By Sonalee Godbole | Pramod S. Prabhudesai | Vinayak Pai | Rutvik Sanghvi
Chartered Accountants
DIRECT TAX
1. Extension of deadline
for filing declaration and payment of tax under Vivaad Se Vishwas
Scheme. [Notification No. 85 of 2020 dated 27th October,
2020.]
2. Clarifications in
respect of the Direct Tax Vivaad Se Vishwas Act, 2020. [Circular
No. 18/2020 dated 28th October, 2020.]
3. CBDT notifies Equalisation
Levy (Amendment) Rules, 2020; revises Forms for filing statements and
appeals. [Notification No. 87 of 2020 dated 28th October, 2020.]
4. Extension of deadline
for filing Income Tax Return, Tax Audit Report and Transfer Pricing Report. [Notification
No. 88 of 2020 dated 29th October, 2020.]
5. CBDT authorises CIT to condone the delay in
filing audit report in Form No. 10BB. [Circular
No. 19/2020 dated 3rd November, 2020.]
COMPANY LAW
I. COMPANIES ACT, 2013
(I) MCA extends minimum residency requirement
relaxation for directors for F.Y. 2020-21 – MCA
relaxes minimum residency requirement of 182 days in a year for resident
directors for F.Y. 2020-21 as well, in view of Covid-19. Clarifies that
‘…non-compliance of minimum residency in India for a period of at least 182
days in a year, by at least one director in every company, under section 149 of
the Companies Act, 2013 shall not be treated as non-compliance for the
financial year 2020-2021 also.’ [MCA General Circular No. 36/2020 dated 20th
October, 2020.]
(II) MCA extends LLP Settlement Scheme, 2020
applicability to documents having due dates 30th November – MCA extends the date of applicability of the LLP Settlement
Scheme, 2020 to defaulting LLPs to 30th November, 2020 owing to the
large-scale disruption caused by the pandemic. Accordingly, it states that ‘any
“defaulting LLP” is permitted to file belated documents, which were due for
filing till 30th November, 2020 in accordance with the provisions of
this Scheme.’ It adds that if a statement of account and solvency for the F.Y.
2019-2020 has been signed beyond the period of six months from the end of the
financial year but not later than 30th November, 2020, the same
shall not be deemed as non-compliance. [MCA General Circular No. 37/2020
dated 9th November, 2020.]
II. SEBI
(III) SEBI requires
listed debt security issuers to contribute towards ‘Recovery Expense Fund’ – In order to enable the Debenture Trustee(s) to take prompt action
for enforcement of security in case of ‘default’ in listed debt securities,
SEBI has required the creation of a ‘Recovery Expense Fund’ (REF) by issuers of
debt securities. The REF shall be used in the manner as decided in the meeting
of the holders of debt securities. SEBI has also prescribed the norms for the
manner of creation and operation of REF, utilisation and provision for refund
to the issuer. These provisions shall come into force w.e.f. 1st
January, 2021. [Circular No. SEBI/HO/MIRSD/CRADT/CIR/P/2020/207, dated
22nd October, 2020.]
(IV) SEBI
streamlines process for approval of draft Schemes of Arrangement by SEs – SEBI streamlines the processing of draft Schemes of Arrangement
filed by listed entities with stock exchanges (SEs) to ensure that the
recognised SEs refer the draft Schemes to SEBI only upon being fully convinced
that the listed entity is in compliance with the requisite SEBI norms. SEBI
further states that the amended provisions will be applicable for all the
Schemes filed with the stock exchanges after 17th November, 2020. It
highlights that w.e.f. 3rd November, 2020 steps for listing and
trading in specified securities in relation to the Scheme of Arrangement must
commence within 60 days of receiving the NCLT order approving the Scheme. SEBI
further requires Audit Committees to comment on the viability of the Scheme
from the company’s perspective. SEBI also requires submission of a report from
the Committee of Independent Directors that the draft Scheme is not detrimental
to the shareholders of the listed entity. [SEBI/HO/CFD/DIL1/CIR/P/2020/215
dated 3rd November, 2020.]
(V) SEBI issues guidelines for Debenture Trustees
(DTs) to perform due diligence for creation of security – SEBI issues guidelines for
strengthening of DTs’ role to safeguard the interest of investors in debt
securities, for new issues proposed to be listed on or after 1st January,
2021. SEBI further states that to enable the DTs to exercise due diligence
w.r.t. creation of security, the issuer, at the time of entering into the DT
agreement, shall provide information as prescribed. SEBI has cast the duty for
due diligence on DTs. SEBI provides that the DTs shall maintain records and
documents pertaining to due diligence for a minimum period of five years from
redemption of debt securities. SEBI also requires issuers of debt securities to
create charge in favour of the DTs before making application for listing of
debt securities and specifies, ‘The Stock Exchange(s) shall list the debt
securities only upon receipt of a due diligence certificate… from the Debenture
Trustee confirming creation of charge and execution of Debenture Trust Deed.’ [SEBI/HO/MIRSD/CRADT/CIR/P/2020/218
dated 3rd November, 2020.]
(VI) SEBI issues
Standard Operating Procedure with respect to imposition of fine and initiation
of action in case of non-compliance of continuous disclosures by issuers of listed
debt securities – In order to align the SOP for
imposition of fine and initiation of action in case of non-compliance of
continuous disclosures by issuers of the listed securities, SEBI has laid down
that the fine is to be levied by the Stock Exchange (SE) for violation of
various regulations as listed in the Circular. The SE shall disclose on their
website the action(s) taken against the entities for non-compliance(s),
including the details of the respective requirement, amount of fine levied /
action taken, etc. The Circular shall come into effect for compliance period
ending on or after 31st December, 2020. [SEBI/HO/DDHS/DDHS/CIR/P/2020/231
dated 13th November, 2020.]
ACCOUNTS AND AUDIT
(A) Guidance
Note on Accounting for Share-based Payments (Revised 2020) – This is the Revised Guidance Note (GN) applicable for enterprises
that are not required to follow Indian Accounting Standards. The revised GN
deals with share-based payment transactions with employees as well as
non-employees and deals extensively with group-wide share-based payment
transactions. [ICAI Guidance Note issued on 4th November, 2020.]
(B) Guidance
Note on Applicability of AS 25 and Measurement of Income Tax Expense for
Interim Financial Reporting (Revised) – The revised
GN incorporates updated references used in earlier GNs and relevant examples.
It also enlightens about the impact of opinions issued by ICAI on the
preparation of interim financial reports. Pursuant to this revision, ‘Guidance
Note on Applicability of AS 25 to Interim Financial Results’ and ‘Guidance
Note on Measurement of Income Tax Expense for Interim Financial Reporting in
the Context of AS 25’ stand withdrawn. [ICAI Guidance Note issued on 4th
November, 2020.]
FEMA
(i) The FDI Policy Framework is put up periodically by the Government through the Department for
Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce
& Industry. The DPIIT makes these pronouncements on FDI through the
Consolidated FDI Policy Circular. These pronouncements are separately notified
by the Ministry of Finance by amending the FEM(NDI) Rules, 2019 under FEMA. DPIIT
has released a Consolidated FDI Policy which is effective from 15th
October, 2020. This Policy subsumes and supersedes all past Press Releases
/ Press Notes, Circulars on FDI, Clarifications, etc. In case of any conflict
between the Consolidated FDI Policy and the NDI Rules, the Notifications issued
under FEMA will prevail. [DPIIT File Number 5(2)/2020-FDI Policy dated 15th
October, 2020.]
(ii) DPIIT had vide ‘Press Note 4’
dated 18th September, 2019 brought entities engaged in the news
digital media sector under the FDI regime.
Accordingly, entities engaged in uploading or streaming of news and current
affairs through digital media platforms were permitted to receive FDI up to 26%
under the government approval route. This was a new requirement which resulted
in a few concerns among such entities, chief among which were: that no window
was provided to bring the investment as per the FDI regime; and it was not
clear whether or not entities which are digital news aggregators are covered
because ‘digital media’ was not defined.
In response to representations received on these and other concerns,
DPIIT has released a clarification stating that the FDI Policy will apply to
the following Indian entities:
(a) digital media entities streaming /
uploading news and current affairs on websites, apps or other platforms;
(b) news agency which gathers, writes and
distributes / transmits news, directly or indirectly, to digital media entities
and / or news aggregators; and
(c) news aggregator, being an entity which,
using software of web application, aggregates news content from various sources
such as news websites, blogs, podcasts, video blogs, user submitted links,
etc., in one location.
A window is now
provided for entities covered in (a) above of one year from the date of this
clarification to align their FDI to the 26% level with approval of the Central
Government.
The following
additional conditions have been prescribed:
i) The majority of the Directors on the Board of
the investee company shall be Indian citizens;
ii) The CEO shall be an Indian citizen; and
iii) The investee company is
required to obtain security clearance of all foreign personnel likely to be
deployed for more than 60 days in a year by way of appointment, contract or
consultancy or in any other capacity for functioning of the entity prior to
their deployment. In the event of the security clearance of any foreign
personnel being denied or withdrawn for any reasons whatsoever, the investee
entity needs to ensure that the person concerned resigns or his / her services
are terminated forthwith after receiving such directives from the government.
Further, it is also
stated that the investee entities, i.e., the Indian entities receiving FDI,
would be responsible to comply with Press Note 4. [DPIIT File No.
5(4)/2019-FDI Policy dated 16th October, 2020.]
(iii) RBI has
issued a Notification for regulating posting and collection of margin on specified
derivative contracts. By this regulation:
A. RBI has prohibited any person other than
Authorised Dealers (ADs) to post and collect margin and receive and pay
interest on margin, posted and collected on their own account or on behalf of
their customers for permitted derivative contracts entered into with a person
resident outside India.
B. Permitted derivative contracts have been
defined to mean Foreign Exchange Derivative Contracts, Interest Rate Derivative
Contracts and Credit Derivative Contracts undertaken in line with their
respective Regulations / Directions. The definition can also cover any other
derivative contract as specified by RBI.
C. Other important terms including ‘Margin’,
‘Derivative’, etc., have been defined specifically for this Notification. [Foreign
Exchange Management (Margin for Derivative Contracts) Regulations, 2020, No.
FEMA 399/RB-2020, dated 23rd October, 2020.]
(iv) There are several reports to be filed with RBI under FEMA. RBI
has decided to discontinue 17 returns / reports with a view to improve the ease
of doing business and reduce the cost of compliance. The discontinued
reports are those that are to be submitted periodically by the AD Banks,
Custodians and FFMCs and are listed in the Annexure to the Circular. [A.P. (DIR
Series) Circular No. 05 dated 13th November, 2020.]
(v) The RBI has now
issued a Circular in respect of Compounding of Contraventions under FEMA
whereby the following changes have been made:
(a) The power to compound certain
contraventions under Notifications dealing with investment in India – FEMA 20
and FEMA 20(R) – was delegated to the Regional Offices / Sub-offices of the
RBI. This delegation of powers was superseded by the introduction of the NDI
Rules in October, 2019. The Circular now updates the reference to various
regulations as per the earlier Notifications to bring it in line with the NDI
Rules.
(b) Contraventions under FEMA are classified
into ‘technical’ or ‘material’ or ‘sensitive / serious in nature’. Technical
contraventions are dealt with by administrative / cautionary advice without
levying of a compounding fee. The Circular now does away with this practice and
will regularise such contraventions by levying a minimum compounding amount as
per the Compounding Matrix.
(c) Compounding Orders
issued by RBI have been made available on its website as a measure of public
disclosure. However, by this Circular, for orders issued after 1st
March, 2020 only a summary will now be put up on the RBI website in the
prescribed format. Complete orders will no longer be available for downloading
from the RBI website.
(d) Appropriate amendments would also be made in
the Master Direction on Compounding.
[A.P. (DIR
Series) Circular No. 06 dated 17th November, 2020.]
(vi)
The Hon’ble Supreme Court vide its interim orders dated 4th
July, 2012 and 14th September, 2015 passed in the case of the Bar
Council of India vs. A.K. Balaji & Ors. had directed RBI not to
grant any permission to any foreign law firm on or after the date of the said
interim order for opening of Liaison Office (LO) in India. RBI had issued a
Circular to that effect dated 29th October, 2015. The Supreme Court
has held in the same case that advocates enrolled under the Advocates Act, 1961
alone are entitled to practise law in India and that foreign law firms /
companies or foreign lawyers cannot practise the profession of law in India.
RBI, in line with this decision, has directed AD Banks not to grant any
approval to any branch office, project office, liaison office or other place of
business in India under FEMA for the purpose of practising legal profession in
India. Further, AD Banks have been directed to bring any violation of the
Advocates Act to the notice of the RBI. [A.P. (DIR Series) Circular No. 07
dated 23rd November, 2020.]
