kanth and associates · 04/04/2014 · kanth and associates attorneys and international legal...

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KANTH AND ASSOCIATESAttorneys and International Legal Consultants

K & ANewsletter

NEWS ALERTS

TAX

Govt. notifies amended India-Romania treaty

India- enters DTAA with Latvia

An agreement was signed between the Republic of India

and Romania for avoidance of double taxation and

prevention of fiscal evasion with respect to taxes on

income at New Delhi on 08.03.2013. The date of entry

into force of the said agreement is 16.12.2013, being

the date of later of the notifications of completion of

the procedures as required by the respective laws for

entry into force of the said agreement.

Now, the Central Government in view of the aforesaid

and in exercise of powers conferred by section 90 of the

Income Tax Act, 1961, vide notification dated

05.03.2013, has notified that all the provisions of the

said Agreement between the Government of the

Republic of India and Romania or the avoidance of

double taxation and the prevention of fiscal evasion

with respect to taxes on income shall be given effect to

in the Union of India with effect from 16th day of

December, 2013.

An Agreement was entered into between the

Government of the Republic of India and the

Government of the Republic of Latvia for the avoidance

of double taxation and the prevention of fiscal evasion

with respect to taxes on income which was signed at

New Delhi on the 18th day of September, 2013. The date

of entry into force of the said Agreement is the 28th day

of December, 2013, being the date of later of the

notifications of the completion of the procedures

required by the respective laws for entry into force of

the said Agreement.

Now, the Central Government in view of the aforesaid

and in exercise of powers conferred by section 90 of the

Income Tax Act, 1961, vide notification dated

05.03.2013, has notified that all the provisions of the

said Agreement between the Government of the

Republic of India and Romania or the avoidance of

double taxation and the prevention of fiscal evasion

CONTENTS

— News AlertsTax 1Corporate, Capital Market, Economy & Foreign Trade 1

Judgments 4

— Article 4

Legislations/ Notifications 3

SEBI Tightens Norms on Money Laundering & Terrorist FinancingBy Mr. Syed Z. Hussain, Associate, K&A

with respect to taxes on income shall be given effect to

in the Union of India with effect from 01st day of April,

2014.

The Government has notified the rules for corporate

social responsibility (CSR) spending under the new

company's law, encouraging companies to spend a

portion of their profits on projects that benefit society.

Under the plan, companies above a certain threshold

have to spend 2% of average profit of the previous three

years on CSR activities specified by the Government,

which does not include political funding. Companies

which are unable to do so have to give reasons for falling

short. The Government has amended Schedule VII of the

Act to include more activities under CSR than what had

been defined earlier, but has withdrawn the discretion

promised to boards earlier. CSR will include all the

programmes and activities undertaken by the board of

directors subject to the condition that such policy will

cover subjects enumerated in Schedule VII of the Act.

Areas that have been defined by the Government in the

CSR policy include eradicating hunger, poverty and

malnutrition; promoting preventive healthcare and

sanitation; and the Prime Minister Relief Fund, among

others. The policy will also consider measures for the

benefit of armed forces veterans, war widows and their

dependents, homes and hostels for women and

orphans, old age homes, day-care centres and other

CORPORATE, CAPITAL MARKET, ECONOMY & FOREIGN

TRADE

Rules for CSR spending notified


K & ANewsletter

such facilities for senior citizens as coming under CSR.

Companies having a net worth of at least Rs.500 Crore

or a minimum turnover of Rs.1,000 Crore or those with a

net profit of at least Rs.5 Crore are covered by this

policy. The rules also clarify that any private company

that does not have independent directors can form CSR

committees without such directors.

Further to the Press Release of 24.01.2014, the Reserve

Bank of India (RBI), through its Press Release dated

03.03.2014 has extended the date for exchanging the

pre-2005 banknotes to 01.01.2015. It has also advised

banks to facilitate the exchange of these notes for full

value and without causing any inconvenience

whatsoever to the public. The RBI solicits the

cooperation of the public in withdrawing these notes

from circulation by exchanging them at a bank branch

convenient to them. This withdrawal exercise is in

conformity with the standard international practice of

not having multiple series of notes in circulation at the

same time. A majority of such notes have already been

withdrawn through the banks and only a limited number

of notes remain with the public. The RBI clarifies that

the public can continue to freely use these notes for any

transaction and can unhesitatingly receive these notes

in payment, as all such notes continue to remain legal

tender. The RBI will continue to monitor and review the

process so that the public is not inconvenienced in any

manner.

The Government has tightened norms for Indians

bringing gold into the country following a spurt in

smuggling and pressure on inward remittances as

overseas workers prefer to bring their savings in gold.

Passengers will now have to mention the engraved

serial number of gold bars in the baggage receipt issued

by Customs. According to a Central Board of Excise &

Customs (CBEC) directive, for bringing gold in any other

form, including ornaments, passengers will have to

declare item-wise inventory of the ornaments being

imported with baggage receipt. The field officials of

CBEC have further been directed to ascertain the

antecedents of such passengers, source of funding for

Pre-2005 banknotes: RBI extends date to 01.01.2015

Norms for gold import tightened

gold as well as duty being paid in foreign currency,

person responsible for booking of tickets to prevent the

possibility of misuse of the facility by unscrupulous

elements, who may hire such eligible passengers to

carry gold for them. As per current rules, any passenger

of Indian origin or a passenger holding a valid passport

issued under the Passport Act, 1967 coming to India

after a period of not less than six months of stay abroad

is eligible to import gold in the form of bars and

ornaments on payment of 10% Customs duty.

The Ministry of Corporate Affairs (MCA) has started

implementation of the Companies Act 2013, in a phased

manner. In the process, MCA has notified vide

notification dated 26.03.2014, 183 sections of

Companies Act, 2013 which are effective from 01st

April, 2014. MCA had earlier notified 98 Section of the

Companies Act, 2013 vide its notification dated 12th

September, 2013. MCA has also notified vide its

Notification dated 27th February, 2014 that Section 135

of the Companies Act, 2013 related to Corporate Social

Responsibility (CSR) to come into effect from

01.04.2014. With the said notification dated

26.03.2014, MCA has till dated notified 282 sections out

of total 470 sections of the Companies Act, 2013.

The Ministry of Corporate Affairs (MCA) released

another set of rules governing the new Companies law

that will be operational from April 1, 2014. Companies

will get a grace period of two weeks to comply with all

the rules and sections of the Act that have been notified

in the current fiscal year. The MCA has now released

rules for ten chapters of the Companies Act.

Notifications related to National Financial Reporting

Authority (NFRA), Investor and Education Protection

Fund, sick companies, special courts and National

Company Law Tribunal (NCLT), among others, would

come later. The latest rules pertain to registration of

charges, management and administration, declaration

and payment of dividend, meetings of board and its

powers, appointment and qualification of directors.

The rules have brought clarity on related party

Notification of significant sections of Companies Act,

2013

Companies Act brings clarity to related party deals




K & ANewsletter

transactions, independent directors and impose stiff

norms on companies taking deposit. The related party

under the Act, which earlier included a number of

company executives, now leaves out all the functional

heads in a company as related parties. The rules have

also brought clarity on loans to subsidiaries. The rules,

which define the limits for any company in terms of loan

grants etc., say that companies are now allowed to

grant loans and guarantees to their wholly owned

subsidiary. However, guarantees to subsidiaries are not

permissible. The limit for appointment of internal

auditor, appointment of women director, independent

director and setting up of committees has undergone a

change according to the new rules. The number of

independent directors required on boards has been

reduced to two members or such higher number as

required to comply with other regulatory requirements

or for audit committee composition. In addition to the

aforesaid, there are various other aspects which are

covered under the new set of rules released by the MCA.

Indian investors holding Government debt or equity in a

company may soon be able to encash these overseas at

attractive prices through liberalized access to the

American depository receipt (ADR) and global

depository receipt (GDR) markets. India is readying

norms governing overseas fund raising that will allow

local companies and institutions access to the entire

range of the ADR/GDR markets. At present, ADR/GDR

markets can only be accessed through equity as the

underlying instrument. Under the new regime,

corporate debt, Government debt and other

instruments could also be used as underlying assets to

raise funds overseas. Under the most liberalized terms

envisaged, the scheme could also allow depository

receipts against warrants and even convertible bonds.

The Finance Ministry is also looking to allow level-1,

level-2 and unsponsored ADRs, which are less regulated

and easier to access. The Government had a few months

back allowed unlisted companies to list overseas as part

of its capital markets liberalization plan and allowing

access to all categories of instruments is a logical

culmination of this process. In an unsponsored ADR, any

shareholder, without the backing of a company

Finance Ministry may allow ADR/GDR issuance for

debt



management, will be able to sell equity to a depository

that will then issue receipts in lieu of that to those

interested.

The Telecom Department plans to alter the Indian

Telegraph Rules, 1951 (ITR), to include mobile phones

within the definition of the word telegraph to ensure

mobile operators only deploy cell phones deemed safe

after being screened at a local test laboratory. At

present, the Department of Telecom (DoT) cannot

legally demand such compliance from operators since a

mobile phone is a consumer good and outside the broad

definition of telegraph, which only includes telecom

network or infrastructure equipment. The proposed

amendment comes at a time when the Bureau of Indian

Standards (BIS) has been mandated to frame safety and

product standards for cell phones in coordination with

DoTs technical arm, Telecom Engineering Centre (TEC).

Legal enforcement of mobile standards under a (mobile

operators) license conditions can't be done unless ITR is

amended to include mobile phones within the

definition of telegraph. The Government has already

initiated the process of amending ITR to arm DoT with

legal powers to screen telecom network and

infrastructure gear at a certified local test lab on

security grounds. It will be able to screen mobile

phones once the definition of telegraph is widened. At

present, DoT is also establishing a Telecom Testing &

Security Certification centre, which will frame the local

testing rules. The BIS will formulate product standards

for mobile phones that will focus on both the safety and

performance aspects.

The Union Cabinet approved the terms of reference of

the 7th Central Pay Commission and revised the salaries

and pensions of Central Government employees and

pensioners. The Cabinet also approved an increase in

dearness allowance of Central Government employees

to 100% of basic salary from 90% at present. The revision

will be effective form 01.01.2014. The Pay Commission

may also decide to merge this entire dearness

DoT seeks to bring cellphones under Telegraph Rules

Cabinet approves terms of seventh pay commission

LEGISLATIONS/ NOTIFICATIONS


K & ANewsletter



allowance with the salary when it reviews the salary

structure or merge a portion of this in the basic salary.

As per practice, the dearness allowance is merged with

basic pay when it breaches the 50 percent mark.

Dearness allowance merger helps employees as their

other allowances are paid as a proportion of basic pay.

In September last year, the Government had hiked

dearness allowance by 10 percent to 90 percent

effective from 01.07.2013. Besides raising dearness

allowance, the Centre also approved Rs.1,000/- per

month minimum pension under the employee provident

fund scheme.

The Commission has to mention the date from which

the recommendations will come into effect and submit

its report within 18 months. The Government has also

asked the Commission to examine the existing schemes

of payment of bonus, keeping in view its bearing upon

performance and productivity. The recommendations

of the sixth pay commission were implemented in 2008

with retrospective effect from 01.01.2006.

The Supreme Court of India has directed that criminal

and corruption cases against elected representatives,

including MPs and MLAs, shall have to be concluded

within one year from the date of framing of charges.

The Apex Court also ruled that the trial judge shall have

to give an explanation to the Chief Justice of the High

Court concerned if the trial is not completed within a

period of one year. The Court further stated that the

trial will be conducted on day to day basis. The Supreme

Court also clarified that in all cases having a sentence of

more than five years or more, the trial must come to an

end within one year unless and until there are special

circumstances for delay.

The Supreme Court had earlier ruled that any Minister,

MP, MLA or MLC shall stand automatically disqualified on

conviction and sentence of more than two years. The

Court had also nullified Section 8(4) of the

Representation of the People Act which permitted the

elected representative MLA to continue with their

JUDGMENTS

Conclude trial of elected representatives in a year:

SC

membership of the house in case their conviction was

stayed by the appellate court.

The Supreme Court asked the Government to explain

why the Aadhaar card is still being treated as mandatory

for availing any service. The Court further states that if

there are any instructions that Aadhaar is mandatory, it

should be withdrawn immediately. The Apex Court has

also directed the Unique Identification Authority of

India (UIDAI) not to share any information pertaining to

an Aadhaar card holder with any Government agency.

ARTICLE

Withdraw orders making Aadhaar mandatory for any

service: SC

SEBI TIGHTENS NORMS ON MONEY LAUNDERING & TERRORIST FINANCING

By Mr. Syed Z. Hussain, Associate, K&A

The Security and Exchange Board of India (“SEBI”) has played its significant part towards the development of the Indian capital markets. The regulatory powers vested in it through the SEBI Act, 1992 has been witnessed vide numerous master circulars, notifications and orders issued by SEBI from time to time to protect the utmost interest of the investors, maintain governance norms and prevent organized crimes like Money Laundering (“ML”) and Terrorist Financing (“TF”).

The recent issuance of the circular dated March 12, 2014 (“March 12 Circular”) is one such instance of SEBI's 'watchdog' functionality over ML and TF. Prior to this circular, SEBI had issued master circular dated December 31, 2010 (“Master Circular”) mandating all Intermediaries to comply with the policies as provided therein in order to combat ML and TF. The latter circular further seeks to tighten the norms against ML and TF by introducing some more stringent measures or directives and accordingly modifying the Master Circular.

Clause 3.2.3 of the Master Circular provides for the adoption of the following policies and procedures by the registered Intermediaries in order to combat ML and TF:

(a) Issue a statement of policies and procedures, on a group basis where applicable for dealing with


K & ANewsletter



ML and TF reflecting the current statutory and regulatory requirements.

(b) Ensure that the content of these directives are understood by all staff members.

(c) Regularly review the policies and procedures on the prevention of ML and TF to ensure their effectiveness. Further to ensure the effectiveness of the policies and the procedures, the person doing such a review shall be different from the one who framed such policies.

(d) Adopt client acceptance policies and procedures which are sensitive to the risk of ML and TF.

(e) Undertake client due diligence measures to an extent that is sensitive to the risk of ML and TF depending on the type of client, business relationship or transaction.

(f) Have a system in place for identifying, monitoring and reporting suspected ML or TF transactions to the law enforcing authorities.

(g) Develop staff members' awareness and vigilance to guard against ML and TF.

Whereas, Clause 2(n) of the Prevention of Money Laundering Act, 2002 defines Intermediaries as “a stock broker, sub broker, share transfer agent, banker to an issue, trustee to a trust deed, registrar to a issue, merchant banker, underwriter, portfolio manager, investment advisor and any other intermediary associated with the securities market and registered

iunder section 12 of the SEBI Act, 1992”

The Not too long ago did we witness the involvement of the Standard Chartered Bank in violating ML laws of U.S.A in handling transactions of Iranian clients or the “blatant failure” of HSBC Plc to stop millions of dollars in drug money from flowing through the HSBC bank from Mexico.

The offence of money laundering has been assigned the meaning under section 3 of the Prevention of Money Laundering Act, 2002 as “whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually in any process or

ii

iii

activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of the offence of Money Laundering”

Although, the Master Circular provides directives on Client Due Diligence policies under Clause 5 which includes measures like Risk-based Approach under Clause 5.3 or Client Identification Procedure under Clause 5.5, nevertheless, the March 12 Circular has amended the Master Circular by introducing more stern measures on Risk Assessment and Reliance on third Party for carrying out Client Due Diligence under Clause 5.3.2 and Clause 5.6 respectively.

Whereas Clause 5.3.2 provides for the intermediaries to carry out a detailed risk assessment of the clients including those linked to countries facing international sanctions to identify, assess and take effective measures to mitigate ML and TF risk by taking into account geographical location of the client, nature and volume and the payment method of transactions. Therefore, the intermediaries have been provided with the additional responsibility to assess and take effective measures to minimize the risk related to such clients.

Clause 5.6 on the other hand proposes reliance on a regulated third party entity to carry out Due Diligence in order to verify the identity of the client and determine if the client is acting on behalf of a beneficial owner. The March 12 Circular also mentions about regulating, supervising and monitoring of such third parties conducting the due diligence on behalf of the Intermediaries. However, it may be noted that the ultimate responsibility with respect to the due diligence remains with the Intermediary despite the presence of such regulation, supervision and monitoring for the third party.

iv

v

vi

Whereas the International Convention for the Suppression of the Financing of Terrorism interprets Terrorist Financing as, “a person commits the crime of financing of terrorism if that person by any means, directly or indirectly, unlawfully and willfully, provides or collects funds with the intention that they should be used or in the knowledge that they are to be used, in full or in part, in order to carry out" an offense within the scope of the Convention”.

Circular dated March 12, 2014

With respect to Maintenance of Records, Clauses 8.1, 8.2 and 8.3 of the master circular was amended by the insertion of the words “preserve and maintain” wherein the intermediaries are directed to maintain and preserve the identity of the clients and such other relevant documents for a period of 5 years from the cessation of any transaction between the client and the intermediary. The details with respect to the transactions and the identity of the clients are now required to be maintained for a period of 5 years instead of 10 years as prescribed earlier.

Further, SEBI has also directed the intermediaries to appoint a designated director to ensure adherence of the obligations to combat ML and TF by the intermediaries. The concerned designated director would be personally responsible for actions or any violation of the Master Circular as modified by the March 12 Circular. The designated director would be punishable in accordance with the SEBI Act.

The aforesaid streamlining has been made keeping in view the practices followed by the counterpart authorities in certain parts of the world along with the standards set forth by the Financial Action Task Force


K & ANewsletter



(FATF). Additionally, with elections round the corner the changes become all the more critical in view of the far reaching implications of such unaccounted funds being utilized in the Indian machinery for vested interests.

References

(i) Clause 2(n) Prevention of Money Laundering Act, 2002

(ii) Bank settles Iranian money case; http://online.wsj.com/news/articles/SB10000872396390444318104577589380427559426 ; last accessed on March 17, 2014

(iii) HSBC pays record $1.9 bn fine to settle US money laundering accusations; http://www.theguardian.com/business/2012/dec/11/hsbc-bank-us-money-laundering; last accessed on March 17, 2014

(iv) Section 3, Prevention of Money Laundering Act,2002

(v) www.imf.org; last accessed on March 19, 2014

(vi) SEBI Circular dated March 12, 2014; http://www.sebi.gov.in/cms/sebi_data/attachdocs/1394617837142.pdf; last accessed on March 19, 2014

A-9, Nizamuddin East, New Delhi-110013, IndiaPhone No: (+91) (11) 24359593 / 4 / 7; Fax: (+91) (11) 41825223Email- [email protected]

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kanth and associates · 04/04/2014 · kanth and associates attorneys and international legal...

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