Relaxation in Several Provisions of Companies Act,2013

Introduction of New Companies Act, 2013 has brought harsh provisions however it was expected to simplify the provisions. Industry has started calling it non business friendly and there are provisions which are draconian and must be relaxed. It brought lot of restrictions on doing business. Professionals were also not happy for some harsh penal provisions. Now it is proposed by Ministry of Corporate Affairs to provide various Exemptions to Private Limited Companies. If it approve there will be lot of relaxation to private companies and many public companies will convert themselves into Private Companies.

Proposed amendment in Companies Rules to lighten the harsh provisions are :

1.      According to the proposal floated by the MCA

·        the provisions invoking criminality in offences like mis-statement of prospectus or non-disclosure of financial statements will be made less severe.

2.      Further, as per the draft Cabinet note circulated by the ministry

·        the provisions regarding related-party transactions will be relaxed.

·        The Act under Section 188 (1) says that related-party transactions of specified nature require approval by a board resolution or special resolution.

·        It also bars a related-party member of the company from voting on special resolution.

3.   The industry has been saying that this is not business-friendly especially where holding companies and their wholly owned subsidiaries are involved. So for such transactions, the provision will be amended to make it more pro-industry.

4.  For late disclosure, not keeping books of accounts, or financial statements not giving true and fair value, the “punishment of imprisonment is being done away with as the criminality of this kind is already dealt with in the Code of Criminal Procedure”. Currently, u/s 147, for such contraventions, the company is be punishable with fine up to Rs 5 lakh while every officer of the company who is in default is punishable with imprisonment of up to one year along with a fine up to Rs 1 lakh or both.

 5. The MCA has also proposed to do away with the condition of mandatory appointment of independent directors on the board of a private or closely-held company which has no public involvement.

The Cabinet note also provides a breather to auditors regarding their responsibility of reporting frauds to the government.

“Materiality of fraud is defined in terms of percentage or absolute value as a threshold above which the auditors would be required to report to the government. Below that threshold, the auditors will need not report to the government,

They will just have to inform the audit committee of the company,” the source added.

The industry sources that this will be a huge reprieve to the auditors who currently have to report all frauds to the secretary,

MCA, adding to the compliance cost. The amendments proposed also address the issue of maintaining confidentiality of information especially those pertaining to board resolution.

According to Section 179(3), several items including pure HR issues, require a board resolution.

Contributed by Tanya Gagneja

COMPANY LAW SETTLEMENT SCHEME DATE EXTENDED UPTO 31.12.14

MCA has further extended the date of Company Law Settlement Scheme,2014 till 31st December, 2014 vide circular number 44/2014. It is so decided in continuation to the MCA Circular No.34/2014 dated 12/08/2014 and Circular 40/2014 dated 15/10/2014

Reporting on Internal Financial Control deferred for one year

Reporting on Internal Financial Control u/s 143 (3) (i) of the Companies Act, 2013 has been deferred for one year i.e., up to 31.03.2015 vide amendment  made by  Ministry of Corporate Affairs in  Rules Chapter 10 (Audit and Auditors) of the Companies Act, 2013.

The auditor may voluntarily report on Internal Financial Control for the year from 01.04.2014 to 31.03.2015.The auditor shall report on the existence of adequate internal financial control and its operational effectiveness for the financial years on or after 01.04.2015.

Statutory Compliance Calendar: November 2014

Date	Statutory Act	Applicable Form	Obligation
06/11/2014	Service Tax	Challan No.GAR-7	Last date for E- payment of Service Tax in case of companies for the month October
07/11/2014	Income Tax	Challan No.ITNS-281	Payment of TDS deducted/TCS collected in October
10/11/2014	D-VAT	D-VAT Return (20 & Form 1); DVAT 56	Extended Due Date for DVAT Return for Quarter ended on 30.09.14; Submission of DVAT Return Verification Form
10/11/2014	Excise	ER-1 and ER-2	Return for Non-SSI Units and EOU’s for October
14/11/2014	Service Tax	ST-3	Extended Due Date for Return of the Half Year ended on 30.09.2014
15/11/2014	Income Tax	Form 16A & 27D	Quarterly TDS certificate by a person being an office of the Government for the quarter ending September 30, 2014
15/11/2014	MCA – CLSS 2014	Annual Return, Balance Sheet  (Form 23AC-ACA, 20B)	Extended due date under CLSS 2014 for Annual Return of the Company, Balance Sheet  for earlier years to be filed (Due before 30.06.14 and  if not filed till date) under CLSS-2014 Scheme
15/11/2014	D-VAT	DVAT-20	Deposit of DVAT TDS for October
15/11/2014	Provident Fund	Electronic Challan Cum Return(ECR)	E-Payment of PF for October (Cheques to be cleared by 20th)
21/11/2014	ESI	ESI Challan	Payment of ESI of October
21/11/2014	D-VAT	D-VAT-20 & Central	Deposit of VAT & CST for October for Monthly Dealers
30/11/2014	Income Tax	Form 3CD, 3CA/3CB	Filing of Income Tax Return AY 2014-15 for Tax Audit Cases (audit u/s 44AB) and filing of Tax Audit Report
30/11/2014	Income Tax	Form No. 3CEB	Filing of Income Tax Return and Audit Report u/s 92E for entities on which Transfer Pricing provisions are applicable
30/11/2014	Wealth Tax	Form BB	Filing of Wealth Tax Return where Tax Audit applicable
30/11/2014	Excise	ER-4	Annual Return for units paying duty over Rs. 1 crore (CENVAT + PLA)

Madras high court stays on the levy of interest U/S 234A for Asst Year 14-15 for Income Tax Returns where due date is extended

The CBDT vide order dated 20th August, 2014 extended the due date for obtaining and furnishing of Tax Audit Report under section 44AB of the Act for AY 2014-15 from 30.09.14 to 30.11.14. Subsequently, a number of requests were made for extension of the due date for furnishing of return of income also. Writ petitions were also filed in various High Courts for directing the CBDT to extend the due date ffrom 30.09.14 to 30.11.14 for furnishing of return of income  in conformity with the extension of the due date for filing of Tax Audit Report.

It was logical to also extend the due date for filing of the I-T return to 30.11.14 as the due date for filing of the tax audit report was extended till November 30  (due to late Introduction of several changes  in Form 3CD),

However, such extension was granted subject to charge of interest under Section 234A for the period commencing from 01-10-2014 and up to the actual date of filling the return of income. Interest under section 234A will not be levied if taxpayer covered under tax audit provisions pays the tax on or before 30.09.2014.

The levy of interest under section 234A of the Income Tax Act,1961 is unjustified and against the provisions of the law. If the penalty was levied, the purpose of extending the due date of filing the I-T return itself was defeated. The Madras high court granted an interim stay on the levy of interest U/S 234A for Interest from 1.10.14 till filing of Return. It held, “I-T returns shall be accepted by tax authorities without any levy of interest under section 234A.”

DVAT extended date from 25/10/14 to 30/11/2014

DVAT Department has extended the last date of filing of online / hard copy of second quarter return in Form DVAT-16 , DVAT-17 and DVAT-48 for the year 2014-15, from 25/10/2014 to 10/11/2014. The dealers filing the returns through digital signature are not required to file hard copy of the return/Form DVAT-56.

ST-3 Due Date extended from 25th October to 14th November

CBEC vide Order No. 02/2014-ST dated 24th October, 2014 has extended the date of submission of the Form ST-3 for the period from 1st April 2014 to 30th September 2014, from 25th October, 2014 to 14th November, 2014

New E-Form ADT-1 for Intimation to MCA for Appointment of Auditor

MCA has introduced new e Form ADT-1 for appointment of auditor for filing w.e.f 20^th Oct 2014.  Earlier ADT -1 was to be filed as an attachment with GNL -2 a general form for informing MCA where no specific form issued.  Now MCA has issued E- Form ADT-1. It is to be filed independently  like 23B used to be filed earlier.

The Form ADT – 1 has some new features like  details of joint auditors, Number of financial year(s) to which appointment relates, whether the appointment of auditor is within the limits of twenty companies as specified in section 141(3)(g) of the Companies Act, 2013. Many of the columns are same of Form 23B applicable earlier for the same purpose.

Further following documents are mandatory required to be attached with the Form ADT – 1, Copy of the intimation letter sent by Company to the auditor, Copy of written consent given by auditor & Copy of resolution passed by the Company. ( All the attachment has already given in earlier article on this issue )

Only Specimen of letter intimation by company to their auditors will be uploaded very soon.

For the companies who have already filed ADT-1 as an attachment with GNL-2 need not file again and Keep the SRN No. in record as MCA has not approved the forms filed and may ask for resubmission of the E-form ADT-1 in lieu of GNL-2 already submitted under same SRN Number.

Clarification on levy of service tax on activities related to inward remittances to beneficiaries in India from abroad

Service Tax Department has issued Circular No. 180/06/2014-ST dated 14^th October, 2014 in suppression of Circular No. 163/14/2012-ST dated 10^th July, 2012.

As per Circular No. 163/14/2012–ST dated 10.07.12 - There is no service tax per se on the  foreign exchange remitted  to India from outside for the reason that money does not constitute a service and that conversion charges or fee levied for sending such money would also not be liable to service tax as the person sending money and the company conducting the remittance  are both located outside India.

The foreign money transfer service operator (MTSO), conducting remittances to beneficiaries in India, have appointed Indian Banks/financial entities as their agents in India who provide agency /representation service to such MTSO for furtherance of their service to a beneficiary in India. The agents are paid a commission or fee by the MTSO for their services.

The entire sequence of transactions in remittances of money from overseas through the MTSO route is as under:

Step 1: Remitter R ( outside India ) approaches a  B ( Bank- MTSO Transfer Service Operator (MTSO) located outside India ) for remitting the money to a beneficiary in India                                                                                         ‘R’ Pays to  B’.

Step 2:  ‘B’ avails the services of an IE ( Indian Entity/ Agent) for delivery of money to the UR - ultimate recipient of money in India                                 B pays to IE  

.

Step 3: IE’ may avail service of  SA ( Indian sub-agent )             IE’ Pays to SA’.

Step 4: ‘IE  or ‘SA’, delivers the money to ‘UR’ 

Now Clarifications was sought

- Whether such agents (referred in Step 2 above) would fall in the category of intermediary, and if so, whether service tax would be leviable on the commission/fee amount charged by such agents.

- Whether the services provided by sub agent (referred in step 3 & 4 above) are leviable to service tax and on certain other related issues.

 Circular No. 180/06/2014-ST dated 14^th October, 2014 now clarifies as follows,-

S. No.	Issues	Clarification
1	Whether service tax is payable on remittance received in India from abroad?	No service tax is payable per se on the amount of foreign currency remitted to India from overseas. As the remittance comprises money, it does not in itself constitute any service as per clause (44) of section 65B.  define service of the Finance Act 1994.
2	Whether the service of an agent or the representation service provided by an Indian entity/ bank to a foreign money transfer service operator (MTSO) in relation to money transfer falls in the category of intermediary service?	Yes. The Indian bank or other entity acting as an agent to MTSO in relation to money transfer, facilitates in the delivery of the remittance to the beneficiary in India. In performing this service, the Indian Bank/entity facilitates the provision of Money transfer Service by the MTSO to a beneficiary in India.  For their service, agent receives commission or fee. Hence, the agent falls in the category of intermediary as defined in rule 2(f) of the Place of Provision of Service Rules, 2012.
3	Whether service tax is leviable on the service provided, as mentioned in point 2 above, by an intermediary/agent located in India (in taxable territory) to MTSOs located outside India?	Service provided by an intermediary is covered by rule 9 (c) of the Place of Provision of Service Rules, 2012. As per this rule, the place of provision of service is the location of service provider. Hence, service provided by an agent, located in India (in taxable territory), to MTSO is liable to service tax. The value of intermediary service provided by the agent to MTSO is the commission or fee or any similar amount, by whatever name called, received by it from MTSO and service tax is payable on such commission or fee.
4.	Whether service tax would apply on the amount charged separately, if any, by the Indian bank/entity/agent/sub-agent from the person who receives remittance in the taxable territory, for the service provided by such Indian bank/entity/agent/sub-agent	Yes. As the service is provided by Indian bank/entity/agent/sub-agent to a person located in taxable territory, the Place of Provision is in the taxable territory. Therefore, service tax is payable on amount charged separately, if any.
5.	Whether service tax would apply on the services provided by way of currency conversion by a bank /entity located in India (in the taxable territory) to the recipient of remittance in India?	Any activity of money changing comprises an independent taxable activity. Therefore, service tax applies on currency conversion in such cases in terms of the Service Tax (Determination of Value) Rules. Service provider has an option to pay service tax at prescribed rates in terms of Rule 6(7B) of the Service Tax Rules 1994.
6.	Whether services provided by sub-agents to such Indian Bank/entity located in the taxable territory in relation to money transfer is leviable to service tax?	Sub-agents also fall in the category of intermediary. Therefore, service tax is payable on commission received by sub-agents from Indian bank/entity.

Company Law Settlement Scheme 2014 Date Extended upto 15.11.2014

In continuation to the Ministry’s  General Circular No. 34 dated 12 th Agust has issued General Circular No.40 dated 15th October 2014 to extend the due date of the Company Law Settlement Scheme (CLSS 2014) upto 15^th November, 2014.