Weekly Round-up on Tax and Corporate Laws | 04th to 09th April 2022

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 04th to 09th April 2022, namely:

(a) CBDT notifies Rule 21AAA to provide tax relief on income arising from foreign retirement funds

(b) Supreme Court upholds constitutional validity of 2020 amendments made to FCRA

(c) PAN, email, address, and UID of members would not be available for any inspection or taking the extract of copies: MCA

(d) Nidhi Cos. to obtain and submit a declaration for commencement of business at the time of incorporation

(e) Key highlights of the RBI’s statement on developmental and Regulatory Policies

(f) HC levied penalty on officer demanding unnecessary documents for grant of GST registration

(g) MCA amends the Companies (Indian Accounting Standards) Rules, 2015 by way of few additions and replacements

1. CBDT notifies Rule 21AAA to provide tax relief on income arising from foreign retirement funds

The Finance Act, 2021 has inserted a new Section 89A to provide relief to residents who have income from foreign retirement benefits accounts. Some countries tax income from such foreign retirement benefits accounts on the receipt basis. However, the amount withdrawn from such an account is chargeable to tax in India on the accrual basis. Due to the mismatch in the year of taxability, the taxpayers face difficulties in claiming the foreign tax credit.

Section 89A provides that the income of a specified person from the specified account shall be taxed in the manner and in the year as prescribed by the Central Government. A specified person means a resident person who has opened a specified account in a notified country while being a non-resident in India and resident in that country.

The CBDT has notified Rule 21AAA prescribing manner for taxation of income arising from retirement benefits account maintained in a notified country. The rule provides that if a specified person has earned any income in the retirement benefits account, then the same shall be included in his total income of the previous year, in which such income is taxed in the country wherein such account is maintained.

To exercise this option, the specified person is required to e-file Form No. 10-EE on or before furnishing return of income. Further, once this option is exercised, it will apply to all subsequent previous years and cannot be withdrawn.

However, if the specified person has become non-resident after exercising the option, then it shall be deemed that he has never exercised the option and income accrued in the specified account from the previous year in which such option was exercised shall be taxable in his hand.

The board has also notified the following countries as ‘notified country’ for the purpose of Section 89A:

a) Canada,

b) The United Kingdom of Great Britain and Northern Ireland, and

c) United States of America

Read the notification no. 24/2022

Read the notification no. 25/2022

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2. SC upholds constitutional validity of 2020 amendments made to FCRA

In the instant case, petitions were filed under Article 32 of the Constitution of India, assailing the constitutional validity of the amendments to the provisions of the Foreign Contribution (Regulation) Act, 2010 vide the Foreign Contribution (Regulation) Amendment Act, 2020.

The case of the petitioner was that Sections 7, 12(1A), 12A, and 17(1), were manifestly arbitrary, unreasonable, and impinging upon the fundamental rights guaranteed to the petitioners under Articles 14, 19, and 21 of the Constitution.

The Amendments are summarized hereunder:

(a) Amendment to Section 7: The amendment prohibited transferring of funds by the NGO that has received foreign funds to other NGOs in India, even when the receiving NGO has FCRA registration.

(b) Insertion of Section 12(1A): It envisaged that every person who makes an application under Section 12(1) is obliged/required to open FCRA account in the manner specified in Section 17 and mention details of such account in his application

(c) Insertion of section 12A: It mandated that the person concerned who seeks prior permission or prior approval under Section 11, or makes an application for grant of certificate under Section 12, including for renewal of a certificate under Section 16, to provide as an identification document, the Aadhaar number of all its office bearers or Directors or other key functionaries.

(d) Amendment to Section 17: Section 17(1) mandated opening of “FCRA account” and receiving of foreign contributions only at one bank in New Delhi, i.e., New Delhi Main Branch of the State Bank of India, 11, Sansad Marg, New Delhi.

Upholding the constitutional validity of the FCRA 2020 Amendments, the Supreme Court held that Sections 7, 12(1A), 12A and 17 of the 2010 Act are intra vires the Constitution and the Principal Act (FCRA, 2010). The Supreme Court credited the Parliament for taking recourse to corrective dispensation for eradicating the mischief, which any sovereign country can ill-afford.

The Court said that merely because the registered association has been compelled to open an FCRA account in the designated bank at the centralized location for receipt/inflow of foreign contribution from a foreign source, it does not follow that such a requirement would be manifestly arbitrary or unreasonable.

It is only a one-time exercise to be complied with for availing the permission accorded by the Central Government under the Act to be a certified association or a person permitted to receive foreign contribution as a pre-condition. Therefore, sections 12(1A) and 17 are not violative of Articles 14, 19 and 21 of the Constitution

The amended Section 7 of FCRA postulates complete prohibition on the transfer of foreign contribution to other people – not even to a person with a certificate of registration under the Act. In other words, a person who is registered and granted a certificate or has obtained prior permission under the Act to receive a foreign contribution will henceforth be required to utilize the amount “itself” and not through any other person.

Read the Ruling

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3. PAN, email, address, and UID of members would not be available for any inspection or taking an extract of copies: MCA

The Govt. vide Notification No. G.S.R. 279(E), dated 06-04-2022, has notified Companies (Management and Administration) Amendment Rules, 2022. A new sub-rule (3) has been inserted into Rule 14 to provide that certain particulars of Registers, Index or Return of a member of a company, namely a) Address/registered address (in case of a body corporate) b) e-mail ID c) Unique Identification Number d) PAN shall not be made available for inspection. Further, taking extracts or copies under sub-section (3) of Section 94 of the Companies Act 2013 is not allowed.

As per Section 94(2) of the Companies Act, 2013, Companies are required to keep registers and their indices open (except when they are closed under the provisions of this Act) for inspection by any member, debenture-holder, another security holder, or beneficial owner, during business hours without payment of any fees and by any other person on payment of such prescribed fees.

Section 94(3) empowers any such member, debenture-holder, other security holder or beneficial owner, or any other person to take extracts from any register, or index, or return without payment of any fee, or require a copy of any such register or entries therein or return on payment of such prescribed fees.

Details such as e-mail id, address, PAN, and UID are highly confidential and personal in nature. Open disclosure of the same is prone to misuse. As miscreants may use PAN details to carry out fraudulent transactions such as obtaining loans, opening bank accounts, e.t.c. or carrying out bogus transactions. The amendment is a welcome step and was much needed to protect members’ privacy, debenture holders, etc.

Read the notification

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4. Now Nidhi Cos. to obtain and submit a declaration for commencement of business at the time of incorporation: MCA

The MCA vide Notification No. G.S.R. 291(E), dated 08-03-2022 has notified amendment to the Companies (Incorporation) Rules, 2022. The second proviso has been inserted to Rule 12 to provide that in case of incorporation of a Nidhi company, it shall be required to obtain a declaration from Govt. before the commencing the business and submit the declaration at the time of incorporation of the company. Form INC – 20A (Declaration for commencement of business), has been amended to capture details relating to the approval received from Govt. for commencement of the business, such as the letter-number/registration number/approval issued under section 40 and date of approval/registration.

Form No. INC-32 (SPICe+) has also been amended. A declaration has been added to the Part B of the form to provide that the company shall not commence the business of Nidhi unless all the required approvals, including the declaration to be issued under section 406 of the Act, have been obtained from the Central Government.

Read the Notification

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5. Key highlights of the RBI’s statement on developmental and Regulatory Policies

The Monetary Policy Committee (MPC) of RBI, at its meeting on April 8, 2022, decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 4.0%. The marginal standing facility (MSF) rate and the Bank Rate remain unchanged at 4.25%. The standing deposit facility (SDF) rate, will be at 3.75%. RBI stated that decisions are harmoniousness intending to achieve the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%.

The RBI has also issued the Statement on Developmental and Regulatory Policies. The statement sets out various developmental and regulatory policy measures relating to- liquidity measures, regulation and supervision, and payment and settlement systems.

The key measures include (a) Introduction of Interoperable Card-less Cash Withdrawal (ICCW) at ATMs through the use of UPIs (b) issuance of new directions for Cyber Resilience and Payment Security Controls of Payment System Operators (PSOs) (c) Introduction of the Standing Deposit Facility (d) Restoration of the Symmetric LAF Corridor (e) Rationalization of Net-worth Requirement for Operating Units of Bharat Bill Payment Systems (f) Proposal to set up a committee for Review of Customer Service Standards in RBI Regulated Entities.

Read the Story

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6. HC levied penalty on officer demanding unnecessary documents for grant of GST registration

The Allahabad High Court has recently held that registration application could not be rejected on grounds of non-submission of electricity bill when PAN and Aadhaar details and house tax receipt were provided. The Honorable High Court of Allahabad gives this ruling in the case of Ranjana Singh v. Commissioner of State Tax.

Facts

The petitioner applied for new registration. On submission of the application, an inspection was made at the business premises of the petitioner. Thereafter, notice was issued for providing electricity bill or house tax bill or any other document related to the business and reply was submitted along with relevant documents. However, the registration application was rejected for non-submission of electricity bill though petitioner provided PAN and Aadhaar details as well as property tax receipts. It filed an appeal, but the appellate authority also rejected the appeal confirming the rejection order. It filed a writ against the rejection of the registration application and appeal.

High Court

The Honorable High Court observed that PAN and Aadhaar details and property receipts were provided as per the provisions of the CGST Act and rules. But the authorities had rejected the application for non-specifying possession of the business premises without whispering any word or assigning any reason and insisted on submitting the electricity bill. The authorities below have further erred in law in not pointing out any defect in the submission of house tax receipt and insisted on submission of electricity bill, whereas the notice gave an option for submission of recent electricity bill or house tax receipt. It was held that the petitioner had every right to carry on business lawfully when shortcomings or defects were not pointed out in the reply submitted along with documents. The impugned order was quashed, and since the authorities had acted only to harass the petitioner; therefore, costs of Rs. 15,000 was imposed, which may be recovered from erring officer.

Read the Ruling

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7. MCA amends the Companies (Indian Accounting Standards) Rules, 2015 by way of few additions and replacements

To align with the best global accounting practices, the Ministry of Corporate Affairs (MCA) vide its Notification Number G.S.R255(E) dated 23-03-2022 has made amendments in Companies (Indian Accounting Standard Rules), 2015, by way of exercising power under Section 133 read with Section 469 of the Companies Act, 2013, in consultation with the National Financial Reporting Authority (NFRA). Such changes are applicable from April 1 2022, onwards. Following are the major changes being made vide such notification:

a) In Ind AS 101, First Time Adoption of Indian Accounting Standards, paragraph D13A in Appendix D is inserted, stating that a subsidiary using the exemption in paragraph D16(a) of Ind AS 101 may elect, in its financial statements, to measure cumulative translation differences for all foreign operations at the carrying amount. Such amount would be included in the parent‘s consolidated financial statements, based on the parent‘s date of transition to Ind ASs, if no adjustments were made for consolidation procedures and for the effects of the business combination in which the parent acquired the subsidiary. A similar election is available to an associate or joint venture that uses the exemption in paragraph D16 (a).

b) In Ind AS 103, Business Combinations, paragraph 21A, 21B, 21C, and 23A is inserted in the following manner:

Exceptions to the recognition principle:

• • Para 21A states that Paragraph 21B applies to liabilities and contingent liabilities that would be within the scope of Ind AS 37 or Appendix C, Levies, of Ind AS 37, if they were incurred separately rather than assumed in a business combination.
  • Para 21B states that the Conceptual Framework defines a liability as a present obligation of the entity to transfer an economic resource as a result of past events. For a provision or contingent liability that are within the scope of Ind AS 37, the acquirer shall apply paragraphs 15–22 of Ind AS 37. For a levy that is within the scope of Appendix C of Ind AS 37, the acquirer shall apply Appendix C of Ind AS 37.
  • Para 21C states that a present obligation identified in accordance with paragraph 21B might meet the definition of a contingent liability set out in paragraph 22(b). If so, paragraph 23 applies to that contingent liability.
  • Para 23 states that Ind AS 37 defines a contingent asset as a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity. The acquirer shall not recognize a contingent asset at the acquisition date.

c) In Ind AS 109, Financial Instruments, para B3.3.6A is inserted in Appendix B stating that “If an exchange of debt instruments or modification of terms is accounted for as an extinguishment, any costs or fees incurred are recognized as part of the gain or loss on the extinguishment. If the exchange or modification is not accounted for as an extinguishment, any costs or fees incurred adjust the carrying amount of the liability and are amortized over the remaining term of the modified liability”.

d) In Ind AS 37, Provisions, Contingent Liabilities, and Contingent Assets, Para 68A is inserted, which states that the cost of fulfilling a contract comprises of costs directly relating to the contract. It consists of both, the incremental costs and an allocation of other costs , that relate directly to fulfilling contracts.

Read the Notification

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