Conne K t…

1. ConneKt… June 2011 CONTENTS News Room 2 Value Creation 3 Corporate Watch 5 Legal Alley 7 Due dates 10

2. Discontinuation of DEPB scheme will affect exports growth Discontinuation of the tax rebate Duty Entitlement Pass Book (DEPB) scheme from June will make exports uncompetitive, thus affecting its growth momentum. The 14-year-old scheme is the most popular among exporters, especially in the engineering and automobiles sectors. The tax refund mechanism was considered to be non-compliant with the World Trade Organisation rules. Under this scheme exporters get refund of duties on import content of their export products under which they have been given several extensions. ITR 3 – Free Online Income Tax Return Preparation Software for A.Y. 2011-12 Income Tax department on 16.05.2011 has released downloadable Online Income Tax Return Preparation / Filing Software- ITR-3 Applicable to Individual and HUF who are Partner in a Partnership firm and not having any other business Income except from the Interest and Remuneration from Partnership. Every new user has to register at this website in order to avail the e-Filing facility. After completing the registration process and logging in, the user may download the software tools from the download section. Based on all the relevant information the required ITR Form should be filled using the software provided. The software would generate the XML format of the return which should be uploaded on this website. On successful transmission of the return a receipt will be generated in the form of a provisional acknowledgement. News Room Changes in procedure relating to application for withholding tax at a lower / nil rate Where a taxpayer believes that its total income justifies withholding of tax at a lower rate, it can apply to the assessing officer (AO) for a certificate of withholding tax at a lower rate. The application by the taxpayer to the AO for a certificate of withholding tax at a lower rate is governed by Rule 28AA of the Income-tax Rules, 1962 (the Rules). Recently, the Central Board of Direct Taxes (“CBDT”) had substituted Rule 28AA of the Rules, which requires the applicant to furnish additional details at the time of applying for a certificate for a lower / nil rate of withholding tax. The modifications are effective from 1 April, 2011. SBI to introduce green-channel banking at more branches State Bank of India (SBI) will introduce “green-channel banking” at more of its branches to promote paperless work and to facilitate faster transactions for customers. All major transactions, including withdrawals, deposits and remittances up to Rs 40,000, will be made through green-channel banking, which was introduced at 26 out of 680 branches of the bank in the first phase Govt exempts whole 9.5% interest on Provident Fund (PF) for 2010-11 Giving relief to 4.71 crore subscribers of EPFO, the government has allowed tax exemption on the 9.5% interest income on PF deposits for 2010-11. The finance ministry has hence raised the income tax exemption to 9.5% interest income from 8.5% CCEA approves the proposal to amend the Policy on allowing FDI in LLP’s Cabinet Committee on Economic Affairs, Government of India on 11 May 2011 has approved the proposal to amend the Policy on allowing FDI in LLP’s in a calibrated manner beginning with Open Sectors i.e. where monitoring is not required subject to the following conditions: i. FDI in LLP’s will be allowed under the Government Approval Route in those sectors / activities where 100 percent FDI is allowed under the Automatic Route and there are no FDI-linked performance related conditions. ii. The LLP’s with FDI will not be allowed to operate in Agricultural / Plantation Activities, Print Media or Real Estate. iii. The LLP’s with FDI will not be eligible to make any Downstream Investments. Karnataka launches e-payment for commercial tax payers Karnataka today became the first state in the country to launch an e-payment system for commercial tax payers. Reserve Bank of India wants such a system to be adopted by other states also. The system enables dealers to remit their commercial taxes anytime, anywhere, without physically approaching an office of the Commercial Taxes Department (CTD). Right now, e-remittances can be made from six banks — SBI, SBM, SBH, Syndicate Bank, Canara Bank and Union Bank of India. Edelweiss Tokio Life Insurance Company Limited Registered with IRDA to carry the Life Insurance business in India Edelweiss Tokio Life Insurance Company Limited, a joint venture life insurance company promoted by Edelweiss Capital Limited and Tokio Marine and Nichido Fire Insurance Company, Japan has been registered as a Life Insurer under Section 3 of the Insurance Act, 1938 with the Authority. With this registration, the total number of Life Insurers registered with the Authority has gone up to 24. NMA ConneKt May2011 Page No. 2

3. VALUE CREATION TAX TREATIES – AN INTRODUCTION A tax treaty is an international agreement between two countries primarily governing taxation of the residents/nationals of the two countries. The terms and conditions prescribed in the agreement have to be strictly followed and any diversion from it will need the stamp of both the parties. Purpose of treaties The main purpose of the treaties is to avoid double taxation of income in both the countries and also for exchange of information for prevention of avoidance of income tax chargeable in both the countries Treaties and the domestic law A tax treaty is entered within the ambit of Section 90 of the Income Tax Act. It is a delegated legislation and valid even if it involves granting of exemption from tax. The provisions of domestic law though would apply only to the extent that they are more beneficial to the tax payer. Except where there is a specific provision to the contrary, a treaty enacted under section 90 would override the other provisions of the Act with an additional advantage of applying more beneficial provisions of the Act. Tax treaties cannot create more liability than that existent in the Act, thus if an income is exempt in the Act, the tax treaty would not be applicable since there should not be any double taxation. Interpretation of Treaties The need to interpret treaties mainly arises due to the nuances in the English language and the use of expressions which has multiple meanings. Reliance on Vienna Convention on the Law of Treaties(VCLT) The VCLT contains the rules applicable to tax treaties concluded after it came into force between the states that are parties to the VCLT. Although india is not a signatory to VCLT, for the purpose of interpreting treaties recourse is often taken to the VCLT. However the basic underlying principle is that all treaties should be interpreted in good faith and in case of any ambiguity, the basic purpose of entering into the treaty is to be looked at. Aids to Interpretation of treaty 1. The UN and OECD Model Convention The UN and OECD are multilateral forums which are making immense contribution to the development of standardisation of tax treaties. Both these conventions are used as guides to interpret the international tax language. Role of OECD Commentary in interpretation India is not a member of the OECD, but has been appointed as an observer. However Indian courts have time and again considered the OECD commentaries in a number of cases. OECD commentary has a persuasive value wherever there is any ambiguity. Role of UN Commentary in interpretation The UN commentary provides as follows, “ if the negotiating parties decide to use in a treaty wording suggested in the UN Model Convention, it would be presumed that they would also expect to derive assistance in the interpretation of that wording from the relevant commentary. The commentaries may prove very useful in implementing of a treaty concluded by the negotiating parties and in the settlement of any dispute relating there to. NMA ConneKt May 2011 Page No. 3

4. VALUE CREATION Revised Schedule VI – An Overview Which version of model commentary should be referred to If the language of the previously concluded treaty is similar to the model convention, then such model convention can be referred to for interpreting a previously concluded treaty. 2. Memorandum of Understanding (MOU) An MOU is a manifestation of intention of both Contracting states, hence an MOU to an existing treaty can be considered for interpreting such treaty or an earlier treaty. 3. Protocol A protocol is an indispensable and integral part of the treaty itself, with the same binding force as the main clauses therein and can be relied upon. A protocol to a later treaty between two countries can be used while interpreting the predecessor treaty between the same countries. 4. Parallel Treaties and Comparable treaty language The language of the succeeding treaty can be relied upon while interpreting the provisions of predecessor treaty. However it is a debatable issue as to whether provisions of one treaty can be interpreted with reference to language in another treaty. In some situations and depending on the context and language of another treaty, may have a bearing in interpreting the first treaty. Conclusion For interpreting any treaty it is important to look at its basic object/ intention before making any conclusive interpretation. The treaty should be interpreted to make it more workable and not redundant. Every person referring to a treaty should be aware of the principle that the intentions of the drafters of the treaty is to make every word meaningful and consequently the text should not be interpreted in a manner that renders a portion or any words in it as superfluous. NMA ConneKt May 2011 Page No. 4

5. Corporate Watch Tulip telecom Limited Details As on 19th May, 2011 Tulip Telecom Limited Tulip Telecom Ltd is one of the largest data telecom service and IT solutions provider in India. The company offers innovative IP based infrastructural solutions to their customers. They provide intra-city and inter-city multi protocol label switching virtual private network (MPLS VPN) connectivity, based on last mile on Wireless Network in more than 1300 cities across the country. The company also provides network integration services, including State Wide Area Networks (SWANs), and other government initiated projects to supply, install and maintain the networks to connect various government departments and offices. They also specialize in providing eGovernance infrastructure and have worked on numerous projects for the Government of India's National eGovernance Plan. The company has two subsidiaries, namely Tulip IT Services Singapore Pte Ltd and Tulip Swan IT Services Ltd. Tulip Telecom Ltd was incorporated in the year 1992 as Tulip Software Pvt Ltd. The company was originally a leading player in Packaged Software and PCs. In the year 1994-95, they diversified into hardware and became a leading partner for most major computer manufacturers. NMA ConneKt May 2011 Page No.5

6. Corporate Watch Tulip telecom Limited (contd…) NMA ConneKt May 2011 Page No.6

7. Clarification regarding effective date of Companies (Particulars of employees)Amendment Rules,2011 General Circular No:23/2011 Dated May 03, 2011 In this circular it has been clarified that the notification for raising the limits of employees salary to be disclosed in the directors report shall be applicable from 01.04.2011. http://www.mca.gov.in/Ministry/pdf/Circular_23-2011_03may2011.pdf Loan to Public Limited Companies under Section 295 of the Companies Act, 1956 General Circular No:24/2011 Dated May 12, 2011 In this circular it has been clarified that when the beneficiary of the loan/guarantee/security is the Public Limited Company then approval of the central government should only be sought if the provisions of subsection (d0 or (e) of Section 295 are attracted. http://www.mca.gov.in/Ministry/pdf/Circular_24-2011_12may2011.pdf Reserve Bank of India Regulatory and Audit Compliance RBI/2010-11/520 Dated May 11, 2011 In this circular it has been decided that for all foreign banks operating in India, the Chief Executive Officer would be responsible for effective oversight of regulatory and statutory compliance as also the audit process and the compliance thereof in respect of all operations in India. http://rbidocs.rbi.org.in/rdocs/notification/PDFs/ACBC110511.pdf Legal AlleyNotifications and circulars Ministry of Corporate Affairs Marking a company as having management dispute by Registrar of Companies under MCA-21 system General Circular No:19/2011 Dated May 02, 2011 In this circular uniformity has been brought in the practices by the Registrar of Companies in marking a company as having management disputes. http://www.mca.gov.in/Ministry/pdf/Circular_19-2011_02may2011.pdf Directors etc and changes therein in the company pursuant to section 303(2) of the Companies Act,1956- filing of conflicting return by contesting parties. General Circular No:20/2011 Dated May 02, 2011 In this circular the Registrar of Companies would take the form 32 on records under the Straight Through Process mode based on the statement of the correctness given by the filing company and the verification by the practicing professional. http://www.mca.gov.in/Ministry/pdf/Circular_20-2011_02may2011.pdf Green Initiative in the Corporate Governance- Approval of Ministry of Corporate Affairs for appointment of agency for providing electronic platform for electronic voting under the Companies Act,1956. General Circular No:21/2011 Dated May 02, 2011 In this circular it has been clarified that the agency for providing and supervising electronic platform for electronic voting shall be agency duly approved by the Ministry of Corporate Affairs. http://www.mca.gov.in/Ministry/pdf/Circular_21-2011_02may2011.pdf NMA ConneKt May 2011 Page No. 7

8. Competition Commission of India Procedure in regard to the transaction of business relating to combinations Regulations, 2011 Notification No. 98/2011 Dated May 11, 2011 The Competition Commission of India has issued regulation in regard to the transaction of business relating to combinations. http://www.cci.gov.in/images/media/Regulations/CombinationRegulation110511.pdf Securities & Exchange Board of India Reporting of Offshore Derivative Instruments (ODIs)/ Participatory Notes (PNs) activity CIR/IMD/FIIC/6/2011 Dated May 12, 2011 Securities Exchange Board of India has issued a circular for Reporting of Offshore Derivative Instruments(ODIs)/ Participatory Notes(PNs) activity dated 17th January 2011, further Securities Exchange Board of India received representations from a number of FIIs seeking various clarifications on the new reporting format. While these clarifications sought by the FIIs are being addressed by SEBI, it has been decided to defer the implementation of the new reporting format. http://www.sebi.gov.in/Index.jsp?contentDisp=SiteMap Legal AlleyNotifications and circulars Reserve Bank of India Opening of Escrow Accounts for FDI transactions A. P. (DIR Series) Circular No. 58 Dated May 02, 2011 In this circular it has been decided to permit AD Category – I banks to open and maintain, without prior approval of the Reserve Bank, non-interest bearing Escrow accounts in Indian Rupees in India on behalf of residents and/or non-residents, towards payment of share purchase consideration and / or provide Escrow facilities for keeping securities to facilitate FDI transactions subject to the terms and conditions as given. It has also been decided to permit SEBI authorised Depository Participants, to open and maintain, without prior approval of the Reserve Bank, Escrow accounts for securities subject to the terms and conditions as given. In both cases, the Escrow agent shall necessarily be an AD Category- I bank or SEBI authorised Depository Participant (in case of securities’ accounts). These facilities will be applicable for both issue of fresh shares to the non- residents as well as transfer of shares from / to the non- residents. http://rbidocs.rbi.org.in/rdocs/notification/PDFs/AIR580205111.pdf Pledge of shares for business purposes A. P. (DIR Series) Circular No. 57 Dated May 02, 2011 In this circular it has been decided to delegate powers to the AD Category – I banks to allow pledge of shares of an Indian company held by non-resident investor/s in accordance with the FDI policy subject to compliance with the conditions mentioned in the circular. http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=6370&Mode=0 NMA ConneKt May 2011 Page No. 8

9. Legal AlleyNotifications and circulars Securities & Exchange Board of India SEBI/ MIRSD /Cir/ 01/ 2011 Dated May 13, 2011 Clarification on circular dated December 3, 2009 on ‘Dealings between a Client and a Stock broker Securities Exchange Board of India has received Representations from market participants expressing difficulties in implementation of the requirements pertaining to renewal of Running Account Authorization once in a year, Hence in consultation with the major stock exchanges, the above requirements have now been modified. http://www.sebi.gov.in/Index.jsp?contentDisp=SiteMap Adjustment of differential pricing amount at the time of application for allotment of specified securities CIR/CFD/DIL/2/2011 Dated May 16, 2011 Securities Exchange Board of India has issued a circular for Adjustment of differential pricing amount at the time of application for allotment of specified securities. The Securities Exchange Board of India has decided to allow investors eligible for differential pricing in public issues to make payment at a price net of discount, if any, at the time of bidding itself, and in this context, after clarifying on certain points. http://www.sebi.gov.in/Index.jsp?contentDisp=SiteMap NMA ConneKt May 2011 Page No. 9

10. DueDates NMA ConneKt May 2011 Page No. 10

11. Editorial Team Nidhi Singh Saurabh Manchanda Gunjan Malhotra Queries/Feedback/Suggestions on this newsletter may be addressed to: NMA Consultants Pvt. Ltd, Emergent Solutions Pvt. Ltd. B-9, LGF, Green Park (Main), New Delhi – 110016, India. Ph: + 91-11-46021550-52. For past issues of ConneKt, Kindly Visit our Website: www.nmaconsultants.com Disclaimer: The materials contained in this newsletter have been compiled from various sources. This information is for guidance only and should not be regarded as a substitute for appropriate professional advice. NMA Consultants Pvt. Ltd. accepts no liability with regard to the information herein or any action that may be taken by readers of this newsletter without any professional advice. NMA ConneKt May 2011 Page No. 11