KANTH AND ASSOCIATES · 04/04/2014 · sanitation; and the Prime Minister Relief Fund, among...
Transcript of KANTH AND ASSOCIATES · 04/04/2014 · sanitation; and the Prime Minister Relief Fund, among...
Copyright © 2014 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
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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
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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
Copyright © 2014 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.
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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
Copyright © 2014 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.
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
KANTH AND ASSOCIATESAttorneys and International Legal Consultants
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Copyright © 2014 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.
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
KANTH AND ASSOCIATESAttorneys and International Legal Consultants
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Copyright © 2014 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.
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
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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.
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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
KANTH AND ASSOCIATESAttorneys and International Legal Consultants
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Copyright © 2014 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.
(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
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