TRANSACTION ADVISORS

Missive
Volume I – April 2011
Dear Patron

With India becoming a cornerstone for future growth, global corporations are ferociously
competing with each other to have their footprints in India while the Indian business houses, Topics Page No
flushed with funds, are now looking global. In this exciting and changing scenario, it Competition Act 1
becomes imperative for us to evaluate our client’s needs vis-a-vis the tax and regulatory FEMA 2
environment. And so here we are with our first newsletter. SEBI 3
Companies Act 3
The month of March has witnessed some significant tax and regulatory changes, particularly Accounting 5
in the backdrop of Union Budget 2011, which had laid down a constructive road map for Direct Taxes (including 6
Economic growth and has taken steps to align the existing tax structure with the proposed International Tax)
GST & DTC framework. Regulatory News 7
Indirect Taxes 8
While India is now witnessing the merger controls, scheduled to be effective from June 2011, Transfer Pricing 9
at the same time MCA is taking steps to step next generation of reforms by simplification and Recent News in Transactions 10
automation of procedures. With implementation of IFRS underway, revised schedule VI that made headlines
being issued and XBRL reporting being introduced, accounting in India is going a whole new
change. The move is surely to align Indian financial reporting with international standards.

For any queries on the issues captured by this newsletter, you can contact Akhil Bansal at
akhil@spnagrath.com. We shall be pleased to assist you.

Thanks and regards

Manoj Nagrath
Director
Competition Act § A “Group” exercising less than 5o% of voting rights in the other
enterprise is also exempt from the provisions of section 5
Competition Commission of India gets power to approve big M&As
Competition Commission of India issued draft regulations in relation to
Ministry of Corporate Affairs issued notifications relating to Combinations the transaction of business relating to Combinations
whereby
§ June 1st, 2011 has been appointed as the date on which the Further, Draft regulations have been issued – some key features are
provisions relating to Combinations would come into force; § Consultation prior to filing notice of proposed combination: Parties
§ Threshold limit prescribed in section 5 for an acquisition or merger to to a proposed combination may make written request seeking
constitute a Combination requiring mandatory notification to the informal and verbal consultation with the CCI about filing notices.
Competition Commission of India (CCI) has been raised by 50%, on However, CCI would not be bound by any opinion or view expressed
the basis of the wholesale price index. Revised limits are as follows during consultation
§ Forms of notice - Regulations prescribe 3 formats of pre- merger
Parties to the In India Assets worth INR 15 Or Turnover of INR 45
notification Forms for obtaining approval
§ Liability to file notice - In case of merger or amalgamation, the
Combination (INR) billion billion
liability to file pre-merger notifications is on the parties to jointly file
jointly have Worldwi Assets worth USD Or Turnover of USD
notice. In case of acquisition or acquiring of control, the liability is on
de(USD) 750 million, (of which 1500 million, (of
the acquirer.
atleast INR 7.50 which atleast INR 15
§ Filing Fees –Filing fees ranges from INR 1 to 4 million depending on
billion in India) billion in India).
the nature and value of acquisition
Acquiring In India Assets worth INR 60 Or Turnover of INR 120
§ Prima facie view: Upon filing of the pre-merger notification, the CCI
group and (INR) billion billiob to form its prima facie opinion on the proposed combination within
target jointly Worldwi Assets worth USD Or Turnover of USD 3o days of filing of notice.
have de (USD) 3000 million (of 9000 million (of § Time period for review: CCI to endeavour to pass an order or issue
which atleast INR 7.5 which atleast INR directions within 18o days of filing of the notice. The Act however
billion in India) 22.50 billion in India) currently prescribes a period of 210 days within which the CCI has to
pass order or issue directions; otherwise the combination would be
§ If an enterprise whose control, shares, voting rights or assets are deemed as having been approved.
being acquired, has assets of not more than INR 2.5 billion or § Appointment of independent agencies to oversee modifications:
turnover of not more than INR 7.5 billion, it is exempt from the The draft regulations give power to CCI to appoint independent
provisions of section 5 agencies if it is of the opinion that modifications proposed by it and

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 accepted by the parties needs supervision. Such independent
agencies may include an accounting firm, management consultancy,
any professional organisation or independent practitioner of repute.
Impact: Even though the Competition Regulations have provided for
target thresholds, the transaction thresholds are still missing which can
result in certain transactions getting caught under the purview of the
legislation even if it was not the intent to cover it.
FEMA
Introduction of Annual return on Foreign Liabilities and Assets reporting
by Indian Companies and discontinuation of the Part B of form FC-GPR
vide A.P. (DIR Series) Circular No. 45 dated March 15, 2011.
RBI has notified a revised procedure for reporting of all FDI, both inward
and outward. RBI has replaced Part B of Form FC-GPR (annual filing by
Indian companies with regard to foreign investment) by “Annual Return
on Foreign Liabilities and Assets” (the Return).
The Return should be submitted by all Indian companies which have
received FDI and / or made FDI abroad (i.e. overseas investment) in the
previous year including the current year. Indian companies have to
furnish audited balance sheet for the reporting year along with the
Return. The first Return will be due by 15 July 2011 and then annually by
15 July each year. For the purposes of the Return, RBI has also provided
the methodology for valuation of foreign liabilities and foreign assets.
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Consolidated FDI Policy has been released (Circular 1 of 2011)
Policy laid down in Consolidated Circular has the following key changes
§ Pricing of Convertible instruments - Instead of specifying the price of
convertible instruments upfront, companies will now have the
option of prescribing a conversion formula, subject to the FEMA/
SEBI guidelines on pricing. This would help the recipient companies
in obtaining a better valuation based upon their performance.
§ Inclusion of fresh items for issue of shares against non-cash
considerations - The existing policy provides for conversion of only
ECB/lump-sum fee/Royalty into equity. Government has now
decided to permit issue of equity, under the Government route, in
the following cases, subject to specific conditions:
ü import of capital goods/ machinery/ equipment (including
second-hand machinery)
ü Pre-operative/ pre-incorporation expenses (including
payments of rent etc.)
§ Removal of the condition of seeking prior approval in case of
existing joint ventures/technical collaborations in the ‘same field”
§ Guidelines relating to down-stream investments- The earlier
categorisation of ‘investing companies’, ‘operating companies’ and
‘investing-cum-operating companies’ has been done away with.
Impact: Amendments in the Circular would go a long way in improving
the FDI flows in the country – removal of condition of obtaining prior
approval from the Indian partner will help in genuine cases where
sometimes foreign venture is held to ransom by Indian counterpart and
may demand unreasonable considerations.
SEBI
SEBI Circular on Listing Agreement for Securitized Debt Instruments
Recent News
§ SEBI is planning to regulate the wealth management business of
large financial institutions (at present the same is not regulated)
§ SEBI has stated that the coordination among various financial market
regulators needs to integrate at the operational as well as
surveillance level to have a greater oversight and thereby prevent
frauds in the financial markets.

With a view to enhance information available in the public domain on Companies Act
performance of asset pools on which securitized debt instruments are
issued, it has been decided to put in place a Listing Agreement for Amendment to Companies Name Availability Rules
securitized debt instruments. The Listing Agreement provides for
disclosure of pool level, tranche level and select loan level information. As Some salient features of the Rules are
per SEBI, the move would help improve the secondary market liquidity for
such instruments. § While applying for a name, the applicant has to certify that he has
searched the website of the Ministry of Corporate Affairs for
Budget 2011: Foreign Investors to be allowed direct investment in checking the resemblance of the proposed name with companies
Mutual funds already registered.
§ Option available to certify the name by CA, CS or CWA, the name will
At present, only FIIs and sub-accounts registered with SEBI and NRIs are be made available by the system online to the applicant without
allowed to invest in mutual fund schemes. To liberalise the portfolio backend processing by the Registrar of Companies
investment route, it has been laid down by FM in the Budget Speech to
permit SEBI-registered mutual funds to accept subscriptions from foreign
investors who meet the KYC requirements for equity schemes which will
enable Indian mutual funds to have direct access to foreign investors and
widen the class of foreign investors in Indian equity market

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Some of the important guidelines for name selection as provided by Rules
are given below
§ The addition of an internet related designation, such as .COM, .NET,
.EDU, .GOV, ORG, .IN does not make a name distinguishable from
another, even where (.) is written as ‘dot’.
§ Abbreviated name such as ‘ABC limited’ or ‘23K limited’ cannot be
given to a new company. However the companies well known in
their respective field by abbreviated names are allowed to change
their names to abbreviation of their existing name (for Delhi Cloth
Mills limited to DCM Limited, Hindustan Machine Tools limited to
HMT limited) after following the requirement of Section 21 of the
Companies Act, 1956.
§ If the proposed name includes the word “State”, the same shall be
allowed only in case the company is a government company. Also, if
the proposed name is containing only the name of a continent,
country, state, city such as Asia limited, Germany Limited, Haryana
Limited, Mysore Limited, the same shall not be allowed.
Circular Simplifying of DIN rules
MCA has simplified the process of obtaining DIN and recommended the
below mentioned procedure:
§ Application for DIN will be made in DIN 1 eForm. No physical
submission of documents will be accepted and for this purpose
scanned documents along with verification by the applicant will be
attached with the eForm. Only online fee payment will be allowed.
§ DIN 1 eForm can be digitally signed by the professional who shall
also confirm that he has verified the particulars of the Applicant
given in the application. Where the DIN 1 is verified by the
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professional, the DIN will be approved by the system immediately
online. In other cases, the DIN cell will examine the application and
same shall be disposed of within one or two days.
§ Above procedure also apply to filing of DIN 4 i.e. changes in
particulars of Directors.
MCA simplified procedure of company incorporation and establishment
of principal place of business in India by Foreign Companies (Circular
6/2011)
Following recommendations have been made by the MCA
§ Only Form-1 shall be approved by the RoC Office. Form 18 and 32
shall be processed by the system online.
§ There shall be one more category, i.e., Incorporation Forms (Form
1A, Form 37, 39, 44 and 68) which will have the highest priority for
approval.
§ Average time taken for incorporation of company should be reduced
to one (1) day only
Impact: Ever since MCA project has been conceived and commissioned,
simplification of procedures by way of automation and removal of
unnecessary obstacles have been the underlying theme for Ministry of
Corporate Affairs. In this backdrop, MCA has issued certain circulars
which will have the impact of reducing the number of days for certain
procedures and getting it to international standards.
Payment of MCA filing fees through electronic mode made mandatory –
From 27th March 11, compulsorily Payment of MCA fees online where
same is less than INR 50,000; from 1st October’2011 all fee to be paid
online
Payment of commission to Non-Whole Time Directors of the company
under section 309(4) (b) of the Companies Act, 1956 (Circular 4/2011)
Companies not require approval of Central Government for making
payment of remuneration by way of commission to its Non- Whole Time
Director(s) in addition to the sitting fee if the total commission to be paid
to all those Non-WTDs does not exceed 1% of the net profit of the
company if it has a WTD(s) or 3% of the net profit of the company if does
not have a Managing Director or WTD(s).
Recent News: Govt plans to keep track of companies with common
addresses and common directors
Ministry of Corporate Affairs (MCA) plans to add two more parameters to
its software-based fraud detecting system, called Early Warning
System (EWS), which scans unusual developments in companies and
alerts the Ministry of any possible wrongdoing.
Accounting
Converged Indian Accounting Standard (Ind AS) notified by MCA
MCA vide press release dated 25 February 2011 has notified 35 Indian
Accounting Standards converged with IFRS (henceforth called IND AS).
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MCA will implement the IFRS converged Indian Accounting Standards in a
phased manner after various issues including tax related issues are
resolved with the concerned departments. The date of implementation of
the IND AS will be notified by MCA later.
Impact: However, Indian companies, which were to tap the
international capital market, will still have to prepare dual financial
statements to raise funds overseas as the newly-notified system for
local companies is not compatible with global norms and would give
parallel valuations. This in turn would defeat the purpose of migration.
Format of Revised Schedule VI to the Companies Act 1956
The revised Schedule VI introduces many new concepts and disclosure
requirements and also does away with several existing requirements.
Applicable for financial statements with period commencing on or after
April 1st, 2011
Some key features of the new Schedule are as follows.
§ It requires that if compliance with the requirements of the Act and/
or accounting standards requires a change in the treatment or
disclosure in the financial statements, the requirements of the Act
and/ or accounting standards will prevail over the Schedule VI. This is
a significant change in the approach since earlier the requirements of
Schedule VI were prevailing over accounting standards.
§ In the existing Schedule VI, break-up of amounts disclosed in main
balance sheet and profit and loss (P&L) account was given in the
schedules. Additional information was furnished in the notes to
account. The revised Schedule VI has eliminated the concept of
 schedule and such information will now be provided in the notes to
accounts. This is in line with the practice under IFRS
§ Current and non-current classification has been introduced for
presentation of assets and liabilities in the balance sheet which is
more in line with the concepts used under Ind-AS/ IFRS.
§ Number of shares held by each shareholder holding more than 5%
shares now needs to be disclosed.
§ Any debit balance in P&L account will be disclosed under the head
“Reserves and surplus.”
§ Below the line adjustments to be presented under “Reserves and
Surplus” in the balance sheet
Impact: With implementation of IFRS underway, revised schedule VI
being issued and XBRL reporting being introduced, accounting in India is
going a whole new change. The move is surely to align Indian financial
reporting with international standards.
Certain Companies have to file financial statements in XBRL mode from
July 2011 (General Circular No 9/2011 dated March 31st, 2011)
MCA has mandated following companies to file financial statements using
XBRL taxonomy from the year 2010-2011
§ All companies listed in India and their subsidiaries, including
overseas subsidiaries;
§ All companies having a paid up capital of INR 5 crore and above or a
Turnover of INR 100 crore or above.
XBRL is a language for the electronic communication of business and
financial data. Going forward, government intends to cover more
categories of companies in the regime.
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Impact: Companies would have to incur additional cost for complying
with XBRL. Nevertheless, XBRL would be beneficial for those who collect
business data, including governments, regulators, stock exchanges,
financial information companies, economic agencies and the likes and
those who produce or use it including accountants, auditors, company
managers, financial analysts, investors and creditors.
Direct Tax (including International Tax)
Budget 2011
§ Dividends received by an Indian company from its foreign subsidiary
(wherein the Indian company holds 51% or above of the nominal
value of share capital) will be taxable at the rate of 15 % of the gross
dividend received. No deduction in respect of any expenditure or
allowance shall be allowed to the Indian company from such
dividend income.
§ A non-resident having a liaison office in India set up in accordance
with the guidelines issued by the Reserve Bank of India under the
Foreign Exchange Management Act (FEMA) is required to prepare
and deliver the details of activities carried on by such liaison office to
the AO having jurisdiction over such liaison office within 60 days
from the end of such financial year.
§ LLP subject to provisions of MAT (MAT rate increased to 18.5% of
adjusted book profits)
§ Levy of MAT introduced on developers of Special Economic Zones
(SEZS) as well as units operating in SEZs. Also, DDT applicable on SEZ
Developers. However, there has been news that SEZ Developers
Weigh Legal Action against MAT Decision.
§ In order to discourage transactions by Indian residents with persons
located in any country or jurisdiction which does not effectively
exchange information with India, anti-avoidance measures have
been proposed. These includes applicability of transfer pricing
regulations, non-allowability of deduction unless assesse furnishes
requisite authorization and maintain prescribed documentation,
receipt considered as deemed income unless satisfactory
explanation provided about source of money, minimum withholding
tax rate on payments to be 30%, etc).
§ Companies managing the retirement savings of their employees
through own provident fund trusts have been given more time to
seek licences that make them eligible for tax exemption on
contributions
Significant decisions
§ Interest paid by a branch of a Foreign Bank to its Head Office is
deductible in the hands of the branch [Calcutta high court]
§ Transfer of an undertaking under slump exchange is not liable to
capital gains tax [Mumbai ITAT]
§ Non-Compete Fee Not Taxable [Supreme Court]
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§ Payments received for leasing of transponder capacity and
bandwidth cannot be taxed as ‘royalty’ under the Section 9(1)(vi) of
the Act [Delhi ITAT]
§ Views expressed by smaller bench of a SC in case of Azadi Bachao
Andolan on tax avoidance are binding on the HC. Also in Quippo
case, AAR goes against Vodafone by relying on Azadi Bachao Andolan
[AAR]
§ Benefit of set off of brought forward losses could not be denied to
the amalgamated company since there was no change in control and
management of amalgamated company pre and post-merger [Delhi
ITAT]
Regulatory News
Progress on establishment of a strong IT infrastructure for GST on track
FM announced that significant progress on the GST network (GSTN) has
been made. The key business processes of registration, returns and
payments, was told to be in advanced stages of finalization. NSDL has
been selected a technology partner for incubating the National
Information Utility that will establish and operate the IT backbone for
GST.
Indian Income Tax offices in other nations
Government is planning to put up Income Tax Overseas Units in countries
like France, Germany, the Netherlands, Cyprus, US, Britain, United Arab
Emirates, and Japan in the upcoming fiscal. Income tax offices are already
operational in Singapore and Mauritius. The major motive behind this
idea is to keep track of people who evade tax and flee to foreign nations.
Charities, trusts to come under one law for more transparency
The intent is to smoothen their running in India and overseas, but with
strict checks on the flow of tainted money. Job of drafting a model law is
in progress that will replace myriad central and state laws on societies,
trusts, endowments and charitable institutions.
Income Tax department tells EPFO to tax premature PF withdrawals
The Income Tax department has asked Employees' Provident Fund
Organisation (EPFO) to tax all withdrawals by workers with less than five
years of PF savings. Employers who run their own PF trusts have already
been deducting tax for premature withdrawals.
Cabinet approves PFRDA Bill
Union Cabinet gave its nod to the long-awaited Pension Fund Regulatory
and Development Authority Bill (PFRDA) that aims to grant statutory
status to the pension regulator and open up the sector for FDI.
Budget 2011: Stamp Act all set for a makeover
As proposed by Finance Minister in his Budget speech, the government
would soon amend the Stamp Act. To start with, an amendment would be
made to prune the list of items on which stamp duty is levied. FM also
proposed to launch a new scheme with an outlay of INR 300 crore to
provide assistance to states to modernise their stamp and registration
administration and roll out e-stamping in all districts in the next 3 years.
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Indirect Taxes
Goods transported to out-of-state depots otherwise than as a result of
direct sale which would attract tax under Section 6 of the Central Sales
Tax Act- SC
Supreme Court laid down an important principle in the context of Central
sales tax wherein an agreement to sell occasioning movement of goods
from head office to branch was considered to be taxable under CST and
not be considered as branch transfer.
Introduction of Constitution Amendment Bill in Lok Sabha for
implementation of GST
The Bill seeks to amend the Constitution to authorise both the Centre and
the States to levy taxes on supply of goods and services. The proposed
Article 279A empowers the President of India to constitute a GST Council
which would examine issues relating to GST and make recommendations.
The newly proposed Article 279B provides for establishment by the
Parliament of a GST Dispute Settlement Authority to adjudicate any
dispute that results in a loss of revenue to a State or the Centre.
The Bill will now be referred to a Standing Committee of the Parliament
for scrutiny and recommendations. Post this; the Bill will be taken up for
discussion and voting in the Parliament
Budget 2011 – Concept of payment of service tax on “payment”
replaced with “accrual” (except for certain specified services)
Single most amendment in Service tax regime is to go from “payment” to
“accrual basis”. The same involved amendment/introduction of following.
Point of Taxation Rules 2011 have been framed vide notification
18/2011-ST and made effective from July 1st, 2011 (though service
provider may also opt for an earlier applicability i.e. from April 1st, 2011).
The general rule will be that the time of provision of service will be the
earliest of the following dates:
§ Date when the invoice for the service provided or to be provided is
issued or
§ When the time of receipt of payment, to the extent of such payment.
As regards the CENVAT Credit Rules, amendments have been made to
provide that the credit in respect of input services can be availed on or
after the day on which the invoice, bill or challan is received except in
cases where the service tax is paid under reverse charge mechanism,
where it will be eligible upon payment of the tax. In case the payment of
the value of input service and the service tax is not made within three
months from the date of invoice, then the credit availed on the basis of
invoice or bill is required to be reversed.
Another change is with respect to the Service Tax Rules, 1994. The
amendment now provides an option to a service provider to adjust the
excess service tax paid in a situation where the amount of invoice is
renegotiated due to a deficient provision of service or for a variation in
the terms of a contract.
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Impact: The change in concept from ‘payment’ to ‘accrual’ for service
tax is being seen as a run-up to the GST regime where taxation on both
“goods” and “services’ will converge.
Transfer Pricing
Budget 2011
§ Government to notify the tolerance level of variation between the
arm’s length price (ALP) and value of international transaction
(Earlier it used to be 5%)
§ Jurisdiction of TPO to extend to determination of ALP in respect of
other international transactions, which are noticed by him
subsequently, in the course of assessment proceedings.
Significant decisions
§ Internal benchmarking analysis under TNMM based on segmental
results prepared by using allocation keys is justified [Delhi ITAT]
§ ITAT Delhi held that for TNMM, interest on surplus and abnormal
costs to be excluded [Delhi ITAT]
§ Prior Years’ data cannot generally be relied upon to justify Arms-
Length Price [Bangalore ITAT]
§ If Arms-Length Price determined by arithmetical mean, 5 percent
deduction allowable [Pune ITAT]
§ Documentation is required to be maintained contemporaneously on
an annual basis [Delhi ITAT]

§ Tribunal provides guidance on recovery of pre-commencement costs

[Hyderabad ITAT]

Recent News in Transactions that made headlines

§ International Paper to buy 75% in AP Paper for $423 mn
§ Walmart in talks to pick up stake in Future Group's Big Bazaar
§ DE Shaw, RIL in JV for financial services; shares of RIL down
§ PE biggies (including Goldman Sachs) get together to set up India
NBFC
§ Blackstone to take control at Gokaldas
§ Telenor to challenge Unitech stay on rights issue
§ Vodafone seeks AAR's opinion on tax liability in $5-bn Essar deal
§ SEBI clears Sesa Goa open offer for Cairn India
§ Beam, a mobile-commerce company, has sought the Reserve Bank of
India’s permission to make Facebook Credits available in India
§ Once valued at 2,200cr, Vishal Goes for 70 cr
§ Three PE funds (including SBI-Macquarie and the PE arm of Standard
Chartered PLC) set to invest Rs 1,440 crore in GMR Airport
§ RIL will pay nil or negligible tax on the $7.2 billion it would receive
from the proposed sale of its 30% interest in 23 oil and gas blocks to
British Petroleum because sale proceeds would be treated as cost of
hydrocarbon exploration already incurred, which is eligible for full
deduction under the Income Tax

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TRANSACTION ADVISORS

This publication is intended as a service to clients and associates and to provide them with details of the important Transaction updates. It has been prepared
for the general guidance on matters of interest only, and does not constitute professional advise. No person shall act upon the information contained in this
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