C.V.O. CA'S · 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

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?

2



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

3

EVENTS IN RETROSPECT


EVENTS IN RETROSPECT


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!

4

Compiled by:


CA TEJASH MUKESH GANGAR


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

5



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

6

²Related FPIs means FPIs which have 2 or more beneficial owners



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

7



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

8



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:

9



‐ 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.

10


Compiled by:

CA Priten Bhupendra Shah


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

11



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.

12



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.

13


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.


Transfer Pricing Audit Points to be considered

CA Virav Nitin Dedhia

Compiled by:

CA Rinkita Ankit Maisheri

14



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)

15



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.

16



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.

17



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

18


Compiled by:Mandatory of UDIN & eCS forCompany Secretaries

CS Dev Ajit Mota


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.

19


Compiled by:

CA Henik Dilip Shah


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.

20



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:

21



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:

22



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

23


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.


24



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)

25


Compiled by:

CS Keyur Jitendra FuriaOptionscapitalytic


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

26



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.

27



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.

28



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


BRIEF UPDATE ON SEBI AND CORPORATE LAW SEBI

by CA IP Neha Rajen Gada and CA IP Rajen Hemchand Gada


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


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”.

30


B. CIRCULARS

1. Clarification under section 232(6) of CA 2013


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.


31

CA Manoj Chunilal Shah CA Viral Vinod Satra

Compiled by:FEMAUPDATES


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.


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

32




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

33




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


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


35


Compiled by:

CA Haresh Padamshi Kenia

DIRECT TAXES

LAW UPDATE


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

36



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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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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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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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



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.


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.


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.


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.

PRINTED AND PUBLISHED BY MANOJ SHAH ON BEHALF OF C.V.O. CHARTERED AND COST ACCOUNTANTS' ASSOCIATION - 304, JASMINE APARTMENT, DADA SAHEB PHALKE ROAD, DADAR (EAST), MUMBAI - 400014.TEL: 022-24105987. EDITOR: RAMESH CHHEDA

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