Romancing The Taxation... extended to Law.... Companies Bill,2012 Shortest Highlights

Some Important questions out of New Companies Act, 2013.

[This is Just an expected question and not the conclusive question list]

Some objectives

No of Sections	470 clauses as against 658 Sections
How act is divided	bill has been divided into 29 chapters.
Amendment to Articles	Articles may contain provisions for entrenchment
Time Limit for specifying registered office	A company shall, on and from the 15th day of its incorporation and at all times thereafter have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it.
Verification of registered office	30 days of its incorporation
Division of chapter of prospectus	Chapter is divided into two parts. Part I relates to 'Public offer' and Part II relates to 'Private Placement'
Penalty to a company with an intent to  defraud , issues a duplicate certificate of shares.	company shall be punishable with fine which shall not be less than 5 times the face value of the shares involved in the issue of the duplicate certificate but which may extend to 10 times the face value of such shares or rupees 10 crores, whichever is higher.
Can a company issue irredeemable Preference shares	No. A company limited by shares cannot issue any preference shares which are irredeemable. However, a company limited by shares may, if so authorised by its articles, can issue preference shares which are liable to be redeemed within a period not exceeding twenty years from the date of their issue.
Delivery of debenture certificate	Every company shall deliver debenture certificate within six months of allotment
Confirmation on reduction of capital	Reduction of share capital to be made subject to confirmation by the Tribunal.
Board and governance	Number of directors • Minimum : Public company -3 Private -2 , OPC-1. • Maximum : limit increased to 15 from 12 . More directors can be added by passing of special resolution without getting the approval of Central Government as earlier required.
Women Director	At least one woman director shall be on the Board of such class or classes of companies as may be prescribed.
Resident director	Every company shall have at least one director who has stayed in India for a total period of not less than one hundred and eighty-two days in the previous calendar year. [clause 149(2)].
Appointment of WT-CS	Every Company Secretary being a whole-time KMP shall be appointed by a resolution of the Board
Filling of casual vacancy of KMP	If the office of any whole-time KMP is vacated, the same shall be filled up by the Board at a meeting of the Board within a period of six months from the date of such vacancy
Penalty for not appointing KMP	On company - one lakh rupees which may extend to five lakh rupees. On every director and KMP who is in default - 50,000 rupees and 1,000 rupees per day if contravention continues.
Is participation by video conference permitted	Yes, provided such participation is capable of recording and recognizing. Also, the recording and storing of the proceedings of such meetings should be carried out
Notice of Meeting	BM - At least seven days' notice - notice may be sent by electronic means to every director at his address registered with the company. A Board Meeting may be called at shorter notice subject to the condition that at least one independent director, if any, shall be present at the meeting. However, in the absence of any independent director from such a meeting, the decisions taken at such meeting shall be final only on ratification thereof by at least one independent director
Penalty for contravention of Directors Duty (as specified below)	fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
3 imp committees (as specified below)	Besides the Audit Committee, the constitution of Nomination and Remuneration Committee has also been made mandatory in the case of listed companies
Remuneration to Manager should not include	Insurance Premium not to be treated as part of the remuneration
Who is exempted from holding AGM	One person companies have been given the option to dispense with the requirement of holding an AGM
Report on Holding AGM	Within 30 days of holding AGM
Period of Auditor	A company shall appoint an individual or a firm as an auditor at annual general meeting who shall hold office till the conclusion of sixth annual general meeting. No listed company or a company belonging to such class or classes of companies as may be prescribed, shall appoint or re-appoint- (a) an individual as auditor for more than one term of five consecutive years; and (b) an audit firm as auditor for more than two terms of five consecutive years:
Following have been made mandatory	Ø  Accounting Standard (Old provisions) Ø  Secretarial Standard(New) Ø  cost auditing standards (New)
Financial Statement Means	Ø  B/S Ø  P&L Ø  CFS Ø  Statement of change in equity Ø  Notes to account Ø  The financial statement, with respect to One Person Company, small company and dormant company, may not include the cash flow statement;
NFRA	Ø  National Financial Reporting Authority

Some important changes (May be asked as theory for 4 marks)

Private Company	Ø  private company changed - the limit on maximum number of members increased from 50 to 200. Ø  Private company which is a subsidiary of a public company shall be deemed to be a public company.
Dormant Company	Ø  Where a company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Registrar for obtaining the status of a dormant company.
foreign company	Means any company or body corporate incorporated outside India which,- (a)  has a place of business in India whether by itself or through an agent, physically or through electronic mode; and (b)   conducts any business activity in India in any other manner.
Key Managerial Personnel (KMP)	"Key Managerial Personnel (KMP), in relation to a company, means- (i) the Chief Executive Officer or the Managing Director or the Manager, (ii) the Company Secretary; (iii) the whole-time director; (iv) the Chief Financial Officer; and (v) such other officer as may be prescribed
Promoter	Bill defines the term 'promoter' to mean a person - (a) who has been named as such in a prospectus or is identified by the company in the annual return, or (b) who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or (c) in accordance with whose advice, directions or instructions the Board of Directors is accustomed to act. Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional capacity.
Small Company	Small company has been defined as a company other than a public company having a paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed not exceeding Rs.5 crore or turnover of which does not exceed two crore rupees or such higher amount as may be prescribed not exceeding twenty crore rupees. [clause 2(85)].
Illegal Association of Persons	The number of persons in any association or partnership not to exceed such number of persons as may be prescribed (not exceeding one hundred). The restriction not to apply to an  association or partnership, constituted by professionals who are governed by special Acts. (clause 464)
Public Offer	"Public offer" includes initial public offer or further public offer of securities to the public by a company, or an offer for sale of securities to the public by an existing shareholder, through issue of a prospectus.'
Private placement	The term 'private placement' has been defined to bring clarity. "Private placement" means any offer of securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the conditions specified in this section.
Issue of shares at Discount	Except as provided in section 54 (Issue of sweat equity shares), a company shall not issue shares at a discount
Issue of Preference shares for more than 20 years	A company may issue preference shares for a period exceeding twenty years for infrastructural projects subject to redemption of such percentage of shares as may be prescribed on an annual basis at the option of such preference shareholders.
Change for CMD	Unless the articles of a company provide otherwise or the company does not carry multiple businesses, an individual shall not be the chairperson of the company as well as the managing director or Chief Executive Officer of the company at the same time [Proviso to Clause 203(1)] Provided that nothing contained above shall apply to such class of companies engaged in multiple businesses and which has appointed one or more chief executive officers for each such  business as may be notified by the Central Government.
Independent Director	Ø  Introduced for the first time in Company Law Ø  All listed companies shall have at least one-third of the Board as independent directors. Ø  The independent director has been clearly defined in the Bill. • Nominee director nominated by any financial institution, or in pursuance of any agreement, or appointed by any government to represent its shareholding shall not be deemed to be an independent director. • An independent director shall not be entitled to any remuneration other than sitting fee, reimbursement of expenses for participation in the Board and other meetings and profit related commission as may be approved by the members. • An Independent director shall not be entitled to any stock option. • Only an independent director can be appointed as alternate director to an independent director.
Appointment of a person other than Retiring Director	Person other than retiring director • If a person other than retiring director stands for directorship but fails to get appointed, he or the member intending to propose him as a director, as the case may be, shall be refunded the sum deposited by him, if he gets more than twenty five per cent of total valid votes [clause 160(1)].
Resignation of director	Ø  A director may resign from his office by giving notice in writing. The Board shall, on receipt of such notice, intimate the Registrar and also place such resignation in the subsequent general meeting of the company. Ø  The director shall also forward a copy of resignation alongwith detailed reasons for the              resignation to the Registrar. Ø  The notice shall become effective from the date on which the notice is received Ø  If all the directors of a company resign from their office or vacate their office, the promoter or in his absence the Central Government shall appoint the required number of directors to hold office till the directors are appointed by the company  in General Meeting
Duties of directors	Ø  Act in accordance with the articles of the company. Ø  Act in good faith in order to promote the objects of the company Ø  Exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment. Ø  Not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company. Ø  Not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company. Ø  Not assign his office and any assignment so made shall be void.
Audit Committee (This can also be asked in DD or CG)	The Audit committee shall consist of a minimum of three directors with independent directors forming a majority and majority of members including its Chairperson shall be persons with ability to read and understand the financial statement. [clause 177(2)].
Nomination and Remuneration committee (This can also be asked in DD or CG)	• The Nomination and Remuneration Committee shall formulate the criteria for determining qualifications, positive attributes and independence of a director and recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees [Clause 178(3)]. • The Nomination and Remuneration Committee shall consist of three or more non-executive director(s) out of which not less than one half shall be independent directors. [clause 178(1)].
Disclosure in Annual Return (This can  be asked in DD)	Every company shall prepare a return Ø  its registered office, principal business activities, particulars of its holding, subsidiary and associate companies; Ø  its shares, debentures and other securities and shareholding pattern; Ø  its indebtedness; Ø  its members and debenture-holders Ø  its promoters, directors, key managerial personnel Ø  meetings of members or a class thereof, Board and its various committees along with attendance details Ø  Remuneration of directors and key managerial personnel; Ø  penalties imposed on the company, its directors or officers and details of compounding of offences;
Changes in share holding	A return to be filed with the Registrar with respect to change in the number of shares held by promoters and top ten shareholders (to ensure audit trail of ownership) by a listed company.
Board report (This can  be asked in DD)	Board's report (Clause 134) Ø   Board's Report has been made more informative and includes extensive disclosures like - (i) extract of annual return in the prescribed form; (ii) company's policy on director's appointment and remuneration including the criteria for determining qualifications, positive attributes, independence of a director etc. ; (iii) a statement of declaration by independent directors; (iv) explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report and by the company secretary in practice in his secretarial audit report; (v) particulars of loans, guarantees, or investments made; (vi) particulars of contracts or arrangements entered into; (vii) the conservation of energy, technology absorption, foreign exchange earnings and outgo in the prescribed manner; (viii) statement indicating development and implementation of a risk management policy for the company including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of company the existence of the company;
DRS (This can be asked in CG)	Ø  The Directors' Responsibility Statement shall also include the statement that the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. Ø  The Boards' Report is to be signed by the Chairperson of the company if he is  authorized by the Board and where he is not so authorized, it shall be signed by at least two directors, one of whom shall be a managing director, or by the director where there is one director. (Clause 134).
CSR (This can be asked in CG)	Ø   Every company having net worth of rupees 500 crore or more, or turnover of rupees 1000 crore or more or a net profit of rupees 5 crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director. Ø   The CSR Committee shall formulate and recommend Corporate Social Responsibility Policy which shall indicate the activity or activities to be undertaken by the company as specified in schedule VII and shall also recommend the amount of expenditure to be incurred on the CSR activities. Ø   The Board of every company shall ensure that the company spends in every financial year atleast 2% of the average net profits of the company made during the three  immediately preceding financial years in pursuance of its CSR policy. Ø   Where the company fails to spend such amount, the Board shall in its report specify the reasons for not spending the amount. The approach is to 'comply or explain'. Ø  The company shall give preference to local areas where it operates, for spending amount earmarked for Corporate Social Responsibility (CSR) activities.
Functions of CS (This can be asked in CG)	The functions of the company secretary shall include – Ø  To report to the Board about compliance with the provisions of this Act, the rules made there under and other laws applicable to the company; Ø  To ensure that the company complies with the applicable secretarial standards; Ø  To discharge such other duties as may be prescribed.
Secretarial Audit (This can be asked in CSP,DD or CG)	Every listed company and a company belonging to other class of companies as may be prescribed shall annex with its Board's report a Secretarial Audit Report, given by a Company Secretary in Practice, in such form as may be prescribed. Ø   It shall be the duty of the company to give all assistance and facilities to the Company Secretary in Practice, for auditing the secretarial and related records of the company. Ø   The Board of Directors, in their report shall explain in full any qualification or observation or other remarks made by the Company Secretary in Practice in his report. Ø   If a company or any officer of the company or the Company Secretary in Practice, contravenes the provisions of this section, the company, every officer of the company or the Company Secretary in Practice, who is in default, shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
Restructuring and Liquidation (This can be asked in CRI)	The entire rehabilitation and liquidation process has been made time bound. Ø   Winding up is to be resorted to only when revival is not feasible. (clause 258). Ø   The Tribunal may appoint an interim administrator or a company administrator from the panel of Company Secretaries, CAs, CWAs, etc. maintained by the Central Government. [clause 259(1)]. Ø  The Company Administrator shall prepare a scheme of revival and rehabilitation. [clause 261(1)]. Ø   If revival scheme is not approved by the creditors, the Tribunal shall order for winding up of the company. (clause 258). Ø   No civil court shall have jurisdiction in respect of any matter on which Tribunal or Appellate Tribunal is empowered. (clause 268).
Special Courts (This can be asked in CRI)	Ø  For the speedy trial of offences, the Central Government has been empowered to establish special courts in consultation with the Chief Justice of the High Court within whose jurisdiction the judge is to be appointed. (clause 435). Ø   All offences under this Act shall be triable by the Special Court established for the area in which the registered office of the company in relation to which the offence is committed or where there are more special courts than one for such area, by such one of them as may be specified in this behalf by the High Court concerned. (clause 436) Ø   The Special Court would have the liberty to try summary proceedings for offences punishable with imprisonment for a term not exceeding three years, although it may order for the regular trial. (clause 436).
Cross Border Merger (This can be asked in CRI)	Ø  The Bill has allowed cross border mergers with any foreign company; Ø  The cross border merger may be made between companies registered under this Act and companies incorporated under jurisdiction of such countries as may be notified by the Central Government.

Romancing the Taxation...... New case Law 269ss&T CIT V. DINESHCHANDRA SHANTILAL SHAH (HUF) (2013)

Disbursement of cash to farmers through discounting of cheque doesn't violate sec. 269SS or sec. 269T

When it was not proved that by cheque discounting business assessee had taken any loan or deposit from agriculturists and/or he had repaid any loan to agriculturists, neither section 269SS nor section 269T were attracted

CIT V. DINESHCHANDRA SHANTILAL SHAH (HUF) (2013)

Romancing the Taxation .....MASCON TECHNICAL SERVICES LTD. V. CIT (2013)

MASCON TECHNICAL SERVICES LTD. V. CIT(2013)

Share issue exp. remains a capital expenditure even if SEBI disapproves of issue of shares; no sec. 37(1) allowance

Share issue expenses cannot be allowed as revenue expenditure even when shares could not be issued due to non-approval by SEBI

MGF Automobiles Ltd vs. ACIT (ITAT Delhi)

S. 153A: In case of completed assessments, addition can be made only if incriminating document found during search.

All Cargo Global Logistics 137 ITD 287 (Mum)(SB)

here are three possible circumstances that emerge on the date of initiation of search u/s 132 (1): (a) proceedings are pending; (b) proceedings are not pending but some incriminating material found in the course of search indicating undisclosed income and/or assets and (c) proceedings are not pending and no incriminating material has been found. 

In circumstance (a), since the proceedings are pending, they are abated and the AO gets a free hand to make the assessment. In circumstance (b), there is no question of abatement as the proceedings are not pending and the AO has to pass an assessment order u/s 153A to assess the undisclosed income. In circumstance (c), the AO has to pass an assessment order though as there is no incriminating material no income can be assessed. 

On facts, as the assessments were completed and there was no incriminating material found during the search, the AO was not entitled to make any addition 

Romancing the Taxation new case law Sec.50B

S. 50B: Transfer of assets via amalgamation without monetary consideration is not a “slump sale” 

R.R. Ramakrishna Pillai 66 ITR 725 & Avaya Global Connect 26 SOT 397 (Mum) followed)(ITAT hyderabad)

S. 2(42C) defines a ‘slump sale’ to mean the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales.

A plain reading of s. 2(42C) makes it clear that to qualify as a slump sale, two conditions have to be satisfied viz., (i) there must be transfer of one or more undertakings as a result of sale and (ii) the sale should be for a lump sum consideration without values being assigned to the individual assets and liabilities. 

 The presence of money consideration is an essential element to a transaction of sale. 

If the consideration is not money but some other valuable consideration it may be an exchange or barter but not a sale. In the present case, as no monetary consideration was received by the assessee for transfer of the assets and liabilities of the manufacturing division to Novapan Industries Ltd, the transaction is not a “slump sale” and does not attract s. 50B. 

Romancing the Taxation.... Romancing The New case Law

CIT vs Rajendra Kumar/Naresh kumar (Delhi high court)

Sec. 40(a)(ia) TDS: Amendment by Finance Act 2010 permitting TDS payment till due date of ROI is 'retrospective'. 

The intention behind s. 40(a)(ia) is to ensure that TDS is deducted and paid. The object of introduction of s. 40(a)(ia) is to ensure that TDS provisions are scrupulously implemented without default in order to augment recoveries. It is not to penalise an assessee when payment has been made within the time stated. Failure to deduct TDS or deposit TDS results in loss of revenue and may deprive the Government of the tax due and payable. 

sec. 40(a)(ia), prior to the insertion of the proviso by the Finance Act 2010, was not free from interpretative difficulties and problems. The amended provisions are clear and free from any ambiguity and doubt and will help curtail litigation. The amended provision clearly support the view that the expression “said due date” used in clause A of proviso to the un-amended section refers to the time specified in s. 139(1) of the Act. The amended s. 40(a)(ia) expands and further liberalises the statue when it stipulates that deductions made in the first eleven months of the previous year but paid before the due date of filing of the return, will constitute sufficient compliance. Consequently, the proviso to s. 40(a)(ia) must be treated as retrospective in operation.