How to start investment afresh during COVID-19 ? Learn about Index Long Term Strategy.

Raghav Bajaj
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How to start investment afresh during COVID-19 ? Learn about Index Long Term Strategy.

There are 5000 + companies listed on BSE and to choose a good company from so many companies for long term becomes very difficult as the future is always uncertain. There is always a risk associated that the share price of the company you choose to invest might become Zero or Negligible after certain period of time depending on various factors.

There have been companies which have drastically eroded the wealth of the share-holders. Further, according to a survey, only 3-4% business runs smoothly till the 3rd generation and then may start facing hiccups.

So where do we invest?

If you are not able to identify good stocks to invest for your goal of having a diversified portfolio of quality stocks for long term, here is a perfect strategy for the same.

The best instrument for investment is Index like Nifty or Sensex.

Nifty over the years:

Year Nifty
2002 1100
2005 2837
2010 6135
2015 7946
2019 12168

Sensex over the years:

Year Sensex
1979 100
1988 600
1998 3600
2008 21600
2019 40000

Sensex started its journey from 100 points in 1979 and in 2019 it was trading around 40000. The various pitfalls in this journey involves incidents like:

  • Many Governments came and went
  • Harshad Mehta Fraud
  • Ketan Parekh Fraud
  • Kargil War
  • Bomb blast in BSE and Parliament
  • Several terrorists attack
  • Some bad political decisions
  • Global recession
  • Demonetisation
  • COVID-19

Despite all these incidents, the Sensex has only made progress. But at the same period of time, many companies came and disappeared.

If we talk about Nifty, then in 2008, it dropped from 6100 to less than 3000. But today it has gone up to 12000.

Now the questions arises as

“How to invest in Nifty?”

“What to do when events like Covid-19 disrupts the market?”

“How to hedge risk under in case of events like Covid-19?”I surveyed and researched a lot on the web as well as through offline webinars to find the right strategy to consider these parameters and have interestingly come up with a unique strategy called “Long Term Index Strategy” from Finideas. As a part of the strategy, it involves dynamic returns by investing into Nifty, Benefits of Leverage through Futures and protection against market through hedging. Thus, the strategy involves

Step 1: Invest in Nifty Delivery + Nifty Futures + Debt Market

Step 2: Purchase protection of Investment

The returns over a period of 6-7 years may far exceed the returns if the investment is made into shares of individual Companies forming part of Nifty.

To Learn more about the strategy, the user may go through the You Tube Video or visit the FinIdeas WebPage here.

RCM under GST applies to remuneration to employee director u/s 194J and not u/s 192 – Clarifies CBIC!

Monark Padmani
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RCM under GST applies to remuneration to employee director u/s 194J and not u/s 192 – Clarifies CBIC!

Introduction

Under the current GST Law, remuneration given to a Director (by whatever name given) is a taxable service chargeable under Reverse Charge Mechanism (‘RCM’) for levy of GST1.

On the other hand, an employee performing his functions under the contract of employment is not a taxable service exigible to GST2.

The dispute arises when a director is an employee of the company and receiving salary and remuneration as a director. There were contradictory views taken by varied appellate forums3.

The CBIC has tried to put the dispute to rest vide Circular No. 140/10/2020 dated 10th June, 2020.

The summary of the Circular can be tabulated as under:

Sr.  No. Remuneration paid to Employee of the Company? Applicability of GST Applicability of TDS under IT Act
1 Non-Employee Director (typically Independent Directors) No Yes 194J
2. Employee Director (Typically WTD, MD etc) Yes No – On Salary Component   192 – On Salary Component (Treated as any employee of the company deriving salary, PF, gratuity etc)
3. Employee Director (Typically WTD, MD etc) Yes Yes – On Non Salary Component (Typically Directors sitting fees) 194J – On Non Salary Component

Comments:

  1. A Whole Time Director (WTD) or Managing Director (MD) who is an employee of a company performs dual roles within the Company.
    • Contract of Employment – Employer-Employee relationship exists and thus no GST is chargeable on the salary component of the Director. These directors perform day to day affairs of the company and actually run the company on a daily basis. This remuneration is treated as salary in the books of the company and income tax u/s 192 is deducted at source.
    • Contract of Service – All other remuneration other than salary derived in performance of his duty as Director i.e Director Sitting fees. This remuneration is not treated as salary and income tax u/s 194J is deducted at source.
  2. On the other hand, a director by whatever name called who is not an employee of the company will derive entire remuneration as a contract of service chargeable to GST under RCM. Payment made for their participation are not in terms of employer-employee relationship and also not treated as “Salaries” in books of accounts. Further, TDS has to be deducted u/s 194J of the Act

1Notification No. 13/2017 – Central Tax (Rate) dt 28.06.17, Sr. No. 6 of the Table annexed

2Sch III of CGST Act

3 M/s. Alcon Consulting Engineers (India) Pvt. Ltd. [AR No.  KAR ADRG  83/2019] (Karnataka AAR) and M/s Clay Craft India Private Limited [RAJ/AAR/2019‐20/33] (Rajasthan AAR) holds a view that all payments to director are liable to RCM as director is not an employee of the company

M/s. Anil Kumar Agarwal [AR No. KAR ADRG 30/2020] (Karnataka AAR) hold a view that payments made to directors as employee of the company is outside scope of GST being covered by Schedule III of CGST Act, 2017

Loophole in GST refund application on Portal

CA Divyesh Sodha
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Loophole in GST refund application on Portal

Rule 89(4)

In the case of zero-rated supply of goods or services or both without payment of tax under bond or letter of undertaking in accordance with the provisions of sub-section (3) of section 16 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), refund of input tax credit shall be granted as per the following formula –

Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply

of services) x Net ITC ÷Adjusted Total Turnover

Where,-

(A) “Refund amount” means the maximum refund that is admissible;

(B) “Net ITC” means input tax credit availed on inputs and input services during the relevant period;

(C) “Turnover of zero-rated supply of goods” means the value of zero-rated supply of goods made during the relevant period without payment of tax under bond or letter of undertaking;

(D) “Turnover of zero-rated supply of services” means the value of zero-rated supply of services made without payment of tax under bond or letter of undertaking, calculated in the following manner, namely:-

Zero-rated supply of services is the aggregate of the payments received during the relevant period for zero-rated supply of services and zero-rated supply of services where supply has been completed for which payment had been received in advance in any period prior to the relevant period reduced by advances received for zero-rated supply of services for which the supply of

services have not been completed during the relevant period;

(E) “Adjusted Total turnover” means the turnover in a State or a Union territory, as defined under sub-section (112) of section 2, excluding the value of exempt supplies other than zero-rated supplies, during the relevant period;

(F) “Relevant period” means the period for which the claim has been filed.

Now let us discuss the loophole while making an online application for Refund of Input Tax Credit on Zero-rated supply without payment of GST. 

In Statement 3A the portal is asking two figures:

  1. Turnover of Zero Rated supply (Export turnover)
  2. Adjusted total turnover

Now as discussed above adjusted total turnover means the turnover in a State or a Union territory, as defined under sub-section (112) of section 2, excluding the value of exempt supplies other than zero-rated supplies, during the relevant period”

The importance of Adjusted total turnover is to work out the Refund amount.

Refund amount is defined in rules means the maximum refund that is admissible.

It means the refund amount is the maximum amount that can be claimed as a refund for a relevant period.

Formula for refund amount:

Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply

of services) x Net ITC ÷Adjusted Total Turnover

Here comes the involvement of Net ITC.

“Net ITC” means input tax credit availed on inputs and input services during the relevant period;

It means ITC availed during the relevant period. ITC availed means ITC available as per table 4C of GSTR 3B.

Now let us understand the loophole with the help of the following example:

Say refund claim to be applied for the month of April 2019

Export turnover                                               : 1,00,00,000/-

Taxable turnover                                             : 10,00,000/- (5% GST applicable)

GST Payable: 50,000/-

ITC availed as per GSTR 3B for the month: 5,00,000/-

ITC utilizes for payment of GST: 50,000/-

ITC carried forward in Credit ledger: 4,50,000/-

As per formulae given for Refund amount the maximum admissible refund in above case would be:

5,00,000/- (Net ITC) x 1,00,00,000/- (Export turnover) / 1,10,00,000/- (Adjusted total turnover)

Which comes to Rs.4,54,545/-. (Subject to maximum of ITC carried forward in credit ledger for relevant period i.e. Rs.4,50,000/- in the present case).

Now when we are making an application on the portal the portal applies the above formulae to the carried forward ITC i.e. to Rs.4,50,000/- and not to Rs.5,00,000/-.

Accordingly as per portal the refund amount will come to (4,50,000/- x 1,00,00,000/- / 1,10,00,000/-): Rs.4,09,090/-

So because of the above loophole on the portal, the taxpayer is losing its eligible refund which is not a correct position.

To cope up with the above loophole on the portal it is advisable to enter Export turnover and Adjusted total turnover as the same figure. This will lead to litigation but it is better to fight than to give away the legitimate right of refund.

Gujarat high court explains the constitutional mandate of taxation.

Jayraj Dhakan
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Gujarat high court explains the constitutional mandate of taxation.

A. Facts

  1. In view of the judgment of the apex court, dated 22.09.2017, in case of another dealer, Addl. Commissioner issued revision notice on 06.11.17 u/s 75 of the GVAT Act.
  2. On 16.03.2018, the high court set aside the revision notice being beyond the period of limitation period.
  3. By virtue of the VAT Amendment Act, 2018, Section 84A came to be added in the VAT Act to be operative retrospectively w.e.f 01.04.2006, inter alia, providing for the exclusion of the period commencing from the date of the decision of high court dated 18.01.2013 rendered against the revenue up to the date of the decision of the Supreme Court i.e., 22.09.2017 being in favor of the revenue and thereby removing the basis of the judgment dated 16.03.2018.

B. Points of challenge

  1. On the basis of above Addl. Commissioner issued another revision notice dated 01.09.2018 which is challenged on following grounds;
    • Section 84A of the GVAT Act is ultra vires and beyond the legislative competence of the State under Entry 54 of List II of the seventh schedule to the Constitution of India.
    • Section 84A of the GVAT Act is manifestly arbitrary and violative of the Articles 14 and 19(1)(g) of the Constitution of India.
    • Section 84A of the GVAT Act is not a validating Act.

C. Reasoning

  1. After insertion of Article 246A (to enact a law relating to GST) of the constitution, the scope of Entry 54 has been drastically curtailed to six specific products only and State Legislature does not have the competence to enact any law under Entry 54 except the law concerning only the six specific products. Therefore, the power to amend any law with respect to levy of tax on the sale or purchase of goods such as the “Gujarat VAT Act” could be said to have been abolished with the aforesaid amendment in the Entry 54 in List II in Schedule VII of the Constitution of India.
  2. If at the time of the amendment, the Legislature does not have the competence, then the law cannot be enacted on the ground that the same is concerning the period when the Legislature had the necessary competence.
  3. Section 84A of the VAT Act is not saved under Article 246A of the Constitution. Article 246A of the Constitution was inserted by the 101st Constitution Amendment Act with the prime object of subsuming multiple indirect taxes and to confirm concurrent power upon the Parliament and State Legislature to impose “Goods & Services Tax’ in accordance with the recommendations of the Goods & Services Tax Council constituted under Article 279A of the Constitution.
  4. Section 84A has been inserted in the Gujarat Value Added Tax Act, 2003 with retrospective effect. However, it does not provide for any validation of various acts of the revenue authorities namely the assessment, re-assessment, collection, etc. Accordingly, the said Act cannot be treated as a “validating Act”.
  5. Section 64 of the VAT Act requires the dealer to preserve books of accounts only for a period of six years from the end of the relevant accounting year. The proviso thereto requires further preservation of books of accounts only to the extent a matter is pending in appeal or revision. However, the impugned provision exposes the dealer to assessment/reassessment/ revision for an indefinite period which is excessive and disproportionate. In fact, the retrospective operation of the provision w.e.f 1st April, 2006 allows reopening of assessments of years in respect of which a dealer was not required to preserve the books of accounts and, therefore, the retrospective operation is all the more onerous and manifestly arbitrary. (Shayara Bano vs. Union of India – 9 SCC 1)
  6. If an unlimited time period is available to the Revenue for assessment/reassessment/revision in any case based on a decision rendered in the case of any other dealer the same would lead to an irreparable situation and, in such circumstances, it renders Section 84A manifestly arbitrary and unreasonable.

D. Conclusion

Accordingly, the amendment was held to be beyond legislative competence, manifestly arbitrary, and not being a validating act and was struck down.

(Reliance Industries Limited vs State of Gujarat – SCA No. 14206 of 2018 – Date 16.04.2020)

Form 26AS : Now more than just taxes paid history of the Assessee!!

Monark Padmani
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Form 26AS : Now more than just taxes paid history of the Assessee!!

“Question: Hey! What is your Tax History? Are you compliant and paying Income tax properly??

Tax Payers (before): I do pay taxes regularly, but I need to check with my accountant whether there are any defaults with the tax department!

Tax Payers (now): Wait, I will provide my Form 26AS, it has all the information! You can check this. I am honest!”

1. Introduction

As the mandate of existing Form 26AS was required to be extended beyond information about taxes deducted and paid, the government has introduced new section 285BB vide Finance Act, 2020 replacing the existing section 203AA of the Income Tax Act, 1961 (“the Act”) which will now allow the income tax authority to produce additional information which is necessary and to the extent is in the interests of Revenue in Form 26AS.

2. Old and New Provisions

Particulars Old 26AS New 26AS (“AIS”)
Name of Form Annual Tax Statement Annual Information Statement (“AIS”)
Applicable Provisions Section 203AA r.w. Rule 31 AB   Section 285BB r.w. Rule 114-I
Time Limit to issue Form 26AS It shall be issued upto 31st July of the relevant Assessment Year (A.Y.).` It shall be issued within 3 months from the end of the month in which the information is received by himBut, no time limit w.r.t. information under Rule 114-I(2), i.e. information received from (i.)officer any other laws, (ii)foreign govt under information exchange agreement or (iii) any other person.

3. What information would the AIS capture?

Nature Information Old 26AS New 26AS (“AIS”)
TDS/TCS Yes Yes
Payment of Taxes Yes Yes
Refund Status Yes Yes
Demand Status No Yes
Pending proceedings
(assessments, penalty proceedings, appeals, etc.) 		No Yes
Completed Proceedings No Yes
Annural Information Report (AIR)/ Specified Financial Transactions (SFT) AIR SFT*
Information received from the foreign government (under the Exchange of Information treaty) No Yes
Information received from officers under other law (GST Department, CBI, SFIO, SEBI, etc.) No Yes
Information received from any other person
(Tax Evasion Petition) 		No Yes

*SFT will contain details regarding various transactions exceeding various thresholds relating to purchase/sale of- goods, shares-securities and immovable property; rendering of services, works contract, cash deposits and withdrawals with banks, cash receipt in respect of sale of goods, etc. undertaken by the taxpayer during the year as reported u/s 285BA with whom such transaction is entered into.

4. Where will the AIS be available?

  • The AIS can be accessed from the e-filing portal of the taxpayer.

5. Comments:

  • Income Tax Report of Taxpayer
    • Based on the above, the notified new Form 26AS will bring out a complete chart about the assessee in terms of its compliance under Direct tax. It will now become Income Tax Compliance Record of Tax Payer similar to what CIBIL Score analysis for checking Financial Status or like Birth Chart of a Person.
  • Higher compliance by assessees:
    • The tax payer knowing that the Income Tax Department is aware of the transactions undertaken by him during the year would be driven to be more compliant and driven to correctly report them in their returns. This will not only ensure compliance but also potentially reduce assessment selection, leading to a reduction in litigation.
  • Assessee and tax professional can gauze in advance the likelihood of scrutiny selection:
    • As the information would be regularly updated within 3 months of receipt of the information, the assessee would be more aware and gauze whether his case is likely to be selected in scrutiny.
  • Erroneous reporting can be corrected during the year itself:
    • In case of erroneous reporting, the assessee would be known within 3 months and in a position to reach out to the reporting entity to revise their SFT.
  • Impact on void transfers u/s 281:
    • Some transfers/charge of assets (such as land, building, FDs, shares, plant & machinery, sale of the business (merger or secondary sale of securities), etc.) may be treated void u/s 281 of the IT Act if it is made during the pendency (or completion) of any proceeding of the seller under the Act but before the issue of demand notice by the Tax Recovery Officer to him.
    • An exception to this rule is if the transfer is made for adequate consideration and without notice of pendency or without notice of tax demand. With the express inclusion of such details of pending & completed proceedings as well as demand status in the AIS, the purchaser would not be able to claim ignorance of proceeding and (or) demand of seller and request him to obtain prior permission from tax department before such transfer/charge.
  • Tool for due-diligence:
    • The AIS will serve as a good tool to analyze the pending tax demand and undertake due diligence of taxpayers by banks while processing loan applications, other stakeholders such as creditors, suppliers before providing credit, by due diligence professions during mergers and acquisitions.

Note: This article is just for information and personal view of the author.

Extension invalidity for Names Reserved and Resubmission of Forms by MCA

CA Richa Agarwal
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Extension invalidity for Names Reserved and Resubmission of Forms by MCA

In view of the situation arising due to COVID-19 pandemic and extended lock down period in the country, Ministry of Corporate Affairs has extended PERIOD/DAYS OF EXTENSION FOR NAMES RESERVED AND RE-SUBMISSION OF FORMS.  

Sr. No

Issue description

Period/Days of Extension

1

Names reserved for 20 days for new company incorporation. SPICe+ Part B needs to be filed within 20 days of name reservation.

Names expiring any day between 15th March 2020 to 31st May would be extended by 20 days beyond 31st May 2020.

2

Names reserved for 60 days for change of name of company. INC-24 needs to be filed within 60 days of name reservation.

Names expiring any day between 15th March 2020 to 31st May would be extended by 60 days beyond 31st May 2020.

3

Extension      of    RSUB validity          for companies.

SRNs where last date of Resubmission (RSUB) falls between 15th March 2020 to 31st May 2020, additional 15 days beyond 31st May 2020 would be allowed. However, for SRNs already marked under NTBR, extension would be provided on case to case basis.

Note: Forms will not get marked to (Not to be taken on Record)’NTBR’ due to non- resubmission during this extended period as detailed above.

It also includes IEPF Non-STP eForms ( IEPF- 3, IEPF-5 and IEPF-7)

4

Names reserved for 90 days for new LLP incorporation/change of name. FiLLiP/Form 5 needs to be filed within 90 days of name reservation.

Names expiring any day between 15th March 2020 to 31st May would be extended by 20 days beyond 31st May 2020.

5

RSUB validity extension for LLPs.

SRNs where last date of resubmission (RSUB) falls between 15th March 2020 to 31st May 2020, additional 15 days would be allowed from 31st May 2020 for resubmission. However, for SRNs already marked under NTBR, extension would be provided on case to case basis.

Note: Forms will not get marked to (Not to be taken on Record)’NTBR’ due to non- resubmission during this extended period as detailed above.

6

Extension for marking IEPF-5 SRNs to ‘Pending for Rejection u/r 7(3)’ and ‘Pending for Rejection u/r 7(7)’

SRNs where last date of filing eVerification Report (for both Normal as well as Re- submission filing) falls between 15th March 2020 to 31st May 2020, would be allowed to file the form till 30th Sep 2020. However, for SRNs already marked under ‘Pending for Rejection u/r 7(3)’ and ‘Pending for Rejection u/r 7(7)’, extension would be provided on case to case basis.

Note: Status of IEPF-5 SRN will not change to ‘Pending for Rejection u/r 7(3)’ and ‘Pending for rejection u/r 7(7)’ till 30th Sep’20.
Disclaimer: This article doesn’t constitute professional advice. The author does not represent that the said information is correct and complete in all regards. The views contained in this article are personal views of the author and may change depending upon underlying facts and circumstances. Judicial and legal authorities may not subscribe to the views of author and can take different view. Readers of this article are advised to take professional advice before taking any course of action or decision. The author does not assume any responsibility or liability in respect of the information contained in this article or for any decision/ course of action readers may take based on information contained in this article.

Filing of Annual Return for LLPs in Form 11

Khushi Surana
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Filing of Annual Return for LLPs in Form 11

All LLPs registered under Limited Liability Act, 2008 have to annually file two forms Form 11 and Form 8.

Annual Return: Form 11 is to be submitted within 60 days of closure of the financial year i.e 30th May 2018. (Financial year closes on 31st March.) Form 11 is due on 30th May , 2020.

Statement of Account and Solvency: Form 8 is to be submitted within 30 days from the expiry of six months from the closure of the financial year i.e 30th October 2018.

What is Form 11 and How to file it?

Form 11 is an Annual return that is to be filled by all LLPs irrespective of turnover during the year. Even when an LLP does not carry out any operations or business during the financial year, Form 11 needs to be filed.

Apart from Basic information about Name, Address of LLP, details of Partners/ Designated Partners, other details that need to be declared are :

  1. Total contribution by/to partners of the LLP
  2. Details of notices received towards Penalties imposed / compounding offenses committed during the financial year

It must be e-filed on the MCA portal. The e-form has to be downloaded and filled in an offline mode. The pre-fill option is available to minimize your efforts and the Pre-scrutiny button is present to validate the data filled in. This is done before you submit the form online.

What are the prerequisites?

  1. LLPIN (Limited Liability Partnership Identification number) allotted to the LLP is needed to pre-fill the basic data.
  2. Total obligation of contribution of partners of the LLP
  3. Total contribution received by all partners of the LLP
  4. Get DSC of your Designated Partner ready!

What are the Documents to be submitted along with Form 11?

  1. Details of LLP and/ or company in which partners/designated partners (DP) are directors/ partners (It is mandatory to attach these details in case any partner/ DP is a partner in any LLP and/or director in any other company)  
  2. Any other information can be provided as an optional attachment to the e-Form.

Signing of LLP Form 11

The LLP Form 11 must be digital signed with the digital signature of one of the Designated Partners of the LLP. In case total obligation of contribution of partners of the LLP exceeds Rs. 50 lakhs or turnover of LLP exceeds Rs. 5 crores, then LLP Form 11 needs to be certified by a Company Secretary in whole time practice.

In case total obligation of contribution of partners of the LLP does not exceed Rs. 50 lakhs and turnover of LLP does not exceed Rs. 5 crores, then LLP Form 11 must be certified by the designated partner of the LLP.

What are the consequences of late filing Form 11?

Late Fees: Penalty of Rs. 100 per day is chargeable till the date of filing. As there is no cap on the penalty, the amount would increase over time. Hence, it is important to file the on time to avoid heavy penalty.

Aspects to note

Points to be noted regarding closing of Financial Year in respect of filling of forms before due date is mentioned as below

  1. LLP’s registered upto 30th September of any year : have to mandatorily close their financial year as on immediate 31st March
  2. LLP’s registered between the period starting from the 1st October to 31st March of that year, have an option either to close financial year as on immediate 31st March or next year 31st March .

Steps to be followed to fill Form 11

STEP 1:- Download the form with instruction kit from mca.gov.in.

STEP 2:- Find out your LLPIN

LLPIN (LLP Identification Number) can be obtained from mca.gov.in,under MCA services. Write your LLP name and all LLP registered to MCA containing words you have provided, will be displayed. Choose your LLP and get the LLPIN corresponding to it.

STEP 3:- Pre-fill the Details of LLP form-11

Fill Year for which this form relates and Start date of financial year for which annual return is being filed for the Year 2015 it must be 01.04.2014 and after that mention your Limited Liability Partnership identification number (LLPIN) and then click on Pre-Fill button.All details upto Point no. 8 will be displayed automatically.

Total monetary value of obligation of contribution (Capital Contribution) as on above date will be automatically appearing and it will be as per Form 11 – Annual Return as filed by you.

STEP 4: Mentioned Amount

After using Pre-Filing Button now Come to point no. 8 (d) that is Total contribution received by all partners of the LLP (in Rs.) in that dialogue box mention the amount of Contribution received by All partners say for example Rs. 50,000/-, then mentioned the same.

In Point No. 9 do not mentioned any thing

STEP 5 : Details of individual(s) as partners

Now Come to Point Number 10 that is Details of individual(s) as partners

In that point Designation will automatically captured along with Designated Partner Identification number (DPIN)/ Income tax permanent accountnumber (Income-tax PAN)/ Passport number.

STEP 6 : Details of individual(s) as partners

So now just click on Pre-Fill button all the details of partner will automatically captured.

STEP 7 : Details of individual(s) as partners

The above mentioned Contribution received and accounted for (in Rs.) dialogue box, this is the amount which is required to be filled by you. Practice caution while filling out Individual contribution amount of all the partners as it should ultimately add up to Total Contribution mentioned in point 8 of Form 11. Same process shall be required to be done for all Partners.

STEP 8 : Details of bodies corporate as partners

In Point no. 11 the details of bodies corporate as partners required to be mentioned. If an partner is a body corporate, Corporate identity number (CIN) or Foreign company registration number (FCRN) or Limited liability partnership identification number (LLPIN) or Foreign limited liability partnership identification number (FLLPIN) or any other identification number DPIN, and click on pre-file button all the details of partner will be auto captured.

STEP 9 : Summary of designated partner(s)/partner(s) as on 31st March of the period for which annual return is being filed.

The details in point 12 are pre-filled.

STEP 10 : Particulars of penalties imposed on the LLP as well as Partners :

In point no. 13 (i) if any penalty is imposed on LLP and in point no. 13 (ii) if any penalty is imposed on partners then it should be required to be mentioned otherwise keep it as blank.

STEP 11: Particulars of compounding offences :

Fill in the details of Compounding offences, if any.

STEP 12: Whether turnover of the LLP exceeds 5 crores :

Tick box Yes/No to provide if your turnover exceeds 5 crores or not. This is one of the criteria to determine if your LLP Annual Return would require a DSC of a Company Secretary or not.

Now attach the details of company(s)/ LLP(s) in which partner/ designated partner is a director/ partner, as the case may be,in the required format as an attachment.

STEP 13 : Verification :

After making necessary attachment now comes to the verification in that case make click on button saying “To the best of my knowledge and belief, the information given in this form and its attachment is correct and complete”

 Attach the Digital Signature of Designated Partner along with their DPIN.

STEP 14 : Certification

After making verification to the certification, click on button saying “I certify that Annual Return contains true and correct information”

 Attach the Digital Signature of Designated Partner along with their DPIN.

STEP 17 : Company Secretary Certification:

If:

  • Turnover of the LLP exceeds Rs. 5 crores or;
  • Partner’s Total Contribution exceeds Rs. 50 lacs

Then in either of the cases the LLP would be required to get their Form 11 Digitally signed by a Company Secretary.

STEP 18:- Pre-scrutiny

Use Check Form utility to see if any more information is required for form completion. On no error message, including the digital signature of person who is verifying the furnished details. Perform Pre-scrutiny. If everything is correct, a pop up-window saying “No Pre-scrutiny errors have found” will be displayed.

Author’s Note: No additional fees shall be charged for late filing during a moratorium period from 1st April to 30th September 2020, in respect of any document, return,statement etc., required to be filed in the MCA-21 Registry, irrespective of its due date, which will not only reduce the compliance burden, including financial burden of companies/ LLPs at large, but also enable long-standing non-compliant companies/ LLPs to make a ‘fresh start‘.

Disclaimer: This article doesn’t constitute professional advice. The author does not represent that the said information is correct and complete in all regards. The views contained in this article are personal views of the author and may change depending upon underlying facts and circumstances. Judicial and legal authorities may not subscribe to the views of author and can take different view. Readers of this article are advised to take professional advice before taking any course of action or decision. The author does not assume any responsibility or liability in respect of the information contained in this article or for any decision/ course of action readers may take based on information contained in this article.

Understanding scope of Rule 27 of ITAT Rules, 1963 via Delhi High Court Judgement

CA Shashank Mehta
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Understanding scope of Rule 27 of ITAT Rules, 1963 via Delhi High Court Judgement

Parties: Sanjay Sawhney vs. PCIT

Decision of: Hon’ble Delhi High Court

Date of Order: May 18, 2020

ITA No. 834/2019

Issue relating to: Rule 27 of ITAT Rules, 1963 – Sec. 253(4)

FACTS OF THE CASE:

During first appeal, CIT(A) had rejected jurisdictional legal grounds raised by the assessee. However, ultimately the matter was decided in favour of the Assessee based on merits. Department filed appeal before ITAT but no cross objection was filed by the assessee. However, during the course of hearing, Assessee raised the said jurisdictional legal grounds [which were rejected by CIT(A)] by resorting to Rule 27 of the ITAT Rules, 1963. Only oral application was made in this respect.

ITAT held that Rule 27 cannot be resorted without making proper application for it.

[Rule 27: The respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him.]

QUESTION BEFORE THE HON’BLE HIGH COURT:

What is the scope of Rule 27 of the ITAT Rules, 1963?

FINDINGS AND DECISION OF THE HON’BLE TRIBUNAL:

Hon’ble High Court held that:

a) Rule 27 does not mandate an application to be made in writing, hence oral application cannot be refused.

b) The word ‘thereon’ used in section 254 (1) implies that the tribunal has to confine itself to the ‘subject matter’ of appeal only. However, the ‘subject matter’ is comprehended so as to encompass the entire controversy between the parties which is sought to be got adjudicated upon by the Tribunal.

c) Rule 27 cannot to be applied narrowly. Assessee cannot be precluded to challenge that part of CIT(A) which is against him. It cannot be said that by resorting to such grounds, the scope of ‘subject matter of appeal’ was being violated.

d) In case an assessee having succeeded before CIT (Appeals) but opts not to file cross objection even when an appeal has been preferred by the department, from that it cannot be inferred that the assessee has accepted that part of the order which was against him.

e) When order of the CIT(A) is at large before the Tribunal, and as the assessee had taken the jurisdictional legal ground before CIT(A), the respondent (here assessee) would be entitled to defend the order of the CIT(A) on all grounds including on those held against him. He can rely upon Rule 27 and advance his arguments, even though it had not filed cross objections against the findings which were against him.

Accordingly the matter was remanded back to ITAT for fresh adjudication.

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Disclaimer: This article doesn’t constitute professional advice. The author does not represent that the said information is correct and complete in all regards. The views contained in this article are personal views of the author and may change depending upon underlying facts and circumstances. Judicial and legal authorities may not subscribe to the views of author and can take different view. Readers of this article are advised to take professional advice before taking any course of action or decision. The author does not assume any responsibility or liability in respect of the information contained in this article or for any decision/ course of action readers may take based on information contained in this article
 

Microfinancing and Poverty Alleviation

Anjali Garg
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Microfinancing and Poverty Alleviation

Microfinance is a specific business category of services, which includes microcredit. Micro-credit is a loan service to poor clients. Micro-credit is one of the microfinance aspects and the two sometimes get mixed. The microfinance revolution in India is as a strong instrument for soothe deprivation. Microfinance is financial resources for low-income clients include retailers and the self-employed employees, who historically neglect banking connections and related facilities.

More importantly, it’s a trend that object is “a society where the poor and the near-poor are alike households provide as much direct exposure as possible to a suitable selection of high-quality financial facilities, not just loans but also investments, taxes, and transfers of money. The ones promoting microfinance typically speaking think such exposure would benefit disadvantaged citizens who can come out of deprivation. The complex growth of the  microfinance market was not only encouraged by market forces but also by national conscious actions

Governments, Non-Governmental Organizations (NGOs), and those donors who see microfinance as a successful poverty eradication method.  The powerful push behind this huge and increasing support for microfinance indicated that national economic and social impacts are significant and it needs to be examined closely.

Substantial Micro Finance features and Principles:

Microfinance is used as an appropriate tool for the financing of small-scale/technical operations in rural areas requirements regardless of the following property.

(a) Revolving loans to small-scale business activities chosen for the weak.

(b) Inspiring vulnerable people to develop self-confidence in me might do it.

(c) Will compensate interest received on itself.

(d) Creating incentives to grow for oneself jobs of underserved men.

(e) For the highest utility and the lowest cost per operation recipient.

Microfinance role in reducing poverty:

Microfinance concerns the provision of financial services for the soft people that aren’t treated conventional, structured financial entities-the topic is extending limitations on the delivery of financial services. These financial resources include the availability of delivery networks and groundbreaking methodologies. The financial services needs which enable people to both take advantage of opportunities and better management of their resources.

Microfinance may be an efficient one tool for alleviating poverty amongst many. Yet it does caution should be used-despite recent claims, the microfinance-to-poverty alleviation method it’s not straightforward, for poverty is a complex phenomenon and other conditions under which the weak consider themselves public must cope with that.

National Agricultural Bank For Rural Development (Nabard), Small Industries Development Bank Of India (Sidbi), Housing Development Finance Corporation (Hdfc), Commercial Banks, Regional Rural Banks, The Credit Cooperative Societies, etc., are some of the mainstream financial institutions involved in extending microfinance. 

Petition for initiation of insolvency proceedings by Home Buyers

Shubham Agarwal
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Petition for initiation of insolvency proceedings by Home Buyers

Insolvency and Bankruptcy Code 2016 is the law relating to insolvency and bankruptcy in India. This code was enacted with a view to consolidate and amend the law relating to insolvency and to remove the problem of overlapping legal framework in various laws. It provides the single window resolution of the insolvency and provides that NCLT (National Company Law Tribunal) will be adjudicating authority in case of insolvency of corporate persons and Debt Recovery Tribunal in case of other. This law also barred the jurisdiction of civil courts and other authorities in the insolvency process and section 231 of the code provides that no injunction will be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any order passed by such Adjudicating Authority under this Code.

Petition for insolvency can be filed by the following:

  1. Financial creditor u/s. 7 of the code.
  2. Operational creditor u/s. 8 and 9 of the code.
  3. Coronate debtor himself u/s. 10 of the code.

The Financial creditor is defined as u/s. 5(7) of the code as “person to whom financial debt is owed and includes a person to whom such debt has been legally assigned or transferred.

Further Section 5(8) defines the meaning of Financial debt.

Original code as passed in parliament does not contain any provision of initiation of insolvency proceedings by an allottee under a Real Estate project. However, clause (f) of section 5(8) of the code, which includes the meaning of financial debt provides that “any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing” will be treated as financial debt.

Now the question arises that whether the amount paid by the allottee in the Real Estate Project can be treated as financial debt by invoking the provision of section 5(8)(f) because advance paid by allottee have a commercial effect of borrowing and such advance is paid for acquisition of property in future.

The said question was answered by the National Company Law Tribunal in the case of Nikhil Mehta and Sons (HUF) vs AMR Infrastructure Ltd. [ Company Appeal (AT)(Insolvency) no.  7 of 2017], wherein it was held that amounts raised by developers under assured return schemes had the “Commercial effect of borrowings” which became clear from the developer’s annual return in which the amount raised was shown as “commitment charges” under the head “financial cost”. As a result, such an allottee was held to be “Financial Creditors” within the meaning of section 5(7) of the code.

A Similar view was expressed by the Insolvency Law Committee in its report submitted in March 2018. The committee in its recommendation at para 3 of the report state that “it has been recommended that home buyers should be treated as financial creditors owing to the unique nature of financing in real estate projects and the treatment of home buyers by the Honourable Supreme Court in ongoing cases. Notably, classification as financial creditors would enable home buyers to participate equitably in the insolvency resolution process under the Code”.

The recommendation made by Insolvency Law committee was accepted by Central Government and thereafter an explanation to 5(8)(f) was inserted vide Insolvency and Bankruptcy Code (Amendment) Ordinance 2018, which is read as under

                “’Explanation.—For the purposes of this sub-clause,—

  • any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and
  •  the expressions, “allottee” and “real estate project” shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016;

Thereafter a large number of writ petitions that have been filed in the Supreme Court challenging the constitutional validity of amendments made to the Insolvency and Bankruptcy Code, 2016, in pursuance of the report of Insolvency Law Committee. The amendments so made deem allottee of real estate projects to be “financial creditors” so that they can initiate insolvency proceedings under section 7 of the code, against the real estate developer. In addition, being financial creditors, they are entitled to be represented in the Committee of Creditors by authorized representatives.

Thereafter Honorable Supreme Court in case of Pioneer Urban Land and Infrastructure Ltd and Anr. vs Union of India & Ors. [Writ Petition no. 43 of 2019] made the following observations:

  1. The explanation added to Section 5(8)(f) of the Code by the Amendment Act does not, in fact, enlarge the scope of the original Section as home buyers/allottees would be subsumed within Section 5(8)(f) as it originally stood as has been held by us hereinabove [Para 85, page 183]
  2. We, therefore, hold that allottees/home buyers were included in the main provision, i.e. Section 5(8)(f) with effect from the inception of the Code, the explanation being added in 2018 merely to clarify doubts that had arisen [ Para86, page 183]
  3. Section 5(8)(f) as it originally appeared in the Code being a residuary provision, always subsumed within it allottees of flats/apartments. The explanation together with the deeming fiction added by the Amendment Act is only clarificatory of this position in law [para (iii) of conclusion, page 184]

Therefore Supreme Court upheld the constitutional validity of the amendment made in section 5(8)(f) stating that said amendment is only clarificatory in nature.

Thereafter initiation of insolvency by allottee has been again amended by Insolvency and Bankruptcy Code (Amendment) Act 2020, which provides the minimum threshold for filing of insolvency petition by allottees under section 7 of the code. It is to be noted that said threshold is not applicable to other Financial Creditors. The said amendment is read as under:

In section 7 of the principal Act, in sub-section (1), before the Explanation, the following provisos shall be inserted, namely:

“Provided further that for financial creditors who are allottees under a real estate project, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such allottees under the same real estate project or not less than ten percent of the total number of such allottees under the same real estate project, whichever is less”

This amendment has limited the scope of imitation of insolvency by home buyers. The said amendment was also applicable to all the petitions for insolvency pending before Adjudication Authority but has not been admitted. This Amendment Act provides a period of 30 days for modification of applications pending before the Adjudication Authority in compliance with the above amendment, failing which the application will be withdrawn.

Thereafter many homebuyers approached the Supreme Court pleading that Amendment made in section  7 of the code is unconstitutional. Home Buyers were more concerned about the condition of compliance with minimum threshold by the pending petitions before NCLT within 30 days. Homebuyers said that it is very difficult for them to meet the minimum threshold within 30 days.

Supreme Court in case of Manish Kumar vs Union of India [Writ Petition no. 26/2020] held that “Status quo, as of today, with respect to the pending applications, shall be maintained in the meanwhile”. And therefore all the pending petitions before Adjudication Authority has not been withdrawn.

Conclusion:

Homebuyers are Financial Creditors and can initiate the Corporate Insolvency Resolution Process in the manner provided in section 7 of the code in case of default by Builder. However, their right has always been the subject matter of litigation and amendment. Further, their right has also been restricted by the Insolvency and Bankruptcy Code (Amendment) Act 2020.

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