Updates

Weekly Secretarial Updates

 

March 18, 2012 to March 23, 2012

Updates from the RBI
Sr No	Circular/ Notification number	Particulars	Applicability
1 (a)	RBI/2011-12/453 A.P. (DIR Series) Circular No. 94 dated March 19, 2012	Clarification - Prior intimation to the Reserve Bank of India for raising the aggregate Foreign Institutional Investors / Non-Resident Indian limits for investments under the Portfolio Investment Scheme	Registered Foreign Institutional Investors (FII) and Non-Resident Indians (NRI)
(b)	RBI/2011-12/462 DPSS.CO.CHD.No./1732 / 03.01.03 / 2011-2012 March 20, 2012	Special Clearing on March 31, 2012	The Chairman and Managing Director / Chief Executive Officer All Scheduled Commercial Banks including RRBs / UCBs / State Co-operative Banks / District Central Co-operative Banks And information to the Corporates
(c)	RBI/2011-12/465 A. P. (DIR Series) Circular No.95 dated March 21, 2012.	Foreign Exchange Management (Deposit) Regulations, 2000 - Credit to Non Resident (External) Rupee Accounts	All the Individuals, Category-I Authorised Dealer Banks and Authorised banks
(d)	RBI/2011-12/466 DNBS(PD).CC. No 264/03.10.42/2011-12 March 21, 2012  dated March 21, 2012	Know Your Customer (KYC) norms/Anti-Money Laundering (AML)	All the Non Banking Financial Companies
(e)	RBI / 2011-12/467 DNBS.CC.PD. No.265/03.10.01 /2011-12  dated March 21, 2012	Lending Against Security of Single Product – Gold Jewellery	Applicable to all the NBFC’s lending towards gold jewellery
Legal News
2(a)	Alleged irregularity in trading in the shares of Videocon Industries Limited and NRB Bearings Ltd

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RBI UPDATES:

1 (a)  Clarification - Prior intimation to the Reserve Bank of India for raising the
aggregate Foreign Institutional Investors / Non-Resident Indian limits for
investments under the Portfolio Investment Scheme

RBI Circular  – March 19, 2012:

We draw your attention to the RBI circular no: RBI/2011-12/453 A.P. (DIR Series) Circular No. 94 dated March 19, 2012.

Applicability:

Registered Foreign Institutional Investors (FII) and Non-Resident Indians (NRI)

Crux of the Circular:

-          As per this circular the Indian company raising the aggregate

a.       FII investment limit of 24 per cent to the sectoral cap/ statutory limit, as applicable to the respective Indian company

Or

b.       The NRI investment limit of 10 per cent to 24 per cent,

should necessarily intimate the same to the Reserve Bank of India, immediately, as hitherto, along with a Certificate from the Company Secretary stating that all the relevant provisions of the extant Foreign Exchange Management Act, 1999 regulations and the Foreign Direct Policy, as amended from time to time, have been complied with.

-      As a practice the RBI monitors the ceilings on the FII/NRI/PIO investments in Indian Companies on a daily basis. When the aggregate net purchases of equity shares of the company by FIIs/NRIs/PIOs reaches the cut-off point of 2 per cent below the overall limit, the Reserve Bank cautions all the designated bank branches not to purchase any more equity shares of the respective company on behalf of any FIIs/ NRIs/ PIOs without prior approval of the Reserve Bank.

-        In this regard the Reserve Bank also informs the general public about the `caution’ and the `stop purchase’ in these companies through a press release and an updated list regarding the same is placed on the RBI website. 

For further details information please follow the below link

http://www.rbi.org.in/scripts/BS_CircularIndexDisplay.aspx?Id=7072

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1(b) Special Clearing in March 31, 2012

RBI Circular – March 20, 2012:

We draw your attention to the RBI circular no. RBI/2011-12/462 DPSS.CO.CHD.No. /1732 / 03.01.03 / 2011-2012 dated March 20, 2012.

Applicability:

The Chairman and Managing Director / Chief Executive Officer All Scheduled Commercial Banks including RRBs / UCBs / State Co-operative Banks / District Central Co-operative Banks

Information:

To the corporates.

Crux of the Circular:

In a view to facilitate all the Government transactions of the current financial year 2011-12 the National Clearing cell functioning under the regional office of the RBI have been advised to conduct "Special Clearings" with same day return clearing in the evening / night of March 31, 2012

For further information please follow the below mentioned MCA circular:
http://rbi.org.in/scripts/NotificationUser.aspx?Id=7050&Mode=0

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1(c) Foreign Exchange Management (Deposit) Regulations, 2000 -

Credit to Non Resident (External) Rupee Accounts

RBI Circular – March 21, 2012:

We draw your attention to the RBI circular no RBI/2011-12/465 A. P. (DIR Series) Circular No.95 dated March 21, 2012.

Applicability:

All Individuals, Category-I Authorised Dealer Banks and Authorised banks

Introduction:

Borrowing Limit:

An individual resident in India is permitted to borrow a sum not exceeding USD 250,000/- or its equivalent from her / his close relatives outside India, subject to the conditions mentioned therein

RBI has permitted such individual resident in India to repay his loan/ borrowings

-          And such loans may be allowed to be credited to the Non Resident (External) Rupee (NRE) Accounts.

-          AD Category-I banks may allow repayment of such loans to NRE / Foreign Currency Non-Resident (Bank) [FCNR(B)] account of the lender concerned subject to the condition that the loan to the resident individual was extended by way of inward remittance in foreign exchange through normal banking channels or by debit to the NRE / FCNR(B) account of the lender and the lender is eligible to open NRE / FCNR(B) account  

It is further said that such a repayment shall be considered to be treated as an eligible credit to the NRE/ FCNR (B) account.

For further information please follow the link:

http://www.rbi.org.in/scripts/BS_CircularIndexDisplay.aspx?Id=7084

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1(d)  Know Your Customer (KYC) norms/Anti-Money Laundering (AML)

RBI Circular  – March 21, 2012:

We draw your attention to the RBI circular no:  RBI/2011-12/466 DNBS(PD).CC. No 264/03.10.42/2011-12 March 21, 2012  dated March 21, 2012

Applicability:

All the Non Banking Financial Companies

Crux of the Circular:

-         As per this circular all the NBFCs are now required to prepare a risk profile of each customer and apply enhanced due diligence measures on higher risk customers.

-             NBFCs should have policies, controls and procedures, duly approved by their boards, in place to effectively manage and mitigate their risk adopting a risk-based approach.

-          NBFCs would also be required to adopt enhanced measures for products, services and customers with a medium or high risk rating

-                NBFCs should take steps to identify and assess their ML/FT risk for customers, countries and geographical areas as also for products/ services/ transactions/delivery channels.

For further information please follow the below link:

http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=7029&Mode=0
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1 (e)  Lending Against Security of Single Product – Gold Jewellery

RBI Circular  – March 21, 2012:

We draw your attention to the RBI circular no: RBI / 2011-12/467 DNBS.CC.PD. No.265/03.10.01 /2011-12  dated March 21, 2012.

Applicability:

Applicable to all the NBFC’s lending towards gold jewellery

Crux of the Circular:

When the NBFCs lend towards gold Jewellery there is an inherent risk involved, there by as a precautionary measure RBI has stated that all the NBFCs shall 

-      Maintain a Loan-to-Value(LTV) ratio not exceeding 60 percent for loans granted against the collateral of gold jewellery and

-          To disclose in their balance sheet the percentage of such loans to their total assets.

-         NBFCs who are primarily engaged in lending against gold jewellery (such loans comprising 50 percent or more of their financial assets) shall maintain a minimum Tier l capital of 12 percent by April 01, 2014.

-          As per this circular, NBFCs should not grant any advance against bullion / primary gold and gold coins.

For further details information please follow the below link

http://www.rbi.org.in/scripts/BS_NBFCNotificationView.aspx?Id=7086

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2(a)  Legal News:

Alleged irregularity in trading in the shares of Videocon Industries Limited and NRB Bearings Ltd

Judgement by the : Adjudicating officer Securities and Exchange Board of India

Crux of the case:

Facts of the Case:

Securities and Exchange Board of India (hereinafter referred to as “SEBI”) conducted an investigation into the alleged irregularity in trading in the shares of Videocon Industries Limited (hereinafter referred to as ‘VIL’) and NRB Bearings Ltd. (hereinafter referred to as ‘NRB’) covering the period from May 01, 2004 to June 15, 2004, into possible violation of the provisions of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’) and various Rules and Regulations framed there under.

Investigation:

The investigation revealed that M/s Monalisha Securities Private Ltd. (hereinafter referred to as the ‘Noticee’) had contributed majority of the trading volume in the shares of VIL and NRB during the investigation period and indulged in structured deals and reversal trades with out taken or given delivery in such a manner that led to creation of artificial volume and impacted the price of the scrip

Judgement:

After taking into consideration all the facts and circumstances of the case, the judge has imposed a penalty of Rs.1,00,000/- (Rupees One Lakh only) under section 15HA and Rs. 1,00,000 ./- (Rupees One Lakh only) under section 15HB of SEBI Act, {i.e. a total penalty of Rs. 2,00,000/- (Rupees Two Lakhs only) } on the Noticee which will be commensurate with the violations committed by it.

Justification of the judgment in the eyes of law:

Prohibition of manipulative, fraudulent and unfair trade practices

(1 ) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities

.

(2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely :—

(a)   indulging in an act which creates false or misleading appearance of trading in the  securities market;

(b)  dealing in a security not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress or cause fluctuations in the price of such security for wrongful gain or avoidance of loss;

(c)  advancing or agreeing to advance any money to any person thereby inducing any other person to offer to buy any security in any issue only with the intention of securing the minimum subscription to such issue;

(e)  any act or omission amounting to manipulation of the price of a security;

(g)  entering into a transaction in securities without intention of performing it or without intention of change of ownership of such security;

(n) circular transactions in respect of a security entered into between intermediaries in order to increase commission to provide a false appearance of trading in such security or to inflate, depress or cause fluctuations in the price of such security

For further details please follow the link:

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1332416898964.pdf

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Deduction under 80CCF – Is it still available

It seems as if we have lost the advantage of claiming deduction under Section 80 CCF as the Budget 2012 nor the Direct Tax Code specifies the adopting of Section 80 CCF for the coming year also.

Point to note: This deduction under section 80 CCF is not applicable from the Financial year 2012-13.

Weekly Secretarial Updates for the period March 9, 2012 to March 17, 2012

 

Weekly Secretarial Updates

 

March 9, 2012 to March 17, 2012

 

Updates from the RBI
Sr No	Circular/ Notification number	Particulars	Applicability
1 (a)	RBI circular no. RBI/2011-12/433 FMD.MSRG.No.67 /02.05 .002 /  2011- March 9,  2012.	Reporting Platform for OTC Foreign Exchange and Interest Rate Derivatives	To all Authorised Dealer Banks and Primary Dealers
(b)	RBI circular no RBI/2011-12/440 A.P. (DIR Series) Circular No. 92 dated March 13, 2012	Opening of Diamond Dollar Accounts (DDAs) – Change in periodicity of the reporting	To all Authorised Dealer Banks and Primary Dealers
(c)	RBI circular no:  RBI/2011-12/446 DNBS (PD)CC.No.259 /03.02.59/2011-12 dated March 15, 2012	Non- Reckoning Fixed Deposits with Banks as Financial Assets	All the Non Banking Financial Companies (excluding Residuary Non Banking Companies)
(d)	RBI circular no: RBI /2011-12 /448 DPSS (CO) CHD.No / 1691/ 03.01.14 / 2011-2012 dated March 15, 2012.	Access Criteria for Payment Systems-Membership to Clearing Houses operating Decentralized Payment Systems	Applicable to all the Scheduled Commercial Banks including Regional Rural Banks/ Scheduled Co-operative Banks/Banks participating in NEFT and RTGS/ Regional offices of RBI
Updates from the Ministry of Company Affairs
2(a)	MCA circular no: General Circular No. 4/2012 dated March 9, 2012.	Allotment of Director’s Identification Number (DIN) under Companies Act, 1956	Applicable to all the Companies
Budget 2012 - 13
3(a)	Budget 2012-13	Impact of the budget 2012-13 on the Jewellery Industry	Jewellery Industry
Legal News
4(a)	Government reinforces the ‘legislative will' and overrules Vodafone and Ericsson AB decisions - ( No refund to Vodafone ?) – Retrospective amendment to the Acts.

 

RBI UPDATES:

1(a) Reporting Platform for OTC Foreign Exchange and Interest Rate Derivatives

RBI Circular – March 9, 2012:

We draw your attention to the RBI circular no. RBI/2011-12/433 FMD.MSRG.No.67 /02.05 .002 /  2011- March 9,  2012.

Applicability:

To all Authorised Dealer Banks and Primary Dealers

Crux of the Circular:

Reserve Bank of India has always taken several steps in the past to improve the transparency of the OTC derivatives market in India.

In this regard the following recommendations were made by the working group that was constituted in June 2010 to work out the modalities for an efficient, single point reporting mechanism for all OTC interest rate and forex derivative transactions:

a.       All inter-bank OTC inter-bank foreign exchange derivatives shall be reported on a platform to be developed by the CCIL.

b.       All/selective trades in OTC foreign exchange and interest rate derivatives between the Category–I Authorised Dealer Banks/market makers (banks/PDs) and their clients shall be reported on the CCIL platform subject to a mutually agreed upon confidentiality protocol.

For further information please follow the below mentioned MCA circular:
http://rbi.org.in/scripts/NotificationUser.aspx?Id=7050&Mode=0
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1(b) Opening of Diamond Dollar Accounts (DDAs)

Change in periodicity of the reporting

RBI Circular – March 13, 2012:

We draw your attention to the RBI circular no RBI/2011-12/440 A.P. (DIR Series) Circular No. 92 dated March 13, 2012.

Applicability:

To all Authorised Dealer Banks and Primary Dealers

Introduction:

The RBI through its circular no RBI/2008-09/383 A. P. (DIR Series) Circular No. 51 dated February 13, 2009 facilitated all the firms and companies dealing in purchase / sale of rough or cut and polished diamonds / precious metal jewellery plain, minakari and / or studded with / without diamond and / or other stones, with a track record of at least 3 years in import / export of diamonds / coloured gemstones / diamond and coloured gemstones studded jewellery / plain gold jewellery, and having an average annual turnover of Rs 5 crore or above during preceding three licensing years, are allowed to open Diamond Dollar Accounts (DDA).

The request for opening of DDA is considered by the Reserve Bank on a case-to-case basis, subject to the provisions of the prevailing Foreign Trade Policy of the Government of India.

Benefits of opening a Diamond Dollar Accounts:

Permissible Credits  

Ø       Amount of pre-shipment and post-shipment finance availed in US Dollars.

Ø       Realisation of export proceeds from shipments of rough, cut, polished diamonds and diamond studded jewellery.

Ø       Realisation in US Dollars from local sale of rough, cut and polished diamonds.  

Permissible Debits

o        Payment for import / purchase of rough diamonds from overseas / local sources.

o        Payment for purchase of cut and polished diamonds, coloured gemstones and plain gold 

      jewellery from local sources.

o       Payment for import/purchase of gold from overseas / nominated agencies and repayment of 

      USD loans availed from the bank.

o       Transfer to rupee account of the exporter.   The above transactions are subject to the 

      provisions of the Foreign Trade Policy of Government of India, issued from time to time.

Crux of the RBI circular RBI/2011-12/440 A.P. (DIR Series) Circular No. 92 dated March 13, 2012: - Change in reporting:

Presently the RBI circular RBI/2011-12/440 A.P. (DIR Series) Circular No. 92 dated March 13, 2012 states that instead of monthly reports, quarterly reports giving details of the name and address of the firm / company in whose name the Diamond Dollar Account is opened, along with the date of opening / closing the Diamond Dollar Account are to be filed with effect from the quarter ended March 2012.

Such report is to be submitted within 10 of the month following the quarter to which it relates.

For further information please follow the link:

http://rbidocs.rbi.org.in/rdocs/Notification/PDFs/ODDA130312.pdf

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1(c)  Non- Reckoning Fixed Deposits with Banks as Financial Assets

RBI Circular  – March 15, 2012:

We draw your attention to the RBI circular no:  RBI/2011-12/446 DNBS (PD)CC.No.259 /03.02.59/2011-12 dated March 15, 2012.

Applicability:

All the Non Banking Financial Companies (excluding Residuary Non Banking Companies)

Crux of the Circular:

-                As per Section 45IA (1) of the RBI Act 1934, no non-banking financial company shall commence business or carry on the business of a non-banking financial institution without

o        obtaining a certificate of registration (CoR) from the Reserve Bank and

o        having a net owned fund of twenty five lakh rupees, which was increased to Rs. 200 lakh with effect from April 21, 1999.

-                However as a practice in few cases the RBI has noticed that few NBFCs obtain the registration from the Bank, park their funds in fixed deposits with commercial banks but do not commence NBFI activities for several years thereafter and they still remain to be in existence with the help of the auditors.

-                In this regard RBI has mandated the NBFC which is in receipt of a CoR must necessarily commence NBFC business within six months from the date of obtaining CoR. If the NBFC does not commence the NBFC business within the period of six months from the date of issue of CoR, the CoR will stand withdrawn automatically. Further, there can be no change in ownership of the NBFC prior to commencement of business and regularization of its CoR.

For further information please follow the below link:

http://rbi.org.in/scripts/NotificationUser.aspx?Id=7063&Mode=0

 

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1 (d)  Access Criteria for Payment Systems-Membership to Clearing Houses operating Decentralized Payment Systems

RBI Circular  – March 15, 2012:

We draw your attention to the RBI circular no: RBI /2011-12 /448 DPSS (CO) CHD.No / 1691/ 03.01.14 / 2011-2012 dated March 15, 2012.

Applicability:

Applicable to all the Scheduled Commercial Banks including Regional Rural Banks/
Scheduled Co-operative Banks/Banks participating in NEFT and RTGS/ Regional offices of RBI

Crux of the Circular:

In order to simplify/rationalise the procedure for admission of members to Clearing Houses operating various decentralised payment systems (MICR/non-MICR/CTS Centres/ECS/RECS etc.),  it has now been decided to grant automatic membership for such decentralised payment systems to the entities which are direct participants of centralised payment systems like RTGS, NEFT and NECS.

For further details information please follow the below link

http://rbi.org.in/scripts/NotificationUser.aspx?Id=7047&Mode=0

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2(a) Updates from the Ministry of Company Affairs

Allotment of Director’s Identification Number (DIN) under Companies Act, 1956

MCA Circular  – March 9, 2012:

We draw your attention to the MCA circular no: General Circular No. 4/2012 dated March 9, 2012.

Applicability:

Applicable to all the Companies

Crux of the Circular:

The period for updating the PAN details of the Directors of the Company has been extended to April 30, 2012.

For more information please follow the below link:

http://mca.gov.in/Ministry/pdf/General_Circular_No_04_2012.pdf

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3(a)  Budget 2012 - 13

Impact of the budget 2012-13 on the Jewellery Industry

When gold is being purchased by the individual the economic position of the individual improves keeping the economic position of the country stagnant as the amount gets locked with the individual alone. In order to float the liquid fund in the market the Government would have doubled the tax on the Jewellery.

The question if people would still purchase gold even if the prices increase would be answered in a few days/ months.

The budget 2012-13 has been un favorable to the Jewellery Industry in general although the impact on Silver can not be said to be negative. The following points would draw you closer to the above said statement.

Sr No	Duty (Notified with effect from March 17, 2012)	Existing 2011-12	Proposed in the budget 2012-13
I	Customs Duty :
	On standard gold bars; gold coins of purity exceeding 99.5 per cent	2%	4%
	Platinum	2%	4%
	Non-standard gold	5%	10%
	Cut and polished, coloured gem stones at par with diamonds		2%
	Gold ore, concentrate and dore bars for refining and manufacturing gold	1%	2%
II	Excise Duty
	Excise duty on branded and unbranded precious metal jewellery: ·         This duty is charged on tariff value  equal to 30 per cent of the transaction value. ·         Small-scale exemption up to annual turnover not exceeding `1.5 crore for units having a turnover below ` 4 crore in the previous year. Ø       To compute turnover on the basis of tariff value  ·         To place the onus of registration and payment on the person who gets jewellery manufactured on job-work Note: Excise duty on jewellery is being imposed without CENVAT credit,	1% only for branded precious metal jewellery	1% for all the precious metal jewellery
	Refined gold	1.5%	3%
	DTA [Domestic Tariff Area] clearances of plain gold jewellery manufactured by an EOU (Export Oriented Units)	5% ad- valorem	10% ad valorem
	Serially numbered gold bars , other than tola bars and gold coin of purity not below 99.5% manufactured during the process of copper smelting	2%	3%
III	TCS (Tax Collection at Source)
	Any purchase of bullion or jewellery in cash in excess of 2 lakhs is taxable.		Taxable

BENEFIT:

1. Gold coins of purity 99.5% and above and silver coins of purity 99.9% is exempted from Excise duty.

2. The Silver jewellery is exempt fully from Excise duty

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4(a)  Legal News:

Government reinforces the ‘legislative will' and overrules Vodafone and Ericsson AB decisions - ( No refund to Vodafone ?)

Our Government inorder to increase the sources of income has started to amend the Acts with retrospective effect also…. This is clearly visible in the follow case with regard to Vodafone and Ericsson AB decisiob.

In what could be treated as a major googly, the Government has retrospectively amended Sections 2(14) and 2(47) of the Income tax Act, 1961 by introducing Explanations with effect from April 1, 1962 (the day, Income tax Act, 1961 came into effect)...

In terms of these retrospective amendments, the following explanation is being added to Section 2(14) of the Income tax Act, 1961 which deals with ‘capital asset', with effect from April 1, 1962:

‘Explanation .-For the removal of doubts, it is hereby clarified that “property” includes andshall be deemed to have always included any rights in or in relation to an Indian company,including rights of management or control or any other rights whatsoever;';

In another amendment, the following explanation is being added with effect from April 1, 1962 to Section 2(47) dealing with ‘transfer':

‘Explanation 2.-For the removal of doubts, it is hereby clarified that “transfer” includes andshall be deemed to have always included disposing of or parting with an asset or any interesttherein, or creating any interest in any asset in any manner whatsoever, directly or indirectly,absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether enteredinto in India or outside India) or otherwise, notwithstanding that such transfer of rights has beencharacterised as being effected or dependent upon or flowing from the transfer of a share orshares of a company registered or incorporated outside India;'.

The Government has also inserted the following Explanation s, with effect from 1 st April, 1962 under Section 9(1)(i) of the Income tax Act, 1961 :

‘Explanation 4.-For the removal of doubts, it is hereby clarified that the expression “through”shall mean and include and shall be deemed to have always meant and included “by means of”,“in consequence of” or “by reason of”.

Explanation 5.-For the removal of doubts, it is hereby clarified that an asset or a capital assetbeing any share or interest in a company or entity registered or incorporated outside India shallbe deemed to be and shall always be deemed to have been situated in India, if the share orinterest derives, directly or indirectly, its value substantially from the assets located in India.';

The implications arising out of these retrospective amendments are that, the law laid down by the Supreme Court in the Vodafone case, would stand statutorily overruled, on a retrospective basis. It was widely expected that the Government would not go for a retrospective amendment, but only a prospective amendment, if at all. What has now come out from the Government's stead is a totally unexpected retrospective tax proposal, aimed at scuttling a decision of the Apex Court.

The story of major retrospective direct tax amendments, to overcome unfavourable decisions does not end here. In another equally important retrospective amendment effective from 1 st June, 1976, the Government has also amended Section 9(1)(vi) of the Income tax Act, 1961 by inserting the following Explanations:

‘Explanation 4.-For the removal of doubts, it is hereby clarified that the transfer of all or anyrights in respect of any right, property or information includes and has always included transfer ofall or any right for use or right to use a computer software (including granting of a licence)irrespective of the medium through which such right is transferred.

Explanation 5.-For the removal of doubts, it is hereby clarified that the royalty includes andhas always included consideration in respect of any right, property or information, whether ornot-

(a) the possession or control of such right, property or information is with the payer;

(b) such right, property or information is used directly by the payer;

(c) the location of such right, property or information is in India.

Explanation 6.-For the removal of doubts, it is hereby clarified that the expression “process”includes and shall be deemed to have always included transmission by satellite (includingup-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by anyother similar technology, whether or not such process is secret;'.

The issue involving the taxation of income of non-residents, arising out of the supply of software licenses has been a highly litigated matter. Very recently, the Karnataka High Court had taken the view, in the Samsung case that, payments for import of shrink wrapped software packages are taxable in India and consequently, the Indian importer would have to deduct tax at source. The Delhi High Court however, in the Ericsson AB case, had taken a contrary view that, such payments are not taxable in India. Interestingly, the Bombay ITAT, in the Solid Works Corporation case had taken the view that the Delhi High Court decision would prevail over the decision of the Karnataka High Court. This has clearly been, not to the liking of the Government, which has settled the matter once and for all, by going for a retrospective amendment effective June 1, 1976. The petitioners have already gone to the Supreme Court asking for the Samsung decision of the Karnataka High Court to be quashed, by this now seems to be academic.

Before parting…

I am not against the Government reinforcing the will of the ‘legislature' by amending the tax provisions, when it feels that the Courts have not rightly interpreted the law. This is especially so in the Vodafone case, where the Apex Court has clearly expressed its view that, in the absence of clarity (in respect of indirect deemed accrual of income) in the law, it could not interpret the law otherwise. But, to retrospectively amend the law going back to 1962 and 1976 is clearly obnoxious. The tax payer, whether in India or outside India, cannot be made to suffer for lack of clarity in tax provisions created by the Government itself, in the first place.

The retrospective amendment to Section 9(1)(vi) would come as a big blow for software importers, who have been expecting that that the Supreme Court would overrule the decision given in the Samsung case.

There can be little doubt that, these retrospective amendments could do a lot of damage to the so-called stability of the tax regime in India, as perceived by the foreign investors and foreign service providers.

For most of us, tax practitioners, Section 9 has been ‘the' Section of the Income tax Act, 1961. This is one Section on which tons and tons of views have been expressed, in respect of which numerous case laws are available and, more importantly, this is one Section which has been feeding most of the big time Consultants and Lawyers. The Government would seem to have the final laugh, after all. Our beloved Section 9 will never be the same. 

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