KNM Update- August 2019 Edition

Income Tax

• Finance Bill 2019(No.2), becomes the Finance Act on 01.09.2019.
• CBDT vide Circular No. 17 dated August 8, 2019 enhanced of monetary limits for filing of appeals by the department before income tax Appellate Tribunal, High Courts and SLPs/appeals before Supreme Court – amendment to circular 3 of 2018.
• CBDT vide Circular No. 18 dated August 8, 2019 issued 19 frequently Asked Questions (FAQs) with respect to filling-up Income-tax Return (ITR) forms for AY 2019-20.
• CBDT vide Circular No. 19 dated August 14, 2019, has decided that no communication shall be issued by any income- tax authority relating to assessment, appeals, orders, statutory or otherwise, exemptions, enquiry, investigation, verification of information, penalty, prosecution, rectification, approval etc. to the assessee or any other person, on or after the 1st day of October, 2019 unless a computer-generated Document Identification Number (DIN) has been allotted and is duly quoted in the body of such communication. The Circular also lists down the exceptions in cases where the communication may be issued manually but only after recording reasons in writing in the file and with prior written approval of the Chief Commissioner/Director General of income- tax.
• Tax department has launched ‘e-Filing Lite’, a lighter version of e-Filing portal
• On August 16, 2019, Task Force has submitted New Direct Tax Code to Finance Minister.
• CBDT vide Circular No.20 dated August 19, 2019, has clarified that the amount paid by the oil exploration and production (E&P) companies for acquiring the ‘Participating Interest’ shall not be treated either as cost for acquiring the share in partnership or investment for acquisition of a member’s interest in an association of persons or body of individuals, rather it would be treated as an amount paid to acquire the underlying assets; and the amount paid for acquiring the ‘Participating Interest’, after reducing component of cost attributable to tangible assets for purposes of clause (i) of sub-section (1) of section 32, would be treated as an ‘intangible asset’ (being a business or commercial right akin to a licence), eligible for claim of depreciation for purposes of clause (ii) of sub-section (1) of section 32 of the Income Tax Act.
• CBDT vide Circular No. 21 of 2019 dated August 27, 2019 issued clarification regarding foreign directorship & foreign assets in ITR.
• CBDT’s issued clarification by Press Note on eligibility of small Start-ups to avail tax holiday u/s 80IAC
• CBDT vide Circular No. 22/2019 dated August 30, 2019 issued consolidated circular for assessment of start-ups.
• CBDT has issued a clarification to extend the benefit of the DPIIT Notification to even those start-ups where addition on account of Angel Tax had already been made prior to 19 February 2019 provided the other conditions mentioned in the DPIIT Notification are fulfilled and the assessee has subsequently submitted the declaration in Form 2 to the effect that it fulfils the conditions mentioned in the DPIIT notification dated 19 February 2019.
• CBDT vide Notification No.59/2019 dated August 30, 2019 amended Rule 114E to facilitate interchangeability of PAN with Aadhaar.
• CBDT issued checklist in order to avoid common mistakes in filing of ITR 7.
• New TDS section i.e. 194M, 194IA, 194N, 194DA, as proposed & finalised by Finance Act 2019 will get effective from September 1, 2019.

International Taxation

• CBDT vide Notification No.58/2019 dated August 27, 2019 protocol amending India-Spain DTAA.
• CBDT vide Press release dated 28.08.2019 clarifies differential regime between domestic investors (including AIF category iii) and FPIs existed even prior to general budget 2019 and was not creation of the finance (no.2) act, 2019.
• FM in a press conference on Friday, August 23, 2019 to announce certain measures Govt. will be taking to give a boost to the securities market and economy. Some of the key measures that have been announced includes the relief to the FPI from the enhanced surcharge, de-criminalization of CSR violations, and immunity to eligible start-ups and investors from angel tax.

GST

• CBIC vide Order No. 7/2019 dated August 26, 2019 extending the due date for furnishing annual return in Form GSTR-9/ 9A and the reconciliation statement in Form GSTR-9C for the financial year 2017-18 till 30 November 2019 (from 31 August 2019).
• CBIC vide Notification No.36/2019 dated August 20, 2019 seeks to extend the date from which the facility of blocking and unblocking of e-way bill facility as per the provision of Rule 138E of CGST Rules, 2017 shall be brought into force to 21.11.2019.
• CBIC has issued Corrigendum issued to prescribe DRC-03 for payment of tax under rate.
• CBIC vide Notification No.38 dated August 31, 2019 exempt certain class of person (as the class of registered persons who shall follow the special procedure) who are not required to furnish Form ITC-04 from July 2017 to March 2019.
• CBIC vide Notification No.39 dated August 31, 2019 brings Section 103 i.e Advance Ruling along with section 54(8A) which will come in to force from 01.09.2019.
• CBIC vide Notification No.40 dated August 31, 2019 seeks to extend the last date in certain states (Bihar, Gujrat, Karnataka, Kerala, Maharashtra, Odisha & Uttarakhand) for furnishing GSTR-7 for the month of July, 2019 are furnished by on or before 20.09.2019
• CBIC vide Notification No.41 dated August 31, 2019 seeks to waive the late fees in certain cases for the month of July, 2019 for FORM GSTR-1 and GSTR-6 provided the said returns are furnished by 20.09.2019
• GST Council 37^th meeting is announced to be held on 20.0.2019 at Goa.

Companies Act, 2013

• The Ministry of Corporate Affairs has divulged new version of eForms to wit CHG-1 {Application for registration of creation, modification of charge (other than those related to debentures)}, CHG-8 (Application to Central Government for extension of time for filing particulars of registration of creation / modification / satisfaction of charge OR for rectification of omission or misstatement of any particular in respect of creation/modification/satisfaction of charge), CHG-9 (Application for registration of creation or modification of charge for debentures or rectification of particulars filed in respect of creation or modification of charge for debentures), and AOC-4 XBRL (Form for filing XBRL document in respect of financial statement and other documents with the Registrar) are revised and available on Company Form Download page at http://www.mca.gov.in/MinistryV2/companyformsdownload.html. Stakeholders may kindly take note and are advised to check the latest version before filing.

 

• The Ministry of Corporate Affairs, Government of India, has decided to shift the office of Registrar of Companies (RoC), Haryana, from Delhi to Chandigarh.

 

The budge will not only result in better reciprocity with the State Government but it will also be convenient for promoters of Companies, tax practitioners and company secretaries to pursue their case easily as they need not go to Delhi anymore. The total number of companies registered with the RoC, Haryana, is 43,915. In almost every state, the office of RoC is located in the state capital howbeit the RoC Delhi was looking after the work of the RoC, Haryana, since the genesis of the state. With the shifting of the office, it would be convenient for the Ministry of Corporate Affairs also to pursue its cases in the Punjab and Haryana High court and the National Company Law Tribunal (NCLT), as its Bench is also in Chandigarh. Currently, the office of RoC, Delhi, has jurisdiction over the companies in the National Capital Territory (NCT) of Delhi and Haryana. The total number of companies with ROC, Delhi, is 3,32,415. If the charge of Haryana is shifted from the RoC, Delhi, to the RoC, Chandigarh, the workload of the RoC, Delhi, will be decreased by 43,915 companies.

 

• MCA has introduced the new process for the Incorporation of Section 8 Companies.

 

The stipulation of antecedent filing of INC-12 for new Section 8 companies are being dispensed with vide the Companies (Incorporation) Sixth Amendment Rules, 2019 dated 7th June, 2019. Therefore, Section 8 Companies can be incorporated by either reserving names through Run and filing SPICe thereafter or by directly filing SPICe. The Licence Number for a section 8 company shall henceforth be allotted at the time of incorporation itself. In view of the above, all pending INC-12 SRNs for new Companies pending at respective RoCs would be marked as ‘Rejected’ on 15th August 2019. Such applicants may thereafter directly file SPICe for obtaining License Number and for the incorporation of Section 8 Companies. Stakeholders who have already obtained License Numbers and are yet to file SPICe form for incorporating Section 8 companies may do so at their convenience but may please note that the forms shall be processed only after a certain time lag to allow for workflow changes to take effect. Those stakeholders who have already filed SPICe forms which are pending at CRC may kindly await processing of these forms after the workflow changes take effect.

 

• MCA has notified on its website that as per the Companies (Incorporation) Fourth Amendment Rules, 2018 dated 18th December 2018 a new form RD GNL-5 and changes to Form RD-1 has been notified.

 

The Companies (Incorporation)Fourth Amendment Rules, 2018 has amended the provisions for making an Application for approval of concerned Regional Director under Section 2(41) for change of the financial year and Application under section 14 for the conversion of a public company into a private company, shall be filed in e-Form No.RD-1 and accordingly a new form is also introduced to comply with the directions of RD to the applicant/person or the company to furnish such information, or to rectify defects or incompleteness and to re-submit such application within a period of fifteen days, in e-Form No. RD-GNL-5. It has been notified by the MCA that both forms (revised) would be made available shortly on the MCA21 Company Forms Download page for filing purposes. Stakeholders are advised to check the latest version before filing.

 

• MCA relaxes norms for shares with differential voting rights to boost innovative technology companies and start-ups.

 

Shares with differential voting rights of the company, the existing capital of 26 per cent of the total post issue paid up equity share capital has been enhanced to 74 per cent. Further, Employee Stock Options (ESOPs) can now be issued by start-ups to promoters or directors holding more than 10 per cent of equity shares for 10 years from the date of their incorporation instead of five years earlier as prescribed earlier. The norms for shares with differential voting rights have been amended to enable promoters of Indian companies to retain control “in their pursuit for growth and creation of long-term value for shareholders, even as they raise equity capital from global investors. MCA has also amended the requirements with regard to Debenture Redemption Reserve (DRR) and investment or deposit of sum in respect of debentures maturing during the year ending on the 31’t day of March of next year, for all companies.

 

• MCA has notified the date of commencement for various provisions and amendments of the Companies (Amendment) Act,2019 which shall come into force from 15th day of August, 2019.  

 

Following provisions of sections 6, 7 and g, clauses (i), (in) and clause (irr) of section 14, section 20, section 31, sections 33, 34 and 35 and sections 37 and 38 of the said Act shall come into force as per the details provided hereunder:

 

S. No.	Section of		Title
	Companies (Amendment) Act, 2019	Companies Act, 2013
1.	Section 6	Section 26	Matters to be stated in prospectus
2.	Section 7	Section 29	Public Offer of Securities to be in Dematerialized Form
3.	Section 8	Section 35	Civil Liabilities for Mis-statements in Prospectus
4.	Clause (i), (iii) and (iv) of section 14	Section 90	Register of significant beneficial owners in a company
5.	Section 20	Section 132	Constitution of National Financial Reporting Authority
6.	Section 31	Section 212	Investigation into Affairs of Company by Serious Fraud Investigation Office
7.	Section 33	Section 241	Application to Tribunal for Relief in Cases of Oppression, etc
8.	Section 34	Section 242	Powers of Tribunal
	Section 35	Section 243	Consequences of Termination or Modification of Certain Agreements
9.	Section 37	Section 272	Petition for Winding Up
10.	Section 38	Section 398	Provisions Relating to Filing of Applications, Documents, Inspection, etc., in Electronic Form

 

 

• MCA has released the report of the High-Level Committee on Corporate Social Responsibility (CSR) headed by Corporate Affairs Secretary Sh. Injeti Srinivas.

 

The High-Level Committee has the mandate to review the existing CSR framework and make recommendations on strengthening the CSR ecosystem, including monitoring implementation and evaluation of outcomes. Major recommendation of the High-Level Committee on Corporate Social Responsibility includes Making CSR expenditure tax-deductible, Provision for carrying forward of unspent balance for a period of 3 – 5 years, Aligning Schedule 7 with the SDGs by adopting a SDG plus framework (which would additionally include sports promotion, Senior Citizens’ welfare, the welfare of differently-abled persons, disaster management and heritage protection), Balancing local area preferences with national priorities, Introducing impact assessment studies for CSR obligation of 5 crores or more, Registration of implementation agencies on MCA portal, Developing a CSR exchange portal to connect contributors, beneficiaries and agencies, Allowing CSR in social benefit bonds, Promoting social impact companies and third party assessment of major CSR projects, Companies having CSR prescribed amount below Rs. 50 lakh may be exempted from constituting a CSR Committee and Violation of CSR compliance may be made a civil offence and shifted to the penalty regime.

 

• The MCA has notified the Companies (Amendment) Act, 2019 and the provisions of which, shall be deemed to have come into force on the 2nd day of November, 2018, except sections 6, 7 and 8, clauses (i), (iii) and clause (iv) of section 14, sections 20 and 21, section 31, sections 33, 34 and 35, sections 37 and 38 which shall come into force on such date as the Central Government may notify.

 

Atone Act containing 44 clauses is being brought in to “plug the critical gaps in the Companies Act,2013 and to facilitate ease of doing business and strengthen the corporate compliance management.” The Act will tighten Corporate Social Responsibility (CSR) compliance, re-categorisation of specific offences as civil offences and transfer certain responsibilities to National Company Law Tribunal.

 

The key features of the amendment are:

1. Allowing subsidiaries of foreign companies to follow different financial year for accounting;
2. Sixteen sections of the Act are amended so as to modify the punishment as provided in the said sections from fine to monetary penalties to lessen the burden upon the Special Courts.
3. Amendments are made to Section 135 to carry forward the unspent corporate social responsibility amount, to a special account to be spent within three financial years and transfer thereafter to the Fund specified in Schedule VII, such as PM’s National Relief Fund.
4. The Act provides for the punishment for debarment from appointment as an auditor or internal auditor of a company, or performing a company’s valuation, for a period between six months to 10 years in case of proven misconduct.
5. The pecuniary limits of Regional Director (“RD”) to compound offences under section 441 of the Act is proposed to be increased. The threshold is increased to a fine up to Rs. 25 lakhs.
6. A new clause has been inserted under the Section 164 to state that violation of Section 165(1) shall be a ground for disqualification of a director if he/ she breaches the limits of maximum directorship allowed thereunder.
7. The amendment to Section 241 empowers the Central Government to move a matter before the NCLT against managerial personnel on several grounds.
8. Shifting of powers for conversion from public to private companies from National Company Law Tribunal (NCLT) to the central government, as well as more clarity with respect to certain powers of the National Financial Reporting Authority (NFRA).
9. The Act provides more power to the Registrar of Companies (ROC) to take strict action against those companies which are not working as per the law. Registrar can remove the name of the company from the Register of companies if it is not carrying on the operations.
10. Amendment Act seeks to insert sub-section 1A to Section 29, which inter-alia mandates certain unlisted companies that the securities shall, in addition to being issued, also be held and transferred only in dematerialized form after complying with the provisions of the Depositories Act, 1996 and regulations made thereunder. With this proposed move, all shareholders of all private companies shall have to get their holdings dematerialized.
11. In case of corporate frauds revealed by an investigation by SFIO, the Central Government may make an application to NCLT for passing appropriate orders for disgorgement of profits or assets of an officer or person or entity which has obtained an undue benefit.
12. Charges can only be registered within a period of 120 days from the date of creation and modification and ad-valorem fees shall also be charged over and above the additional fees in case of delayed filings beyond 60 days.
13. Rectification by Central Government in Register of charges in case of omission and or misstatement of any particulars, in any filing previously made to the Registrar with respect to any charge or modification thereof or with respect to any memorandum of satisfaction or other entry made in pursuance of section 82 or section 83.
14. If any company fails to file its annual return under sub-section (4), before the expiry of the period specified therein, such company and its every officer who is in default shall be liable to a penalty of fifty thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of five lakh rupees.
15. If any company fails to furnish the Director Identification Number under sub-section (1), such company shall be liable to a penalty of twenty-five thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day after the first during which such failure continues.
16. Section 203, non-compliance provisions amended to provide that if any company makes any default in complying with the provisions of this section, such company shall be liable to a penalty of five lakh rupees and every director and key managerial personnel of the company who is in default shall be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees.”
17. Penalty provided under section 447 of the principal Act, is increased from “twenty lakh rupees”, to “fifty lakh rupees”.
18. Insertion of new section 454A to provide Penalty for repeated defaults by a company or an officer of a company or any other person having already been subjected to a penalty for default under any provisions of this Act.
19. The Companies (Amendment) Second Ordinance, 2019 is repealed on notification of the Act.

 

  SEBI (Stock Exchange Board of India)

 

• SEBI with an intent to streamline the issuance of SCORES Authentication for SEBI registered intermediaries had directed all listed companies and SEBI registered intermediaries to obtain SCORES user id and password.

 

Any existing or new listed company or SEBI registered intermediary, not having a SCORES user id and password were also required to obtain the same. In partial modification of the generation of SCORES user id and password has been automated for all new SEBI registered intermediaries. This has been done to streamline the process of providing SCORES credentials in the interest of investors. The SCORES user id and password details shall be sent to all new SEBI registered intermediaries, through an auto-generated e-mail, upon completion of the process of online grant of registration by SEBI. The primary e-mail address in SCORES is the e-mail ID where all notifications related to SCORES complaints are sent to the SEBI registered intermediary. All existing and new SEBI registered intermediaries will now be able to update their primary e-mail address and registered address on their own.

 

• The Securities and Exchange Board of India has eased the regulatory and compliance framework for Foreign Portfolio Investors (FPI) in a bid to boost investments and expedite the registration process for FPI’s.

SEBI also simplified KYC requirements for them and permitted them to carry out the off-market transfer of securities. This is a much-needed boost to the FPI route, which had been languishing on account of multiple issues in the past few months. SEBI at its board meeting approved the SEBI (Prohibition of Insider Trading) (Third Amendment) Regulations, 2019. In order to incentivise and encourage informants, SEBI has worked out a reward plan for them and accordingly informants would be suitably rewarded in case the Unpublished Price Sensitive Information (UPSI) by them provided leads to disgorgement of at least Rs 1 crore. The total amount of monetary reward shall be 10 per cent of the monies collected but shall not exceed Rs 1 crore. An interim reward not exceeding Rs 10 lacs may be given at the stage of issuance of the final order by the SEBI against the person directed to disgorge. The reward to the informants will be paid through the Investor Protection and Education Fund (IEPF). SEBI also simplified documentation requirements for KYC and also the structure for registration for multiple investment managers (MI). Further, the central banks that are not members of BIS (Bank of International Settlement) will be eligible for FPI registration. In another move, entities established in the IFSC (International Financial Services Centre) would be deemed to have met the jurisdiction criteria for FPIs. This is expected to be a big booster for the financial centre in the GIFT City. The SEBI also decided to give flexibility to the mutual funds to invest in unlisted non-convertible debentures up to a maximum limit of 10 per cent of the debt portfolios of the scheme.

 

Ministry of Finance

 

The Finance Minister Smt. Nirmala Sitharaman has announced a string of measures to revive a flagging economy.

 

As expected, the enhanced surcharge on FPIs has been withdrawn. The government has also decided to withdraw enhanced surcharge levied on long and short-term capital gains. She also said that CSR violations will not be treated as a criminal offence. MCA will review sections in Companies Act on CSR violations. For start-ups and their investors, angel tax provision has been withdrawn. Also, banks will issue improved one-time settlement plan for MSMEs, and banks have further decided to launch repo-rate linked products and there will be online tracking of loan applications of home and auto loans. NBFCs will now be able to use Aadhaar-authenticated KYCs to simplify the taking up of credit. All pending GST refunds for MSMEs, will be paid within 30 days and in future, all GST refund matters will be resolved within 60 days.

RBI

• The Reserve Bank of India (RBI) relaxed norms for the end-use of money raised through External Commercial Borrowings (ECBs).

 

In a bid to give a leg-up to the slowing economy, The RBI relaxed the end use restrictions related to external commercial borrowings. As per the relaxed ECB end-use provisions, ECB’s with a minimum average maturity period of seven years can be availed for repayment of rupee loans availed domestically for capital expenditure as also by NBFCs for on-lending for the same reason. Moreover, the ECB’s with a minimum average maturity period of 10 years can be used for working capital purposes and general corporate purposes and borrowing by NBFCs for the above maturity for on lending for the above purposes is also permitted. It has been decided to permit eligible corporate borrowers to avail ECB for repayment of rupee loans availed domestically for capital expenditure in the manufacturing and infrastructure sector if classified as SMA-2 or NPA, under any one-time settlement with lenders. Lenders are also permitted to sell, through assignment, such loans to eligible ECB lenders, besides foreign branches or overseas subsidiaries of Indian banks, provided, the resultant external commercial borrowing complies with all-in-cost, minimum average maturity period and other relevant norms of the ECB framework

 

• The RBI has notified the Foreign Exchange Management (Deposit) (Amendment) Regulations, 2019 w.r.t Acceptance of Deposits by the issue of Commercial Papers.

 

The Regulation 6(3) of the Foreign Exchange Management (Deposit) Regulations, 2016, in terms of which a Company may accept deposits through the issue of Commercial Paper, has been reviewed vis-à-vis other Statutes/ Regulations notably Section 45 U(b) of RBI Act, 1934 describing CP as one of the Money Market Instruments and Section 2(c) of Companies (Acceptance of Deposits), Rules 2014 which excludes any amount received against the issue of, inter alia, CPs from the definition of deposits. It has also been considered that Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017, already allow investments in CPs issued by the Indian Companies. Therefore, with a view to bringing inconsistency in statutory provisions/regulations relating to Commercial Papers (CPs), the provisions of Regulation 6(3) of FEMA 5(R)/2016-RB has been deleted vide GOI Notification No. FEMA 5(R)(2)/2019-RB dated July 16, 2019.