C.V.O. CA'S · Present Issue of News & Views Present issue of CVOCA News & Views is endeavouring to...
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NEWS & VIEWSFOR MEMBERS / SUBSCRIBERS / VOL. 23 - NO. 3 - OCTOBER 2019
From President's Desk...Dear Professional Colleagues and Readers,
CA Sanjay Visanji Chheda
Thank you all..... Always in Gratitude
September 30, 2019.
C.V.O. CA'S
Follow us on , , LinkedIn@cvocain Join Yahoo group : [email protected]
WOW. What a month it was. Hectic, yet Heartening. Full of Pressure, yet Pleasant. Launch of Chandrayan and loss of connection with Vikram, just two minutes before it was about to land. Very upsetting moments for country, but then moments of most important person of the country coming to the rescue of ISRO Chairman. A leader could have remained away from ISRO and could have reached ISRO (after it would have successfully landed). But true leader refused to do so. Same way in the morning, a hug to disheartened ISRO Chairman who is in tears. No words. Just touch, comfort and solace. Whether you are Bhakt or not, but one should always remain open to see, appreciate and adopt good things. Lot many things for millennials to learn.
Millennials, at cross roads, after Finance Minister openly blaming their spending pattern and what not. Millennials, more logical, more rational, more reasoning, cost conscious, challenging established laws of the land. Millennials. You Hate them. You Love them. But you cant ignore them. They are the next generation, next leaders, next drivers of economy.
Last but not the least from President’s Desk. This year’s budget, which has started on 5th July 2019 and still continuing. In an attempt to revive struggling economy, Honourable Finance Minister made announcements which are called mother of all budgets, Corporate Tax Rate Cut. Bringing Indian Tax Rate at par with its Asian peers and showcasing to world, one of the best market to invest, grow and prosper.
Programs in Retrospect
Month was also witness to few other professional activities, which kept entire CVOCA Team satisfactorily occupied. Students Seminar on 'Comprehending Tax Audit Provisions & its Practical Issues’, which as always, well received by Student Members who flocked venue with their overwhelming response.
On 8th September 2019, CVOCA Yahoo Group turned 18 years. Brainchild of CA Paras Khimji Savla turned major and CVOCA was greeted by one and all for successful 18 years of sharing and spreading knowledge through CVOCA Yahoo Groups.
Membership & Recreation Committee arranged for a Career Guidance for newly passed CAs which was enthusiastically attended by more than 35 newly passed CA who were excited to interact with panel speakers who were from across all the facets of economy, be traditional practice, big four's, industry, media and equity markets.
Last but not the least event for the month, considering the hardship faced by its Members, CVOCA endeavoured and was able to submit Representation Letter to CBDT as well as Finance Ministry. Content, Quality and Timeliness of Representation Letter were appreciated by one and all.
Upcoming Events
Despite stuck in hectic months of compliance of Statutory, Tax Audit, GST and RoC Compliance, Committee are restless in preparing for one after another programs. Capital Market is exploring various topics and speakers to get inputs from some Market Stalwarts who can give idea and directions to our Members on Current Economy and Investment Strategies. Program Committee too is working on Program on Real Estate Awareness, details of which would be announced in short time.
Membership & Recreation Committee is exploring options with various venues at short driving distance, as motto of Picnic is going to be “People and Not Place is Important”. Any place, any venue, finally what people have always enjoyed and cherished is being together with CVOCA Families and nurturing bonding not only of CVOCA Members but also their families.
Present Issue of News & Views
Present issue of CVOCA News & Views is endeavouring to cover need of the hour. UDIN, which is latest wild and weird thing for which Members are going crazy explaining its nitty gritty to their clients. Present issue, tries to cover UDIN at length.
Millennials who are more than often fancied by International Taxation, etc., present issue of CVOCA News & Views covers concept of Double Taxation Avoidance Agreement.
Apart from all these technical and professional things, this issue also touches upon topic of Perception and Influence
Happy Reading, Happy Learning to One and All.
FROM THE DESK OF CHAIRMAN
NEWS BULLETINNEWS BULLETINCOMMITEECOMMITEE
PresidentCA Sanjay Visanji Chheda
Chairman CA Hasmukh Bhavanji Dedhia Convenor CA Parin Dinesh Gala Jt. Convenor CA Umang Lalit Soni Sp. Invitees CA Rakesh Maganlal Vora
Members CA Dharmi Mulchand Kenia CA Hitesh Keshavji Pasad CA Kunjesh Raju Shah CA Nihar Suresh Dharod CA Nisha Ninad Gala CA Priten Bhupendra Shah CA Ankur Kishor Sangoi CA Nainit Digesh Savla
CONTENTSCONTENTS
CA Hasmukh Bhavanji Dedhia
ASSOCIATIONASSOCIATION
C.V.O. CA'S NEWS & VIEWS
Events in Retrospect .....................3
Foreign Portfolio Investors ...........5
Overview of Compliances, Issues
& Era of Practice
Deep Dive into Concepts to ......11read DTAA
Transfer Pricing Audit .................14Points of Consideration
Mandatory of UDIN & eCS .........19for Company Secretaries
Perception & Influence ..............20
Beyond SOPs ..............................24
Capitalytic ‐ Options ...................26 Brief Update On
SEBI & Corporate Law.................30
FEMA Updates............................32
RERA Updates.............................35
Direct Taxes Law Update.............36
GST Updates ...............................40
VOL. 23 - NO. 3 - OCTOBER 2019
In the mega event at Houston (US) in Sept19, the Prime Minister of India mentioned, amidst massive cheering crowd, that 'Howdy' was with reference to India as he represented more than 120 crore Indians. Then he went on to respond saying 'all's well' in India – chanting the same response in Hindi, English, Marathi, Gujarati, Bengali, Oriya, Tamil, Telugu and other Indian languages. Was this act (of saying it in several Indian languages) merely rhetoric or was it meant to convey or reiterate something special, to the world at large? That's something for media to debate over next few weeks. The moot point to deliberate is whether truly all's well in India.
Undoubtedly, several good steps in the first term of government under the PM (1914-19) have been initiated and many of them completed delivering the benefits at the bottom of pyramid of the national population; there is no denying that in the said first term, India grew (despite demon and GST) at an average rate of 7.5%; the data available seems to indicate that 17 million people have been lifted above the poverty line, by said initiatives of the government, during this period; also proactive steps to resolve decades old issues like OROP, Eastern Boarders, Article 370 etc. are all welcome actions.
But still the questions asked: whether truly all's well in India?
Drastic fall in GDP growth rate – as low as 5% in Q1 of current fiscal
Widespread economic slowdown across the industries
Global scenario does not either appear too optimistic
Pessimistic employment growth scenario
Near collapse of some sectors - Infra & Construction, Automobiles
etc.
Continued fiasco/scams bursting at Banks and alarming NPA
situation
Corporate or business failures and scams like IL&FS, DHFL etc
Non availability of adequate Credit to the industry
Liquidity crunch faced by NBFC's over last more than 3 quarters -
effecting several consumer products & MSME sectors
Sluggish demand in almost all sectors
Lasting impacts (in rural-remote parts) of demon
GST (though a laudable reform) still leaves lot more to be done
These issues are valid and need government's quick redressal and corrective actions to revive the industrial growth, uplift the demand and consumption, streamline tax structure, step up credit availability, resolving NBFC issues etc.
Howdy India…….. Is all well?
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The proposal for recapitalization/consolidation of PSU Banks, steps on interest rate reduction, continued GST rates rationalisation and recent ordinance giving relief in corporate taxes are steps in right direction and would together go long way in solving some of the issues but more importantly, it demonstrates government being aware of the ground situation and lends ears to the issues faced by the commerce and industrial sector. Whether all these steps are too late / too little is something time over next couple of years will tell. India is such big country with multiple, complex socio-economic-political issues.What more needs to be done and what's in offing? Government (or perhaps PMO) knows. Let's hope quick and correct steps are taken so that we all can echo with enthusiasm PM's response in Houston: ALL IS WELL IN INDIA!
Rains stopping you from going to work? Well, it fails to deter CVO students in their learning endeavours. Despite heavy rains across the city, 35+ students attended seminar on 'Comprehending Tax Audit Provisions & its Practical Issues', held at CVOCA office on 5th September, 2019 being 'Teacher's Day'.
Come September, the biggest tension for all CAs - Tax Audit. With ever changing tax provisions and alongwith emerging practical issues around it, this seminar was intended to equip students with these updates.
We are very grateful to the speaker for the Seminar, CA Hetal Gada, UKG & Associates, for her impeccable delivery of the subject. Speaker's efforts coupled with Students' inquisitiveness makes this seminar a success. The presentation of the seminar can be found at http://bit.ly/CVOCAStudentSeminarTaxAudit
We encourage more students to attend future seminars, write articles and lead group discussions.
Follow for further updates. @CVOCA
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EVENTS IN RETROSPECT
C.V.O. CA'S NEWS & VIEWS
EVENTS IN RETROSPECT
VOL. 23 - NO. 3 - OCTOBER 2019
CVOCA Membership & Recreation Committee had organised a Career Guidance Session for recently qualified Chartered Accountants (last 3 years) on September 14, 2019
Following were the topics and panel of experts:
Practice, Do's & Donts:CA Atul Chunilal Bheda, (Past Central Council Member of ICAI)
Big 4, To Join or Not to Join:CA Heetesh Kalyanji Veera, Partner, E & Y
Transformation of Traditional Practise:CA Jiger Kishor Saiya, Partner, BDO
Industry, Whys and Why Nots:CA Amit Manhar Gala, CFO, Tata Sky Broadband
Equity Research, Jump or Stop:CA Bhavin Ramesh Chheda, Portfolio Manager ENAM Holdings
The Q & A session was Moderated by: CA Atul Chunilal Bheda
35+ young CAs took full advantage of the session.
Young CAs were ever zealous with their questions and our panel of experts giving them good guidance and knowledge making it a successfull session!
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Compiled by:
C.V.O. CA'S NEWS & VIEWS
CA TEJASH MUKESH GANGAR
VOL. 23 - NO. 3 - OCTOBER 2019
As the fastest growing major economy in the world, India is an important participant in global investment
flows. Overseas funds flow in India both through the Foreign Portfolio Investors (FPIs) and the Foreign Direct
Investment (FDI) routes with substantial inflows into capital markets. Over the past few years, the
Government has been working on ways to merge the various entry routes in order to simplify the investment
route into India. One of the examples was the introduction of SEBI (Foreign Portfolio Investors) Regulations,
2014 which went on to replace the erstwhile SEBI (Foreign Institutional Investors) Regulation, 1995 and the
Qualified Foreign Investors framework.
Since introduction, the FPI regime has been constantly evolving in response to the industry activities and
practical intricacies faced by those who venture into this route. This article aims to provide an insight in to the
FPI regulatory and tax framework, highlight current tax issues and lastly, to provide a glimpse of all service
offerings an individual or an entity, as chartered accountant/(s) can provide to FPIs.
FPI Framework
Foreign investors can make onshore investments in listed equities and other securities via the FPI route. For
this purpose, they need to obtain an FPI registration (i.e. license) in India in accordance with the SEBI (FPI)
Regulations, 2014. The FPI license is granted by a local custodian in its capacity as a designated depository participant (DDP)on behalf of SEBI. To obtain an FPI license, the investor needs to make an application in a
prescribed format and complete the necessary documentation. Based on the Investor's risk profile, it can
obtain one of the following three categories of registration:
Foreign Portfolio Investors – Overview, Issues and Era of practice
Category I Government and government agencies, sovereign wealth funds, central banks, international or multilateral organizations/ agencies
Category II 1Broad-based investment funds , asset managers, broker dealers, swap
dealers, portfolio managers, pension funds, banks, insurance companies, university funds
Category III Non-broad based funds, Hedge funds, Corporates, Individuals, Family Offices, and all other investors not covered in Category I & II
Type of entity FPI Category
India is a segregated market and the FPI regulations do not permit omnibus structures. As a result, the
investing entity needs to obtain an FPI license as well as open accounts (depository and bank) in its own name.
This requires the investing entity to submit an FPI application form and various other documents.
Importantly, every Category II and III FPI needs to identify natural person(s) and beneficial owner(s) (BO) of
the FPI and provide personal information of such BO to the local custodian in India.
FPIs are permitted to invest in most transferable securities (including equities, bonds, derivatives, units of
mutual funds, alternative investment funds, and securitized debt instruments. on the Indian capital markets,
¹Having at least 20 investors investing in the fund directly or on a look‐through basis
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subject to certain restrictions. In respect of equity investments, FPIs can only invest in listed equities or equities 2that are to be listed. Also, investments made by a single FPI or all related FPIs taken together should account
for less than 10% of the paid-up capital of the Indian company;
FPIs need to open an INR account with an authorized bank (typically the custodian bank) through which all the
investments and disinvestments are to be routed. Any remittance of sale/income proceeds out of India can be
made only after the necessary taxes have been discharged. India follows a T+2 rolling settlement cycle for
exchange traded transactions and T+1 for government securities traded and settled through CCIL. FPIs are not
permitted to borrow funds in India. Also, they are not permitted to earn interest on the balance in the bank
account maintained in India or invest in liquid mutual funds.
Taxation of FPIs
As a first step in the taxation process, FPIs are required to obtain a Permanent Account Number or PAN from
the Indian tax authorities. A PAN card is also a mandatory KYC document and the PAN must be quoted in the
FPI's depository account opened with the custodian. Also, the PAN is quoted in all tax filings and tax payments.
Income characterization
Gains made by FPIs from the transfer of shares and other securities are characterized as capital gains under
Indian tax law, which provides certainty as to classification of income received by FPIs (this is not the case for
other investors). Other than capital gains, FPIs earn income from securities in the form of dividends and
interest.
Domestic tax rates
Type of Income
Corporate FPIs
Capital gains on transfer of listed equity shares/equity oriented mutual fund /units of business trust (subject to STT)
Long-term*
Short-term 15.6 15.912 16.38
Capital gains on transfer of other securities (including derivatives and debt Mutual Funds)
Long term 10.4 10.608 10.92
Short term 31.2 31.824 32.76
Interest income on government securities and qualifying corporate bonds#
5.2 5.304 5.46
Interest on Income Tax refunds 41.6 42.432 43.68
Dividend Exempt Exempt Exempt
Income < INR 10 mn
Income > INR 10 mn < INR 100 mn
Income > INR 100mn
10.4 10.608 10.92
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²Related FPIs means FPIs which have 2 or more beneficial owners
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VOL. 23 - NO. 3 - OCTOBER 2019
Capital gains ontransfer of listedequity shares/equityoriented mutual fund /units of businesstrust (subject to STT)
Long-term* 10.4 11.44 11.96 11.96 11.96
Short-term 15.6 17.16 17.94 17.94 17.94
Capital gains ontransfer of othersecurities (including derivatives and debt Mutual Funds)
Long-term 10.4 11.44 11.96 11.96 11.96
Short-term 31.2 34.32 35.88 35.88 35.88
Interest income on government securities and qualifying corporate bonds#
5.2 5.72 5.98 6.5 7.124
Interest on Income Tax refunds 31.2 34.32 35.88 39 42.744
Dividend Exempt Exempt Exempt Exempt Exempt
*grandfathering benefits shall be available in case the securities are purchased before 1st February, 2018.
# 5% (plus surcharge and cess) is applicable on interest on government bonds and those corporate bonds
whose coupon rate does not exceed 500 bps of base rate of State bank of India on date of issuance of bonds.
Interest from other corporate bonds is taxable at 20% (plus surcharge and cess).
## Subject to distribution tax of 20.56% on equity shares and 12.94% on equity oriented mutual funds.
Since the FPI will be a resident of foreign country, the tax rates will be either governed by the provisions of the
treaty executed between India and the foreign country for the avoidance of double taxation (treaty) or the
Indian tax laws, whichever are more beneficial.
Non-applicability of Minimum Alternate Tax (MAT) provisions to FPIs
Companies are chargeable to tax on the basis of income computed under the normal tax provisions, or on
book profits (i.e. MAT) at the rate of 18.5%, whichever is higher. As per the Income-tax Act, 1961 (the Act), MAT
provisions do not apply to foreign companies unless: (i) they have a permanent establishment (PE) in India; or
(ii) they are required to be registered in India under the prevailing Company Law provisions.
Indirect transfer
Indirect transfer tax provisions shall not be applicable to an asset or capital asset that is held directly/
indirectly by way of investment in a Category I or Category II FPI. This resolves concerns for a class of offshore
funds which are registered as a category I or category II FPIs as redemptions by investors at the level of the fund
shall not be subject to the indirect transfer taxation. Further, in multitiered structures, if the entity investing
into India is a Category I or Category II FPI, any up-streaming of proceeds by way of redemption / buyback will
Non-Corporate FPIs (including Trusts, Association of Persons, Individuals, Artificial Juridical Persons)
Type of Income
Income < INR 5 mn
Income > INR 5 mn < INR 10 mn
Income > INR 10 mn <INR 20 mn
Income > INR 20 mn <INR 50mn
Income > INR 50 mn
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not be brought within the Indian tax net. The provisions also exclude, from applicability of the indirect
transfer tax provisions, situations where any redemptions or re-organizations or sales result in capital gains
by investors in Category I or Category II FPIs.
General Anti-Avoidance Rules (GAAR)
GAAR has the effect of invalidating an arrangement (where the aggregate tax benefit in a relevant year does not
exceed INR 30 million) that has been entered into by a taxpayer for the purpose of obtaining a tax benefit. As
per the provisions of the Act, the Indian Tax Authorities have been granted wide powers to tax any arrangement
(where the main purpose is to obtain a tax benefit) including the power to disregard entities in a structure,
reallocate income and expenditure between parties to the arrangement, alter the tax residence of such entities
and the legal situs of assets involved, treat debt as equity and vice versa. The GAAR provisions are potentially
applicable to any transaction or any part thereof. GAAR overrides benefits availed under any tax treaty. GAAR
is effective from 1 April 2017. Income arising out of transfer of investments acquired before 1 April 2017 are
grandfathered. FPIs that do not claim any benefits under a tax treaty are exempt from the application of GAAR.
Investments in ODIs are also exempt from GAAR. Accordingly, based on facts of each case, it is important to
evaluate the entity structure and transaction flow from GAAR perspective.
Issues
1. Different rates of surcharge for FPIs based on their legal status
Presently, different rates of surcharge are applicable to FPIs set up as companies, partnerships, trusts,
AOPs, etc. This is confusing for FPIs and makes India tax compliance complex for them.
Funds can be set up as trusts, companies or partnerships depending on the law, historical preferences
and market practice of the jurisdictions involved. Even in India, mutual funds and AIFs are generally
setup as trusts which is not done for availing any tax arbitrage.
In certain countries such as US and UK, funds set up either as a corporation or a trust are commonly
treated as corporations for tax purposes. In many countries where a fund is structured as an umbrella
investment company of pooled capital with segregated sub-funds, there is uncertainty as to whether
this structure would be a corporate or non-corporate body for Indian tax purposes.
Under the Act, section 115AD provides special tax rates for FPIs and this sections treats all FPIs
consistently and provide identical base tax rates for all FPIs irrespective of their legal status. However,
different surcharge rates create disparity in the effective tax rates.
2. Merger / restructuring of funds overseas
It is common for funds to merge into other funds or restructure themselves. For instance a fund
manager may sell-off its emerging markets fund to another fund manager or a Delaware Trust fund
may restructure itself into a Maryland corporation. Though such mergers or restructurings would
result in a new fund succeeding the predecessor fund, there is no change beneficial ownership as well
as the assets and liabilities of the fund.
Under the Act, transfer of Indian shares in mergers and demergers of Indian as well as foreign
companies are exempt from capital gains tax subject to the merger / demerger meeting certain
conditions.
However, there is no exemption on any mergers / demerger / restructuring of non-corporate entities. As
a result, transfer of Indian shares on account of merger or restructuring of funds set up as trusts (or
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any other form other than company) are taxable in India even though there is no change in beneficial
ownership and no gains accruing to the funds.
3. Fund Manager in India
Section 9A has been introduced in the Act to attract Fund Managers to base their operations out of
India. In terms of this section, an eligible fund manager would not be construed to have a business
connection or place of residence in India merely because its fund manager is located in India provided
the conditions stipulated in the section are met both by the fund as well as the fund manager.
While introduction of Section 9A in the Act was a welcome move by the government, the qualifying
conditions are considered quite stringent and many fund managers find it difficult to meet these
conditions. Though certain conditions have been relaxed in response to market representations, the
following conditions are still found to be difficult to meet by fund managers:
‐ the aggregate participation or investment in the fund, directly or indirectly, by persons resident in
India does not exceed 5% of the corpus of the fund;
‐ the fund shall not invest more than 20% of its corpus in any entity
‐ the monthly average of the corpus of the fund shall not be less than INR 100 crores
‐ the remuneration paid by the fund to the fund manager should not be at less than arm's length
price or calculated in such manner as may be prescribed.
It is pertinent to note that under the current provisions, non-compliance with any of these conditions
in any point in time may render the fund a resident of India or to be consider as having a permanent
establishment in India and the tax implications would accordingly follow.
4. Concessional tax rate of 5% on interest income
In terms of section 194LD of the Act, interest income received by FPIs on government securities and
those corporate “bonds” where rate of interest does not exceed 500 basis points of the applicable base
rate of State Bank of India (SBI) is taxable at 5% (plus surcharge and cess) provided the interest is
payable before 1 July 2020.
Since the law provides for concessional tax rate on bonds, there can be litigation on applicability of 5%
tax rate on debentures and other debt securities. Also, there is uncertainty on whether the sunset date
be extended beyond 1 July 2020.
5. Need to obtain PAN for non-investing FPIs
SEBI (FPI) Regulations, 2014 requires all FPIs to obtain a PAN. This leads to instances of non-
investing FPIs (registered in India for the sole purpose of enabling a fund to register as a Category II
FPI) needing to obtain PAN.
A non-investing FPI doesn't make any investments, doesn't open a Bank or demat account, it is still
required to obtain a PAN in India.
Era of practice:
As chartered accountant/(s), an individual or entity can specialise in providing the following services to FPI:
FPI Advisory services
Advise on the tax and regulatory framework that govern the investments of FPIs in India, broadly covering the
following:
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‐ An overview of the regulatory framework (RBI and SEBI) governing FPIs
‐ Advice on complying with the eligibility criteria for registration with DDPs
‐ Procedure for applying and liaising with DDPs to obtain registration
‐ Assistance in analyzing suitable jurisdictions for setting up Funds for investment in India and provide
assistance in implementing the identified investment structure
‐ Advising on whether the FPI is eligible to claim the relevant tax treaty amongst other things
‐ In the case of Fund reorganizations undertaken outside India (e.g. mergers, conversions,
liquidations), advice on the Indian income-tax implications (including the implications of indirect
transfer provisions)
‐ Analysis of the permanent establishment and tax residency exposure for the FPI
‐ Assist in preparing the Indian tax chapter of the Private Placement Memorandum or a similar
document of the FPI.
FPI Ongoing tax compliance
FPIs are required to discharge their tax liability prior to the remittance of funds from India. The services which
an individual or an entity may provide broadly covers the following:
‐ Maintenance of details of purchase and sale transactions effected by the FPI and computation of the
capital gains earned on a year-to-date basis
‐ Advice on the implications of corporate action events applicable to the securities held by the FPI and
alternative tax positions that may be adopted
‐ Alteration of the holding statements/historical cost data on account of corporate actions, where
required
‐ Provision of itemized reports on holdings/capital gains (sub-fund/fund-wise)
‐ Computation of the tax payable by the FPI, which would include evaluation of, inter alia, the following:
Tax rates prescribed in the Act or the provisions of a tax treaty as applicable to the FPI, whichever
are more beneficial
Dividend-stripping transactions
Bonus-stripping transactions
Payment of advance tax and credit for taxes withheld, if any
Assistance in the issuance of certificates of tax liability to enable the discharge of tax liability prior
to the remittance of funds
Assistance in obtaining a digital signature certificate required for the purpose of signing the
return of income
Preparation and filing of annual returns of income with the Indian tax authorities
Representation before the Indian tax authorities in the case that the return of income is selected
for an audit
As per SEBI database, till 2018, about 9,351 FPI registrations have been made with a net cumulative foreign
portfolio investment of USD 2,40,211 million. Considering the number of FPIs registrations with SEBI which
helps to tap the potential customer base and the array of services which we can offer to FPIs, FPI practice is
certainly an important part of the service offering for a chartered accountant.
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Compiled by:
CA Priten Bhupendra Shah
VOL. 23 - NO. 3 - OCTOBER 2019
What is a Treaty?
Vienna Convention on law of treaties is known as the
Bible of Tax Treaties. “Treaty” has been defined by
Article 2 of Vienna Convention to mean an
international agreement concluded between States in
written form and governed by international law,
whether embodied in a single instrument or in two or
more related instruments and whatever its particular
designation. Tax Treaty is also known as Double
Taxation Avoidance Agreement (DTAA), or
Agreement for Avoidance of Double Taxation (AADT)
or as Double Tax Conventions (DTCs). These terms
can be used interchangeably.
DTAAs can either be “Comprehensive DTAA” covering
all types of incomes or “Limited DTAA” which are
limited to certain type of incomes only. India has
entered into Comprehensive Agreement with 97
countries and Limited Agreements with 8 countries
including Pakistan, Iran, Maldives.
What is the need to enter into treaty between
countries?
Let us understand this with the help of an
illustration. US Inc., a company incorporated under
the laws of USA and tax resident of USA carries on
business in India through a branch situated in India.
Here, USA is a Country of Residence (“COR”,
“Residence State” or “Home Country”) and India is a
Country of Source (“COS”, “Source State” or “Host
Country”). India and USA are parties to this DTAA
and they are called “Contracting States”. The DTAA is
executed through the process of negotiation whereby
contracting states waive their rights to arrive at a fair
agreement. Now, USA will tax Indian profits of the
company based on its residency and India will tax the
company based on its source. This leads to Double
Taxation. To avoid this kind of situation, countries
enter into an agreement known as Tax Treaty.
Coming back to the example, the same income is
taxed twice in the hands of same person. This is
known as Judicial Double Taxation. The purpose of
DTAA is to eliminate Judicial Double Taxation. Other
type of double taxation is Economic Double Taxation,
which generally arises in company shareholder
model, where same income is taxed twice to different
persons. DTAAs do not relieve Economic Double
Taxation.
Interpretation of DTAA
Let us see how the actual text of a DTAA is worded
and how to read the same to interpret the meaning.
Article 6(1) of India-USA DTAA is worded as “Income
derived by a resident of a Contracting State from
immovable property (real property),including
income from agriculture or forestry, situated in the
other Contracting State may be taxed in that other
State.”Let us replace the “Contracting State” with
actual countries and read again. “Income derived by a
resident of USA from immovable property (real
property), including income from agriculture or
forestry, situated in India may be taxed in India.”This
means, first right to tax income from immovable
property has been given to the country where the
immovable property has been situated; i.e. source
taxation.
Let us take another example. Article 8(1) of India-
USA DTAA is worded as “Profits derived by an
enterprise of a Contracting State from the operation
by that enterprise of ships or aircraft in international
traffic shall be taxable only in that State.” This will be
read as “Profits derived by an enterprise of USA from
the operation by that enterprise of ships or aircraft in
international traffic shall be taxable only in that
State.” This gives exclusive right to tax the income
from shipping business to USA.
We can observe that Article 6 uses the words “may be
taxed”, whereas Article 8 uses the words “shall be
Deep Dive into Concepts to read DTAA
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taxable only”. In the former case, the other country
does not give up its right to tax income from
immovable property, whereas in the latter case, the
exclusive right has been given to a particular country.
Who can take benefit under DTAA?
Once the countries enter into a Treaty, it relieves the
persons covered by it from double taxation. DTAAs
are always relieving in nature. They cannot create a
charge. Here, a question arises, who can access a
DTAA? Generally, Article 1 provides that a person
should be a resident of one of the contracting state to
take the benefit of the said DTAA. For example, for
accessing the Indo-US DTAA, a person should be
resident of either India or USA. Once he is resident as
such, he can go ahead with claiming benefits
available in the Indo-US DTAA.
The Tie-breaker test
If a person is “Resident” of both the contracting
states, it gives rise to uncertainty which needs to be
resolved. This is done by applying the “Tie-breaker
test”. This tie-breaker is necessary to make sure that
the person is Resident of only one of the contracting
states. Generally, tie-breaker test of an Individual
consists of factors such as his permanent home,
center of vital interest, his habitual abode and his
nationality. With reference to residency, the India-
USA DTAA is a very unique example. Paragraph 3 of
Article 4 provides that “Where, by reason of
paragraph 1, a company is a resident of both
Contracting States, such company shall be
considered to be outside the scope of this Convention
except for purposes of paragraph 2 of Article 10
(Dividends), Article 26 (Non-Discrimination), Article
27 (Mutual Agreement Procedure), Article 28
(Exchange of Information and Administrative
Assistance) and Article 30 (Entry into Force).”
Does DTAA mitigate double taxation?
In home country, tax is an obligation, while in the host
country, tax is a cost. Tax Treaties come into play to
mitigate hardship caused by subjecting the same
income to double taxation. They aim at sharing of tax
revenues by concerned states on a rational basis
depending on whether it is an Active Income or a
Passive Income. Business Profits, Salary Income are
examples of an Active Income; whereas Interest,
Royalty, Capital Gains are examples of a Passive
Income. First right to tax an active income is generally
given to source country. Taxation rights of a passive
income are shared by both the nations on a fair basis.
Further, just because first right has been given to
source country, it does not mean that country of
residence gives up its right to tax. Then, how the
double taxation is mitigated? The article on
“Elimination of Double Taxation” comes to the
rescue. The relief is provided by this article either by
way of exempting a particular income in a particular
state or by giving credit of taxes paid in source
country. Former is known as “Exemption Method”
and the latter as “Tax Credit Method”.
The Model Conventions
Negotiating a Treaty is a long process. However, if
countries are given a check list of matters on which
they need to negotiate, it becomes a bit easier
process. This need for check list is met by “Model
Conventions”. The Model Conventions assist in
maintaining uniformity in the format of tax treaties.
OECD Model, UN Model, the US Model and the
Andean Model are a few of such models. Of these, the
first three are the most prominent and often used
models. Indian treaties are based on combination of
all these models. Peculiarities of these models are
that OECD Model is essentially a model treaty
between two developed nations. This model
advocates residence principle. It lays emphasis on
the right of state of residence to tax the income. On
the other hand, UN Model is a compromise between
the source principle and residence principle. Most of
India's tax treaties are based on the UN Model. The
US Model is different from OECD and UN Model in
many respects. For example, Indo-US treaty provides
for Limitation on Benefits (Article 24) and taxing
capital gains (Article 13) as per the domestic law.
Also, US Model does not have a Tax Sparing Clause.
The US Model is used by USA for its treaties with
various nations. Lastly, Andean Model is used only by
a group of lesser and medium developed Latin
American countries, namely, Bolivia, Columbia,
Chile, Ecuador, Peru and Venezuela. It provides for
almost exclusive taxation in source country except in
cases of international traffic. PE concept is not
adopted.
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Interpretation of terms not defined in the DTAA
Once a person is eligible to access a DTAA as above,
now the question arises how to interpret terms which
are not defined in the Treaty. If a particular item is not
defined in the treaty, its meaning can be ascertained
with reference to the domestic tax laws of the source
state. If it is not defined in the domestic tax laws of the
source state, then the term would be interpreted as
per the general law of the source state.
Further, when an interpretation issue arises, Indian
Courts have referred Vienna Convention on Law of
Treaties, even though India was not a signatory to the
Vienna Convention. However, when it comes to
application of a tax treaty in the domestic forum, the
appellate authorities and the courts are primarily
governed by the laws of the respective countries for
interpretation. In India, the Income Tax Act, 1961
(“the Act”) provides that where the Indian
Government has entered into DTAAs which are
applicable to the taxpayer, then the provisions of the
Act shall apply to the extent they are more beneficial
to the taxpayer (Sec. 90(2) of the Act).
Protocol
Continuing with the example of Indo-US DTAA,
another peculiarity of Treaty with USA is that it has
incorporated a Memorandum of Understanding
concerning Fees for Technical Services (FTS) to
explain the provisions with illustrations. Generally,
to put certain matters beyond doubt, there is a
protocol annexed at the end of the treaty, which
clarifies borderline issues. Protocol is like a
supplement to the treaty. Another objective of
Protocol is to give effect to the Most Favoured Nation
(MFN) clause.
What is BEPS & MLI
After the discussion on traditional International Tax
to avoid so called “Double Taxation”, let us now move
to future of International Taxation, i.e. “Double Non-
Taxation”. Multi-National Enterprises (MNEs)
started to structure their operations aggressively and
engaged in transactions that often lacked economic
reality. This leads to Tax-Avoidance, which is legal but
harmful. Therefore, OECD and G20 Nations together
developed steps against such tax avoidance. Fifteen
Action Plans have been developed to conquer the
above challenge. These are called BEPS Action Plans
(Base Erosion and Profit Shifting).These Action
Plans are based on three pillars, namely; Substance,
Coherence and Transparency.
Out of many challenges that BEPS Action Plan aim to
resolve, let us understand one of such challenge;
Digital Economy Taxation. For instance, a person
resident in India visits Singapore and orders goods
online from a website owned by a business in USA.
Orders are received and processed by servers located
in Philippines. Delivery takes place from a warehouse
located in China. Under this situation, which country
has a right to tax income from sale of goods? BEPS
intends to overcome such challenges of modern
economy. To implement these action plans, more
than 3000 tax treaties need to be amended world-
wide, which seems almost impossible in short time.
Hence, a Multi-Lateral Instrument (MLI) has been
developed, which will be read alongwith bilateral tax
treaties to implement Anti-BEPS measures. India has
signed the MLI on June 7, 2017 and ratified the same
on June 25, 2019. Let us hold on tight and enjoy the
ride when implementation takes place.
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What is Transfer Pricing and why separate audit?
Transfer pricing refers to the consideration for the transfer of goods and services between two or more entities
of a multinational corporate group.
Consider a US computer group that buys micro-chips from its own subsidiary in India: how much the US
parent pays its Indian subsidiary – the transfer price – will determine how much profit the Indian Unit will
earn and how much local taxes it will pay. If the parent pays below normal local market prices, the Indian
subsidiary may appear to earn less Profit, even though the group as a whole may show a decent profit margin
on the sale of completed computer unit. US tax administrators might not grumble as the profit may be
reported in their jurisdiction, but their Indian counterparts will be disappointed not to have enough profit to
tax in their jurisdiction.
In order to avoid such loss of taxes the Income-tax Act, 1961 requires a Chartered Accountant to conduct an
audit of transfer price viz. price at which transaction happens between associated enterprises for every
international transaction and/or specified domestic transaction. The report has to be furnished by due date of
the filing of income-tax return (i.e. on or before 30 November). The report prescribed for providing the
certificate is Form 3CEB. The report requires the accountant to give an opinion on the proper maintenance of
prescribed documents and information by the taxpayer. Furthermore, the accountant is required to certify the
True and Correct view instead of expressing True and Fair view of an extensive list of prescribed particulars.
Importance of TP Documentation
The burden of proving the arm's-length nature of a transaction primarily lies with the taxpayer. The taxpayer
has to maintain such documentation which will assist the taxpayer to justify the arm's length nature of the
transaction entered into by it. The tax authorities, during the course of assessment, would call for such
documentation to understand the basis of arriving at the consideration for the transaction. If the tax
authorities, during the course of assessment proceedings, on the basis of material, information or documents
in their possession, are of the opinion that the arm's-length price was not applied to the transaction or that the
taxpayer did not maintain / produce adequate and correct documents / information / data, the total taxable
income of the taxpayer may be recomputed after granting an opportunity of being heard to the taxpayer.
A special team of assessing officers called as transfer pricing officer (“TPO”) deals with transfer pricing issues.
The team comprises of trained TPOs who deal with transfer pricing issues arising during the course of
assessment. Indian tax authorities are actively training their staff on regular basis to increase competency in
handling transfer pricing issues.
Organisation for Economic Cooperation and Development (“OECD”) and United Nation (UN) Transfer Pricing
Model has provided guidelines to determine the arm's length price so that the economies across the Globe
have similar pricing models and a harmony is maintained between the transacting entities. Thus, applying
transfer pricing rules to arrive at an arm's length price is not easy, even with the help of the OECD's guidelines.
It is certainly takes valuable time due to which it is extremely important to document the basis on which the
transfer price was arrived.
VOL. 23 - NO. 3 - OCTOBER 2019
Transfer Pricing Audit Points to be considered
CA Virav Nitin Dedhia
Compiled by:
CA Rinkita Ankit Maisheri
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VOL. 23 - NO. 3 - OCTOBER 2019
Rule 10D of Income-tax Rules, 1962 prescribes the documents to be maintained by an entity undertaking the
transaction. The said documentation is required to be maintained for 8 years.
Non-maintenance or failure to maintain documentation in the manner prescribed, or maintaining
incorrect information relating to the international transaction or failure to submit the information in
response to the notice calling for information, will attract a penalty of 2% of the value of all international
transactions for each such failure.
Non-furnishing of information in respect of the international group to the prescribed authority will attract
a penalty of Rs. 500000.00
What are mandatory documents to be maintained
As per Rule 10D, TP documents are categorised broadly as following:
Out of the above, many of them are factual, however, the following two are the most critical and forms the
essence of the TP Documentation
1. Functional Analysis
2. Economic Analysis
Functional Analysis
Functional analysis as per Rule 10D broadly covers the determination of the functions performed, assets used
and risks assumed by an entity while undertaking the transaction with the Associated Enterprises. The
functional analysis is required to determine whether controlled and uncontrolled transactions are
comparable as well as to establish a factual standard on the basis of which adjustments, if warranted, may be
made to the results of comparable transactions or companies.
In dealing with two independent enterprises, the price charged usually reflects the function that each
enterprise performs (taking into account assets used and risk assumed). Therefore, comparison of the
functions performed, assets used and risk assumed by the entities is necessary in determining whether the
prices of controlled and uncontrolled transactions are comparable. This exercise is known as Function, Asset
and Risk (“FAR”) analysis.
This analysis forms the basis for next step in TP documentation i.e Economic Analysis, It provides a
framework for comparability study and subsequent determination of the most appropriate method.
Entity Related
Profile of Industry
Profile of Group
Profile of AE
Profile of Indian Entity
Price Related Transaction Terms
Functional Analysis (Functions, Assesst and Risk)
Economic Analysis( Method Selection, Benchmarking)
Transaction Related Agreements
Invoices
Pricing related correspondance (Letters, Email etc)
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Economic Analysis
Economic theory predicts that the enterprise that provides most of the effort, and more particularly, the rare
or unique functions, should earn most of the profit. Further, in the open market, the assumption is that
increased risk will be compensated by increase in expected return. An appraisal of risk is therefore important
in determining arm's length price.
Accordingly Economic analysis refers to Identification of most critical functions /Assets/ risk from the
functional analysis, Assigning weights to each elements of FAR and selection of most appropriate method
This anlayisis forms the basis of next step in TP documentation i.e. Determination of comparable search
criteria and Benchmarking.
Benchmarking
The most important element of TP documentation is Benchmarking. Benchmarking refers to applying search
criteria determined in economic analysis to various database in order to arrive at arms length price. On
identifying the method for determining the arms length price, and the elements of functional analysis, the
chartered accountant needs to compare the elements undertaken by assesse vis a vis same elements
undertaken by tested party so that benchmarking can be done and arms length price be determined.
How to prepare TP Documentation
In order to prepare robust TP document, one should always remember that this analysis is basically the first
defence documents in case of litigation with the Assessing officers or in Appeals. Therefore, it is important to
have an overall thorough approach backed with facts and figures to substantiate Arms' length price.The length
and style of TP documentation and study report needs to reflect the complexity and materiality of the
arrangement. Preparing TP Study report involves following steps .
1. Gathering Information
Interviews and questionnaires are the two common modes used for information relating to
transaction in a functional analysis. The information required for Functional analysis can be gathered
from:
a) Official publications, reports, studies and data bases from the Government of the country of
residence of the associated enterprise, or of any other country;
b) Reports of market research studies carried out and technical publications brought out by
institutions of national or international repute;
c) Price publications including stock exchange and commodity market quotations;
d) Published accounts and financial statements relating to the business affairs of the associated
enterprises;
e) Agreements and contracts entered into with associated enterprises or with unrelated
enterprises in respect of transactions similar to the international transactions
2. Conducting Functional Analysis
A functional analysis in most cases is an essential tool for finding and organising facts about a
business in terms of its functions, risk and assets – intangibles and tangible. Functional analysis
identifies how the economically significant activities undertaken by a multinational group are divided
between each entity involved in the transaction under review, for which respective members should
expect to be rewarded. An Illustrative list of typical functions performed/Assest employeed and Risk
Assumed by the business entity is provided below.
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3. Determine Tested Transaction and Tested Party
The entity which has the least complex functions i.e. roles, assumes least risk and the comparable
data for the said entity is available, is selected for the purpose of comparison. This entity is then known
as the 'TESTED PARTY'. It is essential to have clarity on the tested transaction and the tested party as
this would help in deciding an appropriate TP methodology.
4. Entity Characterization
For transfer pricing purposes it is very important to be able to define an entity based on its
characterisation. Once FAR is established it helps in Entity Characterisation. Entity characterisation
is bridge between Functional analysis and Economic Analysis.
Based on an entity characterisation one can determine if an entity incurs more or less risk. The
amount of risk an entity incurs could be an indication if an entities' remuneration should be higher or
lower. Generally, Higher complexity in functions undertaken leads to higher the risk and higher the
remuneration. Simple entites undertaking routine task leads to lower risk and lower remuneration.
Characterisation helps to find the functional entities to ease comparability.
5. Conduct economic analysis
Once an entity is selected as the tested party, an economic analysis to determine the arm's length price
is conducted. This analysis is generally based on the methodology selected to determine the arm's
length price. The methods of arriving at the arm's length price are divided into two broad heads – profit
based (i.e. Cost Plus, Resale Price, Profit Split and Transactional Net Margin) and transaction based
(i.e. Comparable Uncontrolled Price). The transfer pricing methodologies are similar across various
economies except for minor variations to adopt to the local laws. Similarly, the Indian methodologies
are also similar except for the selection of Other Method as per Rule 10AB.
6. Benchmarking
There are various databases which are used for the purpose of determination of the arm's length price
and each database is unique to the transaction to be benchmarked. Thus, one needs to understand
that selection of appropriate database is also an important factor in preparation of TP documentation.
Various qualitative and quantitative filters are to be applied into such database so that reliable
comparison can be done.
Over the years following concepts around the benchmarking have evolved in Indian Judiciary
a. Local v/s Regional comparable – There is no requirement of having only local
benchmark/Comparable, However based on experience, tax officers have a tendency to use Indian
Entity as tested party.
b. Single year V/s Multiyear Analysis – Rule 10B allows three year margin analysis for
benchmark/Comparable
th thc. Use of Inter-quartile Range – Rule 10 CA prescribes 35 Percentile to 65 Percentile as arms
length range, If there are more than 6 entities in the data set. In case there is less than 6 entities
arms length price shall be arithmetic mean of entries in data set. A deviation of 3% from
arithmetic mean is allowed.
d. Fresh Benchmarking – A Fresh benchmarking search needs to be done every year. For
transactions having impact across years, Past data may be relied upon.
e. Simple average V/s Weighted average – The weighted average is preferred over simple average.
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f. Related party - In general companies having related party transaction in excess of 25% of revenue
are excluded to be comparable.
Once the benchmark is done we need to make adjustments in benchmark transfer price if the critical elements
differ with tested party
Each element should be clearly identified, appropriately Justified and documented before arriving at
transfer price
During the course of determining the arm's length price, the procedure as provided in Rule 10CA has
to be followed and each step has to be documented so that in future, during the course of assessment,
it is easier to explain the course of selection of comparables to the TPO.
7. Conclusion
The conclusion paragraph of the TP documentation captures the summary of the functional analysis
through entity characterisation and the results of the arm's length analysis.
A detailed and elaborative transfer pricing document forms a critical part of the transfer pricing
analysis. It is this document which forms the basis of determination of the arm's length price for the
Accountant. It also serves as a first line of defence during the assessment proceedings wherein the TPO
/ assessing officer tries to go against the methodology determined by the assessee.
Issuance of the accountant's report
Once the key elements are identified and the arm's length price is determined, an Accountant is expected to
carefully and exhaustively identify each international transaction and specified domestic transaction, analyse
the elements of functions/asset/risk undertaken by assessee vis-a-vis functions/assets/risk undertaken by
associated enterprise, understand and verify the methodology selected to determine the arm's length price
and if found appropriate the Accountant can issue the certificate of True and Correct.
Form 3CEB is the format of audit report furnished to be prepared by an accountant who reports the list of
transactions entered into by the taxpayer and the basis for determining the ALP. The form contains the
following details:
a. Basic details of the taxpayer and the relevant fiscal year in respect of which the report is furnished.
b. b. List of Associated Enterprises (AE), their relationship with the taxpayer and a description of their
business.
c. AE-wise details of cross-border transactions - under the following categories:
i. Transactions in respect of tangible property - materials consumed, traded goods, purchase or
sale of any other tangible property.
ii. Transactions in respect of intangible property.
iii. Transactions in respect of services.
iv. Transactions in respect of borrowing/lending of money.
v. Transactions in respect of guarantee.
vi. Transactions in respect of shares and securities.
vii. Transactions in respect of allocation/apportionment of common costs.
viii. Transactions arising out of business reorganisation.
ix. Any other transaction having a bearing on profits, income, losses or assets of the taxpayer.
x. Deemed international transaction. (Transaction with AE through an unrelated person.)
The details contain the amount of transaction, ALP computed by the taxpayer and the method used in such
computation
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Compiled by:Mandatory of UDIN & eCS forCompany Secretaries
CS Dev Ajit Mota
VOL. 23 - NO. 3 - OCTOBER 2019
thOn 27 June 2019, a special meeting was held by council of The Institute of Company Secretaries (ICSI)
during which two major and important decisions were taken towards better governance to be conducted by
the members of ICSI.
The two major and important decisions taken were:
1) Implementation of Unique Document Identification Number (UDIN) Guidelines; and
2) Implementation Employee Company Secretary Identification Number (eCSIN) Guidelines.
In an attempt to pursue heightened sense of self-governance and strengthen the practicing side of the
profession of Company Secretaries (CS), ICSI has adopted this unique initiative in the form of Unique
Document Identification Number or UDIN. UDIN is a system generated 18 digit number which needs to be
mandatorily mentioned on the documents either by printing or by handwritten on the in the documents
certified / verified / attested / signed / authenticated by a company secretary in practice for the professional
services mentioned in the UDIN Guidelines from 1st October 2019.
To strengthen the framework of good governance, UDIN shall serve the following purposes simultaneously:
provide ease of maintaining Register of Attestation/ Certification services;
prevent counterfeiting of various attestations/ certifications;
ensure compliance w.r.t ceilings on the number of certifications / attestations; and
enable stakeholders, banks & regulators to verify genuinity of documents signed or certified by Company
Secretaries in Practice.
One needs to register on UDIN portal and generate UDIN from No fee shall be charged for http://udin.icsi.edu/.
generation of UDIN. One does not need to upload any document/s for the same.
Subsequently, with similar objectives as the UDIN to curb malpractice done by third members representing
themselves as the members of the Council of ICSI, ECSIN has been introduced which stands for Employee
Company Secretary Identification number. These guidelines shall be called the Economic Company Secretary
Identification Number (eCSIN) Guidelines, 2019.
ECSIN has been approved and would be effective from 1st October 2019. It will be mandatory for any
appointment/ cessation of the Company Secretary as per Section 203 of Companies Act, 2013 with Read 8/8A
of Companies (Appointment and remuneration of Managerial Personnel) Rules, 2014. eCSIN shall be
generated by the Company Secretary at the time of employment as a Company Secretary, as well as at the time
of demitting office in any manner.
Over the years, it has been noticed that documents/certificates attested by third person misrepresenting
themselves as CS Members have been misleading the authorities and stakeholders. Also, many members have
misrepresented their employment at multiple organizations just to comply with the statutory requirements by
the organization. This initiative and action was a necessary move to be taken by the ICSI to curb the
malpractices, loopholes, misrepresentations, frauds, forgery, etc. and a step forward from good governance to
great governance by the members towards all the stakeholders and their safety against the corruption.
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Compiled by:
CA Henik Dilip Shah
VOL. 23 - NO. 3 - OCTOBER 2019
Agrarian communities, understand the importance of rains for their farms. This can be highlighted from
the poems they recite. Many of the readers must be versed with these lines since childhood:
“AAV RE VARSAAD! Dhebariyo parsad...”
City dwellers, on the other hand, may not be fond of the rainy season. Multiple times their daily lives are
disturbed herein. The same can again be highlighted from the poem I learnt at school:
“RAIN RAIN, GO AWAY! Come again another day…”
What people perceive of things (rains), get influenced (like/dislike rains) accordingly.
So, what role does this perception have to influence us?
Let's begin.
1. The perception of Nationalism
The British during World War II, had a separate division, whose job was to design war propaganda
posters. India, being a colony, was supposed to fight against the Axis powers- Italy, Japan & Germany. But
then, considering the negative image of the British, the posters were designed in a way that Indians
perceive them to be blessed by great kings and that men of valour fight to protect their country.
Perception & Influence
Perception of nationalism, influencing Indians, fight for those whom they anyway want to get rid of.
The same is used in many places for various gains. Here are a few examples:
Bharatiya Janata Party
The BJP, in their 2014 Maharashtra state election campaign had
resorted to such propaganda. What the poster calls for is to support
PM Modi at state level, with the blessing of the great Chhatrapati. The
BJP-Shiv Sena coalition won the elections after almost 15 years. BJP [1]is the richest party, earning around Rs. 10.07 billion in FY-17.
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Patanjali
Patanjali has always associated itself with Swadeshi and Ayurveda.
In 2010, a New York Times article had quoted Baba Ramdev as"An
Indian, who built Yoga empire, a product and symbol of the New
India, A yogic fusion of Richard Simmons, Dr. Oz and Oprah [2] Winfrey, irrepressible and bursting with Vedic wisdom.” In FY 16-
17 Patanjali had clocked a turnover of Rs 10,561 crore, registering [3]a 111 per cent YoY growth.
Bajaj Auto
Bajaj Auto introduced a new bike, the “V”, in 2016. It's fuel tank was
made from the scrap metal salvaged from INS Vikrant, India's first
aircraft carrier, which had played a pivotal role in 1971 Indo-Pak
war. The sales, although having a very niche market, averaged at [4]16500 units per month in the year of launch (V15 model).
Bharatiya Janata Party
The slogan was coined by then Prime Minister candidate Narendra
Modi (now Honourable Prime minister of India) (which has
effectively become BJP's best product offered), conveying that India
would have a prosperous future if the BJP came into power. After
the BJP's historical victory in that election, sayings that include the
words acche din have been used both, to express optimism in or
critically discuss the Modi government.
Coca-Cola
In the first half of 2009 in markets, when the weakened economy
was lowering soft drink sales, the "Open Happiness" campaign
invited people around the world to refresh themselves with a Coke [5]and continue to enjoy the simple pleasures of life. Just a
reminder, Coca-Cola as a product is nothing more than flavoured
soda.
2. The perception of Happiness
Happiness can never truly be defined concisely, but that everyone seems to aim for. The U.S. Declaration of
Independence enshrines, in the words of Thomas Jefferson, “the right to life, liberty, and the pursuit of
happiness” as fundamental to the American people
But humans are not built to be happy. We are not meant to be stuck constantly in one emotional state.
Think about it: If we are constantly happy with the state of things, any motivation we have to move ahead,
or do some action, would get sucked out.
Corporations as well as political parties very well understand this psychology and hence they advertise in
such a way that it not only creates a perception of happiness, but also of some activity, thereby influencing
us to buy their products. Examples:
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McDonalds
McDonalds had introduced the “Happy Meal” back in 1979 in the
USA. The Happy Meal, usually which is deep fried food, contains a
main item, a side item and a drink. It is targeted mainly towards
kids, they even advertise their Happy Meal as a celebration medium
for birthdays etc. Kids love toys and every McDonalds Happy Meal
has a free toy, making the company the largest distributor of toys in [6]the world.
Cadbury Chocolates
Cadbury has managed to make itself synonymous with every Indian
festival. It has shown bond over the product and kept emotions
intact in its advertisements for all these years, making Cadbury
Celebrations – the gifting range, almost a customary palate of taste
and sweet. It has also tried to associate itself with family values such
as having a meal together and “khane ke baad kuch meetha ho
jaaye!” A 100gm of Cadbury Chocolate (Silk Oreo), contains as
much as 48.4gms of sugar, which is its first ingredient.
Medimix
Medimix soap is marked as “An Ayurvedic Proprietary medicine.” A
125gm soap bar contains just 634.52mg of herbal extracts, which
is approximately 0.051%. The company recorded a sales turnover
of Rs 300 crore in FY 19, and produced around 6 lakh soaps [7]everyday. It targets a Rs 500 crore turnover in FY 20.
Complan
Complan and other malt based drinks are shown to be a healthy
add-on to milk. A report of “The Print” states that a 100g of
Complan contains around 24-28g of sugar. Its serving size is
recommended at 33g making the sugar intake at 8g. A gram of
sugar provides 4 calories and latest WHO mandate recommends a
cap of 100 calories from sugars (5 per cent) in a 2,000-calorie diet.
So at 8g of sugar, Complan provides 32 calories out the 100 in just
one serving. Considering how modern diets are filled with sugary
junk food, these malt-based drinks may add to consuming sugar [8]above the prescribed limit.
Such corporations, through this perception of happiness, have influenced many worldwide to buy their
products. No wonder that even after decades and centuries, their core products' Life Cycles have not even
shown a maturity stage, forget a decline. And political parties have broken all records in recent general
elections, wooing voters with the promise of better life.
3. The perception of Health and Wellbeing
Along with happiness, we also desire good health. We take precautions not to fall sick or feel weak. If we fall
sick, we immediately take some medication. We even give into “Placebo effect”, the feeling of recovery which is
produced not due to the doctor's medication, but due to the patient's belief in that medication.
The same way corporations build such perceptions. Examples:
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Old Spice
Old Spice, a men's personal hygiene brand, was not doing well,
being perceived as bygone and not meant for current times. To
counter this, the “Smell like a Man, Man” campaign was launched
on February 8, 2010. All of the ads in the campaign addressed the
audience as female with: “Hello ladies”, because it's advertising
agency discovered that women were responsible for more than 50%
of the purchases. By the end of 2010, Old Spice had become the [9]leading body wash brand for US men with sales up by 125%.
The perception of the product being healthy, the perception of the product being good for well-being, influencing
people to consume such products and filling the coffers of the corporations.
Why perceptions and influencing need to be understood?
Indian economy has been slowing down. The FMCG sector is facing the slowest growth in the past 15 years. [10]
Agricultural output expanded at just 2.7% QE-Dec'18, the lowest in about 3 years. The automotive sector is
experiencing a slump. For August 2019, domestic sales of Tata motors declined by 49%, M&M by 26% and Maruti [11]
by 32.7% on YoY basis. Even other sectors are not performing well.
Since the 2014 change of Central government, there has been a wave of newly found nationalism and somewhere
it is felt that action on real issues has taken a back seat. Even elections in recent years have been fought on this
nationalistic fever. But, in the first 100 days of the current government, Rs. 14 lakh crore of stock investor wealth [12] thhas been wiped off. Reality cannot be ignored for long. (The government has taken some action as on 20
September, let's see what fruit it bears.)
However, corporations & political parties have survived multiple economic cycles of prosperity and recession and
multiple elections. The above examples have shown that be it any situation, like launch of new product or
stimulate sales of existing, they are marketed such to create a certain perception and thereby influencing people to
buy. From our (consumer) perspective, getting influenced effectively means contributing to corporations'
revenues & parties' votes. The upcoming festive season coupled with the Maharashtra state elections, shall be
testing times.
Point to ponder:
Corporations and political parties will come up with more aggressive advertisement campaigns, trying to create
more desirable perceptions for their products and hard influence us to buy. Should we accept and approve of the
product perception and get influenced? Or have our own perception?
Think over it. Think different!
References:
1. https://www.business‐standard.com/article/politics/bjp‐richest‐political‐party‐with‐rs‐10‐03‐billion‐income‐in‐fy17‐adr‐118041001008_1.html
2. https://www.nytimes.com/2010/04/19/world/asia/19swami.html
3. https://economictimes.indiatimes.com/industry/cons‐products/fmcg/gst‐roadblocks‐hit‐patanjali‐growth‐in fy18/articleshow/64244467.cms?from=mdr
4. https://www.moneycontrol.com/news/technology/auto/fate‐of‐bajaj‐autos‐ins‐vikrant‐inspired‐bike‐hangs‐in‐balance‐4424281.html
5. http://www.icmrindia.org/casestudies/catalogue/Marketing/MKTG228.htm
6. https://www.huffingtonpost.in/2014/03/13/mcdonalds‐happy‐meal‐facts_n_4936593.html
7. https://www.thehindubusinessline.com/companies/medimix‐turns‐50‐targets‐higher‐sales‐turnover‐in‐fy20/article27867345.ece
8. https://theprint.in/science/health‐drinks‐like‐bournvita‐horlicks‐give‐your‐kids‐more‐sugar‐hardly‐any‐nutrition/157600/
9. https://www.campaignlive.co.uk/article/history‐advertising‐no‐191‐old‐spices‐smell‐man‐man‐campaign/1436615
10. https://economictimes.indiatimes.com/industry/cons‐products/fmcg/worst‐fmcg‐show‐likely‐in‐15‐years‐credit‐suisse/articleshow/71193810.cms
11. https://www.indiatoday.in/india/story/auto‐sector‐continues‐to‐witness‐slowdown‐domestic‐sales‐slump‐in‐august‐1594295‐2019‐09‐02
12. https://economictimes.indiatimes.com/markets/stocks/news/first‐100‐days‐of‐modi‐2‐0‐wipes‐off‐rs‐14‐lakh‐crore‐stock‐investor‐
wealth/articleshow/71044634.cms?from=mdr
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C.V.O. CA'S NEWS & VIEWS
Compiled by:
CA Nisha Ninad Gala
Skill Development
Beyond SOP’sThe nature of our profession compels us to be driven
by Standard Operating Procedures, Processes,
Checklists, To Do Lists, Law, Acts, Rules, Protocols
etc. We cannot deny their importance. Also,
technology is playing a pivotal role in making these
processes etc. more easily available, accessible and
automated.
However, one major observations across workplaces,
has been that, the application of mind or thinking
process, of an average individual, while using these
processes or procedures, becomes restricted or
limited to the areas and scope mentioned in those
SOP's etc. While that could be one of the
requirements, to not go overboard, yet, it may have
adverse effects with chances of having missed out
something important or not identifying a possible
issue or having been able to identify it, not being able
to find a solution. Our work becomes more
mechanical. This is a limitation of our thinking
pattern.
We all know the theory of the Left Brain and the Right
Brain. Dr. Roger Sperry was the first to draw
attention that the brain has two distinct lobes- left
and right. The left brain controls the movement's on
the body's right side and the right brain controls the
left side. The Left brain enables more logical
thinking, deals with information sequentially,
analysis, numbers, reasoning etc. Needless to say, we
professionals, have our left brains more active. On
the other hand, right brain is more about
imagination, colour, humour, music, rythym,
creativity, innovation etc.
How much tax should one pay, is determined by the
left brain , through a logical analytical process . What
are the ways in which tax can be reduced is question
which the right brain helps to answer.
While the right brain generates ideas, left brain
develops and tests them. Every situation calls for
integration of both the brains.
Let us look at some exercises.
Exercise 1
Four volumes of Tagore's collected works stand on a
shelf. The total pages of each volume are exactly five
cm thick and the front and back covers are each half
cm thick.
A bookworm starts eating from Page 1 of volume 1
and eats its way till the last page of volume IV .
Through what distance did the bookworm eat ?
The answer is 13 cms.
Most of us would have had trouble arriving at this
one.
The reason being our habitual ways of visualising. All
our lives, we have been accustomed to seeing a book
in a certain position, facing us, with the first page next
to the left hand cover and the last page next to the
right hand corner. This is how we open a book and
read it. However, in the exercise above, it was
specified that the volumes were on a shelf and spines
of the books are facing us, (as illustrated), thus the
order of the pages is reversed.
Exercise 2
In a badminton tournament there are 32 players . It is
a singles,knock out tournament. What is minimum
number of matches that would have to be arranged to
find out the winner.
VOL. 23 - NO. 3 - OCTOBER 2019
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C.V.O. CA'S NEWS & VIEWS
VOL. 23 - NO. 3 - OCTOBER 2019
The answer is 31 matches
stThe left brain thinking starts with 1 round = 16
matches, that will leave with 16 players (after
eliminating the other 16), next round would be 8
matches and so on (i.e 16+8+4+2+1)= 31 matches.
This is a very logical approach. For the right brain ,
the question is to find one winner. So it works on how
to eliminate the balance 31. In one match one player
is eliminated. So to eliminate 31 players , it suggests
the need for 31 matches.
Exercise 3
A water lily on a lake doubles in number each day. In
this way it covers the entire lake in 20 days. How
many days would it take for two such lilies to cover
the lake?
The answer is 19 days
No paper and pen required. This problem can be only
solved by going backwards. In 20 days two such lilies
would cover two lakes. Since they are doubling in thnumber each day, on the 19 day they would have
covered one lake.
Most of us try to go from the forward direction – first
we make a plan, mobilize funds, develop other
resources, move towards our goals and achieve the
target. This is the logical approach. More emphasis is
on the How ? even before beginning. On the other hand
,there are those achievers who first decide their goal
and then focus on how to reach there. In the above
exercise, Left brain goes step by step in forward
direction and finishes with the winner. Right brain,
starts with the winner and then goes backward and
sees how to eliminate the rest of the 31 players.
Sometimes it is easier to go backwards and some
other times that is the only way. This is reverse
thinking, more of an attitude of right brain.
A problem can be looked at as anything that is
blocking our way, something unexpected happening
which calls for extra efforts, or something causing
discomfort. It can also be looked at as an undesirable
deviation of what is happening from what should be
happening.
A lot of our everyday problems have some limitations
or boundaries. If these boundaries are fixed and
close ended then the answers to these can be found
through logical analytical skills. There is one right
answer or one right way to resolve such issues.
But a lot of the other problems we see and experience,
are problems which are open ended, not fixed and
hence their solutions need to be customised,
innovated, sorted through creative thinking.
e.g. The problem of use of plastic is an issue of
convenience vs. environment. It was high time some
concrete action was taken to save the environment.
While banning of usage of plastic bags & products
was the logical solution to the problem, the
inventions happening today in providing alternative
solutions to plastic are a classic example of usage of
right brain . As rightly said , “Necessity is the mother
of all inventions”
Usage of Right brain, is very crucial to problem
solving. Creativity and Innovation are needed to find
generate new ideas, find new ways, alternative
solutions and often more than one options to resolve
a problem.
There are many ways in which we can activate the
right brain. One of the simple and easy ways to start
off, is doing things with the opposite hand. Doing
things which we are not habituated to do generally or
doing it differently . e.g. Our minds are so habituated
to brushing our teeth, that even while we are half
asleep, we can get the task done. Trying to brush our
teeth with the other hand could be challenging for a
week, but not more.
In office , one can have few sessions in groups and try
doing some creative activities, solving brain teasers,
answering tricky beyond imagination queries. It
could be a fun way to bond too.
Until then, some brain teasers
1. Name an ancient invention still in use in most
parts of the world today that allows people to
see through walls ?
2. How can you throw a ball as hard as you can
and ensure that it comes back to you even if it
doesn't hit anything, there is no string or
elastic attached to it and no one throws or
catches it ?
3. What are the uses of a white sheet of paper?
Don't stop at 5 or 10. There can be more.
HAVE FUN !
(Resources : Innovation and Creativity , workbook by
Dr. Annamalai, Brain Boosting by Michael Powell,
and other content digitally available)
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C.V.O. CA'S NEWS & VIEWS
Compiled by:
CS Keyur Jitendra FuriaOptionscapitalytic
VOL. 23 - NO. 3 - OCTOBER 2019
A Derivative option is a financial instrument whose price is dependent upon or derived from one or more
underlying assets is called Derivatives. An Option is a contract between two party, where one party gives to the
other the right, but not the obligation, to buy from (or sell to) the First Party the underlying asset on or before a
specific day at an agreed Price. In return for giving the right, the party giving the right collects a payment from
the other party. This payment collected is called the “Premium” or Price of the Option. Most derivatives are
characterized by high leverage.
Type of Options
Call Option : Call Option is the Options which give the right to buy.
Put Option : Put Option is the Options which give the right to sell.
Option Terminologies
Spot Price : Spot Price is the current Price at which a particular underlying can be bought or sold at a specified
Time and place. It is also known as Fundamental or Intrinsic value of asset.
Strike Price : Strike Price is the Price at which a specific derivative contract can be exercised. Strike Prices are
mostly used to describe stock and index Options, in which Strike Prices are fixed in the contract.
Maturity Date: The date on which all open Future & Option of that series gets settled.
Premium: The total cost of an Option. This is the amount which Option buyer pays to the Option Seller. The
Premium of an Option is basically the sum of the Option's Intrinsic and Time Value.
Know the difference between Option Buyer & Option Seller
Option Buyer
Pays premium
Has the right to exercise resulting in a long position in the underlying
Time decay works against buyer
Risk limited, Reward unlimited
Option Seller
Collects premium
Has obligation if assigned, resulting in a short position in the underlying
Time decay works in favor of seller
Risk unlimited, Reward unlimited
Call Options (CE)
Call Option is an Option where buyer gets the right to purchase the underlying but not any obligation. Buyer of
the Call Option expects the Price to go up and hence purchase right to buy at a specified rate by paying
Premium. Call Option buyer is getting the right to purchase from Call Option seller and pays the Premium to
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C.V.O. CA'S NEWS & VIEWS
VOL. 23 - NO. 3 - OCTOBER 2019
Call Option seller. The Maximum loss to the buyer of the Option is limited up to Premium paid. If Price rises
than Call buyer earns unlimited profit.
Call option is like booking a House by paying token amount (premium).
Example: For Call Buyer
Mr. X has purchased the Bajaj finserve October 8000 Call Option at Rs.200. Here, Underlying is shares of Bajaj finserve. Strike Price is 8000. Option is Call Option (Right to Purchase). Maturity (Expiry) is October. Premium is Rs.200. So when Spot Price goes up above 8000, Mr. X will exercise his right to purchase Bajaj finserve at 8000. So he will get benefit when market rises above 8000. So if Market goes up to 8100 he will get Rs.100 back but as he has paid Rs.200 as Premium so his net loss would be Rs.100. Now when market moves the payoff of buyer is as follows:
Break Even Point (BEP) for Call Option
BEP is a point when Options seller and buyer arrive at no profit and no loss situation. It is the Price where
trader is neither earning nor losing any money. Here, both buyer and seller remain at cost to cost. For Call
Option
BEP = Strike Price + Premium
In above both example…
8000 + 200 = 8200. (Strike + Premium)
That means, when Spot reaches 8200, Mr. X neither earns nor loses any money.
Put Options (PE)
Put Option is an Option where buyer gets the right to sell the Underlying but not any obligation. Buyer of the
Put expects the Price to go down. The Maximum loss to the buyer of the Option is limited up to Premium paid.
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C.V.O. CA'S NEWS & VIEWS
VOL. 23 - NO. 3 - OCTOBER 2019
If Prices falls than Put buyer earns unlimited profit. The buyer of put expects the value to decrease so that he
can purchase more quantity at lower price. Let us look at one example to make it clear.
Put option is like buying an insurance policy against any risk to cover or compensate your losses.
Example: For Put Buyer
Mr. Y has purchased the Maruti 24 October's 8100 Put Option at Rs.100. Here, Underlying is Maruti. Strike
Price is 8100. Option is Put Option (Right to Sell). Maturity (Expiry) is October. Premium is Rs. 100. So when
Spot Price falls below 8100, Mr. Y will exercise his right to sell Maruti at 8100. So he will get benefit when
market falls below 8100. So if Market falls to 7900 he will get Rs.200 back but as he has paid Rs. 100 as
Premium so his net profit would be Rs.100. Now when market moves the payoff of buyer is as follows:
Break Even Point (BEP) for Put Option
BEP is a point when Options seller and buyer arrive at no profit and no loss situation. It is the Price where
trader is neither earning nor losing any money. Here, both buyer and seller remain at cost to cost. For Put
Option
BEP = Strike Price - Premium
In above both example…
8100 - 100 = 8000. (Strike - Premium)
That means, when Spot reaches 8000, Mr. Y neither earns nor loses any money.
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C.V.O. CA'S NEWS & VIEWS
VOL. 23 - NO. 3 - OCTOBER 2019
Moneyness of Options
Example: Current Price of stock is Rs.100
Example Asian Paints option chain
Option Pricing
Price = Intrinsic value + Time Value
In-the-Money: Option with Intrinsic value
At-the-Money: Exercise price = Market price
Out-of-the-Money: No intrinsic value, Only time value
29
C.V.O. CA'S NEWS & VIEWS
BRIEF UPDATE ON SEBI AND CORPORATE LAW SEBI
by CA IP Neha Rajen Gada and CA IP Rajen Hemchand Gada
VOL. 23 - NO. 3 - OCTOBER 2019
A. REGULATIONS
1. Securities and Exchange Board of India
(Prohibition of Insider Trading) (Third
Amendment) Regulations, 2019
[Issued by the Securities and Exchange Board
of India vide Notification No. SEBI/LAD-
NRO/GN/2019/32 dated September 17, 2019]
SEBI has inserted a new Chapter IIIA relating to
the Informant under the SEBI PIT Regulations.
The amendment provides the manner in which
the information received from the Informant
needs to be deal with, rewarding the Informant,
dealing with privacy of information and the
Informant, forms to be filed, etc.
B. CIRCULARS
1. Non-compliance with certain provisions of
SEBI (Issue of Capital and Disclosure
Requirements) Regulations, 2018 (“ICDR
Regulations”)
[Issued by the Securities and Exchange Board
of India vide Circular No. SEBI/HO/HO/
CFD/DIL2/CIR dated August 19, 2019]
SEBI has prescribed the penalties that would be
levied in case either the listing application or the
listing process is not completed with the
prescribed time limit.
2. Schemes of Arrangement by Listed Entities
and (ii) Relaxation under Sub-rule (7) of rule
19 of the Securities Contracts (Regulation)
Rules, 1957 [Issued by the Securities and Exchange Board
of India vide Circular No. SEBI/HO/CFD/
DIL1/CIR/P/2019/192 dated September 12,
2019]
SEBI has with regard to scheme of arrangements
prescribed additional disclosure wrt status of
any unpaid dues / fines / penalties to SEBI,
Stock Exchanges or Depositories.
For further details, please refer SEBI website at
www.sebi.gov.in.�
This space has been left blank intentionally
CORPORATE LAW
A. RULES
1. Investor Education and Protection Fund
Authority(Accounting, Audit, Transfer and
Refund) Second Amendment Rules, 2019
[Issued by Ministry of Corporate Affairs vide
Notification no. GSR 571(E) dated August 14,
2019]
The Central Government has amended inter alia
the Rules with regard to transfer of shares and
dividend to IEPF, Schedule II - Documents to be
submitted to the Authority to register
transmission of securities, etc.
2. National Financial Reporting Authroity (NFRA)
Amendment Rules 2019 Dated 05.09.2019
[Issued by Ministry of Corporate Affairs vide
Notification no. GSR 636(E) dated September
5, 2019]
Central Government has, among other
amendments, introduced Form-NFRA-2 relating
“Annual Return To Be Filed By Auditor With The
National Financial Reporting Authority”.
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C.V.O. CA'S NEWS & VIEWS
B. CIRCULARS
1. Clarification under section 232(6) of CA 2013
[Issued by Ministry of Corporate Affairs vide
General Circular No. 09/2019 dated August
21, 2019]
MCA has clarified that scheme shall be deemed to
be effective from the appointed date. This date
may be a specific calendar date or may be tied to
the occurrence of an event such as grant of license
by a competent authority, etc.
The 'appointed date' identified under the scheme
shall also be deemed to be the 'acquisition date'
and date of transfer of control for the purpose of
conforming to accounting standards (including
Ind-AS 103 Business Combinations.
A specific calendar date chosen as the appointed
date may precede the filing of application of
scheme with NCLT. However, if it precedes by
more than one year a proper justification needs to
be provided in the scheme and it should not be
against public interest.
In case if the appointed date is based on
occurrence of an event, etc. then it has to be
specified in the scheme. Also, if such date occurs
subsequent to the filing of the Order with the
Registrar then the company needs to intimate the
Registrar within 30 days of the scheme becoming
effective.
VOL. 23 - NO. 3 - OCTOBER 2019
31
CA Manoj Chunilal Shah CA Viral Vinod Satra
Compiled by:FEMAUPDATES
C.V.O. CA'S NEWS & VIEWS
Foreign Exchange Management (Deposit) Regulations, 2019 – Acceptance of Deposits by issue of
Commercial Papers
A.P. (DIR Series) Circular No. 06 dated August 16, 2019
RBI has decided to review Regulation 6(3) of Notification No. FEMA 5(R)/2016-RB dated April 01, 2016, in
terms of which a company may accept deposits through issuance of Commercial Paper (CPs) vis-a-vis other
statutes / regulations notably Section 45U(b) of RBI Act, 1934 describing CP as one of the Money Market
Instruments and Rule 2(c) of Companies (Acceptance of Deposits), Rules 2014 which excludes any amount
received against issue of, inter alia, CPs from definition of deposits. It has also been considered that Foreign
Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017 –
FEMA 20(R), already allow investments in CPs issued by the Indian Companies.
Therefore, with a view to bring in consistency in statutory provisions/regulations relating to Commercial
Papers (CPs), we advise that sub-regulation (3) of Regulation 6 of FEMA 5(R)/2016-RB has been deleted vide
GOI Notification No. FEMA 5(R)(2)/2019-RB dated July 16, 2019.
Comments: CP is excluded from definition of Deposits in Rule 2(c) of Companies Acceptance of Deposit
Regulations, 2014 and with a view to bring consistency with other statutes, this is a welcome move of RBI for
removing confusions.)
Review of FDI Policy in various Sectors
Press Release dated August 28, 2019
The Union Cabinet chaired by Prime Minister Shri Narendra Modi has approved the proposal for review of
Foreign Direct Investment in Various Sectors. The changes in FDI Policy will result in making India a more
attractive FDI destination, leading to increased investments, employment and growth.
VOL. 23 - NO. 3 - OCTOBER 2019
Coal Mining 100% FDI under automatic route is
allowed in coal & lignite mining for
captive consumption by power
projects, iron & steel and cement
units and other eligible activities
permitted under and subject to
p r o v i s i o n s o f C o a l M i n e s
(nationalization) Act, 1973.
Further, 100% FDI under automatic
route is permitted for setting up coal
In addition, 100% FDI shall be allowed
under automatic route for sale of coal,
for coal mining activities including
associated processing infrastructure
subject to provisions of Coal Mines
(special provisions) Act, 2015 and the
Mines and Minerals (development
and regulation) Act, 1957 as amended
from time to time, and other relevant
acts on the subject.
S e c t o r Existing Policy Revised Policy
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C.V.O. CA'S NEWS & VIEWS
VOL. 23 - NO. 3 - OCTOBER 2019
S e c t o r Existing Policy Revised Policy
processing plants like washeries
subject to the condition that the
company shall not do coal mining
and shall not sell washed coal or
sized coal from its coal processing
plants in the open market and shall
supply the washed or sized coal to
those parties who are supplying raw
coal to coal processing plants for
washing or sizing.
"Associated Processing
Infrastructure" would include coal
washery, crushing, coal handling,
and separation (magnetic and non-
magnetic)
Contract
Manufacturing
The extant FDI policy provides for
100% FDI under automatic route in
manufacturing sector. There is no
specific provision for Contract
Manufacturing in the Policy.
In order to provide clarity on contract
manufacturing, it has been decided to
allow 100% FDI under automatic
route in contract manufacturing in
India as well.
Manufacturing activities may be
conducted either by the investee entity
or through contract manufacturing in
India under a legally tenable contract,
whether on Principal to Principal
Single Brand
Retail Trading
(SBRT)
The extant FDI Policy provides that
30% of value of goods has to be
procured from India if SBRT entity
has FDI of more than 51%. Further,
local sourcing requirement are
required to be met as an average
during the first 5 years, and
thereafter annually towards its India
operations.
With a view to provide greater
flexibility and ease of operations to
SBRT entities, it has been decided as
follows-
- All procurements made from India by
the SBRT entity for that single brand
shall be counted towards local
sourcing, irrespective of whether the
goods procured are sold in India or
exported.
- Current cap of considering exports for
5 years is removed.
- Incremental sourcing for global
operations by the non-resident
entities undertaking SBRT, either
directly or through their group
companies will also be counted
towards local sourcing requirement
for the first 5 years.
- Sourcing of goods from India for
global operations can be done directly
by the entity undertaking SBRT or its
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C.V.O. CA'S NEWS & VIEWS
VOL. 23 - NO. 3 - OCTOBER 2019
S e c t o r Existing Policy Revised Policy
group companies (resident or non-
resident}or indirectly by them
through a third party under a legally
tenable agreement.
- Entire sourcing from India (instead of
incremental sourcing) for global
operations shall be considered
towards local sourcing requirement.
- Retail trading through online trade is
now allowed to be undertaken prior to
opening of brick and mortar stores,
subject to the condition that the entity
opens brick and mortar stores
Digital Media The extant FDI policy provides for
49% FDI under approval route in
Up-linking of 'News & Current
Affairs' TV Channels
I n add i t i on , 26% FDI under
government route is allowed for
uploading/ streaming of News &
Current Affairs through Digital Media,
on the lines of print media.
Comments:
FDI Policy provisions have been progressively liberalized acroos various sectors in recent years to make India an attractive
investment avenue. The further policy changes have been brought to further consolidate the gains under FDI.
Some of key changes are summarised below:
a. For Single Brand Retail Trade, conditions of local sourcing have been diluted.
b. Retail trade through online trade shall be allowed for two years prior to opening of brick and mortar stores.
c. A new category of Contract Manufacturing is created to remove any ambiguity in the policy.
d. FDI in Coal Mining has been introduced.
e. FDI in uploading/streaming of News and Current Affairs through Digital Media has been opened up to 26% under approval
route.
34
C.V.O. CA'S NEWS & VIEWS
Compiled by:
CA Ashwin Bhawanji Shah
RERA
UPDATESUPDATE ON REAL ESTATE ( REGULATION &
DEVELOPMENT ) ACT , 2016
Judicial Pronouncement by RERA Appellate
Tribunal
1. Sanvo Resorts Pvt Ltd Vs Ranveer Sharma
& others
Issue Before Tribunal :-
Appellant Developer raised the issue whether
for claim of interest by allottee , the matter
has to go to adjudication officer only and
Member of Authority has no jurisdiction to
decide the claim of interest.
Held :-
a. Interest for delayed possession is
provided u/s 18 f the Act and Rules
provides for rate of interest being 2 %
above SBI Marginal Cost of Lending Rate.
b. Once Member decides that there is case
for delay in possession , interest working
are automatic as provided under the Act
and Rules.
c. There was no claim of compensation by
the allottee in the original complaint and
hence there is no need to refer the matter
to adjudication officer for deciding
compensation u/s 7 & 72 of the Act.
2. Prashant Kale Vs Swapnil Promoters &
Developers Pvt Ltd
Issue Before Tribunal :-
The Appeal filed by Allottee for claim of interest
and compensation with principal for d e l ay in
possession.
Held :-
a. Allottee in the original complaint sought
refund of principal with interest and
compensation on account of delay in
possession.
b. However, the question of compensation
under the Act was neither rejected nor
answered by the Authority.
c. It was held that allottee may file separate
petition for claim of compensation u/s 71 &
72 of the Act before Adjudication Officer on
the same cause of action i.e delay in
possession
VOL. 23 - NO. 3 - OCTOBER 2019
35
C.V.O. CA'S NEWS & VIEWS
Compiled by:
CA Haresh Padamshi Kenia
DIRECT TAXES
LAW UPDATE
VOL. 23 - NO. 3 - OCTOBER 2019
I. � Return of Income – Section 139(1C) of the Income Tax Act – Exemption from furnishing of Return
of Income u/s. 139(1) for Assessment Year 2019 – 20. [265 Taxman (St.) 1]
The Central Government vide notification no. S.O.2672(E) (No.55/2019[F.No.225/79/2019-ITA II] Dated
26-07-2019 hereby exempts the following class of persons, subject to the conditions specified, from the
requirement of furnishing of return of Income u/s 139(1) of the Income Tax Act from assessment year
2019-20 onwards.
1. Class of Persons
(i) a non-resident, not being a company; or
(ii) a foreign company, who have any income chargeable under the said Act during a previous-year from
any investment in an investment fund set up in an International Financial Services Centre (IFSC)
located in India.
Explanation:- For the purpose of this paragraph.-
(a) “ investment fund” means any fund established or incorporated in India in the form of a trust or a
company or a limited liability partnership or a body corporate which has been granted a certificate
of registration as a Category I or Category II Alternative Investment Fund and is regulated under the
Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012, made
under the Securities and Exchange Board of India Act, 1992 (15 of 1992);
(b) “International Financial Services Centre” shall have the same meaning as assigned to it in clause (q)
of section 2 of the Special Economic Zones Act, 2005 (28 of 2005).
2. Conditions
In case of class of persons referred to in para 1,-
(i) any income-tax due on Income of the said class of persons has been deducted at source and
remitted to the Central Government by the investment fund at the tax-rate in force as per provisions
of section 194LBB of the said Act; and
(ii) there is no other income during the previous year for which the said class of persons, is otherwise
liable to file the tax-return.
3. � The exemption from the requirement of furnishing a return of income shall not be available to the said
class of persons where a notice under sub-section (1) of section 142 or section 148 or section 153A or
section 153C of the said Act has been issued for filing a return of Income for the assessment year specified
therein.
4. � This notification came into force from the date of its publication in the Official Gazette.
II. � Income from Other Sources – Section 56(2) (viib) - CBDT simplifies the process of Assessment in
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VOL. 23 - NO. 3 - OCTOBER 2019
respect of Start-Ups [265 Taxman (st.) 3]
The CBDT vide press release dated 10-08-2019 simplified the process of Assessment in case of start-up
entities. The CBDT has decide the following where scrutiny assessment of start-up entities are pending :
1. In case of Start-up Companies recognized by DPIIT which have filed Form No.2 and whose cases are
under “limited scrutiny” on the single issue of applicability of section 56(2)(viib), the contention of
the assessee will be summarily accepted.
� 2. In case of Start-up Companies recognized by DPIIT which have filed Form No.2 and whose cases
have been selected under scrutiny to examine multiple issues including the issue of section
56(2)(viib), this issue will not be pursued during the assessment proceeding and inquiry on other
issues will be carried out by the Assessing Officer only after obtaining approval of the supervisory
authority.
3. In case of Start-up Companies recognized by the DPIIT, which have not filed Form No.2, but have
been selected for scrutiny, the inquiry in such cases also will be carried out by the Assessing Officer
only after obtaining approval of the supervisory authorities. In addition to the above, the Central
Government has further decided to relax Para-6 of the DPIIT notification No.127(E) dated 19-2-
2019 and make it clear that this notification will also be applicable to Start-up Companies where
addition under section 56(2)(viib) has been made and the assessee has been recognized by DPIIT
and subsequently filed Form No.2. The Circular to this effect in F.No.173/149/2019-ITA-1 of CBDT
dated 8th August, 2019 has been placed on .www.incometaxindia.gov.in
III. �Income from Other Sources - Section 56 of the Income Tax Act – Clarification with respect to
valuation of shares of Start-up Companies involving application of section 56(2)(viib)
[265 TAXMAN-(St.) 3]
The CBDT noticed that substantial additions are made by the AOs in “Start-up Companies” involving
issue of valuation of shares u/s 56(2)(viib).
The Government Vide Notification No. G.S.R. 127(E), dated 19-2-2019 issued by the Department for
Promotion of Industry and Internal Trade (henceforth referred to as “DPIIT”) and notification No.13/2019 th F.No.370142/5/2018-TPL(Pt.) dated 5 March, 2019 Issued by the Central Board of Direct Taxes
(henceforth referred to as “CBDT”), the Central Government has notified certain class of persons for
which the provisions of section 56(2)(viib) will not apply. Para 6 of the notification issued by the DPIIT
dated 19-2-2019 states that the notification is applicable only with regard to recognized “Start-up
Companies” where no addition u/s 56(2)(viib) has been made in an assessment order before the date of
issue of the notification. This has caused hardship to such companies.
The matter has been examined by the Board. To mitigate such hardships, the Central Government vide
circular No.173/354/2019 dated 9-8-2018, has decide to relax the Para-6 of the above-referred
notification issued by the DPIIT and make it clear that the notification will be applicable to those Start-up
Companies also where addition u/s 56(2)(viib) has been made in an assessment order under the IT Act
before 19th February, 2019 provided the assessee had subsequently submitted the declaration in Form–2
that it fulfills the conditions mentioned in Para-4 of the above-referred notification.
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VOL. 23 - NO. 3 - OCTOBER 2019
IV. � Return of Income – Section 139-Clarification in respect of filing –up of ITR Forms for the
Assessment Year 2019 – 20 265 Taxman-(St.)4
The Income –tax return (ITR) Forms for the Assessment Year (AY) 2019 – 20 were notified vide notification
st bearing G.S.R. 279(E), dated the 1 day April, 2019. Subsequently, the instructions for filing ITR Forms
were issued and the software utility for e-filing of all the ITR Forms were also released. After notification of
the ITR Forms various queries have been raised by the stake-holder in respect of filing-up of the ITR
Forms.
The CBDT Vide Circular NO.18/2019 (F.No.370142/1/2019-TPL (PT-1)], DATED 8-8-2019 issued be the
clarification by way of FAQs. There are about 19 FAQs. Readers may refer to the above citation for the
further details.
V. � Section 268 A- Further enhancement of monetary limits for filing of appeals by the department
before Income Tax Appellate Tribunal, High Courts and SLPs/Appeals before Supreme Court-
Amendment to Circular No. 3 of 2018- Measures for reducing litigation. 265 TAXMAN (St.) 7
The CBDT, in line with governments objective of reducing litigation, has been deciding monitoring limits
for the revenue to file to Income Tax Appeals before tax Tribunals, High Courts and Special Leave
petitions (SLPs) / appeals before Supreme Courts from time to time.
In 2018, the CBDT had issued Circular No.3/2018 providing for increased monetary limits, overriding
the earlier limits set in this regard. With an aim to further manage litigation, the CBDT has now
significantly enhanced the monetary thresholds for filing of Income Tax Appeals vide Circular No.17 of
2019, dated 8-8-2019.
The enhanced monetary limit is as follow :
1. Before Appellate Tribunal 50,00,000
2. Before High Court 1,00,00,000
3. Before Supreme Court 2,00,00,000
Sl. No. Appeals/SLPs in income-tax matters Monetary Limit (Rs.)
Apart from enhancing the monetary limits, the Circular has also clarified that where an appeal is filed
against consolidated order (Composite order for more than one Assessment Year), the monetary limits
shall be tested individually for every tax year. Further where the consolidation is with respect to different
tax payers, the limit shall be tested for each taxpayer, separately.
The aforesaid modification shall come in to the effect from date of issue of the circular.
VI. �Section 119 of the Income-Tax Act, 1961-Income-Tax Authorities – Instructions to Subordinate
Authorities-Processing of returns with refund claims under section 143(1) beyond the prescribed
time limits in non-scrutiny cases. [265 TAXMAN (St.) 9 ]
The several returns for various assessment year up to the assessment year 2017 – 18, which were
otherwise filed validly u/s 139 or 142 of the Act could not be processed u/s 143 (1) of the Act due to certain
technical issues or for other reasons not attributable to the assessee concerned. Consequently, Intimation
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VOL. 23 - NO. 3 - OCTOBER 2019
regarding processing of such returns could not be sent within the period of one year from the end of the
financial year in which such returns were filed as prescribed in the second proviso to the section 143 (1) of
the Act. This has led to a situation where the taxpayers is unable to get his legitimate refund in accordance
with the provision of the Act, although the delay is not attributable to him.
In order to resolve the grievances of such taxpayers, earlier, Board has issued instructions viz. Instruction
No.18/2013, dated 18th December, 2013; Instruction/Order dated 25-10-2016; and Instruction
No.5/2018, dated 21-8-2018 allowing processing of such validly filed time barred returns with refund
claims, where the statutory time-frame for sending intimation under sun-section (1) of section 143 had
lapsed. Vide the Instruction No.5/2018 dated 21-8-2018, time frame was given till 31-3-2019 to process
all valid unprocessed returns with refund claims up to assessment year 2016-17, subject to other
conditions specified therein.
The representation was made to be CBDT to enable the processing of such returns.
The CBDT by virtue of its power u/s 119, in order to mitigate genuine hardship being faced by taxpayers,
hereby relaxes the time-frame prescribed in second proviso to sub-section (1) of section 143 and directs
that all validity filed returns up to assessment year 2017-18 with refund claims, which could not be
processed under sub-section (1) of section 143 of the Act and have become time-barred, subject to the
exceptions mentioned in para below, can be processed now with prior administrative approval of Pr.
CCIT/CCIT concerned and intimation of such processing under sub-section (1) of section 143 of the Act
can be sent to the assessee concerned by 31-12-2019. All subsequent effects under the Act including issue
of refund shall also follow as per the prescribed procedures. To ensure adequate safeguards, it has been
decided that once administrative approval is accorded by the Pr. CCIT/CCIT, the Pr. CIT/CIT concerned
would make a reference to the Pr. DGIT (Systems) to provide necessary enablement to the Assessing
Officer on a case to case basis.
The relaxation accorded above shall not be applicable to the following returns :
(a) Returns filed for any assessment year prior to assessment year 2017 – 18, which were under scrutiny
and were not processed in view of provisions of sub-section (1D) of section 143 of the Act;
(b) Returns remain unprocessed, where either demand is shown as payable in the return or is likely to
arise after processing it;
(c) Returns remain unprocessed for any reason attributable to the assessee.
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C.V.O. CA'S NEWS & VIEWS
Compiled by:GST UPDATES
CA Nitin Dhanji Kenia CA Bharat Kalyanji Gosar
NOTIFICATIONS - CENTRAL TAX:
Notification No. 36/2019 - Central Tax thdated 20 August, 2019
The composition dealer and person other
than composition dealer were debarred from
furnishing the information in Part A of Form
GST EWB – 01 for non furnishing the return
for two consecutive tax periods as per Rule
1 3 8 E f r o m 2 1 / 0 6 / 2 0 1 9 . Vi d e t h i s
Notification, the date is now extended from
21/08/2019 to 21/11/2019.
Notification No. 37/2019 - Central Tax stdated 21 August, 2019
Notification No. 40/2019 - Central Tax stdated 31 August, 2019
Notification No. 41/2019 - Central Tax stdated 31 August, 2019
Vide this Notifications , due dates for
furnishing monthly return in Form GSTR 3B
and for making payment of tax, interest,
penalty, fees or any other amount payable for
the month July, 2019 is extended to
22/08/2019. Further this due date for GSTR
3B & TDS return in Form GSTR-7 for flood
affected specified district in the States of
Bihar, Gujarat , Karnataka, Kerala ,
Maharashtra, Odisha, Uttrakhand along with
for registered persons whose principal place
of business is in the State of Jammu and
Kashmir is extended up to 20/09/2019.
Further late fee is waived for this flood
affected district and for registered persons
whose principal place of business is in the
State of Jammu and Kashmir if returns
GSTR-1 and GSTR-6 are furnished up to
20/09/2019.
Notification No. 38/2019 - Central Tax stdated 31 August, 2019
Vide this Notification, registered person is
exempted from making declaration in Form
GST-ITC-04 in respect of goods sent to job
worker or received from Job worker or sent
from one Job worker to another for all
periods from July 2017 to March 2019.
However, the said persons are required to
furnish the details of all the challans in
respect of goods dispatched to a job worker
in the period July, 2017 to March, 2019 but
not received from a job worker or not
supplied from the place of business of the job
worker as on the 31st March, 2019, in serial
number 4 of FORM ITC-04 for the quarter
April-June, 2019.
Notification No. 39/2019 - Central Tax stdated 31 August, 2019
Vide section 103 of Finance (No. 2) Act, 2019
(23 of 2019), Section 8A was inserted in
Section 54 of the Central Goods and Services
Tax Act. As per this amendment the
Government may disburse the refund of the
State tax in such manner as may be
prescribed. This amendment is made
effective from 01/09/2019.
ORDERS :CGST :
th Order No. 7/2019 - Central Tax - dated 26
August, 2019
The Order extends the due date of furnishing
the annual return (in FORMs GSTR-9,
GSTR-9A and GSTR-9C) for the period from st stthe 1 July, 2017 to the 31 March, 2018 from
st th31 August, 2019 to 30 November, 2019.
VOL. 23 - NO. 3 - OCTOBER 2019
Disclaimer: The views / opinions expressed in the articles are purely of the writers. The readers are requested to take proper professional guidance before abiding the views expressed in the articles. The publisher, the editor and the association disclaim any liability in connection with the use of the information mentioned in the articles.
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