Overseas Investment Liberalized further

The following overseas investment related transactions have now been permitted under the Automatic Route of the RBI:-

Guarantees

Indian entities may offer any forms of guarantee - corporate or personal / primary or collateral / guarantee by the promoter company / guarantee by group company, sister concern or associate company in India, provided that the financial commitments are within the overall limit of 200% of the networth of the investing company.

Disinvestment

Indian parties may disinvest, including write off part of the original investment without prior approval of the Reserve Bank, in the following categories:

i) in cases where the JV / WOS is listed in the overseas stock exchange.

ii) in cases where the Indian promoter company is listed on a stock exchange in India and has a networth of not less than Rs.100 crore.

iii) where the Indian promoter is an unlisted company and the investment in overseas venture does not exceed USD 10 million.

Overseas Investment by Proprietorship Concerns

It has been decided to allow proprietary / unregistered partnership firms to set up a JV/WOS outside India with prior approval of Reserve Bank.

Special Economic Zone Rules, 2006 Notified

Pursuant to the Special Economic Zone (SEZ) Act, 2005 the Rules thereof have been notified, opening the floodgates to making the SEZ dream a reality thru the Private- Public Partnership model. An SEZ is a designated duty free enclave, to be treated as a foreign territory for trade operations and duty and tariffs.

The main features of the SEZ Rules, as far as developing SEZ’s are concerned are as follows:-

Sl. No. Type of SEZ Min. Area Reqd. (contiguous area) Land Use Restriction Remarks 1 Multi Product 1000 hectares 25% to be earmarked for developing processing zone 1. Developer or co-developer to have a min. of 26% equity in the SPV formed, if any to create business, residential or recreational facilities in a SEZ 2. The developer shall not sell the land in a SEZ- only lease permitted. 2 SEZ Located at Assam, Meghalaya, Nagaland, Arunachal Pradesh, Mizoram, Manipur, Tripura, Himachal Pradesh, Uttaranchal, Sikkim, Jammu and Kashmir, Goa or in a Union Territory 200 hectares 25% to be earmarked for developing processing zone 3 Ports or airports 100 hectares 50% to be earmarked for developing processing zone 4 Electronic Hardware and Software, ITES 10 hectares Min. built up processing area of 100,000 sq. mtrs. And 50% to be earmarked for developing processing zone 5 Bio-tech, non-conventional energy, gems or jewellery sector 10 hectares 50% to be earmarked for developing processing zone 6 Sector Specific SEZ located at Assam, Meghalaya, Nagaland, Arunachal Pradesh, Mizoram, Manipur, Tripura, Himachal Pradesh, Uttaranchal, Sikkim, Jammu and Kashmir, Goa or in a Union Territory 50 hectares 50% to be earmarked for developing processing zone 7 Free Trade and Warehousing 40 hectares Min. built up processing area of 100,000 sq. mtrs. 8 Free Trade and Warehousing Zone as part of a Multi Product SEZ - - 9 Free Trade and Warehousing Zone as part of a Sector Specific SEZ - Max area of such Zone not to exceed 20% of the processing Zone

FDI in Retail Trade Opened for ‘Single Brand’ Products

The Government has notified the opening of the retail trade sector and allowed FDI under the Approval route subject to the following conditions:-

i.) Products to be sold should be of a ‘Single Brand’ only.

ii.) Products should be sold under the same brand internationally.

iii.) ‘Single Brand’ product-retailing would cover only products which are branded during manufacturing.



E-filing before the Registrar of Companies- a reality

Under the E-Governance initiative of the Ministry of Company Affairs (MCA), MCA21 has been introduced and new electronic forms have been notified with effect from February 28, 2006.

Under it all filing will be done electronically, due to which various changes are being introduced. Few of the major changes being introduced are as follows:-

1.	An existing Director/ person intending to become a Director is require to make an application to MCA for allotment of a unique identification, namely, Director Identification Number (DIN). It is intended to be a lifetime number
2.	A Digital Signature Certificate that shows the authenticity of the person signing the same is required by every used who is required to sign an eForm. The persons requiring Digital Signatures include the company representatives, professionals and others who are required to affix digital signatures for submitting an eForm.
3.	Payment can be made with electronically using Credit Card or Internet Banking options or ohysically using the Challan option.

Enhancement of the Foreign Direct Investment ceiling from 49 per cent to 74 per cent in the Telecom sector:

In pursuance of the Government’s commitment to liberalise the FDI regime, it has been decided to enhance the Foreign Direct Investment ceiling from 49 per cent to 74 per cent in certain telecom services [such as Basic, Cellular, Unified Access Services, National/International Long Distance, V-Sat, Public Mobile Radio Trunked Services (PMRTS), Global Mobile Personal Communications Services (GMPCS) and other value added services], subject to the certain conditions. (November 3, 2005)

Rajya Sabha Passed The National Tax Tribunal Bill, 2005

The Rajya Sabha today passed the National Tax Tribunal (NTT) Bill, 2005. The Bill provides for adjudication by the National Tax Tribunal of Disputes with respect to levy, assessment, collection and enforcement of direct taxes and it also provides for the adjudication of disputes with respect to the determination of rates of duties of customs and central excise on goods and the valuation of goods for the purposes of assessment of such duties as well as in matters relating to levy of tax on service, in pursuance of Article 323 B of the Constitution and for matters connected therewith or incidental thereto. The Lok Sabha had earlier passed the Bill.
The Bill extends to the whole of India and shall come into force on such date as the Central Government may notify in the Official Gazette of Government of India. The NTT shall consist of a Chairperson and such number of members as the Central Government deems fit. The Central Government shall determine the number of Benches and each Bench shall consist of two members. The Chairperson of the NTT shall be a person who has been a Judge of the Supreme Court or Chief Justice of High Court. The member shall be a person who is eligible to be a Judge of a High Court or who is or has been a member of the Income Tax Appellate Tribunal or of the Customs, Excise and Service Tax Appellate Tribunal for at least seven years.

The Chairperson and other members shall be appointed by the Central Government on the recommendations of the Selection Committee consisting of Chief Justice of India, or a Judge of the Supreme Court nominated by CJI, Secretary, Department of Legal Affairs, Ministry of Law and Justice and Secretary, Department of Revenue, Ministry of Finance. The retirement age in respect of the Chairperson shall be 68 years and in respect of a member shall be 65 years. (December 8, 2005)

Clarification on ELSS

The Finance Ministry on Tuesday clarified that tax benefit under Section 80C of the Income Tax Act would be available to the investments made on or after April 1,2005 in the units of a mutual fund issued under any plan formulated in accordance with the three equity-linked savings (ELSS) schemes — ELSS 1992, ELSS 1992 as modified in 1998 and ELSS 2005. (December 14, 2005)
India- Mauritius tax treaty may be reviewed:

India and Mauritius held a first round of discussion on a Comprehensive Economic Cooperation Partnership Agreement (CECPA) in August. As part of the ensuing talks, India has proposed a re-negotiation of the existing India- Mauritius tax treaty so as to include safeguards against third country residents from enjoying benefits under the treaty.

The move followed the recent signing of the India- Singapore Comprehensive Economic Co-operation Agreement (CECA), which threatens to reduce the importance of Mauritius as the investment gateway to India. If Mauritius agrees to re-negotiations of the tax treaty, India may push to incorporate the “limitation on benefits” clause to regulate the usage of conduit companies for claiming treaty benefits. The recently amended Indo- Singapore treaty which comes ointo effect from August 1, 2005 provides for a limited version of “limitation on benefits” clause.

Accounting Standard Interpretation on Revenue Recognition by Real Estate Developers proposed:

Re-Exposure Draft of proposed Accounting Standards Interpretation on Recognition of Revenue by Real Estate Developers, issued by the Accounting Standards Board of the Institute of Chartered Accountants of India, has been issued for comment. The issue of stage at which revenue should be recognized in the case of real estate developers and colonizers has always been a contentious issue, not only between the Income Tax Department and the assessee’s but also among the various players of the sector. No standardized norm has been laid down and therefore various companies are following differing policies in this regard.

The Accounting Standard 9 on Revenue Recognition states as under, in this respect:-
“In a transaction involving the sale of goods, performance should be regarded as being achieved when the following conditions have been fulfilled:

(i) the seller of goods has transferred to the buyer the property in the goods for a price or all significant risks and rewards of ownership have been transferred to the buyer and the seller retains no effective control of the goods transferred to a degree usually associated with ownership; and

(ii) no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of the goods.”

Revenue in case of real estate sales should be recognised when all the following conditions are satisfied:

(i) The seller has transferred to the buyer all significant risks and rewards of ownership and the seller retains no effective control of the real estate transferred to a degree usually associated with ownership;

(ii) at the time of transfer of all significant risks and rewards of ownership it is not unreasonable to expect ultimate collection; and

(iii) no significant uncertainty exists regarding the amount of the consideration that will be derived from the real estate sales.

In case of real estate sales, all significant risks and rewards of ownership are normally considered to be transferred upon the occurrence of any of the following events:-

1.	Legal title passes to the buyer (e.g., at the time of the registration, with the relevant authorities, of the real estate in the name of the buyer); or
2.	When the seller enters into an agreement for sale and gives possession of the real estate to the buyer under the agreement.
3.	When the seller has entered into an agreement for sale with the buyer and all the following conditions are satisfied even though the legal title is not passed or the possession of the real estate is not given to the buyer:
	(a) The agreement for sale between the seller and the buyer is legally enforceable. (b) The significant risks, e.g., the price risk, related to real estate have been transferred to the buyer. In case of real estate, price risk is generally considered to be the most significant risk. (c) The buyer has a legal right to sell or transfer his interest in the property, subject to only minimal conditions.

When the seller has transferred to the buyer all significant risks and rewards of ownership, it would be appropriate to recognise revenue at that stage subject to fulfillment of other conditions specified in paragraph above, provided the seller has no further substantial acts to complete under the contract. However, in case the seller is obliged to perform any substantial acts after the transfer of all significant risks and rewards of ownership, revenue should be recognised on proportionate basis as the acts are performed, i.e., by applying the percentage of completion method in the manner explained in Accounting Standard (AS) 7, Construction Contracts.