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/ Company Law Compliances

Mere liquidation of shares in short span of time doesn’t mean that assessee was doing business in shares

Mere liquidation of shares in short span of time doesn’t mean that assessee was doing business in shares Section 45, read with section 28(i), of the Income-tax Act, 1961 – Capital gains- Chargeable as – Business income vs Capital gains – Shares dealings Circulars and Notifications: Circular No. 4/2007, dated 15-6-2007. Where assessee made investment in …

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/ DTAA

Section 37(1) of the Income-tax Act, 1961 – Business expenditure – Allowability of Compensation

AO couldn’t question reasonableness of business exp. when its genuineness wasn’t doubted. Where assessee made payment of compensation to CCL, a foreign company, for premature termination of Toll Manufacturing Agreement (TMA) entered into between parties, said payment being directly having nexus with business activity of assessee, was to be allowed as deduction under section 37(1) …

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/ Business Set Up in India

BASIC ABOUT NON RESIDENT INDIANS UNDER FEMA AND INCOME TAX :-

BASIC ABOUT NON RESIDENT INDIANS UNDER FEMA AND INCOME TAX :–

An Indian Citizen who stays abroad for:-

  • Employment/ carrying on business or,
  • Vacation outside India or,
  • Stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is a non-resident.  Persons posted in U.N. organizations and officials deputed abroad by Central/ State Government and Public Sector Undertakings on temporary assignments are also treated as non-resident.

Non-resident foreign citizens of Indian Origin are treated on par with non-resident Indian citizens.

Who is a person of Indian Origin?

For the purpose of availing of the facilities of opening and maintenance of bank accounts and investments in shares/securities in India:-

A foreign citizen (other than a citizen of Pakistan or Bangladesh) is deemed to be of Indian origin, if

  • He, at any time, held an Indian passport
  • He or either of his parents or any of his grandparents was a citizen of India but virtue of the Constitution of India or Citizenship Act, 1956(57 of 1955).

A spouse( not being a citizen of Pakistan or Bangladesh ) of an Indian citizen /Indian origin is also treated as a person of Indian origin provided the Bank accounts are opened or investments in shares/securities in India are made by such persons jointly with their NRI spouses.

For Investment in immovable properties:-

A foreign citizen (other than a citizen of Pakistan, Bangladesh, Afghanistan, Bhutan, Sri lanka or Nepal), is deemed to be of Indian origin if,

  •  He held an Indian passport at any time,OR
  • He or his father or paternal grand-father was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).

Non resident Indians under income tax act :–

The laws in this regard are quite complicated as these it  does not  define who is nonresident. Rather these define who is resident and who are not ordinarily resident.  Therefore, if a person does not fall in the category of resident or not ordinarily resident, he / she will be non-resident.

Residential status of an individual or HUF or a company is of great importance in Indian Income Tax Act as the liability to pay tax in India does not depend on the nationality or domicile of the Tax payer but on his residential status. Residential Status is determined on the basis of physical presence i.e. the number of days of stay in India in any year. There are three types of status based on the stay in India:-

Resident:

An individual is resident if any of the following conditions are satisfied:

  • He stayed in India for 182 days or more during the previous year, or
  • He stayed in India for 365 days or more during the four preceding years and stays in India for at least 60 days 9 182 days in case of an Indian citizen or a person of Indian Origin coming on a visit to India or 182 days in case of an Indian citizen going abroad for an employment) during the previous year.
  • Stay in India for the above criteria may be continuous or intermittent. 
  • Hindu Undivided Family (HUF) or firm or other Association of persons is resident of India except in cases where the control and management of its affairs is wholly situated outside India in the previous year

 A company is resident in India if:-

  • It is an Indian company, or
  • During the previous year, the control and management is situated wholly in India.
  • A person resident in India, in a previous year in respect of any source of income shall be deemed to be resident in India in respect of his other sources of income.

Non-Resident

A person is non-resident if he is not resident in India.

Resident but not ordinarily resident

An individual or an HUF is treated to be not ordinarily resident in India in any previous year if he or the manager of HUF:-

  • Has not been resident in India in 9 out of 10 previous years preceding the previous year; or
  • Has not during the seven previous years preceding that year, been in India for a period of or periods amounting in all to 730 days or more.

Thus according to condition in clause (a) a newcomer to India would remain not ordinarily resident in India for the first 9 years of his stay in India. Similarly, in case where a person who is resident in India goes abroad and ceases to be resident in India for at least 2 years, he would upon his return, be treated as, not ordinarily resident for the next 9 years.

How the residential status of a person is determined:–

In case of Indian citizen who leaves Indian during previous year for the purpose of employment :-

Such a person is resident in India if he satisfies the following conditions:-

  • He stays in India for at least 182 days during the previous year.
  • He is resident in India for at least 9 out of 10 years proceeding the previous year.
  • He is resident in India for at least 730 days during 7 years proceeding the previous year.
  • If such a person satisfies condition (a) but does not satisfy either of the conditions at (b) or (c) above, such a person would be resident but not ordinarily resident.

Such person would be non-resident if he does not satisfy condition (a) stated above. (more…)

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/ Accounting Services

Managerial Remuneration in a Company -2 [SCHEDULE XIII] (See section 198, 269, 310 and 311)

Managerial Remuneration in a Company -2 [SCHEDULE XIII] (See section 198, 269, 310 and 311)

[SCHEDULE XIII]

(See section 198, 269, 310 and 311)

Condition to be fulfilled for the appointment of a managing or whole-time director or a manager with out the approval of the Central Government

[PART I]

Appointments

No person shall be eligible for appointment as a managing or whole-time director or a manager (herein after referred to as marginal person) of a company unless he satisfies the following conditions, namely:-

(a) He had not been sentenced to imprisonment for any period, or to a fine exceeding one thousand rupees, for the conviction of an offence under any of the following Acts, namely: –

  • The Indian stamp Act, 1899 (2 of 1899),
  • The Central Excise and Salt Act, 1944 (1 of 1944),
  • The Industries (Development and Regulation) Act, 1951 (65 of 1951),
  • The Prevention of Food Adulteration Act, 1954 (37 of 1954),
  • The Essential Commodities Act, 1955 (10 of 1955),
  • The Companies Act, 1956 (1 of 1956),
  • The Securities Contracts (Regulation) Act, 1956 (42 of 1956),
  • The Wealth Tex Act, 1957 (27 of 1957),
  • The Income Tax Act, 1961 (43 of 1961),
  • The Custom Act, 1962 (52 of 1962),
  • The Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969),
  • The Foreign Exchange Regulation Act, 1973 (46 of 1973),
  • The Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986),
  • The Securities and Exchange Board of India Act, 1992 (15 of 1992),
  • The Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992),

(b) He had not been detained for any period under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (52 of 1974);

Provided that where Central Government has given its approval to the appointment of a person convicted or detained under sub-paragraph (a) or sub-paragraph (b). as the case may be, no further approval of the central government shall be necessary for the subsequent appointment of that person if he had not been so convicted or detained subsequent to such approval;

(c) He has completed the age of 25 years and has not attained the age of 70 years:

Provided that where-

  • He has not completed the age of 25 years, but has attained the age of majority; or
  • He has attained the age of 70 years; and where his appointment is approved by a special resolution passed by the company in general meeting, no further approval of the Central Government shall be necessary for such appointment

(d) Where he is a managerial person in more than one company he draws remuneration from one or more companies subject to the ceiling provided in section III of Part II;]

(e) He is resident in India.

Explanation 2[I]. – For the purpose of this Schedule, resident in India

Includes a person who has been staying in India for a continuous period of not less than twelve months immediately preceding the date of his appointment as a managerial person and who has come to stay in India, –

  •  For taking up employment in India, or
  • for carrying on a business or vocation in India.

3 [Explanation II. – This condition shall not apply to the companies in Special Economic Zones as notified by Department of Commerce from time to time.

Provided that a person, being a non-resident in India shall enter India only after obtaining a proper employment visa from the concerned Indian mission abroad. For this purpose, such person shall be required to furnish, along with the visa application form, profile of the Company, the principal employer and terms and conditions of such person’s appointment.]

PART II

Remuneration

Section I. – Remuneration payable by companies having profits

Subject to the provisions of section 198 and section 309, a company having profits in a financial year may pay any remuneration, by way of salary, dearness allowance, perquisites, commission and other allowances, which shall not exceed five percent of its net profits for one such managerial person, and if there is more than one such managerial person, ten percent for all of them together.

Section II. – Remuneration payable by companies having no profits or inadequate profits.

1[I. Notwithstanding anything contained in this Part, where in any financial year during the currency of tenure of the managerial person, a company has no profits or its profits are inadequate, it may pay remuneration to a managerial person by way of salary, dearness allowance, perquisites and any other allowances-

(A) not exceeding the ceiling limit of Rs. 2400000 per annum or Rs. 200000 per month calculated on the following scale:-

Where the effective capital  Of Company is Monthly remuneration payable shall not exceed (Rupees)

  • less than rupees 1 crore                                                            75000
  • rupees 1 crore or more but less than rupees 5 crores        100000
  • rupees 5 crores or more but less than rupees 25 crores    125000
  • rupees 25 crores or more but less than rupees 50 crores  150000
  • rupees 50 crores or more but less than Rupees 100 crs   175000
  • rupees 100 crores or more                                                      200000

Provided that the ceiling limits specified under this sub paragraph shall apply, if –

  • payment of remuneration is approved by a resolution passed by the Remuneration Committee;
  • the company has not made any default in repayment of any of its debts (including public deposits) or debentures or interest payable thereon for a continuous period of thirty days in the preceding financial year before the date of appointment of such managerial person.

(B)Not exceeding the ceiling limit of Rs. 4800000 per annum or Rs. 400000 per month calculated on the following scale:-

Where the effective capital   Of Company is Monthly remuneration Payable shall not exceed (Rupees)

  • Less than rupees 1 crore                                                            150000
  • rupees 1 crore or more but less than rupees  crores           200000
  • rupees 5 crores or more but less than rupees 25 crores     250000
  • rupees 25 crores or more but less than rupees 50 crores  300000
  • rupees 50 crores or more but less than rupees 100 crore 350000
  • rupees 100 crores or more                                                       400000

Provided that  the ceiling limit specified under this paragraph shall apply, if-

  • payment of remuneration is approved by a resolution passed by the Remuneration Committee;Provided that the ceiling limits specified under this sub-paragraph shall apply, if –
  • The company has not made any default in repayment of any of its debts (including public deposits) or debentures or interest payable thereon for a continuous period of thirty days in the preceding financial year before the date of appointment of such managerial person;
  • A special resolution has been passed at the general meeting of the company for payment of remuneration for a period not exceeding three years;
  • A statement along with a notice calling the general meeting referred to in clause (iii) is given to the shareholders containing the following, namely:-

 I.General Information;

  • Nature of industry-
  • Date or expected date of commencement of commercial production.
  • In case of new companies, expected date of commencement of activities as per project approved by financial institutions appearing in the prospectus.
  • Financial performance based on given indicators.
  • Export performance and net foreign exchange collaborations.
  • Foreign investments or collaborators, if any.

 II.Information about the appointee:

  • Background details.
  • Past remuneration.
  • Recognition or awards.
  • Job profile and his suitability.
  • Remuneration proposed.
  • Comparative remuneration profile with respect to industry, size of the company,profile of the position and person (in case of expatriates the relevant details would be w.r.t. the country of his origin.)
  • Pecuniary relationship directly or indirectly with the company, or relationship with the managerial personal, if any.

III.Other Information:

  • Reason of loss or inadequate profits.
  • Steps taken or proposed to be taken for improvement.
  • Expected increase in productivity and profits in measurable terms.                          

 IV.  Disclosures:

(A)The shareholders of the company shall be informed of the remuneration package of      the managerial person.

(B)The following disclosures shall be mentioned in the Board of Directors report under       the heading “Corporate Governance”, if any, attached to the annual report: –

  • All elements of remuneration package such as salary, benefits, bonuses, stock   options, pension, etc. of all the directors;
  • Details of fixed component and performance linked incentives along with the performance criteria;
  • Service contracts, notice period, severance fees;
  • Stock option details, if and, and whether the same has been issued at a discount as well as the period over which accrued and over which exercisable.

(more…)

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