Blog Archives

Author:
• Monday, March 17th, 2014

Health, Food And Medicine Related Legal Compliances In IndiaThe laws pertaining to food, health and medicines are fast changing but the businesses dealing in them are very slow in adapting with them. As more and more businesses are making their online presence felt, the food and health laws are frequently violated. When e-commerce model is used to sell food, health and medicines in an online environment, many complicated techno legal issue arise.

For instance, fields like online pharmacies, ayurveda, healthcare technology, nutraceuticals, e-health, m-health, telemedicine, etc require compliance with techno legal requirements as prescribed by various legislations of India. These include compliance with laws like Prevention of Food Adulteration Act, 1954 and Rules 1955 (PDF), Food Safety and Standards Act, 2006 (PDF), information technology act, 2000, etc.

When business is done through e-commerce mode, cyber law, cyber security and data security compliances are also required to be taken care of. Internet intermediary liability and cyber law due diligence (PDF) must be taken care of beforehand before launching a website in these fields. The position has become so clear now that cyber due diligence cannot be ignored by Indian companies anymore.

For instance, take the example of Target Corporation that faced cyber attacks and data breach recently. For reasons best known to Target, it failed to take remedial action in this regard. Now target is facing litigation threats around the world and it may be prosecuted in India as well very soon for failing to comply with techno legal requirements of applicable Indian laws.

The position is fast changing in developed nations. The European Union has even suggested measures to strengthen privacy and data rights of its citizens. India also cannot ignore these issues anymore and sooner or later regulatory authorities would question the non compliance on the part of food, health and medicine websites operating in India.

Clinical establishments operating in India are also required to comply with the requirements of the Clinical Establishments (Registration and Regulation) Act 2010 (PDF) and the Clinical Establishments (Central Government) Rules 2012 (PDF). Further, Recommendations on Electronic Medical Records Standards in India (PDF) have also been prescribed that have to be followed and complied with by Indian clinics and healthcare professionals of India.

The legal risks for developer and owners of food, healthcare and medicine related websites cannot be ignored. Further, mobile medical devices and handsets and their respective applications must also be in strict conformity with Indian laws. Medical device makers, software providers and medical fraternity of India must also keep in mind the encryption laws of India and cloud computing related compliances of India.

Category: Uncategorized  | Comments off
Author:
• Sunday, March 02nd, 2014

Tamil Website Savukku Now Available With Proxy URLs Making The Proposed Blocking Of Website RedundantRecently the Tamil website Savukku was ordered to be blocked by Madras High Court. Although the process has not been completed yet the website is available with proxy URLs making the entire judicial exercise redundant. This is how technology works and the judiciary must also keep this aspect of technology in mind while ordering blocking of websites.

The website in dispute is now also available under proxy URLs in varying forms of the name of the HC judge who gave the order. This practically means that even if the department of electronics and information technology (DeitY) blocks the disputed website, the same would be openly available and accessible to public at large. Further, if the website is blocked at the server level, the owner of the website can reload the contents if he maintains a data backup.

Another problem in this regard is the conflict of laws in cyberspace that would make the order of the Madras High Court redundant. For instance, if the disputed website is rehosted on a server located in a foreign jurisdiction, the order of the Court may not be enforced so readily. Even if the order is enforced it would take considerable period of time making the entire exercise futile.

The mutual legal assistance treaty (MLAT) is also not fruitful in all cases. Recently United States refused to serve Indian summons upon U.S. companies and this problem is often faced during conflict of laws in cyberspace. Although some development in this field has taken place after the establishment of Indo-American Alert, Watch and Warn Network for real time information sharing in cyber crime cases yet the position has remained the same so far.

India urgently needs a techno legal framework to manage cyberspace issues in general and conflict of laws in cyberspace in particular. Otherwise the judicial decision would not serve any purpose at all.

Category: Uncategorized  | Comments off
Author:
• Friday, December 20th, 2013

Avoidance Of Tax By Certain Transactions In SecuritiesPerry4Law and Perry4Law’s Techno Legal Base (PTLB) have already discussed the legal issues pertaining to transfer pricing laws in India. We have also discussed avoidance of income-tax by transactions resulting in transfer of income to non residents.

In this article we would discuss a related concept that results in tax evasion by mode of certain transactions in securities.

Section 94 (1) of the Act provides that where the owner of any securities (in this sub-section and in subsection (2) referred to as “the owner”) sells or transfers those securities, and buys back or reacquires the securities, then, if the result of the transaction is that any interest becoming payable in respect of the securities is receivable otherwise than by the owner, the interest payable as aforesaid shall, whether it would or would not have been chargeable to income-tax apart from the provisions of this sub-section, be deemed, for all the purposes of this Act, to be the income of the owner and not to be the income of any other person.

Explanation.-The references in this sub-section to buying back or reacquiring the securities shall be deemed to include references to buying or acquiring similar securities, so, however, that where similar securities are bought or acquired, the owner shall be under no greater liability to income-tax than he would have been under if the original securities had been bought back or reacquired.

Section 94 (2) of the Act provides that where any person has had at any time during any previous year any beneficial interest in any securities, and the result of any transaction relating to such securities or the income thereof is that, in respect of such securities within such year, either no income is received by him or the income received by him is less than the sum to which the income would have amounted if the income from such securities had accrued from day to day and been apportioned accordingly, then the income from such securities for such year shall be deemed to be the income of such person.

Section 94 (3) of the Act provides that the provisions of sub-section (1) or sub-section (2) shall not apply if the owner, or the person who has had a beneficial interest in the securities, as the case may be, proves to the satisfaction of the Assessing Officer-

(a) That there has been no avoidance of income-tax, or

(b) That the avoidance of income-tax was exceptional and not systematic and that there was not in his case in any of the three preceding years any avoidance of income-tax by a transaction of the nature referred to in sub-section (1) or sub-section (2).

Section 94 (4) of the Act provides that where any person carrying on a business which consists wholly or partly in dealing in securities, buys or acquires any securities and sells back or retransfers the securities, then, if the result of the transaction is that interest becoming payable in respect of the securities is receivable by him but is not deemed to be his income by reason of the provisions contained in sub-section (1), no account shall be taken of the transaction in computing for any of the purposes of this Act the profits arising from or loss sustained in the business.

Section 94 (5) of the Act provides that sub-section (4) shall have effect, subject to any necessary modifications, as if references to selling back or retransferring the securities included references to selling or transferring similar securities.

Section 94 (6) of the Act provides that the Assessing Officer may, by notice in writing, require any person to furnish him within such time as he may direct (not being less than twenty-eight days), in respect of all securities of which such person was the owner or in which he had a beneficial interest at any time during the period specified in the notice, such particulars as he considers necessary for the purposes of this section and for the purpose of discovering whether income-tax has been borne in respect of the interest on all those securities.

Section 94 (7) of the Act provides that where-

(a) Any person buys or acquires any securities or unit within a period of three months prior to the record date;

(b) Such person sells or transfers-

(i) Such securities within a period of three months after such date; or

(ii) Such unit within a period of nine months after such date;]

(c) The dividend or income on such securities or unit received or receivable by such person is exempt, then, the loss, if any, arising to him on account of such purchase and sale of securities or unit, to the extent such loss does not exceed the amount of dividend or income received or receivable on such securities or unit, shall be ignored for the purposes of computing his income chargeable to tax.

Section 94 (8) of the Act provides that where-

(a) Any person buys or acquires any units within a period of three months prior to the record date;

(b) Such person is allotted additional units without any payment on the basis of holding of such units on such date;

(c) Such person sells or transfers all or any of the units referred to in clause (a) within a period of nine months after such date, while continuing to hold all or any of the additional units referred to in clause (b), then, the loss, if any, arising to him on account of such purchase and sale of all or any of such units shall be ignored for the purposes of computing his income chargeable to tax and notwithstanding anything contained in any other provision of this Act, the amount of loss so ignored shall be deemed to be the cost of purchase or acquisition of such additional units referred to in clause (b) as are held by him on the date of such sale or transfer.

Explanation.-For the purposes of this section,

(a) “Interest” includes a dividend;

(aa) “Record date” means such date as may be fixed by-

(i) A company for the purposes of entitlement of the holder of the securities to receive dividend; or

(ii) A Mutual Fund or the Administrator of the specified undertaking or the specified company as referred to in the Explanation to clause (35) of section 10, for the purposes of entitlement of the holder of the units to receive income, or additional unit without any consideration, as the case may be;

(b) “Securities” includes stocks and shares;

(c) Securities shall be deemed to be similar if they entitle their holders to the same rights against the same persons as to capital and interest and the same remedies for the enforcement of those rights, notwithstanding any difference in the total nominal amounts of the respective securities or in the form in which they are held or in the manner in which they can be transferred;

(d) “Unit” shall have the meaning assigned to it in clause (b) of the Explanation to section 115AB.

Category: Uncategorized  | Comments off
Author:
• Friday, December 20th, 2013

Avoidance Of Income-Tax By Transactions Resulting In Transfer Of Income To Non ResidentsSo far Perry4Law and Perry4Law’s Techno Legal Base (PTLB) have discussed the legal issues pertaining to transfer pricing laws in India. In this post we would discuss a related concept that results in tax evasion by transferring income to non residents.

Section 93 of the Income Tax Act, 1961 deals with the provision pertaining to avoidance of income-tax by transactions resulting by transfer of income to non residents. This way income tax liability is reduced that is otherwise payable.

Section 93 (1) of the Act provides that where there is a transfer of assets by virtue or in consequence whereof, either alone or in conjunction with associated operations, any income becomes payable to a non-resident, the following provisions shall apply-

(a) Where any person has, by means of any such transfer, either alone or in conjunction with associated operations, acquired any rights by virtue of which he has, within the meaning of this section, power to enjoy, whether forthwith or in the future, any income of a nonresident person which, if it were income of the first-mentioned person, would be chargeable to income-tax, that income shall, whether it would or would not have been chargeable to income-tax apart from the provisions of this section, be deemed to be income of the first mentioned person for all the purposes of this Act;

(b) Where, whether before or after any such transfer, any such first mentioned person receives or is entitled to receive any capital sum the payment whereof is in any way connected with the transfer or any associated operations, then any income which, by virtue or in consequence of the transfer, either alone or in conjunction with associated operations, has become the income of a non-resident shall, whether it would or would not have been chargeable to income-tax apart from the provisions of this section, be deemed to be the income of the first mentioned person for all the purposes of this Act.

Explanation.-The provisions of this sub-section shall apply also in relation to transfers of assets and associated operations carried out before the commencement of this Act.

Section 93 (2) of the Act provides that where any person has been charged to income-tax on any income deemed to be his under the provisions of this section and that income is subsequently received by him, whether as income or in any other form, it shall not again be deemed to form part of his income for the purposes of this Act.

Section 93 (3) of the Act provides that the provisions of this section shall not apply if the first-mentioned person in sub-section (1) shows to the satisfaction of the [Assessing] Officer that-

(a) Neither the transfer nor any associated operation had for its purpose or for one of its purposes the avoidance of liability to taxation; or

(b) The transfer and all associated operations were bona fide commercial transactions and were not designed for the purpose of avoiding liability to taxation.

Explanation.-For the purposes of this section,

(a) References to assets representing any assets, income or accumulations of income include references to shares in or obligation of any company to which, or obligation of any other person to whom, those assets, that income or those accumulations are or have been transferred;

(b) Any body corporate incorporated outside India shall be treated as if it were a non-resident;

(c) A person shall be deemed to have power to enjoy the income of a nonresident if-

(i) The income is in fact so dealt with by any person as to be calculated at some point of time and, whether in the form of income or not, to enure for the benefit of the first-mentioned person in sub-section (1), or

(ii) The receipt or accrual of the income operates to increase the value to such first-mentioned person of any assets held by him or for his benefit, or

(iii) Such first-mentioned person receives or is entitled to receive at any time any benefit provided or to be provided out of that income or out of moneys which are or will be available for the purpose by reason of the effect or successive effects of the associated operations on that income and assets which represent that income, or

(iv) Such first-mentioned person has power by means of the exercise of any power of appointment or power of revocation or otherwise to obtain for himself, whether with or without the consent of any other person, the beneficial enjoyment of the income, or

(v) Such first-mentioned person is able, in any manner whatsoever and whether directly or indirectly, to control the application of the income;

(d) In determining whether a person has power to enjoy income, regard shall be had to the substantial result and effect of the transfer and any associated operations, and all benefits which may at any time accrue to such person as a result of the transfer and any associated operations shall be taken into account irrespective of the nature or form of the benefits.

Section 93 (4) of the Act provides that-

(a) “Assets” includes property or rights of any kind and “transfer” in relation to rights includes the creation of those rights;

(b) “Associated operation”, in relation to any transfer, means an operation of any kind effected by any person in relation to-

(i) Any of the assets transferred, or

(ii) Any assets representing, whether directly or indirectly, any of the assets transferred, or

(iii) The income arising from any such assets, or

(iv) Any assets representing, whether directly or indirectly, the accumulations of income arising from any such assets;

(c) “Benefit” includes a payment of any kind;

(d) “Capital sum” means—

(i) Any sum paid or payable by way of a loan or repayment of a loan; and

(ii) Any other sum paid or payable otherwise than as income, being a sum which is not paid or payable for full consideration in money or money’s worth.

Category: Uncategorized  | Comments off
Author:
• Friday, December 20th, 2013

Shell India Received Transfer Pricing Order From Indian Tax AuthoritiesTransfer pricing laws of India are frequently invoked by Indian income tax department these days. The main reason for the same is to enrich government exchequers with additional revenues.

One such transfer pricing order has been received by Shell India that alleges that Shell under priced its shares to the extent of Rs 15,000 crore while issuing shares to it’s sole parent Shell Gas BV in March, 2009.

Shell India has alleged that the order was based on incorrect interpretation of Indian transfer pricing laws. In fact, Shell believes that taxing the money received by Shell India is, in effect, a tax on foreign direct investment. Shell believes that this is not only in violation of Indian law but also giving a bad signal to the international FDI community.

Considering the tax evasion reports as baseless, Shell India is now planning to challenge the order of income tax authorities strongly and is evaluating all options for redress. The company is confident of its stand as the valuation of the shares was undertaken by a certified independent valuer who assessed the value to be below Rs 10 per share and the issue was made at Rs 10 per share. Shell claims that such valuation is in accordance with the foreign investment and exchange control laws. The valuation certificates were also filed with the regulatory authorities.

At Perry4Law and Perry4Law’s Techno Legal Base (PTLB) we believe that the transfer pricing laws and valuation of the unlisted company needs further clarification from our legislature. Otherwise, litigations would keep on surfacing unnecessary.

In a listed company, the valuation is based on Securities and Exchange Board of India (SEBI) formula, which is the average of six-month or two-week share price, whichever is higher. But in unlisted companies, the valuation can be based on fair market price, or book value, or returns on share based on a certification by an independent valuer.

Category: Uncategorized  | Comments off
Author:
• Friday, December 20th, 2013

Nokia Accused Of Violating Income Tax And Transfer Pricing Laws Of IndiaTransfer pricing laws of India and income tax provisions are in limelight these days in India. Related issue like foreign direct investment (FDI) is also raised from time to time. Indian government would ascertain beneficiary in Walmart probe to ascertain possible violation of Indian laws.

In a significant and related regulatory development, the Competition Commission of India (Procedure in Regard to the Transaction of Business Relating to Combinations) Regulations, 2011 have also been formulated by the Competition Commission of India in 2011 to regulate anti competition combinations. The same may be pressed more frequently in the year 2013.

Vodafone is already managing a tax dispute with Indian government. In fact, Vodafone may invoke arbitration for fresh tax demands by India. Similarly, recently Shell India received a transfer pricing order from Indian tax authorities. Now Nokia has been accused of income tax and transfer pricing laws of India.

The income tax department believes that besides income tax violations, Nokia India may have flouted transfer pricing norms as well. The total tax implication for the Nokia could be over Rs 10,000 crore. It is also alleged that the Indian subsidiary of Nokia transferred profits to its headquarters and the same will now be reversed and considered as income, which would be around Rs 30,000 crore. On this amount, there will be a 30 per cent tax, which works out to Rs 9,000 crore.

Further, Nokia India also downloaded software from its parent company in Finland to manufacture mobile devices worth Rs 30,000 crore at its Indian plant. Royalty is paid for the software downloaded. This, in turn, attracts a 10 per cent tax deduction at source (TDS) amounting to Rs 3,000 crore.

According to income tax officials, Nokia had failed to do this and pay to the Government. Officials in Delhi will now issue an order on the amount, including penalty if any, payable by Nokia. Meanwhile, Nokia is claiming that it has complied with all the applicable laws of India and is fully cooperating with the authorities.

For our readers, we at Perry4Law and Perry4Law’s Techno Legal Base (PTLB) have provided a research report titled Global Taxation and Anti Competition Regulatory Issues In 2012 And Projections Report for 2013 by Perry4Law that is discussing these issues. The report highlights global taxation issues including the recent allegations of tax avoidance labeled against Amazon, Google and Starbucks regarding UK Tax Laws.

Category: Uncategorized  | Comments off
Author:
• Friday, December 20th, 2013

Transfer Pricing Order Issued Against Vodafone IndiaTax related regulatory affairs are in limelight in India these days. The chief among these issues is the transfer pricing laws of India that are claimed to be violated by many multi national telecom companies in India.

For instance, Shell India has received a transfer pricing order from Indian tax authorities. Similarly, Nokia has been accused of violating income tax and transfer pricing laws of India. So much so that forensics analysis of Nokia’s computer used to download software in India has been undertaken by tax officials.

Similarly, the vexing tax troubles of Vodafone are not coming to an end. Vodafone is still struggling with the retrospective tax demands by Indian tax authorities. It has been claimed that Vodafone may invoke arbitration for fresh tax demands by India. Now the tax authorities of India have issued a transfer pricing order against Vodafone.

Vodafone will challenge this order that arose due to the sale of shares of its Indian unit to a Mauritius-based group company. Vodafone maintains that share subscriptions are not covered by transfer pricing rules either in India or internationally and it has no basis in law.

Vodafone has also filed a writ petition challenging the jurisdictional issues on the basis of precedent established in the recent Vodafone International Holdings BV – Hutchison Supreme Court judgement.

Meanwhile Indian legislature has also undertaken few legislative steps to strengthen taxation laws of India and to prevent tax evasion in India. The next session of the Parliament may witness some regulatory issues in this regard.

Category: Uncategorized  | Comments off
Author:
• Friday, December 20th, 2013

Transfer Pricing Laws In India, International Transaction And Arm’s Length PriceTransfer pricing laws in India are frequently invoked these days. Many international transactions that have taken place in the past are now under the scrutiny of Department of Income Tax, Government of India. The transfer pricing regulatory environment of India is fast changing and it is pertinent for various individuals and companies to get themselves aware of the transfer pricing laws and regulations of India.

Perry4Law and Perry4Law’s Techno Legal Base (PTLB) have been discussing this c crucial area for the larger benefit of all the stakeholders.

The Income Tax 1961 of India deals with taxation of international transactions and transfer pricing issues in India. The objective of these provisions is to curb tax evasion on the part of taxable entities and individuals. However, the provisions of the Income Tax Act, 1961 in the past proved to be inadequate and ineffective to curb tax evasions, especially long term capital gains, arising out of foreign transactions having Indian ramifications.

One such incidence involves the company Vodafone where there is a present tax dispute between the company and Indian government. In fact, Vodafone may invoke arbitration for fresh tax demands by India. Vodafone taxation, parliament, international treaty and taxation issues of India need a fresh outlook on the part of our Parliament and Indian government.

We at Perry4Law and PTLB have provided a research report titled Global Taxation and Anti Competition Regulatory Issues In 2012 And Projections Report for 2013 by Perry4Law that is discussing these issues. The report highlights global taxation issues including the recent allegations of tax avoidance labeled against Amazon, Google and Starbucks regarding UK Tax Laws.

Even the foreign direct investment (FDI) are strict actions have been initiated by Indian government. After canceling the telecom licenses of many telecom companies, now Indian government would ascertain beneficiary in Walmart probe to ascertain possible violation of Indian laws. The Competition Commission of India (Procedure in Regard to the Transaction of Business Relating to Combinations) Regulations, 2011 have also been formulated by the Competition Commission of India in 2011 to regulate anti competition combinations. The same may be pressed more frequently in the year 2013.

It is obvious that transfer pricing laws in India and laws pertaining to international transactions and arm’s length dealing in India need a total rejuvenation. The present provisions incorporated in the Income Tax Act, 1961 are inadequate in this regard.

Computation Of Income From International Transaction Having Regard To Arm’s Length Price

Section 92(1) of the Act prescribes that any income arising from an international transaction shall be computed having regard to the arm’s length price. The explanation to Section 92(1) provides that the allowance for any expense or interest arising from an international transaction shall also be determined having regard to the arm’s length price.

Section 92(2) of the Act prescribes that where in an international transaction, two or more associated enterprises enter into a mutual agreement or arrangement for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises, the cost or expense allocated or apportioned to, or, as the case may be, contributed by, any such enterprise shall be determined having regard to the arm’s length price of such benefit, service or facility, as the case may be.

Section 92(3) of the Act prescribes that the provisions of this section shall not apply in a case where the computation of income under sub-section (1) or the determination of the allowance for any expense or interest under that sub-section, or the determination of any cost or expense allocated or apportioned, or, as the case may be, contributed under subsection (2), has the effect of reducing the income chargeable to tax or increasing the loss, as the case may be, computed on the basis of entries made in the books of account in respect of the previous year in which the international transaction was entered into.

Associated Enterprise Under Indian Tax Laws

Section 92A (1) of the Act provides that for the purposes of this section and sections 92, 92B, 92C, 92D, 92E and 92F, “associated enterprise”, in relation to another enterprise, means an enterprise—

(a) Which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise; or

(b) In respect of which one or more persons who participate, directly or indirectly, or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise.

Section 92A (2) of the Act provides that for the purposes of sub-section (1), two enterprises shall be deemed to be associated enterprises if, at any time during the previous year:

(a) One enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in the other enterprise; or

(b) Any person or enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in each of such enterprises; or

(c) A loan advanced by one enterprise to the other enterprise constitutes not less than fifty-one per cent of the book value of the total assets of the other enterprise; or

(d) One enterprise guarantees not less than ten per cent of the total borrowings of the other enterprise; or

(e) More than half of the board of directors or members of the governing board, or one or more executive directors or executive members of the governing board of one enterprise, are appointed by the other enterprise; or

(f) More than half of the directors or members of the governing board, or one or more of the executive directors or members of the governing board, of each of the two enterprises are appointed by the same person or persons; or

(g) The manufacture or processing of goods or articles or business carried out by one enterprise is wholly dependent on the use of know how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights; or

(h) Ninety per cent or more of the raw materials and consumables required for the manufacture or processing of goods or articles carried out by one enterprise, are supplied by the other enterprise, or by persons specified by the other enterprise, and the prices and other conditions relating to the supply are influenced by such other enterprise; or

(i) The goods or articles manufactured or processed by one enterprise, are sold to the other enterprise or to persons specified by the other enterprise, and the prices and other conditions relating thereto are influenced by such other enterprise; or

(j) Where one enterprise is controlled by an individual, the other enterprise is also controlled by such individual or his relative or jointly by such individual and relative of such individual; or

(k) Where one enterprise is controlled by a Hindu undivided family, the other enterprise is controlled by a member of such Hindu undivided family or by a relative of a member of such Hindu undivided family or jointly by such member and his relative; or

(l) Where one enterprise is a firm, association of persons or body of individuals, the other enterprise holds not less than ten per cent interest in such firm, association of persons or body of individuals; or

(m) There exists between the two enterprises, any relationship of mutual interest, as may be prescribed.

Meaning Of International Transaction Under Indian Tax Laws

Section 92B (1) of the Act provides that for the purposes of this section and sections 92, 92C, 92D and 92E, “international transaction” means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises.

Section 92B (2) of the Act provides that a transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise.

Computation Of Arm’s Length Price Under Indian Tax Laws

Section 92C (1) of the Act prescribes the procedure to calculate the arm’s length price for an international transaction. As per Section 92C (1) the arm’s length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe, namely:

(a) Comparable uncontrolled price method;

(b) Resale price method;

(c) Cost plus method;

(d) Profit split method;

(e) Transactional net margin method;

(f) Such other method as may be prescribed by the Board.

Section 92C (2) of the Act provides that the most appropriate method referred to in sub-section (1) shall be applied, for determination of arm’s length price, in the manner as may be prescribed.

The proviso to Section 92C (2) provides that where more than one price is determined by the most appropriate method, the arm’s length price shall be taken to be the arithmetical mean of such prices, or, at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exceeding five per cent of such arithmetical mean.

Section 92C (3) of the Act provides that where during the course of any proceeding for the assessment of income, the Assessing Officer is, on the basis of material or information or document in his possession, of the opinion that-

(a) The price charged or paid in an international transaction has not been determined in accordance with sub-sections (1) and (2); or

(b) Any information and document relating to an international transaction have not been kept and maintained by the assessee in accordance with the provisions contained in sub-section (1) of section 92D and the rules made in this behalf; or

(c) The information or data used in computation of the arm’s length price is not reliable or correct; or

(d) The assessee has failed to furnish, within the specified time, any information or document which he was required to furnish by a notice issued under sub-section (3) of section 92D,

the Assessing Officer may proceed to determine the arm’s length price in relation to the said international transaction in accordance with sub-sections (1) and (2), on the basis of such material or information or document available with him:

Provided that an opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the arm’s length price should not be so determined on the basis of material or information or document in the possession of the Assessing Officer.

Section 92C (4) of the Act provides that where an arm’s length price is determined by the Assessing Officer under subsection (3), the Assessing Officer may compute the total income of the assessee having regard to the arm’s length price so determined:

Provided that no deduction under section 10A [or section 10AA] or section 10B or under Chapter VI-A shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this sub-section:

Provided further that where the total income of an associated enterprise is computed under this sub-section on determination of the arm’s length price paid to another associated enterprise from which tax has been deducted [or was deductible] under the provisions of Chapter XVIIB, the income of the other associated enterprise shall not be recomputed by reason of such determination of arm’s length price in the case of the first mentioned enterprise.

Reference To Transfer Pricing Officer

Section 92CA (1) of the Act provides that where any person, being the assessee, has entered into an international transaction in any previous year, and the Assessing Officer considers it necessary or expedient so to do, he may, with the previous approval of the Commissioner, refer the computation of the arm’s length price in relation to the said international transaction under section 92C to the Transfer Pricing Officer.

Section 92CA (2) of the Act provides that where a reference is made under sub-section (1), the Transfer Pricing Officer shall serve a notice on the assessee requiring him to produce or cause to be produced on a date to be specified therein, any evidence on which the assessee may rely in support of the computation made by him of the arm’s length price in relation to the international transaction referred to in sub-section (1).

Section 92CA (3) of the Act provides that on the date specified in the notice under sub-section (2), or as soon thereafter as may be, after hearing such evidence as the assessee may produce, including any information or documents referred to in sub-section (3) of section 92D and after considering such evidence as the Transfer Pricing Officer may require on any specified points and after taking into account all relevant materials which he has gathered, the Transfer Pricing Officer shall, by order in writing, determine the arm’s length price in relation to the international transaction in accordance with sub-section (3) of section 92C and send a copy of his order to the Assessing Officer and to the assessee.

Section 92CA (3A) of the Act provides that where a reference was made under sub-section (1) before the 1st day of June, 2007 but the order under sub-section (3) has not been made by the Transfer Pricing Officer before the said date, or a reference under sub-section (1) is made on or after the 1st day of June, 2007, an order under sub-section (3) may be made at any time before sixty days prior to the date on which the period of limitation referred to in section 153, or as the case may be, in section 153B for making the order of assessment or reassessment or recomputation or fresh assessment, as the case may be, expires.

Section 92CA (4) of the Act provides that On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C in conformity with the arm’s length price as so determined by the Transfer Pricing Officer.

Section 92CA (5) of the Act provides that with a view to rectifying any mistake apparent from the record, the Transfer Pricing Officer may amend any order passed by him under sub-section (3), and the provisions of section 154 shall, so far as may be, apply accordingly.

Section 92CA (6) of the Act provides that where any amendment is made by the Transfer Pricing Officer under subsection (5), he shall send a copy of his order to the Assessing Officer who shall thereafter proceed to amend the order of assessment in conformity with such order of the Transfer Pricing Officer.

Section 92CA (7) of the Act provides that the Transfer Pricing Officer may, for the purposes of determining the arm’s length price under this section, exercise all or any of the powers specified in clauses (a) to (d) of sub-section (1) of section 131 or sub-section (6) of section 133.

The Explanation to Section 92CA provides that for the purposes of this section, “Transfer Pricing Officer” means a Joint Commissioner or Deputy Commissioner or Assistant Commissioner authorised by the Board to perform all or any of the functions of an Assessing Officer specified in sections 92C and 92D in respect of any person or class of persons.

Maintenance And Keeping Of Information And Document By Persons Entering Into An International Transaction

Section 92D (1) of the Act provides that every person who has entered into an international transaction shall keep and maintain such information and document in respect thereof, as may be prescribed.

Section 92D (2) of the Act provides that without prejudice to the provisions contained in sub-section (1), the Board may prescribe the period for which the information and document shall be kept and maintained under that sub-section.

Section 92D (3) of the Act provides that the Assessing Officer or the Commissioner (Appeals) may, in the course of any proceeding under this Act, require any person who has entered into an international transaction to furnish any information or document in respect thereof, as may be prescribed under sub-section (1), within a period of thirty days from the date of receipt of a notice issued in this regard:

Provided that the Assessing Officer or the Commissioner (Appeals) may, on an application made by such person, extend the period of thirty days by a further period not exceeding thirty days.

Report From An Accountant To Be Furnished By Persons Entering Into International Transaction

Section 92E of the Act provides that every person who has entered into an international transaction during a previous year shall obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form duly signed and verified in the prescribed manner by such accountant and setting forth such particulars as may be prescribed.

Definitions Of Certain Terms Relevant To Computation Of Arm’s Length Price, Etc

Section 92F of the Act provides that in sections 92, 92A, 92B, 92C, 92D and 92E, unless the context otherwise requires-

(i) “Accountant” shall have the same meaning as in the Explanation below sub-section (2) of section 288;

(ii) “Arm’s length price” means a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions;

(iii) “Enterprise” means a person (including a permanent establishment of such person) who is, or has been, or is proposed to be, engaged in any activity, relating to the production, storage, supply, distribution, acquisition or control of articles or goods, or know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights, or the provision of services of any kind, [or in carrying out any work in pursuance of a contract,] or in investment, or providing loan or in the business of acquiring, holding, underwriting or dealing with shares, debentures or other securities of any other body corporate, whether such activity or business is carried on, directly or through one or more of its units or divisions or subsidiaries, or whether such unit or division or subsidiary is located at the same place where the enterprise is located or at a different place or places;

(iiia) “Permanent establishment”, referred to in clause (iii), includes a fixed place of business through which the business of the enterprise is wholly or partly carried on;

(iv) “Specified date” shall have the same meaning as assigned to “due date” in Explanation 2 below sub-section (1) of section 139;]

(v) “Transaction” includes an arrangement, understanding or action in concert,

(a) Whether or not such arrangement, understanding or action is formal or in writing; or

(b) Whether or not such arrangement, understanding or action is intended to be enforceable by legal proceeding.

Perry4Law and PTLB hope this research work would prove useful to all concerned.

Category: Uncategorized  | Comments off
Author:
• Friday, December 20th, 2013

ICICI, HDFC And Axis Banks Alleged To Be Indulging In Money Laundering And Benami TransactionsThis is a previously published article that has been republished here for our readers.

Banking frauds in India have reached a level where if immediate action is not taken then public would loose faith in the banking industry of India.

As per media reports, it has been alleged that senior executive of private banks like ICICI, HDFC and Axis Banks have agreed to receive unverified sums of cash and put them in their investment schemes and benami accounts in violation of anti-money laundering laws of India.

These allegations are serious in nature and a thorough investigation must be conducted by enforcement officials, serious fraud investigation office (SFIO) and Reserve Bank of India (RBI).

If found guilt, strict legal and administrative actions must be taken against the guilty banks and their officials.

The banking license of banks repeatedly violating rules and regulations applicable in India must also be cancelled by the RBI.

Further, it is also high time to formulate phishing laws and regulations for banks and financial institutions of India as well as complaint against more and more banks are filed these days.

At Perry4Law and Perry4Law’s Techno Legal Base (PTLB) we strongly believe that the regulatory environment for banks in India needs a rejuvenation that must bring transparency, accountability and responsibility among banks of India.

The sooner this is done the better it would be for the larger interest of all stakeholders.

Category: Uncategorized  | Comments off
Author:
• Friday, December 20th, 2013

Banking Frauds In India Have Increased And RBI Is SleepingBanking frauds in India have increased tremendously. This is partly due to lack of stringent banking fraud laws in India and partly because the Reserve Bank of India (RBI) has failed to do the needful in this regard.

ATM frauds, Internet banking frauds, online banking frauds, RTGS frauds, money laundering offences, etc are on rise and all this is happening right under the nose of RBI.

In the absence of any deterrent punishment, Indian banks and their official are openly flouting the rules and regulations applicable to them. They are also flouting the bank’s code of conduct and ethical standards.

Banks of India are also not following cyber law due diligence in India.

Banks of India have also failed to appoint chief information officers (CIOs) and adopt cyber security requirements as prescribed by the Reserve Bank of India (RBI).

The latest to add to this list is the allegations of money laundering activities by private banks like ICICI Bank, HDFC Bank and Axis Bank.

At Perry4Law and Perry4Law’s Techno Legal Base (PTLB) we strongly believe that the regulatory environment for banks in India needs a rejuvenation that must bring transparency, accountability and responsibility among banks of India.

Category: Uncategorized  | Comments off
Author:
• Friday, December 20th, 2013

Finance Ministry And RBI Investigating Money Laundering Accusations Against ICICI, HDFC And Axis BankThis is an old post and it has been reposted here so that our readers can find multiple information at a single place.

Banking frauds in India have crossed all the limits and there is an urgent need on the part of Reserve Bank of India and Finance Ministry of India to take strict penal action against the offending banks.

RBI has in the past imposed penalties upon many banks for failure to comply with various laws and regulations. RBI is also investigating the cyber fraud happened at YES Bank.

Now it has been reported by media that ICICI, HDFC and Axis Banks have been accused of indulging in money laundering and benami transactions.

Reacting to this gross and poor state of banking industry of India, the Reserve Bank of India (RBI) and Finance Ministry of India have decided to investigate the money laundering allegations against ICICI, HDFC and Axis banks.

We would share the result of the investigation the moment it would be made public by Finance Ministry and RBI.

Category: Uncategorized  | Comments off
Author:
• Friday, December 20th, 2013

Geeta Dalal Partner Perry4LawThis is the updated version of the previous articles titled Corruption and Technology Related Due Diligences in India. Corruption and the regulatory measures to prohibit corrupt practices have assumed new meaning with the passing of the Jan Lokpal and Lokayuktas Act, 2013 by the Parliament of India. Similarly, the Serious Frauds Investigation Office (SFIO) has also been given wide powers under Indian Companies Act, 2013 (PDF).

The Ministry of Corporate Affairs (MCA) has also issued some Rules under Chapter XIV of Indian Companies Act, 2013 pertaining to Inspection, Inquiry and Investigation by Indian authorities and SFIO. The Suggestions Regarding Rules Pertaining to Inspection, Inquiry and Investigation (SFIO) by Perry4Law (PDF) has already been provided by us in this regard. Now the Central Government Permission is not required by CBI to prosecute senior bureaucrats for corruption cases monitored by Supreme Court of India.

The recent spate of corruption related disclosures in India has sent a strong message to Indian and foreign companies to ensure that their business are strictly in compliance with Indian and foreign laws. Naturally, companies that have entered into merger and acquisitions (M&A) in the past are now looking forward to ensure that nothing fishy happened during such M & A transactions.

These Indian and foreign companies are worried about the potential legal and tax liabilities arising out of various scams and corporate frauds and they are engaging law firms to do a due diligence analysis on the M&As or foreign direct investments (FDIs) they’ve made in India. Law firms are carrying out legal due diligence exercises to detect any loopholes that could result in liabilities on behalf of their clients to avoid litigation possibilities arising out of deals done in the past.

Some multinational companies are also doing legal due diligence to ensure that the Indian subsidiaries and companies they are about to invest or have already invested in are complying with the foreign laws like Foreign Corrupt Practices Act (FCPA) 1977 of the US and the UK Bribery Act 2010.

Even companies that are now exploring the possibility of M&A are taking precautions before entering into such partnerships. While there is no particular department for dealing with all the aspects of corporate business at a single place (Ministry of Corporate Affairs deals with corporate matters) yet department of information technology (DIT) is the chief department that deals with technology related issues. These include cyber law, cyber security, e-commerce, e-governance, spectrum allocation, telecom licensing, etc.

However, till now companies were not very cautious in their dealings in cyberspace and technology related fields. The information technology act 2000 (IT Act 2000) is the cyber law of India that prescribes various cyber law due diligence in India for areas like e-commerce, e-governance, Internet intermediary liability in India, social media due diligence in India, etc.

However, companies are in controversy these days in India. For instance, doubts have been raised regarding the manner in which Reliance and Airtel blocked websites in India. Similarly, some have even suggested that DIT must investigate the case of blocking of websites in India by Reliance, Airtel and other Internet service providers (ISPs).

Similarly, companies like Google, Facebook, etc are already in cyber law legal tangle in India. Indian government is claiming that these companies failed to comply with Indian laws, including cyber law of India. While the guilt or innocence of these companies is still to be established yet this episode has shown the importance of cyber due diligence for Indian companies.

Cyber crimes at social media websites in India are increasing and these social media platforms cannot ignore the same especially once they are made aware of the same. The social media websites investigation in India is going to increase and more and more e-discovery for social media in India would be conducted. Even cyber law due diligence for banks in India is going to increase.

Another area that requires a special mention is the contemporary practice known as e-legal due diligence in India. This requires domain specific techno legal expertise and a sound knowledge of both technical and legal aspects. It is an advanced and improved form of traditional legal due diligence in India that is done in an offline environment. With companies now shifting their data and information to data centers and virtual data rooms (VDRs), e-legal due diligence in India and abroad would be the norm.

Perry4Law and Perry4Law Techno Legal Base (PTLB) strongly recommend that Indian and foreign companies must conduct a thorough corruption and technology related due diligence analysis in India as soon as possible.

Category: Uncategorized  | Comments off
Author:
• Tuesday, December 17th, 2013

PRAVEEN-DALAL-MANAGING-PARTNER-OF-PERRY4LAW-CEO-PTLBNo time the legitimacy of Indian Parliament was questioned so much as in the present times. Illegal and unconstitutional projects like Aadhaar are operating without any legal framework and essential laws like Lokpal Bill are still pending enactment. Even the Supreme Court of India has held that Aadhaar card cannot be made compulsory for availing public services in India. But the defective policies of Indian government are still forcing such projects without analysing their long term consequences.

Now legal experts like Praveen Dalal have expressed that Parliament to Retain Its Respect and Legitimacy Must Pass Lokpal and Lokayuktas Act, 2011 today. He also believes that the proposed Lokpal Law must also be supported by a Whistleblowers Protection Law of India.

It is a “Do or Die” situation for both Congress and BJP and they cannot afford to be “Indifferent” any more. Congress and BJP have to show their commitment towards people of India by passing the Lokpal and Lokayuktas Act, 2011 in the Rajya Sabha. Otherwise, the Respect and Legitimacy for Parliament of India and Political Parties like Congress and BJP is in “Real Danger”, opines Dalal.

This sad situation has not arisen on a single day but due to decades of indifference on the part of Indian government and Indian Parliament. Not only this, the very purpose of Parliament of India is in question. What is the Purpose and Use of a Parliament if it cannot pass appropriate and required Laws? Why a tragedy is always needed to wake up Indian Parliament? Do we have Separation of Powers in India any more? Is Indian Government really interested in making CBI Autonomous and Independent?

Anna Hazare is already on fast to get the Jan Lokpal bill passed and his health condition is deteriorating day by day. Indian Parliament cannot afford to postpone the proposed Jan Lokpal bill anymore as people of India are not only angry but their patience is also wearing out.

Source: Cjnews India.

Category: Uncategorized  | Comments off
• Monday, December 16th, 2013

PRAVEEN-DALAL-MANAGING-PARTNER-OF-PERRY4LAW-CEO-PTLBThe Lokpal and Lokayuktas Act, 2011 is a crucial piece of Legislation that has been due for many decades. Finally, some positive hints have been given by Indian Government that the proposed Lokpal and Lokayuktas Act, 2011 would be approved by the Rajya Sabha tomorrow i.e. 17-12-2013.

An ideal Lokpal Law must be Strong, Robust and Effective and it must be Technology Driven. Although we are still far from an Ideal Lokpal Law yet there has to be a start somewhere. The proposed Lokpal and Lokayuktas Act, 2011 seems to be that start. The proposed Lokpal Law must also be supported by a Whistleblowers Protection Law of India.

As I do not possess the copy of the proposed Lokpal Law I cannot comment upon its Effectiveness and Robustness. However, what I can say is that Parliament to retain its Respect and Legitimacy Must Pass Lokpal and Lokayuktas Act, 2011 tomorrow. The Parliament of India must also consider the health conditions of Shri. Anna Hazare and must be “Sensitive” to his “Health and Causes” as well. The copy of the Lokpal and Lokayuktas Act 2011 as Passed by Lok Sabha is available for the readers to review.

The surprising win of Aam Aadmi Party (AAP) in Delhi can only be attributable to the “Apathy” on the part of Ruling and Opposition Political Parties towards the “Problems and Causes” of ordinary people. The “Patience” of people is “Running All Time Low” and both Congress and BJP witnessed consequences of the same.

It is a “Do or Die” situation for both Congress and BJP and they cannot afford to be “Indifferent” any more. Congress and BJP have to show their commitment towards people of India by passing the Lokpal and Lokayuktas Act, 2011 in the Rajya Sabha. Otherwise, the Respect and Legitimacy for Parliament of India and Political Parties like Congress and BJP is in “Real Danger”.

Category: Uncategorized  | Comments off
Author:
• Tuesday, December 10th, 2013

Perry4Law Is Looking For Associates To JointlyIndependently Look Litigation Matters In Different Parts Of IndiaPerry4Law, the Exclusive Techno Legal Corporate, IP and ICT Law Firm of India, is looking forward for enrollment of lawyers of India for its growing techno legal requirements across the India.

Those interested in enrollment must send the Bio Data consisting of experience and nature of cases handled so far along with the minimum professional charges for handing various matters form the District Level to the Supreme Court levels.

Perry4Law reserves the exclusive discretion to avail or not avail the services of any or all such associated and by simply submitting the details with us, no person shall have any right of any nature whatsoever in this regard.

Perry4Law would also consider the services of that associate only whose quotation would be minimum and all payments would be released in favor of the concerned associate only once the matter/concerned stage of the litigation is over.

Any selected lawyer would be an independent professional and there would be no Principal Agent relationship between Perry4Law and the appointed lawyer(s) respectively. There may be cases where Perry4Law/its Partner/its Associates may work together with the concerned enrolled Lawyer on a single or multiple cases and Perry4Law would intimate about the same in advance or at appropriate stage of the litigation. Perry4Law/its Partner/its Associates may at any stage of the litigation join the enrolled Lawyer for the same or subsequent litigation. Perry4Law shall also have the absolute right to use the services of  Lawyer(s) other than the enrolled Lawyer wherever required in the interest of the Party/Parties to the litigation.

Finally, this is Not Empanelment of Lawyer with PTLB (Perry4Law’s Techno Legal Base) that is totally different and is a paid service. In case of conflict between lawyers enrolled through free services and those empanelled through fee, the services of the latter would be preferred.

Interested lawyers may contact us at perry4law (at) rediffmail (dot) com in this regard with the necessary details.

Category: Uncategorized  | Comments off