corporate and professional update december 17, 2015

CORPORATE AND PROFESSIONAL UPDATE DECEMBER 17, 2015

FAQ on Company Law:

Query: We have incorporated a Pvt Ltd Company on 29^th October 2015. But since then no Board meeting has been held regarding the appointment of First Auditors of company as well. Kindly advice in the matter.

Answer: Section 139(6) of the Companies Act, 2013 lays down that the first auditor of company shall be appointed by the Board of Directors within 30 days of the registration of the company.

Section 139 (6) continues to provide further that if the Board of Directors fails to appoint

such auditor, it shall inform the members of the company, who shall within ninety days at an extraordinary general meeting appoint such auditor and such auditor shall hold office till the conclusion of the first annual general meeting.

Query: One of our client company appointed us as Auditors of the company at the Annual General Meeting held on 30th September, 2015.

But brother of one of partner of Auditor firm has invested in the equity shares for face value of Rs. 1 lakh on 15th October, 2015. Clarify whether we are disqualified as Auditor of that Company or not. 

Answer: According to section 141(3)(d)(i) of the Companies Act, 2013, a person who, or his relative or partner holds any security of the company or its subsidiary or of its holding or associate company a subsidiary of such holding company, which carries voting rights, such person cannot be appointed as auditor of the company.

Provided that the relative of such person may hold security or interest in the company of face value not exceeding 1 lakh rupees.

In your case you,being Auditors, did not hold any such security. But your brother held equity shares of company of face value Rs. 1 lakh, which is within the specified limit.

Further Section 141(4) provides that if an auditor becomes subject, after his appointment, to any of the disqualifications specified in sub-section 3 of section 141, he shall be deemed to have vacated his office of auditor.

Hence, your Auditor firm can continue to function as auditors of the Company even after 15th October 2015.

Query: Can the Managing director of a public company make investment in another company? 

Answer: Section 186(2) requires consent of all the directors present in the board meeting; therefore Managing Director cannot take the decision on investment alone.

Query: Can a company remove Auditors of company without obtaining Central government’s approval. Clarify.

Answer: Section 140(1) stipulates that any auditor appointed under section 139 may be removed from office before the expiry of his term by passing special resolution in general meeting, after obtaining the previous approval of the Central Government in that behalf.

Provided that before taking any action under subsection (1) of Section 140, the auditor concerned shall be given a reasonable opportunity of being heard.

The first auditors appointed by Board of Directors can be removed in accordance with the provision of Section 140(1) of the companies act, 2013. Hence the removal of the first auditor appointed by the Board without seeking approval of the Central Government is invalid.

Query: A Managing Director was removed during the tenure of office and certain compensation was paid to him. It was later on found that during the tenure of his office that he was guilty of corrupt practices and the company felt that no compensation should have paid to him and therefore wants to recover the compensation so paid to him. Can the company succeed?

Answer: The Companies Act, 2013 does not provide for the refund of any compensation paid by the company to its MD, WTD or manager.

It only lays down the situations under which no compensation is payable for loss   of office and one such situation is the commitment of fraud or breach of trust by the director.

Moreover, in Bell vs. Lever Brothers, (1932), Lever Brothers removed their managing director of a subsidiary by paying him compensation.

It was afterwards discovered that during his tenure of office he had been guilty of so many breaches of duty and corrupt practices that he could have been removed without compensation.

An action was then commenced to recover back the compensation money.

It was held that Bell was not bound to refund the compensation money and to disclose any breach of his fiduciary obligation so as to give the company an opportunity to dismiss him.

Thus, the Managing Director is not bound to refund the compensation. Hence, the company can not succeed.

Direct Taxes:

Govt. of India enters Agreement for Avoidance of double taxation and prevention of fiscal Evasion With Government of the Republic of Macedonia vide Notification No. 94/2015 dated 21.12.2015.

Addition under Section 68 – ITAT was fully justified in coming to the conclusion that there exists no evidence to establish that there was any re-routing of the money collected by the Respondent-Companies. None of the shareholders denied having contributed to their share capital, No addition- (Commissioner of Income Tax-VIII Versus SVP Builders (India) Limited, SVP Developers Limited, S.V. Liquor India Limited – 2015 (12) TMI 1185 –   DELHI HIGH COURT)

Exemption u/s 54F – LTCG – Even before the sale of the property he had borrowed housing loan and started construction on the site belonging to him. After the sale the amount spent towards construction of the house is more than the consideration received by the sale of agricultural land and therefore he is entitled to the benefit of Section 54F- (THE COMMISSIONER OF INCOME-TAX AND THE INCOME-TAX OFFICER WARD-3 (2) BANGALORE Versus SRI. ANANDRAJ – 2015 (12) TMI 1179 – KARNATAKA HIGH COURT)

No TDS liability of banks if FD is made on directions of Court during pendency of proceedings vide circular no. 23/2015.

Issuance of Circular No. 22/2015 dated 17.12.2015 by CBDT to ensure allowability of employer’s contribution to funds for the welfare of employees in terms of section 43B(b) retrospectively  in the Income tax Act.

Disallowance made under Section 40(a)(ia) – The Sine qua non for the application of Section 40(a)(ia) of the Act to apply is claiming of the amount sought to be disallowed as an expenditure /deduction to determine the taxable income of the assessee- (Commissioner of Income Tax-2, Mumbai Versus Health India TPA Services Pvt. Ltd. – 2015 (12) TMI 568 – BOMBAY HIGH COURT)

MAT – Income from capital gain – whether should be included for the purpose of computing Book Profit under Section 115JB? – AO has no power to recompute the book profit and has to rely upon the authentic statements of accounts of the company the accounts being scrutinized and certified by the statutory auditors though with a qualification- (Sri Hariram Hotels (P) Ltd. Versus Commissioner of Income-Tax (III) , Bangalore, Income Tax Officer, Ward 12 (2) , Bangalore – 2015 (12) TMI 1419 – KARNATAKA HIGH COURT).

People earning above 10 lakhs no more entitled to LPG Subsidy.

Transfer pricing adjustment – in the absence of a machinery provision it would be hazardous for any TPO to proceed to determine the ALP of such a transaction since BLT has been negatived by this Court as a valid method of determining the existence of an international transaction and thereafter its ALP- (The Commissioner of Income Tax-LTU, Whirlpool of India Ltd. Versus Whirlpool of India Ltd., Deputy Commissioner of Income-Tax – 2015 (12) TMI 1188 – DELHI HIGH COURT)

Compensation on termination of joint-venture agreement – the receipt of Rs. 6080.95 lakhs by the Assessee as a result of the termination of the JVA during AY 1998-99 was a capital receipt but in light of Section 55 (2) (a) of the Act as it stood at the relevant time the said amount cannot be brought to capital gains tax- (The Commissioner of Income Tax Versus HCL Infosystems Ltd. – 2015 (12) TMI 1187 – DELHI HIGH COURT)

Transfer Pricing: An adjustment with respect to transfer pricing has to be confined to transactions with Associated Enterprises and cannot be made with respect to transactions with unrelated third parties. CIT v. Thyssen Krupp (Bombay High Court)

Commission earned by a non-resident agent who carried on business of selling Indian goods outside India cannot be said have deemed to be income which has accrued and/or arisen in India. Circular No. 23 of 1969 & Circular No.786 of 2000 were withdrawn on 22.10.2009. The withdrawal of a Circular cannot have retrospective operation. CIT v. Gujarat Reclaim & Rubber Products (Bombay High Court)

Indirect Taxes:

Whether the Tribunal while remitting the matter back is right in law in giving a positive direction not to impose penalty on the 1st respondent especially when the imposition of such penalty u/s 76 and 78 of Finance Act 1994 is not only automatic but also mandatory – Order of Tribunal is not correct- (The Commissioner of Service Tax Versus M/s. Zak Trade Fairs & Exhibitions Pvt. Ltd. & Customs, Excise and Service Tax Appellate Tribunal, Chennai – 2015 (12) TMI 91 – MADRAS HIGH COURT).

Refund claim – if the service tax liability is discharged on which education cess is paid on the goods exported the benefit of refund of such education cess paid should not be denied when the export of goods is not in dispute- (Tumkar Minerals Pvt Ltd, Prime Minerals Pvt. Ltd., Fomento (Karnataka) Mining Co. Pvt. Ltd., Sociedade de Fomento Industrial Pvt. Ltd., Sesa Goa Ltd., Sesa Resources Ltd., Dinar Tarcar Resources (India) Pvt. Ltd., Minescape Minerals Pvt. Ltd. Versus CCE Goa – 2015 (12) TMI 21 – CESTAT MUMBAI)

DVAT – it is only the Commissioner who can pass an order under Section 36A(8) unless and until the power of the Commissioner has been delegated under Section 68 of the said Act to the VATO.

But that has admittedly not been done. – order set aside – Yongnam Engineering & Construction (Private) Limited Versus Commissioner, Delhi Value Added Tax & Others – 2015 (12) TMI 1087 – DELHI HIGH COURT

Instruction regarding imposition of cost of CESTAT on ground of quality of adjudication order.

Technical testing and analysis service – reverse charge – services are imported or not – Proviso to Rule 3(ii) states that when a service is partly performed in India it shall be treated as performed in India.

Revenue has not justified how the service is performed outside India, Demand set aside- (M/s Crompton Greaves Ltd. Versus Commissioner of Central Excise, Aurangabad – 2015 (12) TMI 1167 – CESTAT MUMBAI)

Denial of rebate claim – receipt of commission on transaction – service was received by the recipient abroad and it is partly performed in India and partly performed abroad – refund allowed- (ENERVISION SERVICES P. LTD. Versus COMMR. OF C. EX., CUS. & S.T., HYDERABAD-II – 2015 (12) TMI 1166 – CESTAT BANGALORE) 

Denial of rebate of Service Tax – no nexus between the input services and the exported output service – There is no clear proposition or proposal for this in the show cause notice.

In the absence of a clear proposal the ground of nexus to reject the rebate claim of tax paid on output service could not have been used- (TEXTRON   INDIA PVT. LTD. Versus COMMR. OF S.T., BANGALORE – 2015 (12) TMI 1165 – CESTAT BANGALORE)

100 EOU – payment of duty at the time of debonding – petitioners are permitted to pay the excise duty foregone from the legally availed Cenvat credit account.

Upon the excise duty being paid through the Cenvat credit account the second respondent shall issue No Due Certificate to the petitioners for debonding out of 100 EOU Scheme- (Messrs Dishman Pharmaceuticals And Chemicals Pvt. Ltd. Versus Union of India – 2015 (12) TMI 1211 – GUJARAT HIGH COURT)

Demand of service tax – arbitrary quantum while doing best judgement assessment – the order fatally suffers from lack of analysis/discussion regarding the contentions and arguments of the appellant and makes a mockery of the quasi-judicial process in-as-much-as it is not merely non-speaking but also absurd in parts- (M/s. Carlsberg India Pvt. Ltd. Versus C.S.T., Delhi – 2015 (12) TMI 1403 – CESTAT NEW DELHI)

CENVAT Credit – since the title or ownership of goods passed on to the buyer at their site such site of the buyer will be considered as the place of removal and as per the definition of input service the freight payable for such transportation of goods will be considered as input service for the purpose of taking cenvat credit- (Commissioner of Central Excise, Delhi-III Versus M/s Asian Color Coated Ispat Ltd. – 2015 (12) TMI 1394 – CESTAT NEW DELHI)

FTP : Export Policy of Onions- Removal of Minimum Export Price (MEP) on Onions. – 29/2015-20 – Dated 24-12-2015

Key Dates:

Issue of D Vat Certificate for deduction made in November: 22/12/2015.

Issue of TDS Certificate u/s 194-IA for TDS deducted in November on purchase of property: 22/12/2015

For query or help, contact: singh@carajput.com or call at 9555555480