kanth and associates · 04.04.2013 · by mr. sukomal satyen, associate, k&a income tax act, 1961,...

Copyright © 2013 Kanth and AssociatesDISCLAIMER- Kanth and Associates newsletter is for private circulation only. It does not purport to be or should

not be treated as professional advice or legal opinion. Kanth and Associates also disclaim any responsibility and hereby accept no liability for consequences of any person acting or refraining to act on the basis of any information contained herein.

KANTH AND ASSOCIATESAttorneys and International Legal Consultants

K & ANewsletter

NEWS ALERTS

TAX

Tax Residency Certificate enough proof: Govt.

E-filing must for those earning more than Rs.5 Lac

Agreement for avoidance of double taxation with Ethiopia

The Government has clarified that the tax authority will accept a tax residency certificate (TRC) as sufficient proof for a company to be resident in Mauritius and will be eligible for benefits under the tax treaty between India and Mauritius. The clarification puts to rest fears raised after the Budget that companies routing investment through Mauritius would face greater scrutiny from Indian tax officials. The TRC produced by a resident of a contracting state will be accepted as evidence that he is a resident of that contracting state and the income-tax authorities in India will not go behind the TRC and question his resident status.

Taxpayers with annual income of over Rs.5 Lac will now have to file their returns in electronic form. The threshold limit for e-filing of returns was Rs.10 Lac last year. The e-filing allows for faster processing of income tax returns and settlement of errors and omissions. Income tax returns for the group above Rs.5 Lac, all such returns will be e-filed. The Finance Bill 2013 has inserted a provision to facilitate e-filing of wealth tax returns. In order to facilitate electronic filing of annexure-less return of net wealth, it is proposed to insert new sections in the Wealth Tax Act on similar lines. According to the Memorandum to the Finance Bill

st2013, the amendments will take effect from 01 June, 2013.

The Government of the Republic of India and the Government of the Federal Democratic Republic of Ethiopia for the Avoidance of Double Taxation and the Prevention of fiscal evasion with respect to taxes on

thincome signed on the 25 May 2011 which shall come th

into force on the 15 day of October 2012, being the date of later of the notifications after completion of the procedures as required by the respective laws for the entry into force of the said Agreement.

Thus, the Central Government in view of the aforesaid and in exercise of powers conferred by section 90 of the

CONTENTS

— Article 4

— News AlertsTax 1Corporate, Capital Market & Foreign Trade 1Intellectual Property Rights 3Real Estate 4Legislations / Notifications 4Judgments 4

Licensing of New Banks in Private Sector By Mr. Sukomal Satyen, Associate, K&A

Income Tax Act, 1961, vide notification dated 21.02.2013, has notified that all the provisions of the Agreement between the Government of the Republic of India and the Government of the Federal Democratic Republic of Ethiopia shall be given effect to in the Union

stof India with effect from the 01 day of April, 2013, that is, the date of entry into force of the said Agreement.

Securities Exchange Board of India (SEBI), vide its circular dated 01.03.2013, has allowed partial conversion of Indian Depository Receipts (IDRs) into equity shares. It provides a platform for multi-national companies to raise capital from India, to widen their presence and to enhance their brand value. All the IDRs shall have partial two-way fungibility. The partial two-way fungibility means that the IDRs can be converted into underlying equity shares and the underlying equity shares can be converted into IDRs within the available headroom. According to SEBI, after completing one year from the IDRs issuance date, the issuer should every year provide redemption or conversion of IDRs into underlying equity shares up to 25% of the IDRs originally issued. The periodicity of IDR fungibility should be at least once in every quarter and the fungibility window should remain open for seven days. The issuer cannot withdraw the option once it is made public. Fungibility window refers to the time period during which IDR holders can apply for conversion of IDRs into underlying equity shares. SEBI also said retail investors should be given 20% of the IDRs and if there is a higher demand, the conversion should be done on a proportionate basis.

CORPORATE, CAPITAL MARKET & FOREIGN TRADE

SEBI allows partial conversion of IDRs into equity shares


K & ANewsletter

SEBI makes certification mandatory for compliance officers

Non CTS cheques valid till 31.07.2013: RBI

Securities and Exchange Board of India (SEBI), vide Notification dated 11.03.2013, has notified new guidelines for 'associated persons' working as compliance officers of market intermediaries such as brokers and credit rating agencies, making it compulsory for them to get requisite certifications to operate in the stock markets. The compliance officers would need to get certification from the National Institute of Securities Markets (NISM) after passing the relevant examinations. SEBI further notified that the market intermediaries would need to ensure the necessary certification for their existing compliance officers within two years, while those being engaged or employed henceforth would have to obtain the certification within one year. This notification applies to the market entities including brokers, depository participants, merchant bankers, underwriters, bankers to issue, debenture trustees and credit rating agencies. The 'associated persons' have to obtain the certification from NISM by passing "Securities Intermediaries Compliance (Non-Fund) Certification Examination".

The Reserve Bank of India (RBI), vide its circular dated 18.03.2013, has decided to put in place an arrangements for clearing of residual non-CTS-2010 standard cheques beyond the cutoff date of March 31, 2013. All cheques issued by banks (including DDs / POs) with effect from the date of this circular shall necessarily conform to CTS-2010 standard. Banks shall not charge their savings bank account customers for issuance of CTS-2010 standard cheques when they are issued for the first time. However, banks may continue to follow their existing policy regarding cheque book issuance for additional issuance of cheques, in adherence to their accepted Fair Practices Code. All residual non-CTS-2010 cheques with customers will continue to be valid and accepted in all clearing houses [including the Cheque Truncation System (CTS) centers] for another four months i.e. up to July 31, 2013, subject to a review in June 2013.

It has further been decided that the cheque issuing banks shall make all efforts to withdraw the non-CTS-2010 Standard cheques in circulation before the extended timeline of July 31, 2013 by creating awareness among customers through SMS alerts, letters, display boards in branches/ATMs, log-on

message in internet banking, notification on the web-site etc. Additionally, no fresh post dated cheques (PDC)/ Equated Monthly Installment (EMI) cheques (either in old format or new CTS-2010 format) shall be accepted by lending banks in locations where the facility of ECS/RECS (Debit) is available. Lending banks shall make all efforts to convert existing PDCs in such locations into ECS/RECS (Debit) by obtaining fresh mandates from the borrowers.

SEBI, in exercise of powers conferred upon SEBI under Section 11(1) of the Securities and Exchange Board of India Act, 1992, vide its circular dated 18.03.2013, has advised to carry out the following changes in the arbitration mechanism which will come into effect from

st1 April 2013:

1. List of Arbitrators on the panel of all stock exchanges having nation-wide trading terminals shall be pooled and will be called a 'Common Pool'. This list shall be made publicly available including by way of display on websites of the stock exchanges.

2. Common pool' of Arbitrators will consist of Arbitrators listed on the panels of all stock exchanges having nation-wide trading terminals. The pooling of arbitrators will be done centre-wise.

3. The 'Automatic Process' will entail a randomized, computer generated selection of Arbitrator, from the list of Arbitrators in the 'Common Pool'. The selection process shall be in chronological order of the receipt of arbitration reference i.e. only after selecting an arbitrator for the former arbitration reference received, selection for the latter shall be taken up.

4. The 'Automatic Process' will send a system generated, real time alert (sms, email etc.) to all entities involved in the particular case. Further, the communication for the appointment of the Arbitrator will be sent immediately and in any case not later than the next working day from the day of picking of the Arbitrator.

Arbitration mechanism through Stock Exchanges – Introduction of automatic process and common pool of arbitrators




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5. The selection of Arbitrators by Stock Exchanges as done currently shall henceforth be replaced by the 'Automatic Process'.

6. In case of any probable conflict of interest in an arbitration reference being assigned to any Arbitrator the Arbitrator will have to upfront decline the arbitration reference.

7. In case of conflict of interest by the arbitrator, the information for the same may reach the stock exchange on which the dispute has taken place within 15 days of receipt of communication from the Stock Exchange. The said information may be sent by any method which ensures proof of delivery.

8. Fees of arbitrator shall be dealt in line with existing provisions, by the stock exchange on which the dispute had taken place.

9. The recognized stock exchanges with nation-wide trading terminals are advised to make necessary amendments to relevant bye-laws for the implementation of the above decision immediately.

The Reserve Bank of India (RBI) had passed a Notification dated 04.06.2003 with respect to Money Transfer Service Scheme (MTSS), as amended from time to time and accorded specific permission under Foreign Exchange Management Act, 1999 to undertake inward cross-border money transfer activities in India, through tie-up arrangements with Overseas Principals. The MTSS Guidelines have been revised vide circular dated 12.03.2013 in consultation with the Government of India. All other instructions issued vide the said Notification, as amended from time to time remain unchanged.

The Section 5 of the Patents Act, 1970, through which the patent was restricted only to the methods or processes of manufacturing of medicines, has been

Revised Guidelines with respect to Money Transfer Service Scheme

Application for patent registration can be made online

INTELLECTUAL PROPERTY RIGHTS



omitted by the Patents (Amendment) Act, 2005. Consequently, the amended provisions of the Act allowed the product patent for medicines also. The said amendment was intended to make the provisions of the said Act in conformity with India's obligations under the Trade-Related Aspects of Intellectual Property Rights (TRIPS) and also to promote creativity and innovation in the country.

The Office of Controller General of Patents, Designs and Trade Marks (CGPDTM) has launched the comprehensive

thonline patent filing system with effect from 15 December, 2012. In addition to the existing online filing of new applications, this system enables subsequent filing of the prescribed forms and other documents along with the prescribed fees for all the procedures. This system is more user friendly as this has been simplified and includes user manual, frequently asked questions, troubleshooting and dual way login facilities through user ID and digital signature.

The Copyright Rules, 2013 has been notified by the Copyright Division, Department of Higher Education, Ministry of Human Resource Development on 14th March, 2013. The amendments to the existing provisions of the Copyright Act, 1957 and introduction of new provisions under the Copyright (Amendment)

stAct, 2012, which came into the force on 21 June, 2012, necessitated amendments to the Copyright Rules, 1958. The Copyright Rules, 2013 provide new rules for statutory license for cover versions and broadcasting of literary and musical works and sound recording; compulsory licenses for works withheld from public, unpublished and published works, for benefit of disabled; registration of Copyright Societies and Performer's Right Societies; storage of transient or incidental copies of woks; making or adapting the work by organizations working for the benefit of persons with disabilities; importation of infringing copies and technological protection measures.

The fee for registration of copyright for various works and fee for licenses to be issued by register of Copyrights under the directions/orders of the Copyright Board have been increased under the Copyright Rules, 2013. The new fee structure provided under Second Schedule of the Rules is applicable from the date of

thcoming into force of the Copyright Rules, 2013 i.e. 14 March, 2013.

Govt. notifies New Copyright Rules, 2013


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REAL ESTATE

LEGISLATIONS / NOTIFICATIONS

DDA to cut sizes of farmhouses

Rape replaces sexual assault in Criminal Law Ordinance, 2013

Delhi Development Authority's (DDA) new farmhouse policy makes provision for smaller 1-acre farmhouses as against the minimum size of 2.5 acres earlier. These new dwellings called Country Homes will be allowed a higher floor area ratio (FAR) of 20 compared to the earlier stipulated 15. The new policy also allows owners to pay an extra charge for utilizing higher FAR than what has been stipulated. Additionally, the older farmhouses that have utilized higher floor areas than what was sanctioned are now being regularized by paying a penalty. Farmhouses in Delhi are only allowed in the peripheral green belt of the city but the government is yet to decide the areas in the green belt where it will allow these Country Homes to come up.

The Ministry of Home Affairs (MHA) has moved a Cabinet note, which has reintroduced the term rape in place of sexual assault in the Criminal Law (Amendment) Ordinance, 2013. The ordinance had removed rape and replaced it with gender-neutral sexual assault. However the Cabinet note of the Home Ministry is now believed to have reversed that and has defined rape as per the wider definition given by the Justice JS Verma Committee report. According to the said Cabinet Note of MHA, the age of consent for sexual intercourse has also been reduced from 18 years to 16 years. The pending Criminal Law Amendment Bill, 2012, criminalized sexual activity for people between the 16 and 18 years of age. The Verma committee had suggested 16 as the age of consent but the ordinance had put it at 18.The MHA note now proposes the age to be reduced to 16 years for consensual sex. The Union Cabinet has to now take the final call. The Ordinance did not make marital rape a criminal offence the proposed bill will be sticking to the same. Stalking and voyeurism will be made a criminal offence in the said bill along with stiffer punishment for acid attacks and provision for death sentence in aggravated cases of sexual assault that lead to the death of the victim or leave her in a permanent vegetative state, on the lines of the provisions in the ordinance.

JUDGMENTS

LICENSING OF NEW BANKS IN PRIVATE SECTOR

No need for Non-Veg/ Veg labels on drugs and cosmetics: SC

Introduction

The Supreme Court has set aside a Delhi High Court order asking the government to amend the rules to classify all non life-saving drugs and cosmetics as vegetarian and non-vegetarian with V and NV labels, respectively. The High Court had in November last year directed the Central Government to amend its rules to mark drugs and cosmetics with V and NV labels in spite of the Centre's contention that it was not desirable to do so in public interest. The Court had asked the Centre to exempt life-saving drugs from carrying these labels. However, the Supreme Court has set aside the High Court order, saying that the rules do not envisage this.

Paving the way for new banks after the formation of Yes Bank in the year 2004, the Reserve Bank of India (RBI) published new rules devised to bring private players and non-banking private firms in the field of banking sector which is strictly regulated by RBI to secure the depositors and ensure the financial system growth to achieve the goal towards Inclusive Financing and reforming the financial sector of the country. It is to be noted that on the recommendation of the Narasimhan Committee (1991) the entry of New Private Sector Banks were permitted in Indian Banking Sector only in the year 1993 after the amendment of Banking Regulation Act 1949. With the liberalization process in India, the RBI had decided to allow banks in private sector. The Narashimhan Committee in its report suggested that freedom of entry into financial system should be liberalized and new banks in private sector should be allowed provided they conform to the minimum start up capital and other requirements and prudential norms with regard to accounting, provisioning and other aspects of operations. The committee had also suggested that there should not be any difference in treatment between the public sector and private sector banks and any restrictions in this regard should be done away with.

ARTICLE

By Mr. Sukomal Satyen, Associate, K&A


K & ANewsletter



The RBI issued guidelines by press release dated 22.01.1993 permitting the entry of new private sector banks. In 2010, the RBI released a discussion paper on “Entry of New Banks in Pvt. Sector” regarding entry of private players in the banking sector for the purposes of detailed discussion and seeking opinion of the stakeholders, the private players and public at large. Finally the draft guidelines were prepared by RBI on the said discussion paper in consultation with Government of India but the same was put on hold because of the need of more regulatory powers before any change in the existing norms. The draft guideline was placed on the website of RBI on August 29, 2011 for further comments. After scrutinizing the comments received on the draft guideline the final guidelines were prepared on 'Licensing of New banks in Private Sector' and the same was issued on 22 February 2013 (2013 Guidelines) with the deadline for the applications for setting up new banks to be made to RBI on or before July

11, 2013.

i) Eligible Promoters: Entities/groups in the private sector, entities in public sector and Non-Banking Financial Companies (NBFCs) shall be eligible to set up a bank through a wholly-owned Non-Operative Financial Holding Company

3(NOFHC ).

ii) Fit and Proper' Criteria: Entities/groups should have a past record of sound credentials and integrity, be financially sound with a successful track record of 10 years. For this purpose, RBI may seek feedback from other regulators and enforcement and investigative agencies.

iii) Corporate Structure of the NOFHC: The NOFHC s h a l l b e w h o l l y o w n e d b y t h e Promoter/Promoter Group. The NOFHC shall hold the bank as well as all the other financial services entities of the group.

iv) Minimum Voting Equity Capital Requirements for Banks and Shareholding by NOFHC: The initial minimum paid-up voting equity capital for a bank shall be 5 billion. The NOFHC shall initially hold a minimum of 40 per cent of the paid-up voting equity capital of the bank which shall be locked in for a period of five years and which shall be brought down to 15 per cent

2Key Features of the 2013 Guidelines

within 12 years. The bank shall get its shares listed on the stock exchanges within three years of the commencement of business by the bank.

v) Regulatory Framework: The bank will be governed by the provisions of the relevant Acts, relevant Statutes and the Directives, Prudential regulations and other Guidelines/Instructions issued by RBI and other regulators. The NOFHC shall be registered as a non-banking finance company (NBFC) with the RBI and will be governed by a separate set of directions issued by RBI.

vi) Foreign Shareholding in the Bank: The aggregate non-resident shareholding in the new bank shall not exceed 49% for the first 5 years after which it will be as per the extant policy.

vii) Corporate Governance of NOFHC: At least 50% of the Directors of the NOFHC should be independent directors. The corporate structure should not impede effective supervision of the bank and the NOFHC on a consolidated basis by RBI.

viii) Prudential Norms for the NOFHC: The prudential norms will be applied to NOFHC both on stand-alone as well as on a consolidated basis and the norms would be on similar lines as that of the bank.

ix) Exposure Norms: The NOFHC and the bank shall not have any exposure to the Promoter Group. The bank shall not invest in the equity/debt capital instruments of any financial entities held by the NOFHC.

x) Business Plan for the Bank: The business plan should be realistic and viable and should address how the bank proposes to achieve financial inclusion.

xi) Other Conditions for the Bank:

• The Board of the bank should have a majority of independent Directors.

• The bank shall open at least 25 per cent of its branches in unbanked rural centres (population up to 9,999 as per the latest census)

•lending targets and sub-targets as applicable to the existing domestic banks.

• Banks promoted by groups having 40 per cent or more assets/income from non-financial business will require RBI's prior approval for raising paid-up voting equity capital beyond 10 billion for every block of 5 billion.

• Any non-compliance of terms and conditions will attract penal measures including cancellation of License of the bank.

xii) Additional Conditions for NBFCs Promoting/ Converting into a Bank: Existing NBFCs, if considered eligible, may be permitted to promote a new bank or convert themselves into banks.

In terms of Rule 11 of the Banking Regulation (Companies) Rules, 1949, applications shall be submitted in the prescribed form (Form III). The eligible promoters can send their applications for setting up of new banks along with other details mentioned in Annex II to the Guidelines to the Chief General Manger-in-Charge, Department of Banking Operations and Development, Reserve Bank of India, Central Office, 12th Floor, Central Office Building, Mumbai-400 001 on or before July 1, 2013.

Licensing of new private sector banks to industrial houses were first time advanced by the Committee on

4Fuller Capital Account Convertibility (2006) . In view of the said report RBI allowed the licensing of new private sector bank to the Industrial houses as well. Though allowing the industrial houses for setting up new private sector banks is not being welcomed from various corners but having stringent regulation in place it is likely to invite more competition only in the Banking Sector and industrial houses would be able to establish strong banks which is a welcome step taken by

5the RBI .

The strength and quality of the financial system is dependent on the inclusiveness and the reach of such

The bank shall comply with the priority sector

Procedure for Application

License to Industrial Houses

Conclusion


K & ANewsletter



financial system. The 2013 Guidelines by the RBI can be considered to be an effort towards the achievement of such goal of financial inclusion. The 2013 Guidelines would also enable new players to enter the market and create competition in the banking sector. Simultaneously, the need of keeping a check on the systems and processes for new licenses have also been taken into account so as to eliminate any non-serious contenders from entering this sensitive sector. Additionally, the 2013 Guidelines may also usher in a new beginning with respect to the inclusion of weaker and vulnerable sections of society who have been eluded with such services of the financial system with low cost.

References:

1. http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx? prid=24975

2. http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx? prid=28191

3. A company that only carries shares of other companies and receives and distributes dividends.

4. http://www.rbi.org.in/scripts/PublicationReportDetails.aspx ?UrlPage=&ID=468

5. http://rbidocs.rbi.org.in/rdocs/Content/PDFs/FIDIS110810 .pdf

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 · 04.04.2013 · by mr. sukomal satyen, associate, k&a income tax act, 1961,...

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