Business standard updates 11-4-2012

FII norms forcommexes relaxed

BS REPORTER New Delhi, 10 April After much dithering, the government released the revised consolidated foreign direct investment (FDI) policy today, relaxing norms of investment by foreign institutional investors (FIIs) in commodity exchanges. Now, FIIs will not require government approval to invest in these exchanges. The cap on FII investment, however, remains at 23 per cent. The department of industrial policy and promotion (DIPP) under the commerce and industry ministry said government approval would nonetheless be required for the FDI component of investment up to 26 per cent in commodity exchanges. “This change aligns the policy for foreign investment in commodity exchanges with that of other infrastructure companies in the securities markets, such as stock exchanges, depositories and clearing corporations,” DIPP said. Experts feel the earlier provision of FIIs getting approval from the Foreign Investment Promotion Board (FIPB) was a redundant exercise. Akash Gupt, executive director at PricewaterhouseCoopers, said the particular provision was creating problems for those who intended to go for a share sale. “There is no need for FIPB approval, as it goes through Sebi (the Securities and Exchange Board of India) anyway. This was creating an anomalous situation for anyone who was going for an initial public offering.” On the other hand, the FDI policy for single-brand retail was left untouched and was incorporated into the revised consolidated FDI policy as earlier approved by the Cabinet. Even after severe pressure from several global brands such as IKEA, the government retained the clause of mandatory 30 per cent sourcing from Indian small and medium enterprises (SMEs) with a total investment in the plant and machinery of less than $1 million. The clause is mandatory for companies going beyond 51 per cent FDI in single-brand retail. DIPP also excluded the import of second-hand machinery from conversion to equity, in the wake of several complaints from the capital goods sector, which had been suffering due to the import of cheaper second-hand machinery. “With a view to incentivising machinery embodying state-of-the-art technology, compliant with international standards, in terms of being green, clean and energy efficient, second-hand machinery has now been excluded from the purview of this provision,” DIPP said. Earlier, conversion to equity was permitted for import of even second-hand machinery. “This is a good step because earlier there was no check on the quality of second-hand machinery being imported. This provision would now help put a check on the import of such cheap machinery,” said Krishan Malhotra, executive director, KPMG. The policy would now be reviewed once a year, instead of every six months as earlier. Guidelines for foreign direct investment in single-brand retail have been left unchanged ANEW LEAF |FIIs will not require government approval to invest up to 23% in commodity exchanges |FDI policy for single-brand retail has been left untouched and incorporated into the revised consolidated FDI policy |Import of second-hand machinery is excluded from conversion to equity |The FDI policy will now be reviewed once a year instead of after every six months earlier

Now, prosecution of tax evaders made easier

SANTOSH TIWARI New Delhi, 10 April Retrospective amendments to handle cases akin to the Vodafone deal and provisions to tackle black money as proposed in the Budget may have received huge attention, but that isn’t all about it. A ‘silent amendment’ to the Income Tax Act related to prosecution powers is being seen as a crucial change. This would allow officials involved in an investigation to take a quick call on initiating prosecution in taxevasion cases. A senior finance ministry official said today the proposed change in the Finance Bill, 2012, would broaden the definition of commissioner. It would now include the director, thus allowing a director of investigation and also director of criminal investigation to sanction prosecution, he told Business Standard. The source explained that, at present, the officials from the investigation department and also newly created directorate of criminal investigation had to take sanction from a commissioner for prosecution. This process takes a lot of time and involves complications. “Now, with the definition of commissioner including director, the directors of investigation and also criminal investigation can take a call on prosecuting a person quickly,” he noted. Thus, if a search stumbles upon evidence of falsification of records or intentional presentation of inaccurate particulars of income, “the directors can initiate the prosecution process without waiting for assessment or seeking the sanction of the commissioner concerned”, he pointed out to explain how it would work. According to the memorandum explaining the provisions in Finance Bill, 2012, the post of commissioner and the post of a director of incometax is inter-changeable. “It is therefore proposed to amend the provisions of section 2 to include a Director of Incometax appointed under sub-section (1) of section 117 within the definition of a Commissioner,” the memorandum said. “This amendment will take effect retrospectively from the 1st day of April, 1988 and will accordingly apply to assessment year 1988-89 and subsequent assessment years.” With this measure to ensure quick decision-making on initiating prosecution cases, the government has brought in steps to expedite prosecution proceedings so that the cases could be taken to their logical conclusion speedily. The Finance Bill, 2012, has proposed to strengthen the prosecution mechanism by providing for constitution of special courts for trial of offences and application of summons trial for offences under the Act to expedite prosecution proceedings as the procedures in a summons trial are simpler and less time consuming. It has also provided for appointment of public prosecutors, and has also amended the threshold limits for punishment in different cases. The existing provisions provide that in a case where the amount of tax, penalty or interest which would have been evaded by a person exceeds ~1 lakh, he will be punishable with rigorous imprisonment for a term which will not be less than six months but which may extend to seven years and with fine. In case the amount which would have been evaded by a person does not exceed ~1 lakh, he will be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine. The threshold of ~1 lakh was introduced in 1976. It is now proposed to be amended so that the revised threshold will be ~2.5 lakh. Summons trials apply to offences where the maximum term of imprisonment does not exceed two years. It has been now proposed that where the amount which would have been evaded does not exceed ~2.5 lakh, the person will be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to two years and with fine. These amendments will take effect from July 1 this year. The proposed change would broaden the definition of commissioner to include directors