Whether transfer of Banking Undertaking on the facts and circumstances of this case gave rise to taxable capital gains - matter of AY 1970-71 solved n...
Countercyclical measures implemented to mitigate global financial shock and stabilise domestic growth expectations. The government and central bank implemented coordinated countercyclical measures-monetary easing through lower reserve ratios and policy rates, liberalisation of external commercial borrowing, a fiscal package increasing plan expenditure and reducing an ad valorem indirect tax rate, and export support-to mitigate a global financial shock, with authorities stating the economy is not in recession and noting growth expectations while observing that apportioning effects among measures is not feasible.
Monetary policy measures eased to bolster domestic liquidity and support growth amid global financial shock to the economy. Global financial turmoil moderated domestic growth-GDP at constant prices slowed to 7.8% for Apr-Sep 2008-09-while savings and investment ratios sustained growth potential. Authorities implemented monetary measures (reductions in Cash Reserve Ratio, Statutory Liquidity Ratio, repo and reverse repo rates; liberalised external commercial borrowings) and a fiscal package (additional plan expenditures, reduced ad valorem Cenvat rate, export support) to ensure financial system functioning and improved money market liquidity.
MSME credit support expanded through refinance and enhanced collateral-free guarantee coverage, plus shorter lock-in and prompt payment advisories. Measures expand MSME credit availability by establishing a refinance facility for SIDBI to support incremental lending through banks, NBFCs and state financial corporations; increasing the loan threshold and setting a specified percentage guarantee cover under the credit guarantee scheme to promote collateral-free lending; reducing the lock-in period for guaranteed loans to encourage bank participation; and advising public sector enterprises to ensure prompt payment of MSME bills.
Service tax disparity increases burden on service providers and calls for rate alignment with excise to restore parity. Central fiscal measures cut peak excise duty while leaving the service tax rate unchanged, creating a disparity where excise on goods is lower than tax on services; this note criticises the inconsistency, stresses the disproportionate burden on the service sector and its pass-through to consumers, and highlights unequal treatment of packaged versus customized software that results from differing excise and service tax rates.
Issuance calendar for government securities announced with auction schedule and retail reservation under non-competitive bidding. The Government, with the Reserve Bank, issued an indicative calendar for marketable dated securities from December 1, 2008 to March 31, 2009 allocating aggregate issuance across five auction periods into 5-9 year and 20-year-and-above tenors. All auctions include a non-competitive bidding facility reserving a portion for specified retail investors, variable rate bonds may be issued depending on market conditions, and the Government/Reserve Bank retain the flexibility to modify notified amounts, issuance periods or maturities after due notice.
Auditor liability: enhanced accountability requires auditors to refund fees and pay damages for misleading audit reports. The Companies Bill, 2008 enhances auditor accountability by imposing eligibility and disqualification rules, prescribing appointment and vacancy procedures, and granting auditors broad rights of access and reporting obligations under accounting and auditing standards. It prohibits specified non-audit services, restricts signing and certification to the appointed auditor, requires compliance with auditing standards and possible additional reporting, and establishes penal and remedial measures including fines, imprisonment for knowing contraventions, refund of remuneration and payment of damages for misleading audit reports. Cost audit procedures and obligations for specified companies are separately provided.
Ways and Means Advance limit retained temporarily to address government cash flow mismatches from auction cancellations and expenditure bunching The Ways and Means Advance limit was retained at an elevated temporary ceiling until December 31, 2008, after consultation with the government. The measure is time bound and intended to provide short term liquidity accommodation to meet unanticipated mismatches between government payments and receipts caused by cancelled auctions and the bunching of expenditure following a supplementary demand for grants.
Capital gains on slump sale: notional cost rules absent for the assessment year, so compensation not taxable as capital gains. Whether transfer of a banking undertaking generated taxable capital gains for AY 1970-71 where compensation was received on nationalisation; the Supreme Court found that on the facts and circumstances it was not possible to compute capital gains and the compensation was not taxable as capital gains under the law then prevailing, and noted that a statutory notional cost mechanism for slump sales was introduced only after the relevant assessment year.
Foreign acquisition of immovable property: authorities must verify residency, visa eligibility before registering transfers. Foreign nationals and non-resident entities face specific restrictions and permissions under the Foreign Exchange Management framework for acquiring immovable property in India: non-resident Indian citizens and persons of Indian origin may acquire property other than agricultural land, plantations and farm houses; foreign companies with an established business presence may acquire property necessary or incidental to that business subject to regulatory conditions; and foreign nationals who qualify as a person resident in India by reason of prolonged stay and demonstrable intention may acquire property, provided intention is evidenced by visa and supporting documents. State authorities must verify eligibility and may review prior registrations for compliance.
Foreign direct investment approvals: multiple proposals cleared, several deferred or rejected, high-value cases referred for higher consideration. Forty FDI proposals were approved across ministries for activities including retail, broadcasting, power, telecom, infrastructure and financial services, many involving conversion of operating companies into operating-cum-holding companies to permit downstream investment, issuance of warrants, share allotments and regularisation of equity; seven proposals were deferred and four rejected; two high-value proposals and one previously CC(F)I-approved proposal were referred to CCEA for consideration.
External Commercial Borrowings policy relaxed to allow rupee and foreign currency expenditure under the automatic route and broaden eligible uses. ECB policy now permits specified borrowings under the Automatic Route for rupee and foreign currency expenditure for permissible end uses, removes a prior minimum maturity requirement for large rupee infrastructure capital expenditure within the threshold, and recognises telecom spectrum payments as an eligible end use. Borrowers may hold proceeds offshore in prescribed instruments, with overseas bank affiliates, or remit to rupee accounts pending utilisation, subject to prohibitions on capital market, real estate and inter corporate lending. Authorities have raised and will review all in cost ceilings by maturity band, instituted monitoring of SME unhedged forex exposures, and will operationalise the credit enhancement window.
Corporate governance reform modernizes company law, strengthening director liability and time bound insolvency procedures. Companies Bill, 2008 proposes a consolidated legal framework for corporate regulation from incorporation to winding up, reinforcing corporate governance through strengthened shareholders' rights, director duties and liabilities, recognition of Key Managerial Personnel and board committees, mandatory Director Identification Numbers, introduction of One-Person Companies, application of e-Governance, harmonisation with sectoral regulators, mandatory consolidation of group accounts, prohibition of public deposit-raising except by special statute, criminalisation of insider trading by directors and KMP, a graded penalty and adjudication regime, and unified time-bound insolvency, merger and rehabilitation procedures under the National Company Law Tribunal.
Scope of service tax cannot be expanded by administrative circular; chit fund activities fall outside taxable services. In the absence of any statutory definition of cash management or asset management, chit fund activities cannot be treated as falling within banking and financial services for service tax purposes, and the scope of service tax cannot be extended by issuance of a circular; any extension requires specific legislative inclusion rather than importation from the RBI Act or other provisions.
Service charge caps for electronic payments and cheque collection set, limiting bank fees and promoting electronic settlement. Levy and limitation of bank fees for electronic payment products and outstation cheque collection are prescribed, establishing service charge caps and conditions for their application. Inward electronic credits are to be free; outward transfers and outstation cheque collections are subject to capped, all-inclusive charges. Banks may not levy additional courier or out-of-pocket fees, must accept deposits for collection, and are encouraged to use electronic modes and enhanced clearing to expedite settlement. The provisions apply only to transactions within India and exclude large-value cash handling charges.
Foreign currency translation losses treated as deductible when arising from cash call contributions under production-sharing contracts. Where co-venturer contributions under a production-sharing contract are treated as Cash Call investments rather than loans, foreign currency translation differences arising from translating monetary balances at balance-sheet exchange rates are recognised in profit and loss; clause 3.2 of Appendix C disallowing exchange losses on loans does not apply to cash call contributions, so such translation losses are deductible and translation gains are treated as receipts.
Corporate governance reform: new framework strengthens director duties, independent directors, investor protections and streamlined insolvency and dispute forums. The Bill creates a comprehensive corporate law framework covering incorporation through liquidation, emphasizes corporate governance by strengthening shareholder rights, disclosures, independent directors and directors' duties, mandates unique director identification and electronic compliance, introduces One-Person Companies and tighter regimes for not-for-profits, restricts public deposit raising, criminalizes insider trading by directors/KMPs, requires consolidated financial statements and independent valuation, and consolidates insolvency, merger and liquidation adjudication into specialised tribunals with time-bound rehabilitation and enhanced enforcement measures.
Overseas direct investment by registered trusts and societies permitted in same sector with prior regulatory approval. Registered trusts and societies that have set up hospitals in India are permitted to make overseas direct investment in the same sector by establishing a Joint Venture or Wholly Owned Subsidiary, subject to the prior approval of the Reserve Bank and the other terms and stratified eligibility criteria specified in the earlier circular; a formal amendment to the Foreign Exchange Management Regulations is awaited to incorporate these relaxations.
Foreign direct investment approvals authorise varied equity inflows and company status changes while several proposals remain deferred. Approval of 28 foreign investment proposals across multiple sectors authorizes varied modes of inward investment including equity introductions, majority and minority stakes, establishment of wholly owned subsidiaries, conversions to holding cum operating companies, downstream investments, share transfers and issuance of compulsorily convertible instruments; several approvals invoke compliance with applicable Press Notes, some note no fresh foreign exchange inflow due to internal restructurings, one proposal advised to access the automatic route, and 11 proposals were deferred for further consideration.
Foreign investment in non-banking finance companies permitted up to full ownership automatically, subject to capitalization norms and RBI compliance The corrigendum restates that specified Non-Banking Finance Company activities are eligible for up to 100% foreign investment on the automatic route, subject to minimum capitalization norms for fund based and non fund based NBFCs, conditions permitting wholly foreign owned operating subsidiaries when prescribed capital is brought in, subsidiary capital compliance for joint venture NBFCs with limited foreign equity, and adherence to Reserve Bank of India guidelines; minimum capitalization is to consist of ordinary shares and applies where foreign holding (direct and indirect) exceeds the specified thresholds.
Debt relief eligibility: clarifies which agricultural loan components and interest qualify for waiver and reimbursement. Clarifies computation and scope of the eligible amount under the Agricultural Debt Waiver and Debt Relief Scheme, 2008: interest on accounts classified as NPA after NPA date cannot be claimed or recovered; for non NPA accounts, applicable interest overdue as of December 31, 2007 and unpaid by February 29, 2008 may be included but interest claims shall not exceed principal; certain loan types (short term production credit, investment credit for asset acquisition, specified allied activity loans) are covered subject to ceilings; back ended subsidies, crop insurance payouts and other non qualifying charges must be adjusted or excluded; SHG loans are eligible if borrower wise data can be satisfied; loans disbursed before the cut off are excluded except for restructured loans under specified packages.
The Ministry of Corporate Affairs took up a comprehensive revision of the Companies Act, 1956 (the Act) in 2004 keeping in view that not only had the number of companies in India expanded from about 30,000 in 1956 to nearly 7 lakhs, Indian companies were also mobilizing resources at a scale unimaginable even a decade ago, continuously entering into and bringing new activities into the fold of the Indian economy. In doing so, they were emerging internationally as efficient providers of a wide range of goods and services while increasing employment opportunities at home. At the same time, the increasing number of options and avenues for international business, trade and capital flows had imposed a requirement not only for harnessing entrepreneurial and economic resources efficiently but also to be competitive in attracting investment for growth. These developments necessitated modernization of the regulatory structure for the corporate sector in a comprehensive manner.
2. Earlier, a Bill called Companies (Amendment) Bill, 2003 had been introduced by M/o Corporate Affairs (MCA) (then Department of Company Affairs) in the Rajya Sabha on 7.5.2003. Later on, a large number of changes were found to be necessary in the Bill. A decision was, therefore, taken to carry out a comprehensive review of the Companies Act, 1956 and to introduce a new Companies Bill for the consideration of the Parliament.
3. The review and redrafting of the Companies Act, 1956 was taken up by the Ministry of Corporate Affairs on the basis of a detailed consultative process. A `Concept Paper on new Company Law' was placed on the website of the Ministry on 4th August, 2004. The inputs received were put to a detailed examination in the Ministry. The Government also constituted an Expert Committee on Company Law under the Chairmanship of Dr. J.J. Irani on 2nd December 2004 to advise on new Companies Bill. The Committee submitted its report to the Government on 31st May 2005. Detailed consultations were also taken up with various Ministries, Departments and Government Regulators. The Bill was thereafter drafted in consultation with the Legislative Department of the Central Government.
4. The Companies Bill, 2008 seeks to enable the corporate sector in India to operate in a regulatory environment of best international practices that fosters entrepreneurship, investment and growth and provides for :-
(i) The basic principles for all aspects of internal governance of corporate entities and a framework for their regulation, irrespective of their area of operation, from incorporation to liquidation and winding up, in a single, comprehensive, legal framework administered by the Central Government. In doing so, the Bill also harmonizes the Company law framework with the imperative of specialized sectoral regulation
(ii) Articulation of shareholders democracy with protection of the rights of minority stakeholders, responsible self-regulation with disclosures and accountability, substitution of government control over internal corporate processes and decisions by shareholder control. It also provides for shares with differential voting rights to be done away with and valuation of non-cash considerations for allotment of shares through independent valuers.
(iii) Easy transition of companies operating under the Companies Act, 1956, to the new framework as also from one type of company to another.
(iv) A new entity in the form of One-Person Company (OPC) while empowering Government to provide a simpler compliance regime for small companies. Retains the concept of Producer Companies, while providing a more stringent regime for not-for-profit companies to check misuse. No restriction proposed on the number of subsidiary companies that a company may have, subject to disclosure in respect of their relationship and transactions/dealings between them.
(iv) Application of the successful e-Governance initiative of the Ministry of Corporate Affairs (MCA-21) to all the processes involved in meeting compliance obligations. Company processes, also to be enabled to be carried out through electronic mode. The proposed e-Governance regime is intended to provide for ease of operation for filing and access to corporate data over the internet to all stakeholders, on round the clock basis.
(v) Speedy incorporation process, with detailed declarations/ disclosures about the promoters, directors etc. at the time of incorporation itself. Every company director would be required to acquire a unique Directors identification number.
(vi) Facilitates joint ventures and relaxes restrictions limiting the number of partners in entities such as partnership firms, banking companies etc. to a maximum 100 with no ceiling as to professions regulated by Special Acts.
(vii) Duties and liabilities of the directors and for every company to have at least one director resident in India. The Bill also provides for independent directors to be appointed on the Boards of such companies as may be prescribed, along with attributes determining independence. The requirement to appoint independent directors, where applicable, is a minimum of 33% of the total number of directors.
(ix) Statutory recognition to audit, remuneration and stakeholders grievances committees of the Board and recognizes the Chief Executive Officer (CEO), the Chief Financial Officer (CFO) and the Company Secretary as Key Managerial Personnel (KMP).
(x) Companies not to be allowed to raise deposits from the public except on the basis of permission available to them through other Special Acts. The Bill recognizes insider trading by company directors/KMPs as an offence with criminal liability.
(xi) Recognition of both accounting and auditing standards. The role, rights and duties of the auditors defined as to maintain integrity and independence of the audit process. Consolidation of financial statements of subsidiaries with those of holding companies is proposed to be made mandatory.
(xii) A single forum for approval of mergers and acquisitions, along with concept of deemed approval in certain situations.
(xiii) A separate framework for enabling fair valuations in companies for various purposes. Appointment of valuers is proposed to be made by audit committees.
(xiii) Claim of an investor over a dividend or a security not claimed for more than a period of seven years not being extinguished, and Investor Education and Protection Fund (IEPF) to be administered by a statutory Authority.
(xv) Shareholders Associations/Group of Shareholders to be enabled to take legal action in case of any fraudulent action on the part of company and to take part in investor protection activities and 'Class Action Suits'. (xvi) A revised framework for regulation of insolvency, including rehabilitation, winding up and liquidation of companies with the process to be completed in a time bound manner. Incorporates international best practices based on the models suggested by the United Nations Commission on International Trade Law (UNCITRAL).
(xvii) Consolidation of fora for dealing with rehabilitation of companies, their liquidation and winding up in the single forum of National Company Law Tribunal with appeal to National Company Law Appellate Tribunal. The nature of the Rehabilitation and Revival Fund proposed in the Companies (Second Amendment) Act, 2002 to be replaced by Insolvency Fund with voluntary contributions linked to entitlements to draw money in a situation of insolvency.
(xviii) A more effective regime for inspections and investigations of companies while laying down the maximum as well as minimum quantum of penalty for each offence with suitable deterrence for repeat offences. Company is identified as a separate entity for imposition of monetary penalties from the officers in default. In case of fraudulent activities/actions, provisions for recovery and disgorgement have been included.
(xix) Levy of additional fee in a non-discretionary manner for procedural offences, such as late filing of statutory documents, to be enabled through rules. Defaults of procedural nature to be penalized by levy of monetary penalties by the Registrars of Companies. The appeals against such orders of Registrars of Companies to lie with suitably designated higher authorities.
(xx) Special Courts to deal with offences under the Bill. Company matters such as mergers and amalgamations, reduction of capital, insolvency including rehabilitation, liquidations and winding up are proposed to be addressed by the National Company Law Tribunal/ National Company Law Appellate Tribunal.
Corporate governance reform: new framework strengthens director duties, independent directors, investor protections and streamlined insolvency and dispute forums.
The Bill creates a comprehensive corporate law framework covering incorporation through liquidation, emphasizes corporate governance by strengthening shareholder rights, disclosures, independent directors and directors' duties, mandates unique director identification and electronic compliance, introduces One-Person Companies and tighter regimes for not-for-profits, restricts public deposit raising, criminalizes insider trading by directors/KMPs, requires consolidated financial statements and independent valuation, and consolidates insolvency, merger and liquidation adjudication into specialised tribunals with time-bound rehabilitation and enhanced enforcement measures.
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