holes of the old men’s jackets. He called all the women ‘Grandma’, and all the men ‘Grandpa’. They looked forward to Bunty’s visits just as much as he looked forward to them.Sometimes Bunty would play the guitar and sing songs for them. One day he told them about the drama that they had at school. He enacted the various roles all by himself. He loved these old people and he loved to see them laugh. Another day he brought his cricket bat and played cricket with them. He loved to see the Grandpa’s turn into little boys.Bunty’s mother was usually busy with her household chores, but sometimes she would come along with Bunty and chat with these oldies. They would often ask her why Bunty had no friends of his age. She would simply say, “He’s happier playing with you. Perhaps he has got something in common with you.”One evening the residents waited for Bunty, but he didn’t turn up. The next day too, there was no sign of him. On the fourth day, one old man who was really missing Bunty, pressed the door bell of Bunty’s house. A worried looking mother opened the door. “Good evening ma’am! I was wondering if Bunty is well, we haven’t seen him around for some days. Is everything alright?” The woman hesitated, “Yes, I mean, no, it isn’t. Bunty is sick. Would you like to come to his room?”The old man followed the lady to Bunty’s room. The sight he saw stopped him in his tracks. A bottle of blood was being transfused into the boy. Next to his bed was a trolley laden with bottles of glucose and dextrose. There were numerous bottles of medicine. There was a nurse on duty. She signalled for them to be quiet. She got up and motioned them to come out of the room. “He has just gone to sleep. He’s been struggling with the pain. Please don’t disturb him.”The lady said, “Grandpa, Bunty is thalasemmic.” She swallowed to hide her tears, “Every month we take him to the hospital for his blood transfusion. Three days back he contracted a viral. He got a chest infection and had very high fever. We requested the doctor to give him the blood transfusion at home. He has very low immunity. It will take a while for him to get well. The old man said, “He never told us. He came to see us everyday, but he never let us know. Come to think of it, even you never let us know!”“Grandpa, Bunty’s a strong willed boy. He’d be heart broken if all of you were to pity him. He never wanted to discuss his disease. He’s not able to match up with his peers at school, while playing games, so he opts to play with all of you. It makes him happy, so I allow him to see you every evening.”The old man was speechless. All the little acts of love; all that sharing and caring; all that concern and laughter from a child who was thalasemmic!The happiest people in the world are not those who have no problems, but those who learn to live with things that are less than perfect!
SANJAY TANDON
Custom Case Law
Customs - INDIAN FARMERS FERTILISERS CO-OP. LTD. Versus C.C. (IMPORT), NCH, MUMBAI = 2008
Date of Decision: March 7, 2008 - CESTAT MUMBAIRefund - Duty paid in excess due to arithmetical error – application for rectification of mistake filed u/s 154 of Custom Act, got accepted by authority – applicability of limitation period provided in Section 27(1) - held that refund arising as a result of correction of error is admissible even if refund claim is not filed u/s 27(1) – only bar of unjust enrichment is applicable - matter remanded back to the original authority to consider the question of unjust enrichment
Excise case laws
Central Excise - SHALIMAR WIRES INDUSTRIES LTD. Versus COMMR. OF C. EX., KOLKATA-IV = 2008
Date of Decision: June 11, 2008 - CESTAT KOLKATAWoven greig fabric produced during the manufacture of FWC - Demand raised is in respect of heat treated fabric, before it is processed into FWC - Leviability of basic excise duty under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 – held that duty is leviable unless goods are specifically exempted – revenue has not proved marketability of intermediate product - matter remanded to re-determine the marketability of product
Central Excise - BRAKES INDIA LTD. Versus COMMISSIONER OF C. EX., DELHI-III = 2008 Date of Decision: June 5, 2008 - CESTAT NEW DELHIValuation of goods which are transferred inter-units - goods cleared were assessed on provisional basis, paying higher amount of duty - appellant adopted a higher profit margin of 30% - appellant explained this adoption of higher margin only to take care of value fluctuation in respect of inputs which have gone into the manufacture of the goods cleared from their Chennai units – since there is no allegation of fraud, whatever duty paid is taken as credit by another unit, credit is not deniable
Central Excise - HINDALCO INDUSTRIES LTD. Versus COMMISSIONER OF C. EX., BELGAUM = 2008
of Decision: May 22, 2008 - CESTAT BANGLORESteel plates and strips used in mfg. of capital goods (steel tanks) – in view of Explanation 2 in Rule 2(k) of the Cenvat Credit Rules, impugned goods can be treated as inputs because these goods are used in the manufacture of tanks falling under Chapter 84, which is specifically mentioned in the definition of capital goods – credit cannot be denied merely for the fact that steel tank are exempted under Notification No. 67/95
Central Excise - COROMANDAL PAINTS LTD. Versus COMMR. OF C. EX. & CUS., VISAKHAPATNAM-I = 2008
Date of Decision: May 16, 2008 - CESTAT BANGLORESupervision expenditure by buyer to ensure the correct quality - issue involved is whether the expenditure incurred by the buyer is to be included in the assessable value – impugned expenses are not incurred on behalf of manufacturer - department proceeded against the appellants holding that they are includible – action of department is not acceptable – appeal of assessee is allowed
service tax cases
Service Tax - COMMISSIONER OF CENTRAL EXCISE, MUMBAI-V Versus GTC INDUSTRIES LTD. = 2008
Date of Decision: September 25, 2008 - CESTAT MUMBAIWhether the services provided by the outdoor caterers in the canteen of the manufacturer is input service, in respect of which credit can be taken by the manufacturer – Whether the cost of food is borne by the worker or by the factory, the same will form part of expenditure incurred by the manufacturer and will have a bearing on the cost of production - hence, employment of outdoor caterer has to be considered as an input service relating to the business and Cenvat credit is admissible
Service Tax - TOYOTA KIRLOSKAR MOTOR P. LTD. Versus C.C.E. (L.T.U.), BANGALORE = 2008
Date of Decision: August 5, 2008 - CESTAT BANGLORESocial functions to entertain the employees for Rajyostava Function and inauguration of police station cannot be brought within the ambit of activities relating to business – hence expenses for holding Kannada Rajyostava function and for inaugural function of Kengeri Police Station cannot be considered as input service – credit not admissible – bona fide belief of appellant of admissibility of credit on input services – no allegation of willful suppression in SCN – demand is time barred
Service Tax - MORINDA CO-OPERATIVE SUGAR MILLS LTD. Versus COMMR. OF C. EX., LUDHIANA = 2008
Date of Decision: September 5, 2008 - CESTAT NEW DELHIAppellants are manufacturers of sugar; as required by the Government, during the relevant period, they maintained a specified buffer stock out of free sale sugar to be disposed of subsequently based on specific instructions - prima-facie view is that in the given facts and circumstances of the case the appellants are not rendering the service of storage and warehouse – demand under the category of storage and warehouse service is not justified – stay granted
Service Tax - COMMISSIONER OF CENTRAL EXCISE Versus EXCEL CROP CARE LTD. = 2008
Date of Decision: July 29, 2008 - HIGH COURT GUJARAT Input credit on mobile services - On a plain reading of Rule 2(l)(i), it is apparent that the mobile service provider, who is liable to pay service tax, and recovers the same by adding such service tax in his bill, is the person providing taxable service and is rendering ‘output service’ so as to constitute ‘input service’ in hands of respondent assessee – credit not deniable on ground that phones were not installed in the factory premises – no question of law arise – revenue’s appeal dismissed
Service Tax - ANAND ASSOCIATES Versus CST, AHMEDABAD = 2008
Date of Decision: August 26, 2008 - CESTAT AHMEDABADServices of Mandap Keeper - that the definition of “Mandap Keeper” includes providing of services to client in respect of open plot allowed to be used for social function and the same does not include commission received from decorators by providing them the client for the purpose of decoration. Such commission has to be excluded while calculating the service tax – matter is remanded to original adjudicating authority for re-quantification of the duty & penalty
Service Tax - CCE. RAJKOT Versus RAJHANS METALS P. LTD. = 2008
Date of Decision: August 13, 2008 - CESTAT AHMEDABADWhether the respondents are eligible for cenvat credit of service tax paid on GTA services availed for the purpose of transportation of the finished goods from the factory to the consignment agent’s premises - Circular No.137/3/2006-CX.4 dt. 2/2/2006 - In view of the fact that consignment agent premises is also defined as a place of removal and the property in the goods never passes to a consignment agent, respondents are eligible for the cenvat credit.
Income Tax case
Income Tax - Mr. Mustaq Ahmed., In re = 2008
Date of Decision: November 19, 2008 - AUTHORITY FOR ADVANCE RULINGSApplicant is a non-resident - applicant sells jewellery in local market as well as by export, mostly to Singapore – income arising to the applicant on the purchase in India of gold for the purpose of manufacturing gold jewellery in India for export – held that such income attracts charge to tax under sub-section (2) of Sec.5 as the income is received in India and has accrued in India - Explanation 1(b) to Sec. 9(1)(i) does not come to the aid of the applicant - income is taxable in India
Friday, November 21, 2008
Insurers to adopt uniform definition of policy expiry
HYDERABAD: Domestic life insurers may have to adopt a uniform definition for expiry of insurance policies to give more leeway to policyholders on premium payments. IRDA has recommended a uniform grace period of 30 days for policyholders paying their premium every quarter, half-year or every year. A 15-day grace period has been suggested for policy holders paying monthly premium. An insurance policy lapses when the subscriber does not pay the premium within the grace period. IRDA has recommended re-instatement of a policy if the premium is paid within the revival period of two to five years, as per the internal practice of the insurer. Currently, companies have different definitions on expiry of policies and this creates a lot of confusion. The suggestion to life insurers to adopt a uniform grace period and lapse definition has been made in IRDA’s first occasional paper on lapsation of insurance policies and its impact on the domestic industry. Lapsation of insurance policies is of world-wide concern and impacts all stakeholders. IRDA chairman J Hari Narayan reckons that results thrown up in such research studies could help stimulate a policy debate and make course corrections, if need be. The occasional paper has been authored by a team led by R Kannan, member, actuary, IRDA. The recommendations, if adopted by insurers, would give more leeway to policyholders and curb policy lapses. The study reveals that the lapse rate in terms of the number of policies increased from 5.62% in 2002-03 to 6.64% in 2006-07. The lapse rate of premium rose from 4.4% to 6.95% during the period under review. The lapse rate in Unit Linked Insurance Plans (ULIPs), 18% in terms of number of policies and 10% by premium was also much higher compared to most traditional plans. ULIPs are popular savings instruments that offer flexibility to the policy-holder in terms of investment and also a life cover. A part of the premium is invested in equities or government bonds, depending on the choice of the policy-holder. Term assurance products showed the highest rate of lapse, while pension policies had the lowest lapsation rate. The lapse rate for non-medical policies was, however, higher than that of medical covers. When a policy lapses, the policy holder forfeits the premium paid and the insurance cover. The agent loses the renewal commission. It also impacts the growth of the insurance business and solvency margins of the insurer. Solvency margin refers to the excess of assets over liabilities that an insurer maintains as a prudential measure in the interest of policyholders.
EPF amendments
EPF amendments to pursue India's social security pacts
New Delhi, Nov 20 (PTI) To bring into effect social security pacts signed by India with countries like France, Germany and Belgium, the government has initiated registration for "International workers" after amending the Employees Provident Fund Act.The amendment in the Act will include Indian employees who are posted to these countries and foreign nationals working in India into the ambit of the Employees' Provident Fund (EPF) scheme.The modifications to the EPF scheme were brought to effect from November 1, and so far about 30 Indian IT and Construction firms have completed necessary registration process of the International workers employed with them."The modifications to the scheme will benefit the Indian workers for availing their pension benefits right here in their country of origin. It will also allow for exportability of social security benefits accrued in these countries back to India," an EPFO official told PTI here.Since the social security pacts are on a reciprocity basis, citizens from France, Germany and Belgium would not be required to register themselves under the 'International worker' category and they can continue contributing to social security schemes in their country of origin.However, there is yet some time before the social security pacts could be actually brought to effect.Modifications to the Employees' State Insurance Act are still awaited to ensure continuity in insurance term for Indian employees covered under similar schemes in foreign countries.This figures as one of the major condition of the social security pacts with foreign nations. PTI
New Delhi, Nov 20 (PTI) To bring into effect social security pacts signed by India with countries like France, Germany and Belgium, the government has initiated registration for "International workers" after amending the Employees Provident Fund Act.The amendment in the Act will include Indian employees who are posted to these countries and foreign nationals working in India into the ambit of the Employees' Provident Fund (EPF) scheme.The modifications to the EPF scheme were brought to effect from November 1, and so far about 30 Indian IT and Construction firms have completed necessary registration process of the International workers employed with them."The modifications to the scheme will benefit the Indian workers for availing their pension benefits right here in their country of origin. It will also allow for exportability of social security benefits accrued in these countries back to India," an EPFO official told PTI here.Since the social security pacts are on a reciprocity basis, citizens from France, Germany and Belgium would not be required to register themselves under the 'International worker' category and they can continue contributing to social security schemes in their country of origin.However, there is yet some time before the social security pacts could be actually brought to effect.Modifications to the Employees' State Insurance Act are still awaited to ensure continuity in insurance term for Indian employees covered under similar schemes in foreign countries.This figures as one of the major condition of the social security pacts with foreign nations. PTI
sunk cost
Definition
Money already spent and permanently lost. Sunk costs are past opportunity costs that are partially (as salvage, if any) or totally irretrievable and, therefore, should be considered irrelevant to future decision making. This term is from the oil industry where the decision to abandon or operate an oil well is made on the basis of its expected cash flows and not on how much money was spent in drilling it. Also called embedded cost, prior year cost, stranded cost, or sunk capital
work measurement
Application of time and motion study and activity sampling techniques to determine the time for a qualified worker to complete a specific job at a defined level of performance. Work measurement is used in budgeting, manpower planning, scheduling, standard costing, and in designing worker incentive schemes
proxy contest
proxy contest
A strategy that may accompany a hostile takeover. A proxy contest occurs when the acquiring company attempts to convince shareholders to use their proxy votes to install new management that is open to the takeover. The technique allows the acquired to avoid paying a premium for the target. also called proxy fight
A strategy that may accompany a hostile takeover. A proxy contest occurs when the acquiring company attempts to convince shareholders to use their proxy votes to install new management that is open to the takeover. The technique allows the acquired to avoid paying a premium for the target. also called proxy fight
STORY-OF-THE-WEEK
WOULD YOU DIE FOR ME?
A young man called Ramaswami died an untimely death. His parents, wife and nine year old son were crying bitterly, sitting next to his dead body. They all happened to be disciples of a holy man whom they called ‘Maharaj Ji’.When Maharaj Ji learnt that Ramaswami had died, he came to visit the family. He entered the house and found the family wailing inconsolably. Seeing Maharaj Ji, the wife started crying even louder. She sobbed saying, “Maharaj Ji, he has died too early, he was so young. Oh! I would do anything to make him alive again. What will happen to our son? I am so helpless and miserable.” Maharaj Ji tried to pacify the crying lady and the old parents, but the loss was too much for them to come to terms with so easily. Eventually, Maharaj Ji said, “Alright, get me a glass of water.” Maharaj Ji sat near the dead body and put the glass next to it. He said, “Now, who ever wants that Ramaswami should become alive again may drink this water. Ramaswami shall come back to life, but the person who drinks the water shall die!” Silence!“Come, did you not say that Ramaswami was the sole breadwinner of the family? Who would die instead of him? It is a case of fair exchange, isn’t it?”The wife looked at the old mother and the old mother looked at the wife. The old father looked at Ramaswami’s son. But no one came forward. Then Maharaj Ji said to the old father, “Babuji, wouldn’t you give your life for your son?” The old man said, “Well, I have my responsibility towards my wife. If I die who will look after her? I cannot offer my life to you.”Maharaj Ji looked questioningly at the old woman and said, “Amma?” She said, “My daughter is due to deliver her first baby. She will be coming to stay for a month. If I die who will look after her and the newborn. Why don’t you ask Ramaswami’s wife?”Maharaj Ji smiled and looked at the young widow. She widened her tear filled eyes and said, “Maharaj Ji, I need to live for my son. If I die, who will look after him? He needs me. Please don’t ask me to do this.”Maharaj Ji asked the son, “Well little boy, would you like to give your life for your father?” Before the boy could say anything, his mother pulled him to her breast and said, “Maharaj Ji, are you insane? My son is only nine. He has not yet lived his life. How could you even think of such a thing?”Maharaj Ji said, “Well it seems, that all of you are very much needed for the things you need to do in this world. It seems Ramaswami was the only one that could be spared. That is why God chose to take him away. So shall we proceed with his last rites? It’s getting late.”Having said that, Maharaj Ji got up and left.God’s plan is impeccable. Sometimes man is unable to understand God’s design. The time of entry and exit for each one of us, is in God’s hands. It is His prerogative alone to pluck the flower He wishes to. It is no body’s prerogative to question His will.In the words of Baba, “We tend a plant only when the leaves are green; when they become dry and the plant becomes a life-less stick, we stop loving it. Love lasts as long as life exists.”
Quote of the Day
Quote of the Day
The government who robs Peter to pay Paul can always depend on the support of Paul.- George Bernard Shaw
The government who robs Peter to pay Paul can always depend on the support of Paul.- George Bernard Shaw
Back Office
Term of the Day - back office
The administrative functions at a brokerage that support the trading of securities, including trade confirmation and settlement, recordkeeping, and regulatory compliance.
More generally, administrative functions that support but are not directly involved in the operations of a business, such as accounting and personnel.
The administrative functions at a brokerage that support the trading of securities, including trade confirmation and settlement, recordkeeping, and regulatory compliance.
More generally, administrative functions that support but are not directly involved in the operations of a business, such as accounting and personnel.
Wednesday, November 19, 2008
ICAI to oppose Valuation Professionals Bill
THE government’s move to create a separate breed of corporate valuers in the country is set to face stiff resistance from the Institute of Chartered Accountants of India (ICAI), that trains and regulates the professional conduct of chartered accountants. The Institute is expected to tell the government that financial valuation of companies is best done by chartered accountants and this job be reserved for them. The government’s attempt is to institutionalise this profession with a well laid out code of conduct. It also wants to set up a panel of independent valuers that shareholders and clients would find credible. ICAI is now studying global valuation models, where CAs or their professional equivalents play the dominant role. The study results may be used to tell the government to reserve the work of financial valuation for CAs. The ministry of corporate affairs is expected to set up an expert panel to work out the modalities of a proposed law that will regulate the business of corporate valuation by creating a pool of government-recognised valuers. Even though the proposed panel of government-recognised valuers will comprise CAs in large numbers, the institute fears that such a move may affect its professional dominance, and also affect the quality of valuation work. Corporate valuation has always been a domain strength of chartered accountants because of their in-depth skills in auditing and finance. Corporate valuation is an essential part of initial public offerings, mergers and acquisitions, strategic corporate alliances and corporate restructuring. An official with ICAI said that world over, valuation of companies is done mainly by chartered accountants or certified public accountants (CPA), which is the statutory title of qualified accountants in the USA. The government’s expert panel that will decide on the draft valuation professionals bill is also likely to have representation from the ICAI, apart from other specialised bodies. The government intends to introduce the bill in the next session of Parliament, an official with the ministry of corporate affairs who did not want to be identified said. The proposed bill will seek to create a council of valuation professionals, which will set standards for the valuers, ensure for their training and monitor their performance.
Bonds
While you can probably pick up a lot about how the stock market works simply from following the news, the same cannot be said for the bond market. Because it is considered less exciting, the bond market doesn't get a lot of coverage. But it is essential that you understand the basics. Here are some of the most important bond-related terms.
Par Value
Par value is the amount that will be received at the time of maturity. It is also known as the principal, face value, or par value. Par value will vary depending on the type of bond. Most corporate bonds have a $1000 face value, while some government bonds will carry a much higher par value. Savings bonds can be purchased for sums under $100, so there is a wide variety of options. When the bond matures and the lump sum is returned, the debt obligation is complete. It is important to remember that bonds are not always sold at par value. In the secondary market, a bond's price fluctuates with interest
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rates. If interest rates are higher than the coupon rate on a bond, the bond will have to be sold below par value (at a "discount"). If interest rates have fallen, the price will be higher.
Maturity
Maturity is the length of time before the principal is returned on a bond. It is also called term-to-maturity. At the time of maturity, the issuer is no longer obligated to make interest payments. Maturities range significantly, from 1 month for some municipal notes to 40+ years for some corporate bonds. When evaluating your goals, keep in mind that bonds of different maturities will behave somewhat differently. For example, bonds with long-term maturities will be more sensitive to changes in interest rates. Shorter term bonds are more stable and, because you are more likely to hold it to maturity, are more predictable. There are some circumstances where a bond will be "called" before maturity .
Coupon
The coupon rate is the interest rate that is paid out to the bond holder. The name derives from the old system of payment, in which bond holders would need to
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send in coupons in order to receive payment. The coupon is set when the bond is issued and is usually expressed as an annual percentage of the par value of the bond. Payments usually occur every six months, but this can vary. If there is a 5% coupon on a $1000 face value bond, the bondholder will receive $50 every year. If two bonds with equal maturities and face values pay out different coupons, the prices of these bonds will behave differently in the secondary market. For example, the bond with a lower coupon rate will be less expensive because the bondholder is going to be getting more of his/her return from the return of principal at maturity than will the holder of a bond with a higher coupon. There are some bonds that do not pay out any coupons; these are called zero-coupon bonds .
Par Value
Par value is the amount that will be received at the time of maturity. It is also known as the principal, face value, or par value. Par value will vary depending on the type of bond. Most corporate bonds have a $1000 face value, while some government bonds will carry a much higher par value. Savings bonds can be purchased for sums under $100, so there is a wide variety of options. When the bond matures and the lump sum is returned, the debt obligation is complete. It is important to remember that bonds are not always sold at par value. In the secondary market, a bond's price fluctuates with interest
window.google_render_ad();
rates. If interest rates are higher than the coupon rate on a bond, the bond will have to be sold below par value (at a "discount"). If interest rates have fallen, the price will be higher.
Maturity
Maturity is the length of time before the principal is returned on a bond. It is also called term-to-maturity. At the time of maturity, the issuer is no longer obligated to make interest payments. Maturities range significantly, from 1 month for some municipal notes to 40+ years for some corporate bonds. When evaluating your goals, keep in mind that bonds of different maturities will behave somewhat differently. For example, bonds with long-term maturities will be more sensitive to changes in interest rates. Shorter term bonds are more stable and, because you are more likely to hold it to maturity, are more predictable. There are some circumstances where a bond will be "called" before maturity .
Coupon
The coupon rate is the interest rate that is paid out to the bond holder. The name derives from the old system of payment, in which bond holders would need to
window.google_render_ad();
send in coupons in order to receive payment. The coupon is set when the bond is issued and is usually expressed as an annual percentage of the par value of the bond. Payments usually occur every six months, but this can vary. If there is a 5% coupon on a $1000 face value bond, the bondholder will receive $50 every year. If two bonds with equal maturities and face values pay out different coupons, the prices of these bonds will behave differently in the secondary market. For example, the bond with a lower coupon rate will be less expensive because the bondholder is going to be getting more of his/her return from the return of principal at maturity than will the holder of a bond with a higher coupon. There are some bonds that do not pay out any coupons; these are called zero-coupon bonds .
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