/ Company Law Compliances

CORPORATE AND PROFESSIONAL UPDATES JUNE 30, 2016

www.caindelhiindia.com; Corporate updates
www.caindelhiindia.com; Corporate updates

CSR
Q. A private limited company was incorporated under the erstwhile Companies Act, 1956. Company’s net profit for the Financial Year ended on 31st March, 2015 was Rs. 5.25 crores which decreased to Rs. 4.90 crores for the financial year ended on 31st March, 2016. Whether such private limited company is required to constitute Corporate Social Responsibility Committee?

A. In terms of section 135(1) of the Companies Act, 2013 every company having net worth of Rs. 500 crores or more, or turnover of Rs. 1,000 crore or more or a net profit of Rs. 5 crores or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board. Hence, if any company (whether it be a public, private company, company incorporated under section 8 or foreign company) fulfils any of three criteria as mentioned in the said sub-section, CSR Committee is required to be constituted. This section came into force w.e.f. 1st April, 2014. The constitution of the CSR Committee will be as under:

  • For the Financial Year 2015-16: Yes, since the threshold limit of Net Profit crossed from Rs. 5 crores as of 31st March, 2015.
  • For the Financial Year 2016-17: Yes, since the threshold limit of Net Profit crossed from Rs. 5 crores as of 31st March, 2015. However, Rule 3(2) of the Companies (Corporate Social Responsibility Policy) Rules, 2014 provides that every company which ceases to be a company covered under section 135(1) of the CA 2013, for three consecutive financial years shall not be required to: (a) constitute a CSR Committee; and (b) comply with the provisions contained in sub-sections (2) to (5) of the said section, till such time it meets the criteria specified in sub-section (1) of section 135. Source-Taxmann.com

 Q.Where a company has been incorporated under any Special Act passed by the Parliament and not under the provisions of the Companies Act, whether such company is also required to constitute CSR Committee?

A. Yes, the companies incorporated under any Special Act passed by the Parliament have to constitute CSR Committee, if the criteria mentioned in section 135(1) of the CA 2013 are fulfilled.

Section 1(4) of the CA 2013 provides that the provisions of this Act shall apply to:

(a) Companies incorporated under this Act or under any previous company law;

(b) Insurance companies, insofar as the said provisions are inconsistent with the provisions of the Insurance Act, 1938 or the Insurance Regulatory and Development Authority Act, 1999;

(c) Banking companies, insofar as the said provisions are inconsistent with the provisions of the Banking Regulation Act, 1949;

(d) Companies engaged in the generation or supply of electricity, insofar as the said provisions are inconsistent with the provisions of the Electricity Act, 2003;

(e) Any other company governed by any Special Act for the time being in force, insofar as the said provisions are inconsistent with the provisions of such special Act; and

(f) Such body corporate, incorporated by any Act for the time being in force, as the Central Government may, by notification, specify in this behalf, subject to such exceptions, modifications or adaptations, as may be specified in the notification 

EOU

EOU is entitled to get refund of CST paid on purchases made from another EOU: HC Foreign Trade Policy: Where assessee was registered with Development Commissioner, Madras Export Processing Zone as EOU to manufacture and export of pharmaceutical preparations and during year 2012 it purchased goods from another EOU after payment of central sales tax, in view of paragraph 6.11 of Foreign Trade Policy 2009-14, it was entitled to refund of tax paid on purchases made from another EOU [2016] 69 taxmann.com 18 (Madras) Hospira Health Care India (P.) Ltd. v. Development Commissioner 

EOU is entitled to get refund of CST paid on purchases made from another EOU: HC Foreign Trade Policy: Where assessee was registered with Development Commissioner, Madras Export Processing Zone as EOU to manufacture and export of pharmaceutical preparations and during year 2012 it purchased goods from another EOU after payment of central sales tax, in view of paragraph 6.11 of Foreign Trade Policy 2009-14, it was entitled to refund of tax paid on purchases made from another EOU[2016] 69 taxmann.com 18 (Madras)Hospira Health Care India (P.) Ltd. v. Development Commissioner 

CBDT’s CLARIFICATION ON CONSISTENCY IN TAXABILITY OF INCOME/LOSS ARISING FROM TRANSFER OF UNLISTED SHARES

Determination of the character of income from transactions in shares and securities, whether the same is in the nature of a capital asset or Business Income, is essentially a fact-specific determination and has led to a lot of uncertainty and litigation in the past.

Over the years, the courts have laid down different parameters to characterize and distinguish the income arising from transactions in shares and securities , as Business Income or as Capital Gains, as the case may be. The Central Board of Direct Taxes (‘CBDT’) has also, through Instruction No. 1827, dated August 31, 1989 and Circular No. 4 of 2007 dated June 15, 2007, summarized the said principles for guidance of the field formations.

With a sole objective of reducing litigation and maintaining consistency in approach on the issue of treatment of income derived from transfer of shares and securities , the CBDT has issued LETTER F.NO.225/12/2016/ITA.II, DATED 2-5-2016 regarding characterization of income from transactions in  shares and securities in continuation to its earlier clarificatory Circular no. 6/2016 dated 29th February, 2016, wherein it was instructed that income arising from transfer of listed shares and securities, which are held for more than twelve months would be taxed under the head ‘Capital Gain’ unless the taxpayer itself treats these as business assets and transfer thereof as its business income. It was further stated that in other situations, the issue was to be decided on the basis of existing Circulars issued by the CBDT on this subject. In this recent clarification, CBDT clarifies that income arising from transfer of unlisted shares would be considered under the head ‘Capital Gains’, irrespective of period of holding.

However, it is clarified that the above shall not apply in respect of such transactions in shares/securities where the genuineness of the transaction itself is questionable, such as bogus claims of Long Term Capital Gain/Short Term Capital Loss or any other sham transactions.

We look forward for your valuable comments.

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