Online filing for service tax return is compulsory
September, 15th 2011
The CBEC vide notification No.43/2011- Service Tax dated August 25, 2011, made amendments to the service tax rule 7 with effect from October 1, 2011, where in the provision which stated that where an assesse has paid a total service tax of Rs10 lakh or more including the amount paid by utilisation of Cenvat Credit, in the preceding financial year, he shall file the return electronically has been deleted and after sub rule (2), a new sub rule (3) has been inserted namely: (3) Every assessee shall submit the half-yearly return electronically.
With this notification now all assesses who are registered with the service tax will have to file all service tax half yearly returns electronically from October 1, 2011. This means that the half yearly return for the period April 1, 2011, to September 30, 2011 will have to be filled electronically through the ACES site of service tax as the due date for filling of the return for the period is October 25, 2011, and by then this notification will be applicable. Assesses who have not filed previous returns of service tax will also have to file the same electronically if they are going to file the same after October 1, 2011.
Hence, after October 1, 2011, based on this notification, all assesses will have to file their service tax returns compulsorily online.
Penalty for non filling of service tax return electronically will be as per section 77(2), penalty for contravention of any provisions of the chapter or rules (of service tax) for which separate penalty has not been provided shall be upto Rs10,000. This amount was Rs5,000 till April 7, 2011.
Saturday, September 17, 2011
Board resolutoin for opening an escrow account
CERTIFIED TRUE COPY OF THE RESOLUTION PASSED IN THE FINANCE COMMITTEE OF THE BOARD OF DIRECTORS OF HELD
The Chairman informed the members of the Committee that the Bank, situated at 001 (hereinafter referred to as “Bank’) have at the request of the Company, agreed to grant to the Company, Term Loan of ì 100/- Crores ( ì One Hundred Crores only) on the terms and conditions mentioned below:
Nature of Facility
Amount of Facility
Object
Upfront Fee
Rate of Interest
Tenor
Repayment
Security
Collateral :
The Chairman requested members to pass the necessary resolution for accepting the secured term loan and execution of the documents. After discussion following resolution was passed:
“RESOLVED THAT the Company do borrow from Bank, situated at, by way of Term Loan of ì 100.00 Crores ( ì One Hundred Crores Only) as per bank sanction letter no. _________dated _________________ and that Mr. __________, Executive Chairman and Mr._____________-of the Company be and are hereby severally authorized to discuss and finalise the terms and conditions subject to which the said facility being sanctioned by the Bank.
RESOLVED FURTHER THAT Mr________ Executive Chairman and/or Mr. _____________, Vice Chairman and Managing Director of the Company and / or Mr._________, Vice President - Banking, be and are hereby severally authorized to sign and deliver on behalf of the Company all agreements, documents, deeds and forms relating to the above Secured loan including creation and / or modification of mortgage / security for the said facility and to do all such acts as may be required for the aforesaid purpose.
RESOLVED FURTHER THAT Company do hereby accord its approval to open a Escrow Account _______ Bank, situated at ___________ in the name of the Company for the term loan of ì. 100 Crores already sanctioned by the bank vide their sanction letter dated _______ and Mr. __________ Executive Chairman and/or Mr. _________ Vice Chairman and Managing Director of the Company be and are hereby severally authorised to operate the said Escrow account for the aforesaid loan.
RESOLVED FURTHER THAT the Common Seal of the Company if required be affixed to the fair stamped engrossment of the Indenture of Mortgage, deeds, documents, agreements and instruments relating to the mortgage/security in the presence of any one of Mr. _______, Executive Chairman, Mr. _______, Vice Chairman and Managing Director, Mr. ________, Chief Financial Officer, Mr.– Banking, or Mr._______Manager – Finance, of the Company who do sign the same in token thereof.”
The Chairman informed the members of the Committee that the Bank, situated at 001 (hereinafter referred to as “Bank’) have at the request of the Company, agreed to grant to the Company, Term Loan of ì 100/- Crores ( ì One Hundred Crores only) on the terms and conditions mentioned below:
Nature of Facility
Amount of Facility
Object
Upfront Fee
Rate of Interest
Tenor
Repayment
Security
Collateral :
The Chairman requested members to pass the necessary resolution for accepting the secured term loan and execution of the documents. After discussion following resolution was passed:
“RESOLVED THAT the Company do borrow from Bank, situated at, by way of Term Loan of ì 100.00 Crores ( ì One Hundred Crores Only) as per bank sanction letter no. _________dated _________________ and that Mr. __________, Executive Chairman and Mr._____________-of the Company be and are hereby severally authorized to discuss and finalise the terms and conditions subject to which the said facility being sanctioned by the Bank.
RESOLVED FURTHER THAT Mr________ Executive Chairman and/or Mr. _____________, Vice Chairman and Managing Director of the Company and / or Mr._________, Vice President - Banking, be and are hereby severally authorized to sign and deliver on behalf of the Company all agreements, documents, deeds and forms relating to the above Secured loan including creation and / or modification of mortgage / security for the said facility and to do all such acts as may be required for the aforesaid purpose.
RESOLVED FURTHER THAT Company do hereby accord its approval to open a Escrow Account _______ Bank, situated at ___________ in the name of the Company for the term loan of ì. 100 Crores already sanctioned by the bank vide their sanction letter dated _______ and Mr. __________ Executive Chairman and/or Mr. _________ Vice Chairman and Managing Director of the Company be and are hereby severally authorised to operate the said Escrow account for the aforesaid loan.
RESOLVED FURTHER THAT the Common Seal of the Company if required be affixed to the fair stamped engrossment of the Indenture of Mortgage, deeds, documents, agreements and instruments relating to the mortgage/security in the presence of any one of Mr. _______, Executive Chairman, Mr. _______, Vice Chairman and Managing Director, Mr. ________, Chief Financial Officer, Mr.– Banking, or Mr._______Manager – Finance, of the Company who do sign the same in token thereof.”
CHECK LIST FOR CONVERSION OF PARTNERSHIP INTO COMPANY
Conversion of Firm under Part IX oftheCompanies Act, 1956 :- The firm may be converted into a company by following the provisions of Part IX of the Companies Act, 1956. Sections 565 to 581 deal with conversion of firms into a company under theCompanies Act, 1956.
For the purpose of Part IX so far as it relates to the registration of companies limited by shares, a joint stock company means a company having a permanent paid up or nominal share capital of fixed amount divided into shares, also of fixed amount, or held and transferable as stock, or divided and held partly in the one way and partly in the other, and formed on the principle of having for its members the holders of those shares or that stock, and no other persons. Such a company, when registered with limited liability under the Companies Act, 1956 shall be deemed to be a company limited by shares.
A company cannot be registered under part IX unless the assent of majority of its members as are present in person or where proxies are allowed, by proxy, at a general meeting summoned for the purpose is obtained.
Since the liability of the members of the firm is unlimited, when a firm desires to register itself as a company under Part IX as a limited company, the majority required to assent as aforesaid shall consist of not less than ¾ of the members as are present in person or where proxies are allowed, by proxy, at a general meeting summoned for the purpose.
Steps for incorporation of company under part IX
Step 1
Hold a meeting of the partners to transact the following business
o Assent of majority of its members as are present in person or where proxies are allowed, by proxy, at a general meeting summoned for the purpose of registering the firm under Part IX of the CompaniesAct, 1956. Since the liability of the members of the firm is unlimited, when a firm desires to register itself as a company under Part IX as a limited company, the majority required to assent as aforesaid shall consist of not less than ¾ of the members as are present in person or where proxies are allowed, by proxy, at a general meeting summoned for the purpose.
o To authorize one or more partners to take all steps necessary and to execute all papers, deeds, documents etc. pursuant to registration of the firm as a Company.
o To execute a supplementary Partnership Deed to align it with the requirements as under:
o There must be at least 7 partners in the partnership firm;
o The firm may be registered with the Registrar of Firms;
o There must be a fixed capital divided into units ;
o There must be provision of converting a firm into company.
o There must be an agreement by the partners to convert the partnership to a company. This can be done by a contract in writing to this effect to which the partner’s resolution for conversion can be attached as annexure.
o Execute a settlement deed.
Step 2
APPLICATION FOR DIRECTOR’S IDENTIFICATION NUMBER AND DIGITAL SIGNATURERS CERTIFICATE
o Ministry of Company Affairs has made Director’s Identification Number mandatory for each Director.Following details are required for DIN: Name(s) , Father’s Name(s), Permanent Residential Address(s), Present Residential Address(s), Occupation, Name of the Companies in which the promoter is Director/Promoter, Date of Birth , E-mail IDs (Minimum 2 for private company).
o Ministry of Company affairs have initiated the process of E-filing of the Documents, wherein the either of the Director needs to have Digital Signature Certificate. For the matter of Convenience in submission of documents with Registrar of Companies and expediting the processing, it is advisable to obtain the Digital Signature Certificate from prescribed authorities.
o Following documents are required for DIN/Digital Signature: Copy of Passport/ Voter ID/Ration Card/Driving License/ PAN Card/Telephone Bill/Electricity Bill/Bank Statement.
o The application is required to be signed by the promoter(s).
o Normally the process takes 5 to 7 working days after submitting the documents with DIN Cell.
Note: In case of a Private Limited Company at least two Directors should be appointed.
Step 3
NAME APPROVAL
o An application in Form No. 1A needs to be filed with the Registrar of Companies (ROC) with following annexure(s) stating the fact that the partnership firm pro¬posed to be converted under part IX of theCompanies Act. (Annexure 1).
o Certified true copy of Partnership Deed .
o Certified true copy of the latest balance sheet of the partnership.
o Certified true copy of the latest income tax assessment order/return.
o Consent of all the partners stating that they have agreed to register the partnership firm as a Company .
o Certified True Copy of the resolution passed by the firm in this regard .
o The application is required to be digitally signed by one of the promoters.
o The details to be state in the said application are as follows :
1. Maximum Six alternative names for the proposed company. (in order of preference)
2. Names , Father’s/ Husband’s Name, Permanent Residential Addresses, Present Residential Address, Occupation, Name of the Companies in which the Promoter is Director/Promoter , Date of Birth , DIN of the Promoters.
3. Authorised Capital of the proposed Company.
4. Main objects of the proposed company.
5. State of Registered Office of Company
6. Copy of Trade Mark Application/Certificate If name of proposed company based on a Trade Mark,
Note:
1.
1. As per Indian Companies Act, 1956, a Private Company should have a minimum Paid up Capital of Rupees One Lac.
2. As per Indian Companies Act, 1956 there should be at least two promoters in a Private Limited Company.
3. The Registrar of Companies will ordinarily inform within a period of seven days from the date of submission of the application whether any of the names applied for is available.
4. If the name is not made available, the Registrar of Companies may reject the application and if it happens, new names to be provided for approval.
Step 4
Registration of Company
o On obtaining the approval of name , file the following documents with the registrar of Companies within 60 days from the date of name approval
o Two sets of Memorandum and Articles of Association of the Company. One set shall be duly stamped. A memorandum of association and articles of association may be made for the company which will be similar in all respects to a normal Memorandum and Articles of Association except that it incorporate therein terms of settlement deed.
o After drafting The Memorandum and Articles of Association is required to be stamped as per the Indian Stamp Act. (in Delhi its Rs. 200/- on MOA & 0.15% of Authorized Capital on AOA).
o Thereafter these documents are required to be executed by the promoters in their own hand in the presence of professionals after the date of Stamping of Memorandum & Article of Association in duplicate stating their full name, father’s name, residential address, occupation, number of shares subscribed for & Signature etc.
o However, if any director is foreigner and not present in India after the date of Stamping of the Memorandum & Article of Association, in that case, his signature should be attested in Indian Embassy located in his home country.
o Form No. 1 – This is a declaration to be executed on a non-judicial stamp paper by one of thedirectors of the proposed company or other specified persons such as Chartered Accountants, Company Secretaries, Advocates, etc. stating that all the requirements of the incorporation have been complied with. (Annexure 2)
o Form No. 18 – This is a form to be filed by one of the directors of the company informing the ROC the registered office of the proposed company. (Annexure 3).
o Form No.: 32 – This is a form stating the fact of appointment of the proposed directors on theboard of directors from the date of incorporation of the proposed company and is signed by one of the proposed directors. (Annexure 4).
o Power of Attorney signed by all the subscribers of MOA authorizing one of the subscribers or any other person to act on their behalf for the purpose of incorporation and accepting the certificate of incorporation.
o Form No. 37 along with Form No. 39 (Annexure 5 & 6).
o Declaration by two partners verifying the particulars set forth in the above mentioned documents.
o Consent letters from Directors
o Filing fees as may be applicable
o Other information to be submitted:
i) A list showing the names, addresses and occupations of all persons who on a day named in the list, not being more than 6 clear days before the date of registration were members of the company, with the addition of the shares or stock held by them respectively, distinguishing, in cases where the shares are numbered, each share by its number.
ii) If the company is intended to be registered as a limited company, a statement specifying the following particulars :-
a) the nominal share capital of the company and the number of shares into which it
is divided or the amount of stock of which it consists
b) the number of shares taken and the amount paid of each share
c) the name of the company, with the addition of the word “Limited” or “Private Limited” as the case may be, as the last word / words, in case the company is being registered with limited liability.
Step 5
On completion of the formalities, the registrar shall register the Company under Part IX of the Act and issue a certificate of incorporation.
Steps for Incorporation of a public limited company
First Five stages are almost same for incorporation of a public limited company except there should be at least seven subscribers, three directors and the minimum paid up capital are Rs. 5 lacs.
After completion of first three stages a private limited company may commence its business but a public limited company is required to obtain certificate for commencement of business from Registrar of Companies. For obtaining the Certificate for commencement of its business, the Company is required to submit following documents with Registrar of Companies:
o Form 20 to be executed on a non-judicial stamp paper (Annexure 5)
o Statement in lieu of Prospectus
o Affidavit from each directors stating that the Company has not commenced its Business
o Details of Preliminary expenses
o Board Resolution for approval of preliminary expenses.
o Board resolution for appointment of first Auditors
o Consent letter from the Auditors for acting as there Statutory Auditors.
Registrar of Companies thereafter shall process the documents and if all the documents are in order then it will issue a Certificate for commencement of Business.
Steps after incorporation of private company
Once the new company is formed, the takeover agreement would be entered between the Partnership Firm and the newly incorporated company.
Convene a Board Meeting after giving notice to all the directors of the newly incorporated company immediately after incorporation as per section 286 of the Companies Act, 1956 to adopt the agreement entered into by the company and the partner of the firm for the acquisition of business of the firm.
In such a situation, the entire business of the firm along with all its assets and liabilities is transferred to the company.
The company may issue shares or other securities to the Partner of the firm.
Steps after incorporation of public company
Once the new company is formed, the takeover agreement would be entered between the Partnership firm and the newly incorporated company.
Convene a Board Meeting after giving notice to all the directors of the newly incorporated company immediately after incorporation as per section 286 of the Companies Act, 1956 to adopt the agreement entered into by the company.
In the above Board Meeting also fix up the date, time , place and agenda for calling a General Meeting to pass a Special Resolution under section 81(1A) of the Companies Act, 1956 giving powers to the Board of Directors to issue and allot equity shares to Partners of the firm.
Effect of Registration under part IX
o Vesting of Property : All property, movable as well as immovable belonging to or vested in the firm at the time of registration shall, on such registration pass to and vest in the company as incorporated under Part IX.
o The Registration of a company under Part IX shall not in any manner affect its rights or liabilities in respect of any debt or obligation incurred or any contract entered into, by, to, with or on behalf of the firm before registration.
o All suits and other legal proceedings taken by or against the company or any public officer or member thereof which where pending at the time of registration may be continued in the same manner as if registration had not taken place. However, no execution can be done against the property or person of any individual member of the company on any decree or order obtained in such suit or proceeding. If the property of the company is inadequate to satisfy the decree or order, an order for winding up the company may be obtained.
o All provisions of any Indian law or other instrument constituting or regulating the company shall apply to the registered company in the same manner as if the company had been formed under the Companies Act, 1956 and those conditions were required to be contained and were contained in its Memorandum and Articles of Association.
o As per section 383A of the Companies Act, if the paid up capital of the Company is Rs. 500 lacs or more than the company is required to appoint a full time Company Secretary.
o As per section 269 of the Companies Act, 1956 if the paid up capital of the company is Rs. 500 Lacs or more than the Company is required to appoint either Managing Director or Whole Time Director or Manager.
o Debts and liabilities are not automatically transferred to the new company and therefore a novation agreement will have to be entered into by the company with its debtors and creditors.
o Obtain an indemnity from the company to the partnership firm for all acts, deeds and things done after the registration under Part IX and vice versa.
o Comply with all the relevant provisions of the Companies Act, 1956 i.e. call requisite meetings, register charges, comply with section 58A if necessary, etc.
o Stamp duty. Conversion of firm to company is exempted from payment of stamp duty as there is no change in the ownership and no transfer is involved.
For the purpose of Part IX so far as it relates to the registration of companies limited by shares, a joint stock company means a company having a permanent paid up or nominal share capital of fixed amount divided into shares, also of fixed amount, or held and transferable as stock, or divided and held partly in the one way and partly in the other, and formed on the principle of having for its members the holders of those shares or that stock, and no other persons. Such a company, when registered with limited liability under the Companies Act, 1956 shall be deemed to be a company limited by shares.
A company cannot be registered under part IX unless the assent of majority of its members as are present in person or where proxies are allowed, by proxy, at a general meeting summoned for the purpose is obtained.
Since the liability of the members of the firm is unlimited, when a firm desires to register itself as a company under Part IX as a limited company, the majority required to assent as aforesaid shall consist of not less than ¾ of the members as are present in person or where proxies are allowed, by proxy, at a general meeting summoned for the purpose.
Steps for incorporation of company under part IX
Step 1
Hold a meeting of the partners to transact the following business
o Assent of majority of its members as are present in person or where proxies are allowed, by proxy, at a general meeting summoned for the purpose of registering the firm under Part IX of the CompaniesAct, 1956. Since the liability of the members of the firm is unlimited, when a firm desires to register itself as a company under Part IX as a limited company, the majority required to assent as aforesaid shall consist of not less than ¾ of the members as are present in person or where proxies are allowed, by proxy, at a general meeting summoned for the purpose.
o To authorize one or more partners to take all steps necessary and to execute all papers, deeds, documents etc. pursuant to registration of the firm as a Company.
o To execute a supplementary Partnership Deed to align it with the requirements as under:
o There must be at least 7 partners in the partnership firm;
o The firm may be registered with the Registrar of Firms;
o There must be a fixed capital divided into units ;
o There must be provision of converting a firm into company.
o There must be an agreement by the partners to convert the partnership to a company. This can be done by a contract in writing to this effect to which the partner’s resolution for conversion can be attached as annexure.
o Execute a settlement deed.
Step 2
APPLICATION FOR DIRECTOR’S IDENTIFICATION NUMBER AND DIGITAL SIGNATURERS CERTIFICATE
o Ministry of Company Affairs has made Director’s Identification Number mandatory for each Director.Following details are required for DIN: Name(s) , Father’s Name(s), Permanent Residential Address(s), Present Residential Address(s), Occupation, Name of the Companies in which the promoter is Director/Promoter, Date of Birth , E-mail IDs (Minimum 2 for private company).
o Ministry of Company affairs have initiated the process of E-filing of the Documents, wherein the either of the Director needs to have Digital Signature Certificate. For the matter of Convenience in submission of documents with Registrar of Companies and expediting the processing, it is advisable to obtain the Digital Signature Certificate from prescribed authorities.
o Following documents are required for DIN/Digital Signature: Copy of Passport/ Voter ID/Ration Card/Driving License/ PAN Card/Telephone Bill/Electricity Bill/Bank Statement.
o The application is required to be signed by the promoter(s).
o Normally the process takes 5 to 7 working days after submitting the documents with DIN Cell.
Note: In case of a Private Limited Company at least two Directors should be appointed.
Step 3
NAME APPROVAL
o An application in Form No. 1A needs to be filed with the Registrar of Companies (ROC) with following annexure(s) stating the fact that the partnership firm pro¬posed to be converted under part IX of theCompanies Act. (Annexure 1).
o Certified true copy of Partnership Deed .
o Certified true copy of the latest balance sheet of the partnership.
o Certified true copy of the latest income tax assessment order/return.
o Consent of all the partners stating that they have agreed to register the partnership firm as a Company .
o Certified True Copy of the resolution passed by the firm in this regard .
o The application is required to be digitally signed by one of the promoters.
o The details to be state in the said application are as follows :
1. Maximum Six alternative names for the proposed company. (in order of preference)
2. Names , Father’s/ Husband’s Name, Permanent Residential Addresses, Present Residential Address, Occupation, Name of the Companies in which the Promoter is Director/Promoter , Date of Birth , DIN of the Promoters.
3. Authorised Capital of the proposed Company.
4. Main objects of the proposed company.
5. State of Registered Office of Company
6. Copy of Trade Mark Application/Certificate If name of proposed company based on a Trade Mark,
Note:
1.
1. As per Indian Companies Act, 1956, a Private Company should have a minimum Paid up Capital of Rupees One Lac.
2. As per Indian Companies Act, 1956 there should be at least two promoters in a Private Limited Company.
3. The Registrar of Companies will ordinarily inform within a period of seven days from the date of submission of the application whether any of the names applied for is available.
4. If the name is not made available, the Registrar of Companies may reject the application and if it happens, new names to be provided for approval.
Step 4
Registration of Company
o On obtaining the approval of name , file the following documents with the registrar of Companies within 60 days from the date of name approval
o Two sets of Memorandum and Articles of Association of the Company. One set shall be duly stamped. A memorandum of association and articles of association may be made for the company which will be similar in all respects to a normal Memorandum and Articles of Association except that it incorporate therein terms of settlement deed.
o After drafting The Memorandum and Articles of Association is required to be stamped as per the Indian Stamp Act. (in Delhi its Rs. 200/- on MOA & 0.15% of Authorized Capital on AOA).
o Thereafter these documents are required to be executed by the promoters in their own hand in the presence of professionals after the date of Stamping of Memorandum & Article of Association in duplicate stating their full name, father’s name, residential address, occupation, number of shares subscribed for & Signature etc.
o However, if any director is foreigner and not present in India after the date of Stamping of the Memorandum & Article of Association, in that case, his signature should be attested in Indian Embassy located in his home country.
o Form No. 1 – This is a declaration to be executed on a non-judicial stamp paper by one of thedirectors of the proposed company or other specified persons such as Chartered Accountants, Company Secretaries, Advocates, etc. stating that all the requirements of the incorporation have been complied with. (Annexure 2)
o Form No. 18 – This is a form to be filed by one of the directors of the company informing the ROC the registered office of the proposed company. (Annexure 3).
o Form No.: 32 – This is a form stating the fact of appointment of the proposed directors on theboard of directors from the date of incorporation of the proposed company and is signed by one of the proposed directors. (Annexure 4).
o Power of Attorney signed by all the subscribers of MOA authorizing one of the subscribers or any other person to act on their behalf for the purpose of incorporation and accepting the certificate of incorporation.
o Form No. 37 along with Form No. 39 (Annexure 5 & 6).
o Declaration by two partners verifying the particulars set forth in the above mentioned documents.
o Consent letters from Directors
o Filing fees as may be applicable
o Other information to be submitted:
i) A list showing the names, addresses and occupations of all persons who on a day named in the list, not being more than 6 clear days before the date of registration were members of the company, with the addition of the shares or stock held by them respectively, distinguishing, in cases where the shares are numbered, each share by its number.
ii) If the company is intended to be registered as a limited company, a statement specifying the following particulars :-
a) the nominal share capital of the company and the number of shares into which it
is divided or the amount of stock of which it consists
b) the number of shares taken and the amount paid of each share
c) the name of the company, with the addition of the word “Limited” or “Private Limited” as the case may be, as the last word / words, in case the company is being registered with limited liability.
Step 5
On completion of the formalities, the registrar shall register the Company under Part IX of the Act and issue a certificate of incorporation.
Steps for Incorporation of a public limited company
First Five stages are almost same for incorporation of a public limited company except there should be at least seven subscribers, three directors and the minimum paid up capital are Rs. 5 lacs.
After completion of first three stages a private limited company may commence its business but a public limited company is required to obtain certificate for commencement of business from Registrar of Companies. For obtaining the Certificate for commencement of its business, the Company is required to submit following documents with Registrar of Companies:
o Form 20 to be executed on a non-judicial stamp paper (Annexure 5)
o Statement in lieu of Prospectus
o Affidavit from each directors stating that the Company has not commenced its Business
o Details of Preliminary expenses
o Board Resolution for approval of preliminary expenses.
o Board resolution for appointment of first Auditors
o Consent letter from the Auditors for acting as there Statutory Auditors.
Registrar of Companies thereafter shall process the documents and if all the documents are in order then it will issue a Certificate for commencement of Business.
Steps after incorporation of private company
Once the new company is formed, the takeover agreement would be entered between the Partnership Firm and the newly incorporated company.
Convene a Board Meeting after giving notice to all the directors of the newly incorporated company immediately after incorporation as per section 286 of the Companies Act, 1956 to adopt the agreement entered into by the company and the partner of the firm for the acquisition of business of the firm.
In such a situation, the entire business of the firm along with all its assets and liabilities is transferred to the company.
The company may issue shares or other securities to the Partner of the firm.
Steps after incorporation of public company
Once the new company is formed, the takeover agreement would be entered between the Partnership firm and the newly incorporated company.
Convene a Board Meeting after giving notice to all the directors of the newly incorporated company immediately after incorporation as per section 286 of the Companies Act, 1956 to adopt the agreement entered into by the company.
In the above Board Meeting also fix up the date, time , place and agenda for calling a General Meeting to pass a Special Resolution under section 81(1A) of the Companies Act, 1956 giving powers to the Board of Directors to issue and allot equity shares to Partners of the firm.
Effect of Registration under part IX
o Vesting of Property : All property, movable as well as immovable belonging to or vested in the firm at the time of registration shall, on such registration pass to and vest in the company as incorporated under Part IX.
o The Registration of a company under Part IX shall not in any manner affect its rights or liabilities in respect of any debt or obligation incurred or any contract entered into, by, to, with or on behalf of the firm before registration.
o All suits and other legal proceedings taken by or against the company or any public officer or member thereof which where pending at the time of registration may be continued in the same manner as if registration had not taken place. However, no execution can be done against the property or person of any individual member of the company on any decree or order obtained in such suit or proceeding. If the property of the company is inadequate to satisfy the decree or order, an order for winding up the company may be obtained.
o All provisions of any Indian law or other instrument constituting or regulating the company shall apply to the registered company in the same manner as if the company had been formed under the Companies Act, 1956 and those conditions were required to be contained and were contained in its Memorandum and Articles of Association.
o As per section 383A of the Companies Act, if the paid up capital of the Company is Rs. 500 lacs or more than the company is required to appoint a full time Company Secretary.
o As per section 269 of the Companies Act, 1956 if the paid up capital of the company is Rs. 500 Lacs or more than the Company is required to appoint either Managing Director or Whole Time Director or Manager.
o Debts and liabilities are not automatically transferred to the new company and therefore a novation agreement will have to be entered into by the company with its debtors and creditors.
o Obtain an indemnity from the company to the partnership firm for all acts, deeds and things done after the registration under Part IX and vice versa.
o Comply with all the relevant provisions of the Companies Act, 1956 i.e. call requisite meetings, register charges, comply with section 58A if necessary, etc.
o Stamp duty. Conversion of firm to company is exempted from payment of stamp duty as there is no change in the ownership and no transfer is involved.
Section 17 PF Act
Dear Friends
In one of our earlier posts we had highlighted the exemption provisions of the EPF Act which are once again highlighted :
Section 17 provides for it :
17. Power of exempt
(1) The appropriate government may by notification in the Official Gazette and subject to such conditions as may be specified in the notification exempt whether prospectively or retrospectively from the operation of all or any of the provisions of any Scheme :
(a) any establishment to which this Act applies if in the opinion of the appropriate government the rules of its provident fund with respect to the rates of contribution are not less favourable than those specified in section 6 and the employees are also in enjoyment of other provident fund benefits which on the whole are not less favourable to the employees than the benefits provided under this Act or any Scheme in relation to the employees in any other establishment of similar character or
(b) any establishment are in enjoyment of benefits in the nature of provident fund pension or gratuity and the appropriate government is of opinion that such benefits separately or jointly are on the whole not less favourable to such employees that the benefits provided under this Act or any Scheme in relation to the employees in any other establishment of a similar character :
Provided that no such exemption shall be made except after consultation with the Central Board which on such consultation shall forward its views on exemption to the appropriate government within such time limit as may be specified in the Scheme.
Sec 17 1 (a ) is with reference to exemption from PF Contribution and Sec 17 1 (b) is with reference to Pension and Gratuity.
A common question arises in preparing payroll of Temporary Employees by Staffing Entities whether exemption from coverage under EPF Act of any Temporary Employee is the right of the Staffing Company ?
Yes .But substantiating evidence by way of Documents has to provided to the EPF Department for claiming the exemption . Initially if the same is rejected by the Department then it is better to go in for the coverage thereby limiting the liability .Further the Delhi High Court in the case of J K COLLEGE OF NURSING & PARAMEDICALS Versus UOI & ORS decided on 24th May, 2011 by the Judgment of His Lordship Mr Justice RAJIV SAHAI ENDLAW, J.has held that if any establishment or employer claims to be not covered under the said Act, then it is for the employer to place sufficient cogent and convincing material before the designated authority in an enquiry under Section 7A of the Act, so as to satisfy the Authority with regard to non-applicability of the Act and further held that on failure to place any such material, the onus cannot be shifted on the EPF authorities to prove the applicability of the Act.
It was yet further held that the EPF authorities under no circumstances can be in possession of necessary records evidencing the extent of strength of employees in any particular establishment.
It was also held that in matters like this, the question of onus of proof is immaterial; the Provident Funds Commissioner is an authority created by the statute who has to administer the statutory provisions according to law and for this purpose he is entitled to collect material by resort to powers under various provisions of law including by examination of the books of accounts and others records of establishments.
Next time when any Employer is before the PF authority under Section 7 A the burden of proof is on the Employer and the Employer has to provide all details/ proof to claim exemption.Time need not be wasted to say the Authority has to prove their assertion.
With Regards
V.Sounder Rajan
VS Rajan Associates,
Advocates & Notaries & Legal Consultants
No.27, Ist Floor, Singapore Plaza,
No.164, Linghi Chetty Street,
Chennai - 600 001.
E-mail : rajanassociates@eth,net,
Off : 044-42620864, 044-65874684,
Mobile : 9840142164-9025792684.
If we do not want to be pained by anybody we must not pain anybody; and how can man consider himself humane if he wants to live at the cost of others.
Morarji Desai
In one of our earlier posts we had highlighted the exemption provisions of the EPF Act which are once again highlighted :
Section 17 provides for it :
17. Power of exempt
(1) The appropriate government may by notification in the Official Gazette and subject to such conditions as may be specified in the notification exempt whether prospectively or retrospectively from the operation of all or any of the provisions of any Scheme :
(a) any establishment to which this Act applies if in the opinion of the appropriate government the rules of its provident fund with respect to the rates of contribution are not less favourable than those specified in section 6 and the employees are also in enjoyment of other provident fund benefits which on the whole are not less favourable to the employees than the benefits provided under this Act or any Scheme in relation to the employees in any other establishment of similar character or
(b) any establishment are in enjoyment of benefits in the nature of provident fund pension or gratuity and the appropriate government is of opinion that such benefits separately or jointly are on the whole not less favourable to such employees that the benefits provided under this Act or any Scheme in relation to the employees in any other establishment of a similar character :
Provided that no such exemption shall be made except after consultation with the Central Board which on such consultation shall forward its views on exemption to the appropriate government within such time limit as may be specified in the Scheme.
Sec 17 1 (a ) is with reference to exemption from PF Contribution and Sec 17 1 (b) is with reference to Pension and Gratuity.
A common question arises in preparing payroll of Temporary Employees by Staffing Entities whether exemption from coverage under EPF Act of any Temporary Employee is the right of the Staffing Company ?
Yes .But substantiating evidence by way of Documents has to provided to the EPF Department for claiming the exemption . Initially if the same is rejected by the Department then it is better to go in for the coverage thereby limiting the liability .Further the Delhi High Court in the case of J K COLLEGE OF NURSING & PARAMEDICALS Versus UOI & ORS decided on 24th May, 2011 by the Judgment of His Lordship Mr Justice RAJIV SAHAI ENDLAW, J.has held that if any establishment or employer claims to be not covered under the said Act, then it is for the employer to place sufficient cogent and convincing material before the designated authority in an enquiry under Section 7A of the Act, so as to satisfy the Authority with regard to non-applicability of the Act and further held that on failure to place any such material, the onus cannot be shifted on the EPF authorities to prove the applicability of the Act.
It was yet further held that the EPF authorities under no circumstances can be in possession of necessary records evidencing the extent of strength of employees in any particular establishment.
It was also held that in matters like this, the question of onus of proof is immaterial; the Provident Funds Commissioner is an authority created by the statute who has to administer the statutory provisions according to law and for this purpose he is entitled to collect material by resort to powers under various provisions of law including by examination of the books of accounts and others records of establishments.
Next time when any Employer is before the PF authority under Section 7 A the burden of proof is on the Employer and the Employer has to provide all details/ proof to claim exemption.Time need not be wasted to say the Authority has to prove their assertion.
With Regards
V.Sounder Rajan
VS Rajan Associates,
Advocates & Notaries & Legal Consultants
No.27, Ist Floor, Singapore Plaza,
No.164, Linghi Chetty Street,
Chennai - 600 001.
E-mail : rajanassociates@eth,net,
Off : 044-42620864, 044-65874684,
Mobile : 9840142164-9025792684.
If we do not want to be pained by anybody we must not pain anybody; and how can man consider himself humane if he wants to live at the cost of others.
Morarji Desai
Wednesday, September 14, 2011
NOTIFIED LONG-TERM INFRASTRUCTURE BOND ELIGIBLE FOR 80CCF DEDUCTION FOR FY 2011-12(N/N.50/2011 dated 9-9-2011
Dear friends,
In exercise of the powers conferred by section 80CCF of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby specifies bonds vide Notification no. 50/2011 dated 9th September 2011, subject to the following conditions, as long term infrastructure bonds for the purpose of the said section, namely:-
(a) Name of the bond - The name of the bond shall be "The Long Term Infrastructure Bond"
(b) Issuer of the Bond - The Long Term Infrastructure Bonds to be issued in the financial year 2011-12 shall be issued by -
1. The Industrial Finance Corporation of India, established under section 3 of the Industrial Finance Corporation Act, 1948 (15 of 1948);
2. The Life Insurance Corporation of India, established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956);
3. The Infrastructure Development Finance Company Limited, a company formed and registered under the Companies Act, 1956 (1 of 1956);
4. The India Infrastructure Finance Company Ltd.; a company formed and registered under the Companies Act, 1956 (1 of 1956); and
5. A Non-Banking Finance Company classified as an Infrastructure Finance Company by the Reserve Bank of India.
(c) Limit on issuance - (i) The Bond will be issued during the financial year 2011-12; (ii) the volume of issuance during the financial year shall be restricted to twenty-five per cent of the incremental infrastructure investments made by the issuer during the financial year 2010-11; (iii)'investments' for the purposes of this limit shall include loans, bonds, other forms of debt, quasi-equity, preference equity and equity.
(d) Tenure of the bond - (i) The tenure of the Bond shall be for a minimum period of ten years; (ii) the minimum lock-in period for an investor shall be five years; (iii) after the lock-in period the investor may exit either through the secondary market or through a buyback facility, specified by the issuer in the issue documents at the time of issue; (iv) the bond shall also be allowed as pledge or lien or hypothecation for obtaining loans from Scheduled Commercial Banks, after the said lock-in-period.
(e) Permanent Account Number (PAN) to be furnished:- It shall be mandatory for the subscribers to furnish their PAN to the issuer;
(f) Yield of the bond:- The yield of the bond shall not exceed the yield on Government securities of corresponding residual maturity as reported by the Fixed Income Money Market and Derivatives Association of India (FIMMDA), as on the last working day of the month immediately preceding the month of the issue of the bond;
(g) End-use of proceeds and reporting or monitoring mechanism - (i) The proceeds of the Bond shall be utilized towards 'infrastructure lending' as defined by the Reserve Bank of India in the Guidelines issued by it;
(i) the end-use shall be duly reported in the Annual Reports and other reports submitted by the issuer to the Regulatory Authority concerned, and specifically certified by the Statutory Auditor of the issuer;
(ii) the issuer shall also file these along with term sheets to the Infrastructure Division, Department of Economic Affairs, Ministry of Finance within three months from the end of financial year.
(NOTIFICATION NO. 50/2011 [F.NO. 178/43/2011-SO(ITA.1)], DATED 9-9-2011:SECTION 80CCF OF THE INCOME-TAX ACT, 1961 - DEDUCTION - IN RESPECT OF SUBSCRIPTION TO LONG-TERM INFRASTRUCTURE BOND - NOTIFIED LONG-TERM INFRASTRUCTURE BOND)
With regards,
Bipul Kumar
Senior Executive – Taxation
Wisdom Management Consultancy Private Limited
In exercise of the powers conferred by section 80CCF of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby specifies bonds vide Notification no. 50/2011 dated 9th September 2011, subject to the following conditions, as long term infrastructure bonds for the purpose of the said section, namely:-
(a) Name of the bond - The name of the bond shall be "The Long Term Infrastructure Bond"
(b) Issuer of the Bond - The Long Term Infrastructure Bonds to be issued in the financial year 2011-12 shall be issued by -
1. The Industrial Finance Corporation of India, established under section 3 of the Industrial Finance Corporation Act, 1948 (15 of 1948);
2. The Life Insurance Corporation of India, established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956);
3. The Infrastructure Development Finance Company Limited, a company formed and registered under the Companies Act, 1956 (1 of 1956);
4. The India Infrastructure Finance Company Ltd.; a company formed and registered under the Companies Act, 1956 (1 of 1956); and
5. A Non-Banking Finance Company classified as an Infrastructure Finance Company by the Reserve Bank of India.
(c) Limit on issuance - (i) The Bond will be issued during the financial year 2011-12; (ii) the volume of issuance during the financial year shall be restricted to twenty-five per cent of the incremental infrastructure investments made by the issuer during the financial year 2010-11; (iii)'investments' for the purposes of this limit shall include loans, bonds, other forms of debt, quasi-equity, preference equity and equity.
(d) Tenure of the bond - (i) The tenure of the Bond shall be for a minimum period of ten years; (ii) the minimum lock-in period for an investor shall be five years; (iii) after the lock-in period the investor may exit either through the secondary market or through a buyback facility, specified by the issuer in the issue documents at the time of issue; (iv) the bond shall also be allowed as pledge or lien or hypothecation for obtaining loans from Scheduled Commercial Banks, after the said lock-in-period.
(e) Permanent Account Number (PAN) to be furnished:- It shall be mandatory for the subscribers to furnish their PAN to the issuer;
(f) Yield of the bond:- The yield of the bond shall not exceed the yield on Government securities of corresponding residual maturity as reported by the Fixed Income Money Market and Derivatives Association of India (FIMMDA), as on the last working day of the month immediately preceding the month of the issue of the bond;
(g) End-use of proceeds and reporting or monitoring mechanism - (i) The proceeds of the Bond shall be utilized towards 'infrastructure lending' as defined by the Reserve Bank of India in the Guidelines issued by it;
(i) the end-use shall be duly reported in the Annual Reports and other reports submitted by the issuer to the Regulatory Authority concerned, and specifically certified by the Statutory Auditor of the issuer;
(ii) the issuer shall also file these along with term sheets to the Infrastructure Division, Department of Economic Affairs, Ministry of Finance within three months from the end of financial year.
(NOTIFICATION NO. 50/2011 [F.NO. 178/43/2011-SO(ITA.1)], DATED 9-9-2011:SECTION 80CCF OF THE INCOME-TAX ACT, 1961 - DEDUCTION - IN RESPECT OF SUBSCRIPTION TO LONG-TERM INFRASTRUCTURE BOND - NOTIFIED LONG-TERM INFRASTRUCTURE BOND)
With regards,
Bipul Kumar
Senior Executive – Taxation
Wisdom Management Consultancy Private Limited
Friday, September 9, 2011
ECB Simplification procedure
A. P. (DIR SERIES) CIRCULAR NO. 11, DATED 7-9-2011 simplifying procedure in External Commercial borrowings as below :
1. As per the extant ECB procedures, any request for change of the lender for an existing ECB is required to be referred by the Authorised Dealer Bank to the Reserve Bank for necessary approval.
2.As a measure of simplification of the existing procedures, it has been decided to delegate powers to the designated AD Category-I banks to approve the request from the ECB borrowers with respect to change in the recognized lender when the original lender is an international bank or a multi-lateral financial institution (such as IFC, ADB, CDC, etc.) or a regional financial institution or a Government owned development financial institution or an export credit agency or supplier of equipment and the new lender also belongs to any one of the above mentioned categories, subject to the Authorised Dealer ensuring the following conditions:-
(i) the new lender is a recognized lender as per the extant ECB norms;
(ii) there is no change in the other terms and conditions of the ECB; and
(iii) the ECB is in compliance with the extant guidelines.
3. However, changes in the recognized lender in case of foreign equity holder and foreign collaborator will continue to be examined by the Reserve Bank.
4. The changes in the recognized lender should be promptly reported to the Department of Statistics and Information Management, Reserve Bank of India in Form 83.
5.The above modifications to the ECB guidelines will come into force with immediate effect. All other aspects of the ECB policy, such as, USD 500 million limit per company per financial year under the automatic route, eligible borrower, end-use, all-in-cost ceiling, average maturity period, pre-payment, refinancing of existing ECB and reporting arrangements shall remain unchanged.
(The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/approvals, if any, required under any other law.)
With regards,
Bipul Kumar
Wisdom Management Consultancy Private Limited
--------------------------------------------------
Reg. Office: B-94/9, Dharni Chamber, Joshi Colony, IP Extension, New Delhi-110092.
+91-9560084833 [Cell]
1. As per the extant ECB procedures, any request for change of the lender for an existing ECB is required to be referred by the Authorised Dealer Bank to the Reserve Bank for necessary approval.
2.As a measure of simplification of the existing procedures, it has been decided to delegate powers to the designated AD Category-I banks to approve the request from the ECB borrowers with respect to change in the recognized lender when the original lender is an international bank or a multi-lateral financial institution (such as IFC, ADB, CDC, etc.) or a regional financial institution or a Government owned development financial institution or an export credit agency or supplier of equipment and the new lender also belongs to any one of the above mentioned categories, subject to the Authorised Dealer ensuring the following conditions:-
(i) the new lender is a recognized lender as per the extant ECB norms;
(ii) there is no change in the other terms and conditions of the ECB; and
(iii) the ECB is in compliance with the extant guidelines.
3. However, changes in the recognized lender in case of foreign equity holder and foreign collaborator will continue to be examined by the Reserve Bank.
4. The changes in the recognized lender should be promptly reported to the Department of Statistics and Information Management, Reserve Bank of India in Form 83.
5.The above modifications to the ECB guidelines will come into force with immediate effect. All other aspects of the ECB policy, such as, USD 500 million limit per company per financial year under the automatic route, eligible borrower, end-use, all-in-cost ceiling, average maturity period, pre-payment, refinancing of existing ECB and reporting arrangements shall remain unchanged.
(The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/approvals, if any, required under any other law.)
With regards,
Bipul Kumar
Wisdom Management Consultancy Private Limited
--------------------------------------------------
Reg. Office: B-94/9, Dharni Chamber, Joshi Colony, IP Extension, New Delhi-110092.
+91-9560084833 [Cell]
Thursday, September 1, 2011
costly gifts come under taxes attached
Dear friends,
The festive season has started, and giving and receiving gifts is common during this period. Since the last few years, gifts in the form of certain assets, received by a taxpayer, are taxable under “income from other sources”. Here’s an account of the types of assets received by way of gift that are taxable, and the limit for such gifts.
Gifts in the form of money (whether received through cheque or in cash) are taxable if the total amount of gift of money received by you in a year exceeds Rs. 50,000. If you receive gifts worth Rs. 51,000 in a year, there is no exemption for Rs. 50,000, and the entire Rs. 51,000 is taxable.
Gifts received in the form of certain movable assets, such as jewellery, shares and securities, archaeological collections, drawings, paintings, sculptures, any works of art or bullion, are also taxable if the total value of all such movable assets received during the year exceeds Rs. 50,000. This limit is in addition to the limit of Rs. 50,000 for gifts received in the form of money. Gifts received as any other movable assets are not subjected to tax.
Similarly, gifts received of immovable property are also taxable if the stamp duty valuation of each such immovable property is more than Rs. 50,000. This limit is in addition to the two earlier mentioned limits of Rs. 50,000 for money gifts and Rs. 50,000 for movable assets.
In case of a minor, the limit of Rs. 50,000 for each of these categories of gifts will be separate and in addition to the exemption limit available to the parent with whose income the income of the minor is to be clubbed. This is on account of the fact that the income of the minor has to be computed separately in the hands of the minor, and then included in the income of the parent.
There are exemptions for gifts received from specified relatives, gifts received on the occasion of marriage of the taxpayer, assets received under a will or by way of inheritance, gifts received in contemplation of death of the donor, or gifts received from charitable organizations. Such gifts would not be taxable at all. Gifts received on the occasion of marriage should, however, not include gifts received at the time of engagement or any pre-marriage function. Also, gifts received by parents of the bride or of the bridegroom will not be exempt from tax.
The list of specified relatives includes the spouse, brother or sister, brother or sister of the spouse, brother or sister of either of the parents, any lineal ascendant or descendant, any lineal ascendant or descendant of the spouse, and the spouse of any of the above persons. The relation has to be seen from the context of the recipient. Therefore, if you receive a gift from your uncle (father’s or mother’s brother), such a gift would be exempt. However, there is no corresponding exemption for a gift given by you to your uncle, and your uncle may end up paying tax on such a gift.
A Hindu undivided family (HUF) is not among the list of specified relatives. So, will a gift received by you from your HUF be taxable? A recent tribunal decision has held that the HUF consists of all specified categories of relatives, and therefore a gift received from your HUF is really a gift received by you from all these relatives and would therefore be exempt from tax.
The list of the specified assets also does have some nuances. For example, the term “bullion” implies a mass of valuable metal, such as gold or silver, and would not include gold or silver coins. Such gold or silver coins would also not amount to jewellery, and therefore gifts in the form of gold or silver coins may escape tax altogether. Similarly, gold watches or silver utensils may not amount to jewellery if they are meant for regular day-to-day use, and gifts of such items may also not be taxable.
Similarly, stamp collections or coin collections or antique furniture may not amount to works of art or archaeological collections (unless of course the coins belong to a lost civilization, having been excavated from the ruins), and gifts received in the form of such items may again not be subjected to tax as income of the recipient.
A concept of deemed gifts has also been introduced, whereby if an asset is acquired for less than its fair market value, the difference would be taxable as income. Rules have been laid down for valuation of such assets. These would be discussed in a separate article, since there are various issues involved.
To conclude, receiving gifts is no longer a pure, undiluted pleasure. It comes now with the obligation
With regards,
Bipul Kumar
Wisdom Management Consultancy Private Limited
--------------------------------------------------
Reg. Office: B-94/9, Dharni Chamber, Joshi Colony, IP Extension, New Delhi-110092.
+91-9560084833 [Cell]
The festive season has started, and giving and receiving gifts is common during this period. Since the last few years, gifts in the form of certain assets, received by a taxpayer, are taxable under “income from other sources”. Here’s an account of the types of assets received by way of gift that are taxable, and the limit for such gifts.
Gifts in the form of money (whether received through cheque or in cash) are taxable if the total amount of gift of money received by you in a year exceeds Rs. 50,000. If you receive gifts worth Rs. 51,000 in a year, there is no exemption for Rs. 50,000, and the entire Rs. 51,000 is taxable.
Gifts received in the form of certain movable assets, such as jewellery, shares and securities, archaeological collections, drawings, paintings, sculptures, any works of art or bullion, are also taxable if the total value of all such movable assets received during the year exceeds Rs. 50,000. This limit is in addition to the limit of Rs. 50,000 for gifts received in the form of money. Gifts received as any other movable assets are not subjected to tax.
Similarly, gifts received of immovable property are also taxable if the stamp duty valuation of each such immovable property is more than Rs. 50,000. This limit is in addition to the two earlier mentioned limits of Rs. 50,000 for money gifts and Rs. 50,000 for movable assets.
In case of a minor, the limit of Rs. 50,000 for each of these categories of gifts will be separate and in addition to the exemption limit available to the parent with whose income the income of the minor is to be clubbed. This is on account of the fact that the income of the minor has to be computed separately in the hands of the minor, and then included in the income of the parent.
There are exemptions for gifts received from specified relatives, gifts received on the occasion of marriage of the taxpayer, assets received under a will or by way of inheritance, gifts received in contemplation of death of the donor, or gifts received from charitable organizations. Such gifts would not be taxable at all. Gifts received on the occasion of marriage should, however, not include gifts received at the time of engagement or any pre-marriage function. Also, gifts received by parents of the bride or of the bridegroom will not be exempt from tax.
The list of specified relatives includes the spouse, brother or sister, brother or sister of the spouse, brother or sister of either of the parents, any lineal ascendant or descendant, any lineal ascendant or descendant of the spouse, and the spouse of any of the above persons. The relation has to be seen from the context of the recipient. Therefore, if you receive a gift from your uncle (father’s or mother’s brother), such a gift would be exempt. However, there is no corresponding exemption for a gift given by you to your uncle, and your uncle may end up paying tax on such a gift.
A Hindu undivided family (HUF) is not among the list of specified relatives. So, will a gift received by you from your HUF be taxable? A recent tribunal decision has held that the HUF consists of all specified categories of relatives, and therefore a gift received from your HUF is really a gift received by you from all these relatives and would therefore be exempt from tax.
The list of the specified assets also does have some nuances. For example, the term “bullion” implies a mass of valuable metal, such as gold or silver, and would not include gold or silver coins. Such gold or silver coins would also not amount to jewellery, and therefore gifts in the form of gold or silver coins may escape tax altogether. Similarly, gold watches or silver utensils may not amount to jewellery if they are meant for regular day-to-day use, and gifts of such items may also not be taxable.
Similarly, stamp collections or coin collections or antique furniture may not amount to works of art or archaeological collections (unless of course the coins belong to a lost civilization, having been excavated from the ruins), and gifts received in the form of such items may again not be subjected to tax as income of the recipient.
A concept of deemed gifts has also been introduced, whereby if an asset is acquired for less than its fair market value, the difference would be taxable as income. Rules have been laid down for valuation of such assets. These would be discussed in a separate article, since there are various issues involved.
To conclude, receiving gifts is no longer a pure, undiluted pleasure. It comes now with the obligation
With regards,
Bipul Kumar
Wisdom Management Consultancy Private Limited
--------------------------------------------------
Reg. Office: B-94/9, Dharni Chamber, Joshi Colony, IP Extension, New Delhi-110092.
+91-9560084833 [Cell]
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