SEBI proposes 25 % votings rights as threshold level to trigger 'control' under Takeover Code

Last week, the SEBI, in its board meeting had considered and approved the proposal for initiation of public consultation process regarding the introduction of brightline tests for acquisition of ‘control’ under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 ("Takeover Code”). The SEBI noted that multiple regulators apply the test of control from di􀁹erent perspectives and arrive at di􀁹ering results which may lead to ambiguity.

In pursuance of the SEBI Board meeting, a discussion paper has been released seeking public comments for proposals related to Brightline Tests for Acquisition of ‘Control’ under the Takeover Code.

In the discussion paper, the SEBI has proposed to amend the definition of control to define it as: (a) right or entitlement to exercise at least 25% of voting rights of a company irrespective of whether such holding gives de facto control and/or (b) the right to appoint majority of the non-independent directors of a company.

Notice served on old address couldn't be quashed if assessee didn't intimate the new address to dept.

Facts

a)    The case of the assessee was selected for scrutiny and, accordingly, notice under section 143(2) was issued upon him. The notice was generated through the software application of the Income-tax Department and was sent to the assessee at the address given in the return of income.

b)    Assessee filed an affidavit stating that said notice was not served. However, in affidavit, assessee had not furnished any reasons or evidences as to why notice sent at correct address could not be served on assessee.

c)    It was noticed that address of assessee in affidavit was different from address provided in return of income, which showed that assessee had changed his address and new address was not communicated to Income-tax Department.

Rationalization of Service Tax Abatements and various relief measures

I. Rationalization of Abatements – w.e.f. 1st April 2016 in Notification No.26/2012-ST:

1.0 Passenger/Goods Transportation by Rail – credit on input services extended:

 ♦ Earlier, the notification provided for abatement subject to not taking cenvat credit on inputs, capital goods and input services.

 ♦ The restriction regarding availment of credit on input services has been removed.

 ♦ Given the fact that such abatement is mainly given to take care of the goods portion there was no justification to restrict the credit on input services as the output service suffered tax.

 ♦ This amendment enables taking of credit on input services eventhough abatement is availed.

2.0 Transport of Goods in Containers by Rail – credit on input services extended:

 ♦  Abatement of 70% was available subject to non-availment of credit on inputs, input services and capital goods.

 ♦  Now the abatement is restricted to 60% with cenvat credit benefit on input services.

Government restores exemptions to boost infrastructural projects

I. Introduction:

With affirmation on the economic development of the country as against the global slowdown, the Hon'ble Finance Minister Mr. Arun Jaitley presented its third Union Budget for 2016-17. During the budget speech, the Finance Minister flagged various issues which are in the top most priority of the Government. One of such issue which ranks high in the agenda ever since Mr. Narendra Modi came in power is to make the tax laws of the country transparent and predictable. The Government has been vehemently promoting against retrospective amendments which imposes an unforeseeable burden on the tax payer. In the current budget, the Government has proposed to introduce three new sections under service tax law namely 101,102 and 103 so as to restore certain exemptions where were withdrawn in the previous years.

In order to understand the impact of these new sections, it is relevant to refer to serial numbers 12 and 14 of the Mega Exemption Notification 25/2012-ST dated 30.06.2012 as it stood at the time of its introduction and the subsequent amendments which happened over the years.

SEBI debars wilful defaulters from accessing capital markets

SEBI, in its Board Meeting held on March 12, 2016, approved of certain new initiatives which include imposing restrictions on wilful defaulters, proposing brightline tests for acquisition of ‘control’ under the SEBI Takeover Regulations, 2011, reviewing the manner of dealing with Audit Reports containing qualifications and approving the Budget for 2016-17. The decisions taken by the SEBI Board will have an impact on the overall market, market participants and also on the market intermediaries. The key decisions taken by the SEBI board are discussed as hereunder:

I. Certain restrictions imposed on wilful defaulters: With an intention of restricting wilful defaulters from accessing capital markets for raising funds from public, SEBI Board has approved of the following proposals:

a) Wilful defaulter to be debarred from raising funds : SEBI has proposed to prohibit the issuer company from making public issue of equity securities or debt securities or nonconvertible redeemable preference shares if such issuer company or its promoter or its directors are in the list of wilful defaulters.

b) Wilful defaulter to be restricted from taking control over other entity : If any company or its promoter or its director is categorized as ‘wilful defaulter’, then such person may not be allowed to take control over other listed entity.

However, if listed company or its promoter or its director is categorized as ‘willful defaulter’, and there is a take-over Code, 2011.

c) Criteria for determining ‘fit and proper person re-defined’ : SEBI also proposes to amend the criteria for determining a ‘fit and proper person’ in the SEBI Regulations to include that no fresh registration shall be granted to any entity if the entity or its promoters or its directors or key managerial personnel, as defined under the SEBI (ICDR) Regulations, 2009, are included in the list of ‘wilful defaulters’.

ITAT allows tax credit for dividend tax foregone by Oman to promote economic developments

Facts

a)   Assessee received dividend income from an Omani Company. The assessee was liable to pay tax in India on said dividend income as per Indian Income-tax Act. However, it was not liable to pay any tax on such dividend income in Oman by virtue of exemption granted as per Article 8 (bis) of the Oman Company Income-tax Law.

b)  Assessee included the dividend income in its total income and, thereafter, claimed credit of tax which would have been payable in Oman in respect of such income.

c)   The contention of the assessee was that Article 25 of DTAA between India and Oman allows tax credit in India for the taxes payable in Oman. Even though no taxes were actually paid in Oman by virtue of exemption or so.

d)  Assessing Officer (AO) accepted the contention of assessee and allowed credit of deemed dividend tax which would have been payable in Oman. However, subsequently, Commissioner of Income-tax (CIT) revised the order of AO and disallowed the tax credit so claimed by assessee.

e)   Aggrieved by the order of CIT, assessee filed the instant appeal before the Tribunal.

Presumptive Taxation Scheme in a new Avatar – Bigger and Better

I. Amendments to section 44AD:

The existing provisions contained in the said section (applicable to individual, HUF or partnership firm) provides that notwithstanding anything to the contrary contained in section 28 to 43C, in the case of an assessee engaged in an eligible business having total turnover or gross receipts not exceeding one crore rupees, a sum equal to 8% of the total turnover or gross receipts, or, as the case may be, a sum higher than the aforesaid sum declared by the assessee in his return of income, shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profit and gains of business or profession".

Further, under the existing scheme as per proviso to section44AD(2), where the eligible assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) of section 44AD subject to the conditions and limits specified in section 40(b).

Subsidy relatable to manufacturing cost would be eligible for Sec. 80-IB relief

Facts

a)  Assessee, eligible for claiming deduction under Section 80-IB, received subsidy, inter-alia, transport subsidy, interest subsidy and power subsidy from the Government.

b)  Assessee claimed deduction under section 80-IB in respect of subsidy so received from the Government by contending that subsidies were directly relatable to cost of manufacture and/or sale of products.

c)  Assessing Officer (AO) disallowed the deduction so claimed by assessee by holding that deduction under section 80-IB is admissible only in respect of profits derived from eligible business. There is a world of difference between the expression “profits derived from” any business, and “profit attributable” to any business.

d)  The contention of the AO was that subsidies that were allowed to assessee had no close and direct nexus with the business of the assessee but had a close and direct nexus with grants from the Government.

Union Budget 2016 – Key Transfer Pricing proposals

The Hon'ble Finance Minister of India presented the third Budget of the Modi Government on 29 February 2016. In the backdrop of significant global slowdown and a need to jumpstart the economy, the Finance Minister's job was to strike an intricate balance between growth, fiscal consolidation and the promise to provide ease of business coupled with a non-adversarial tax regime.

In the recent past, transfer pricing has been a much debated topic in corporate board rooms as well as Government ministries worldwide. The OECDalongwith the G20 and certain other countries have issued the Base Erosion and Profit Shifting (BEPS) Guideline in October 2015 emphasizing on the need to focus on conduct and substance rather than contract and legal form in tax determination. Pricing of intra-group transactions is also a potential trigger for BEPS and expectedly found a crucial place in the OECD BEPS Guidelines.

Clarity on taxation of non-resident ~ few steps to overarching theme of ease of doing business in India

The issue of applicability of certain tax provisions to non-resident has always been a matter of debate and led to controversy in Indian tax administration. Bringing clarity in taxes, reducing litigation is one of the prime objective of the present Government. To achieve the said objective, the Government has taken few steps in the proposed Budget 2016, and has provided clarity on some of the issues faced by the non-resident.

Exemption from requirement of furnishing Permanent Account Number [PAN]

In order to ensure that more people come under the tax net, the Finance (No. 2) Act, 2009 had introduced section 206AA under the Income-taxAct. This section provided for higher withholding tax rate of 20%, if the payee does not provide the PAN, with an exception for non-resident in respect of payment of interest on long-term bonds as referred to in section 194LC. In order to reduce compliance burden for non-resident, it is now proposed that with effect from 1 June 2016, in addition to interest on long-term bonds, the provisions of section 206AA shall not apply to a non-resident in respect of any other payments subject to such conditions as may be prescribed.

This is a welcome relaxation as most of then on-resident tax payers having one time transactions may not have PAN.