Tuesday, July 12, 2016

Ministry’s Removal of Difficulty Order- Clarifies the position w.r.t appointment of auditors

1.0 Under the Companies Act, 2013 ('Act, 2013'), the provisions w.r.t. appointment of auditors had undergone a paradigm shift in comparison with the erstwhile provisions of the Companies Act, 1956. One of the major changes which was introduced w.r.t. auditors was the bar on re-appointment of auditors in certain class of companies specified under Section 139(2) of the Act, 2013, if he had already held: (a) one term of 5 years in case of an individual; or (b) two consecutive terms of 5 years in case of a firm. Once the bar on reappointment applies, there is a mandatory cooling-off period of 5 years.
To comply with the above provision, transition period of 3 years was provided from the date of the commencement of the Act, 2013, i.e., companies shall appoint another auditor till April 01, 2017 which at the first blush would mean that at the upcoming AGM for the FY ended 2016, new auditor needs to be appointed.
However, the auditors are appointed at the AGM of the company and hold office till the conclusion of the next AGM. Therefore, to comply with the 3 years provision, the new auditor must have been appointed in the AGM for FY ended 2017. Hence, there was chaos among the corporates and auditors regarding the contradictory provisions in relation to effective date for appointment of new auditor. In order to clarify this position which was subject to interpretation, the Ministry of Corporate Affairs (MCA) has issued a Companies (Removal of Difficulties) Third Order, 2016, dated June 30, 2016 (hereinafter referred to as "Order").

Non-resident not having PAN get a breather

Permanent AccountNumber (PAN) is an India tax identification number. Over the years, revenue authorities have been using PAN to track high value transactions, curb tax evasion, and thereby increase the tax base. In line with this objective section 206AA of the Income-tax Act, 1961 (Act) was introduced in Finance Act, 2009 with effect from 1 April 2010, which provides that if PAN is not furnished by the payee, the withholding tax would be applicable at the rate specified in the relevant provision of the Act or rate in force or 20%, whichever is higher.
India has tax treaties with various countries which provides for reduced rate of withholding tax for various sources of income like interest, royalties, fees for technical services.
With the introduction of section 206AA, a non-resident payee not having a PAN was caught in the rigour of these provisions and the reduced tax treaty rate got increased to 20% under section 206AA.
This was so because section 206AA starts with a non-obstante clause viz. "notwithstanding anything contained in any other provisions of this Act,..". Considering the wordings of section 206AA of the Act there was a view that it may override the beneficial provisions of the tax treaty.
Concerns were raised whether the provisions of section 206AA overrides the treaty provisions, and whether the non-resident payee will not be eligible to avail benefit of lower rate prescribed under the tax treaty if PAN is not furnished.

The Income Declaration Scheme, 2016: Certain Aspects

1. Last year, it was a one-time compliance window under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 ('the BM Act') to report the undisclosed offshore assets. Now it is an IncomeDeclaration Scheme, 2016 ('IDS, 2016') to declare undisclosed income from a domestic source. The former scheme received lukewarm response in terms of tax yield, given the high tax rate (60% incl. tax and penalty) and the concept of fair market value for valuing the asset for computing the tax liability. Similar doubts are being raised regarding the latter scheme as it has both these features, i.e., high tax rate (45% incl. tax, surcharge, and penalty) and the fair market value concept to value the asset if the undisclosed income is in the form of investment in any asset. A key argument is often presented that a voluntary disclosure scheme with more generous terms (such as lower tax rate, immunities from various laws) is needed to encourage delinquent taxpayers to pay their due taxes which can be utilised to improve the much-needed infrastructure in the country. In that case, presumably, the counter argument is that such a scheme would be discriminatory against the law-abiding taxpayer (in fact, the VDIS, 1997 could have been struck down by the Supreme Court but for the Government assuring the Court that henceforth they would not come out with such schemes). Thus, the introduction of any such scheme often involves economic efficiency, morality, and constitutionality issues. This article, however, is restricted to certain issues arising from the IDS, 2016.

No garnishee proceedings against service recipient if it didn't owe anything to service provider: HC

a. Petitioner, Food Corporation of India (FCI), engaged Kailash Enterprises (KE) for handling wheat cargo. Services provided by KE were exempt from service tax being services in relation to agricultural produce. However, FCI paid service tax under mistaken belief which was not deposited by KE to Government.
b. There were multiple disputes between FCI and KE because of deficiency in service. Therefore, FCI recovered amount of Rs.3.5 crore by invoking bank guarantee. In the meanwhile, department issued notice against KE for recovery of service tax being collected by KE from FCI. It also issued notices under section 87 for recovery of amount due against FCI. The petitioner challenged garnishee proceedings before High Court.

The High Court of Gujarat held as under: