In this blog post, Esha Chauhan, a student at Campus Law Center and pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, analyses the importance of DTAA.  

Introduction

If we had to come up with a word that captures the zeitgeist of the current century, ‘Globalization’ would surely be one of the strongest contenders. In the present day scenario, globalization is a reality which has led to an unprecedented and unique kind of interaction amongst the various nations of the world. This interface and dialogue at the global level, with the help of technological advancements which have aided  communication and travel across the world, has helped fade the boundaries that exist geographically. As the world is quickly moving towards the concept of what one calls a ‘global village’, we are all slowly becoming citizens of the world rather than citizens of a single nation. While this exchange of information, ideas and cultures between people from different parts of the world has benefitted the entrepreneurs in particular, the increase in international trade has also brought up the issue of how is one supposed to tax the income of an entrepreneur carrying out business on an international scale. To understand how this problem can hinder the growth the world is witnessing today, and also to appreciate the solution that has been developed, we need to delve into the concept of international taxation and its principles.

What is Double Taxation

International taxation in itself is not a universal concept that exists objectively in the international sphere, but rather refers to the taxation laws of various nations, which deal with the international aspects of taxation within the nations.

The ever increasing transactions amongst the nations of the world has led to an immense growth in international trade and commerce, as it allows the residents of one country to conduct business activities in any other country that they may so choose. On the flipside, this has also brought up the problem of deciding which country should tax an entrepreneur  who is a resident of a country that is different from the one where he is conducting business activities. This confusion may result in the entrepreneur being taxed twice, once in the country where his source of income lies and another time by the country where he resides.

If such an entrepreneur was required to pay tax as per both, the source of income (tax to be paid where the source of income lies), as well as the residence rule (tax to be paid where the taxpayer resides), the burden of being taxed twice would surely act as a deterrent to anyone wanting to conduct business internationally. The cost of operations would be much higher and the profits significantly lower, thereby removing any attraction which one could have towards conducting business at a global level. It is in this context that double taxation avoidance agreements find their importance.  

The Solution – DTAA

Double taxation has adverse effects on the movement of people as well as the movement of capital as it creates an unnecessary burden on the taxpayer to pay the tax not once but twice.

The domestic laws of various countries help deal with this problem by providing unilateral relief. This solution, however, is not sufficient as the principles of what is taxable and what is not, and also the method of determining what the source of income is, differ greatly from country to country.

Tax Treaties help in making it easier for the capital and the people to move from one country to another without any added burden. They also make investing in other countries a fairly simple and positive business decision, something that would have been fraught with risks had these treaties not existed.

The double tax treaties which are commonly known as double taxation avoidance agreements are governed by the principles elucidated during the Vienna convention on the law of treaties and are negotiated as per the principles of public international law.

While it is in the interest of all the countries to ensure an investment friendly environment where the taxpayer is not being unfairly taxed twice, it is also necessary to ensure that safeguards are in place to prevent tax evasion and other such unfair practices.

The fiscal Committee of OECD defines double taxation as:

“The imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods.”

In India, for example, the Central Government has been authorized to enter into double taxation avoidance agreements with other countries with the help of Section 90 of the Income Tax Act, 1961.

OECD commented on what necessitated the need for tax treaties in the ‘Model Tax Convention on Income and on Capital’:

‘It is desirable to clarify, standardize, and confirm the fiscal situation of taxpayers who are engaged, industrial, financial, or any other activities in other countries through the application by all countries of common solutions to identical cases of double taxation’.

Advantages

The presence of a DTAA brings more certainty to the investment market. The taxpayer has clarity with respect to his own taxation liabilities. The two countries that enter into this agreement specify the rules for dividing the revenue amongst themselves. It also allows for income tax to be recoverable to some extent in both the countries in a fair and just manner, ensuring no one is unjustly benefiting from the payment or even the lack of payment of tax. The taxing rights of both the countries on the taxpayer’s income are also fairly and equitably distributed and determined.

Further, the double taxation treaty is a trade friendly treaty which encourages international trade and investment along with the free flow of technology. Since it lays down the laws and parameters as to how taxation is supposed to work, there is also increased transparency. The DTAA clearly shows the position of a taxpayer with foreign income or one whose source of income is in another country with respect to domestic taxpayers.

Functions of DTAA

The countries that enter into these double taxation agreements agree upon certain definitions for the purposes of taxation which help bring to light what may be taxable and also elucidate the taxing rights of the taxpayer. Most important amongst all the definitions that are decided upon for the purposes of the applicability of the treaty is that of permanent establishment. In cases where any provision of the treaty is under dispute, the treaty itself provides for a solution by specifying the mutual agreement procedures. Further, the treaty itself ensures it is in line with and incorporates certain rules and regulations such as the General Anti- Avoidance Regulations (GAAR), to prevent abuse of the concessions of the treaty. These rules and regulations that are incorporated in tax treaties help in the identification of transactions which are done solely for the purpose of tax evasion.

The treaties also have provisions for easy exchange of tax information amongst the counties and this helps combat the problem of tax evasion.

DTAA and India

An archetypal DTAA between India and another country usually concerns the residents of India as well as the residents of the country that has entered into the agreement with India. A person who is neither a resident of India nor of the other contracting country does not qualify to avail any benefit under the said DTA agreement.

These agreements, which India presently has with 88 other countries out of which 85 are in effect, not only help mitigate the problem of double taxation between the two countries in question but also assign the rights relating to taxation in accordance with the consensus as per the said DTAA. While the developed nations follow the OECD model of DTAA with their emphasis on residence based taxation, the developing nations follow the UN based model of DTAA which emphasises the need for source based taxation. India in formation of its treaties with difference countries has been liberal in its acceptance of various parts of different models and also inserted new clauses and articles as per its requirement. This has been made possible because the above mentioned models are just that, models and not treaties in themselves, so they need not be adopted in their entirety.

Section 90, 90A and 91 of the Income Tax Act, 1961 deal with the two types of reliefs from double taxations. Section 91 deals with unilateral relief which is given by India (home country) in cases where no DTAA exists between India and the concerned nation. Section 90 and 90A talk of bilateral relief which is extended due to the existence of the DTAA. Bilateral reliefs are mutually decided as per the double taxation agreements entered into by both the countries.

Conclusion

The discussion above makes it amply clear why there is a need to avoid double taxation. It’s an unfair phenomenon which leads to thinning of profits and makes international trade a highly undesirable investment prospect, something that would be dangerously unhealthy in the present age of globalization. While we liberalize our economies with hopes of receiving investment to help our nations prosper and we cannot ignore the problem of double taxation, as this even alone could make it nearly impossible to attract foreign investment. In order to achieve the goals of prosperity with the help of an open market economy, double taxation treaties become vital to the growth and prosperity of any country.

Bibliography

In this blog post, Debiyanka Nandi, a B.A. LLB student at Department of Law, Calcutta University and pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, describes the benefits of GST on various industries.  

Introduction

A tax may be defined as a “pecuniary burden laid upon individuals or property owners to support the Government, a payment exacted by legislative authority”. A tax “is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority”. Taxes consist of Direct Tax or indirect Tax, and may be paid in money or as its labor equivalent (often but not always unpaid labor). India has a well developed taxation structure. Taxes are imposed by the Central Government, State Government and some minor taxes are imposed by the local authorities like Municipalities in India. The authority to levy taxes is derived from the Constitution of India which allocates the power to levy various taxes between the Central and the State. Article 265 serves as a restriction to the power of central and state government to make tax laws, which states that “No tax shall be levied or collected except by the authority of law”. Therefore, each tax levied or collected has to be backed by an accompanying law, passed either by the Parliament or the State Legislature. Any tax which is imposed by the government and is not backed by a law or is beyond the power of legislative authority, is struck down as unconstitutional.

Types of Taxes in India

In India various kinds of taxes are found.  In India, taxes can be either direct or indirect. However the types of taxes depend on whether it is levied by central, state or municipalities. The most known tax imposed by the local municipal authorities is the Entry Tax or Octori tax.

Direct Taxes

Direct taxes are so named because they are directly paid to the union of India. Some of the direct taxes imposed by the central government are income tax, corporation tax, security transaction tax etc.

Indirect Tax

Indirect taxes are levied on some specific taxes and particular goods. It is not levied on any particular person or individual. Usually indirect taxes in Indian republic are a complex procedure that involves laws and regulations, which are interconnected to each other. Some of the indirect taxes are excise duty, custom duty, sales tax, value added tax, etc.

What is GST?

GST stands for Goods and Service Tax. The Goods and Service Tax Bill or GST Bill is officially known as the Constitution (One Hundred and Twenty Second Amendment Bill), 2014 which is to be implemented in India from 1st April, 2017. The purpose of this act is to merge the indirect taxes in India into a single taxation system. This is one of the most important reforms brought in Indian economic system which would affect us all. The taxes which will be submitted into GST include Central Excise Duty, Service Tax, Additional Custom Duty, and state-level Value Added Taxes.

The introduction of goods and service tax is a significant step in reforming indirect taxation in India. The amalgamation of several central and state taxes into a single tax would mitigate cascading or double taxation, facilitating a common national market. The simplicity of tax would lead to a better working of administration. From the consumers point of view the biggest advantage is the reduction in overall tax burden.  By introduction of GST movement of goods from one to another has become hassle free and much easier. Now there is no need to wait at state borders for hours to pay taxes and also much less paperwork burden. The major changes that GST brought in India is that the tax rate under GST may be nominal or zero rated for the time being. The central government has assured the states to pay compensation for any loss of revenue incurred upon them from the date of introduction of GST for a period of five years.

Total tax collection in India (direct and indirect) current is Rs 14.6 lakh crore of which almost 38% comprises of indirect taxes. With the introduction of GST the indirect tax system in India is expected to evolve.

Objectives of GST:

• To  ensures that input credits are available across the value chain
• To  make the taxation system much more simplified
• To minimize double taxation and cascading effect of taxation
• To harmonizes tax based laws and administrative procedure across the country
• To minimize tax rate
• To prevent unhealthy competition between the states
• To increase tax base and compliances

Impact of GST on various sectors

The ambit of GST is wide. Almost all the sections of society will face the impacts GST. Impact of GST on some of the sectors is as follows:-

Automobiles:

The effective tax rate in this sector ranges between 30-47 percent. On implementation of GST the tax rate is expected to oscillate between 20-22 percent. It is expected to reduce the overall cost for the end user by 10 percent. The transportation time and overall cost will reduce as the goods will be transferred from one state to another easily in a much more hassle free manner. In addition to this, the cost of logistic and supply chain inventory will be reduced by 30-40 percent. Thus in the long run GST is expected to have a positive impact on automobile sectors. The key beneficiaries would be Maruti Suzuki, Hero Motocorp, Bajaj Auto, Eicher Motors, and Ashok Leyland.

Consumer durables:

The current tax rate for the sector ranges between 7-30 percent. GST will benefit the companies which have not availed tax exemptions in the past. It will reduce the price gap between organized and unorganized sectors the logistic cost across the operational and non operational segments will be curtailed thus improving the operational profitably by almost 300-400 bps. The 7th pay commission is also expected to boost demand and fund inflow in this sector by the end of the year. The impact of GST on this sector is expected to remain neutral or negative by the end of the year especially for companies who enjoy tax exemption or fall under concessional tax brackets. The key beneficiaries would be CGCE, Havells, Voltas, Blue Star, Symphony, Hitachi and Bajaj Electronics.

Furnishing and room decor:

The effective tax rate for this sector ranges above 20 percent currently. By implementation of the GST, paints and other chemical companies will be benefitted from lower tax rate. Effective tax correction practices under GST will narrow the gap between organized and unorganized sector. Overall cost and competitiveness among manufacturer of products like cement, plywood, sanitary ware, etc, will be curbed. The key beneficiaries would be Asian Paints, Berger Paints, Kansai Nerolac, Akzo Nobel, BASF India, Pidilite, HSIL, Cera Sanitary ware, Greenply, Greenlam industries, H&R Jhonson ( prism cement), and Kajaria Ceramics.

Telecom Companies:

Telecom industries are now subjected to service tax of 14 percent. By implementation of GST the tax rate is expected to increase to 18 percent. The telecom companies may pass the burden of increased taxes on the post paid subscribers. The capex cost of the companies is expected to be lowered by the availability of input tax credits. The effect of GST on telecom companies is negative as it may not be able to pass the burden of taxes upon the consumers.

IT and ITeS Sector:

The IT industries are now subjected to an effective tax rate of 14 percent which is expected to increase to 18-20 percent by implementation of GST. The huge amount of revenue which the company earns from export will continue to be exempt under GST. Litigation around taxability of canned software will probably end under GST regime. Overall effect of GST is expected to be neutral to slightly negative.

Textiles and Garments:

The effective tax rate for this sector currently ranges between 6-7 percent regarding which there is no clarity whether a lower rate will continue for readymade garments. The companies will be negatively impacted in case of high output tax rate. Several exports companies may also avail drawback benefits. Arvind, Raymond and Page Industries are expected to be most impacted.

Pharmaceutical Sector:

This sector enjoys tax rates based on location. The effective tax rates for most of the companies are much lower than the statutory tax rates. The concessional tax brackets for this sector are expected to continue. The existing tax exemptions are expected to continue as well unless the exemption period expires thus making it difficult to bring forth new exemptions in future. GST is also expected to address inverted duty structure and lower logistic cost for this sector. In overall view this sector will be neutrally impacted by implementation of GST.

Media:

The effective tax range for the broadcasters is 14-15 percent and that for the DTH providers is 20-21 percent. By implementation of GST an overall rate of around 18-20 percent will apply which is lower than the current tax rates for DTH and higher than the higher tax rates for broadcasters. The news and print sector is exempted from all indirect taxes, after implementation GST we can expect concessional rates to be introduced in this sector. Thus we can see that the DTH providers will be benefitted whereas the impact of GST on broadcasters will be negative. The impact of GST on news and media sector is neutral.

Conclusion

Under the proposed GST effective tax rate on goods will decline. A significant proportion of goods are not subjected to this tax. The following do not fall in the ambit of GST:

• Petroleum products
• Entertainment and amusement tax
• Tax on alcohol and liquor consumption
• Stamp duty, custom duty
• Tax on consumption and sale of electricity

In spite of the advantages brought about by GST, there are lots of problems faced in implementing it. The implementation challenges faced by implementing GST are as follows:

• Lack of adaptation
• Lack of trained staff
• Double registration can increase compliance and cost
• Lack of clear mechanism to control tax evasion
• Hard to estimate the exact impact of GST

Indirect taxes in India have driven businesses to restructure and model their supply chain and system owning to multiplicity of taxes and costs involved. With hopes that the GST will see the light of the day, the way India does business will change forever.

this blog post, Angeline Benny, a fourth-year law student at NALSAR University of Law, Hyderabad and pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, explains how and when excise duty is payable in India.

Excise duty is a form of indirect tax that is levied when goods are manufactured or produced. The Central Government has been given the mandate to impose the same under Entry 84 in the Union List of the Seventh Schedule read with Article 246 of the Indian Constitution. According to the entry, excise duty may be imposed only in the case of goods ‘manufactured or produced in India’. In addition, the entry provides exceptions like excise on alcohol and narcotics.

The legal framework for excise duty consists primarily of the following acts:

1. Central Excise Act, 1944
2. Central Excise Tariff Act, 1985

The central excise law extends to Designated Areas in Continental Shelf as well as Exclusive Economic Zone (EEZ). The former Act provides definitions while the latter provides an exhaustive schedule wherein goods are classified and appropriate tariffs are proscribed. The classification in the Central Excise Tariff Act, 1985 is based on an international system wherein goods are assigned a Harmonized System of Nomenclature (HSN) number.

Excise duty charged on goods maybe classified into the following:

• Basic Duty

Now known as Central Value Added Tax (CENVAT), this is the excise duty imposed on “all excisable goods which are produced or manufactured in India as, and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985 ” as per Section 3(1)(a) of the Central Excise Act, 1944.

• Special Excise Duty

Section 3(1)(b) of the Central Excise Act, 1944 permits levy of a ‘special duty of excise’, on excisable goods specified in the Second Schedule to the Central Excise Tariff Act, 1985. The rate of such excise duty has been set forth in the aforementioned Second Schedule.

• Additional Excise Duty

Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 permits the charge and collection of excise duty in respect of the goods as listed in the First Schedule of the Act. The Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 also provides for similar additional duty in case of specific goods.

The legislative framework has been further supplemented by Rules such as Central Excise (Amendment) Rules, 2002 and the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The Central Excise (Amendment) Rules, 2002 clarifies the date for determining the duty. In addition, it also provides the procedure for assessment of the duty applicable on the excisable goods and the manner in which such payment of such applicable duty should be made. The Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 provides the methods to calculate the value of goods in order to determine the duty applicable on excisable goods when transaction value cannot be determined under Section 4 of the Central Excise Act, 1944.

Additionally, the National Calamity Contingent Duty (NCCD) is levied under section 136 of the Finance Act, 2001. Other Finance Acts have introduced the imposition of cesses such as the Education Cess under section 91 read with section 93 of the Finance (No. 2) Act, 2004 as well as the Secondary and Higher Education Cess under section 136 read with section 138 of the Finance Act, 2007.

Furthermore, the CENVAT Credit Rules, 2004 permit the credit of excise duty and how the same may be utilized. Duties of excise paid on input/capital goods by a manufacturer and service tax paid may be adjusted against excise duty or service tax liability, if any arise. The aforementioned National Calamity Contingent Duty and Education are also included while calculating credit under the Rules. It was recently amended by the CENVAT Credit (First Amendment) Rules, 2016.

When Must Excise Duty Be Paid?

The taxable event in excise duty is the manufacture or production of goods, as provided in Section 3(1)(a) of the Central Excise Act, 1944. Hence, there is no requirement of ‘actual sale’ of the goods in order to impose excise duty. Although the excise duty is applicable when the goods are manufactured, it becomes payable only upon the ‘removal’ of such goods. Rule 4 of the Central Excise (Amendment) Rules, 2002 reiterates this position. The notion of such collection at the stage of removal of the excisable goods was introduced for the sake of convenience.

In the case of Collector of Central Excise Hyderabad vs. Vazir Sultan Tobacco Company Limited, the Supreme Court held that “The removal of goods is not the taxable event. Taxable event is the manufacture or production of goods.” Hence, the date of determining the rate of tax is when the goods are manufactured as it is the taxable event. It cannot be the subsequent date of removal of the excisable goods.  

Rule 8 of the Central Excise (Amendment) Rules, 2002 provides when the deadline for payment of the applicable excise duty. The applicable excise duty after removal of goods from a factory or warehouse is to be paid on the 6th of the following month in case of payment through net banking. In case any other form of payment has been used, the payment must be made by the 5th day of the following month. The month of March poses an exception to the aforementioned deadlines, irrespective of the mode of payment. If the excisable goods are removed in the month of March, the deadline for payment falls within the same month i.e. it has to be paid by the 31st day of March.

Payment of Excise Duty

Central Board of Excise and Customs (CBEC) has the responsibility to collect excise duty and from 1st October 2014, the payment of Central Excise Duty has been become automated vide notification 19/2014-CE (NT) dated 11.07.2014. Therefore, taxpayers are now required to pay the applicable Central Excise Duty online through net banking. In order to comply with the same, taxpayers use CBEC’s payment gateway called the Electronic Accounting System in Excise and Service Tax (EASIEST) to pay their taxes online. Excise duty is paid through the challan form called G.A.R.-7 Proforma for Central Excise Tax Payments.  

The following are the steps to pay excise duty under the current payment model:

1. In order to pay excise duty online, log on to NSDL-CBEC site website cbec-easiest.gov.in and select e-Payment from the menu.
2. The Assessee then enters the 15 digit Assessee Code allotted by the jurisdictional Commissionerate. The validity of the Assessee Code entered shall be verified online. Upon successful verification of the Assessee Code, the corresponding Assessee details like Name, Address, Commissionerate code etc. which are mentioned in the Assessee Code Master shall be visible. Additionally, the tax to be paid i.e. Excise Duty in this instance shall be automatically selected.
3. The Assessee shall then select the Type of Duty / Tax to be paid by picking Accounting Codes for Excise. A maximum of six such Accounting Codes can be selected at a time by the Assessee.
4. After selection of the accounting code, the Assessee opts for the Bank through which payment is to be made. Internet payment facility is only provided through a number of banks that lie within the Bank List.
5. The Assessee is now given an opportunity to review the details entered before being re-directed to the net-Banking site of the selected Bank for payment. Upon confirmation of the details, the net-Banking site of the selected Bank shall be available.
6. The Assessee shall log in the aforementioned site using the user ID and password provided by the bank for the purpose of net banking. Upon successfully logging in, the Assessee must enter details of the payment to be made. For instance, the Assessee is required to enter the amount of tax to be paid for each accounting code selected. Further, the Assessee also has to choose Bank account number that is to be used for the purpose of making the payment.
7. In case the payment is made, a challan counterfoil shall be displayed. The same contains the Challan Identification Number (CIN), details of the payment made and the name of the Bank acting as an intermediary for the e-payment of excise duty. The counterfoil so obtained acts as proof of payment. The Assessee has an option to download the counterfoil from the website of the bank.
8. After such payment, the Assessee may verify that the payment has been made using the Challan Status Inquiry at NSDL-CBEC website. The Assessee has to use the CIN for the same and the facility should be utilized only after a week from making the payment online. Such Inquiry will confirm that the payment challan has been uploaded on the EASIEST (NSDL) website. If such data regarding the challan is not available after making the inquiry, the Assessee may complain to the appropriate authority by sending an email to [email protected].

In this blog post, Debiyanka Nandi, a B.A. LLB student at Department of Law, Calcutta University and pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata details the different laws pertaining to Divorce in India.

INTRODUCTION

Concept of Marriage in India

In India, marriage is a necessity for establishing a healthy social life. A man and women is believed to be incomplete without one another. A man cannot have a material existence until he has a wife. A man is only half of hiMself and he becomes complete only after marriage. From time immemorial, the question regarding the nature of marriage has come across people’s mind. It has been accepted that marriage is a ‘sacrament’, that is, a holy tie between a man and a woman. Marriage is an indissoluble union of flesh with flesh, bones to bones and is to be continued even after death, in the next world. The object of marriage is ‘sublime’.

Concept of Divorce in India

Divorce is the legal dissolution of the marital union between a man and a woman. In India, divorce is granted by the court of law after receiving a petition from either husband or wife. Divorce is followed by granting alimony, child custody, child visitation, distribution of property, distribution of debts etc. Though the jurisdiction of divorce changes varies yet it can be classified as either no-fault divorce (mutual divorce) or fault divorce. In some cases the fault of the spouse may not be needed to be proved. The concept of divorce must not be confused with the concept of judicial separation. Judicial separation is the legal separation between the husband and the wife, granted by the court on petition from either the husband or the wife or both. In judicial separation the marital tie between the husband and wife continues to exist and neither of them enjoys the freedom to be re-married. Divorce must not also be confused with the concept with annulment of marriage. Annulment of marriage renders the marriage null and void from the first instance. The court declares the marriage to be null and void and the husband and wife should treat the marriage as if it never happened. The concept divorce is different from the other two measures of separation. It has a stronger legal binding and makes the husband wife more responsible.

Restitution of Conjugal Rights

The primary purpose of marriage is to impose the right of cohabiting upon the parties to the marriage. When either the husband has withdrawn from the society of the other without a reasonable excuse, the aggrieved party may apply, by petition to the district court for restitution of conjugal rights and the court on being satisfied with the truth of the statements made in such petition and that there is no legal ground for refusal of such application, may decree restitution of conjugal rights accordingly. Where a question arises whether there has been a reasonable excuse for withdrawal from the society, the burden of proof lies on the alleged.  The object of this section is to protect the marital ties from the wishes and whims of a person. The court acts as a guardian and compels the parties to live together with an intention to establish a better marital tie between the spouses especially when there is a scope of betterment of relation between the parties.

Judicial separation

The parties may separate from each other under the decree of the court known as judicial separation. Separation of parties, whether under the decree of court or by an agreement between the parties, means separation from bed and board. After separation, the parties are not bound to cohabit with each other. Judicial separation can be allowed only if the marriage is valid. In a separation by agreement, the state of separation comes to an end as soon as the parties revoke the agreement or starts cohabiting with one another. The object of the provision of section 10 is to give time to the spouse for reconciliation. The main function of matrimonial relief is to provide protection to the innocent party and to dissolve the marriage only when the practical purposes have broken down. Either party to the marriage, whether solemnized before or after the commencement of this act, may present a petition to the district court praying for a judicial separation on the grounds specified under section 13 (1) and 13 (2) of this act.

Effects of judicial separation:

• Marriage is not dissolved

• The rights and obligations arising from the marriage are merely suspended

• The husband and the wife are not bound to cohabit with each other

• Alimony can be claimed by either party

• If either spouse marries during the period of separation, he or she will be guilty of bigamy

• The wife shall, after separation be considered as fame sole i.e. an independent woman

Alimony

Alimony is the amount paid to the wife by the husband, after and during the proceeding of divorce, for her maintenance. The wife is entitled to alimony pendente lite, permanent alimony and maintenance. Alimony pendente lite means alimony during the pendency of the suit. If the court finds that the wife does not have an independent income to support the expenses of the proceedings and to support herself during the proceedings, the court may direct the husband to pay the necessary amount to the wife on a weekly or monthly basis with regard to the income of the husband.

After the proceedings are completed, the court may after it is satisfied that the wife has no independent income to support herself, can direct the husband to pay permanent alimony to the wife. The amount is decided on the basis of the income of the husband and is not absolute. The may be raised or reduced based on the changes in the condition of the husband. In order to receive the alimony, the wife should not be engaged in adultery or should not re-marry any other person.

THE LAWS GOVERNING DIVORCE IN INDIA

India is a land of diversity. It is a goldmine of culture and customs. The customs and culture changes at rapidly as we move from east to west and from north to south and so do the rituals of marriage and grounds of divorce. Marriage and divorce are a part of personal law thus they are not uniform. The grounds for determining a marriage to be valid and divorce also changes and are thus determined by various laws in India. Some of the laws discussed in the following are:

• The Hindu Marriage Act (1955)
• The Special Marriage Act (1954)
• The Divorce Act (1869)
• The Muslim Law

THE HINDU MARRIAGE ACT (1955)

The Hindu Marriage Act (1955) extends to the whole of in India except the state of Jammu and Kashmir and applies also to Hindus domiciled in the territories to which this act extends who are outside the territories. This act is applicable to all the Hindus including a Virashaiva, a Lingyat or a follower of Brahmo, Prarthana or Arya Samaj. This act also includes the Buddhist, Jaina or Sikh by religion and to any person domiciled in the territory and is not a Muslim, Christian, Parsi or Jew by religion. This Act shall also be applicable to the scheduled tribes under Article 366 of the Constitution unless the Central Government otherwise directs.

The conditions for a valid Hindu Marriage   

A marriage can be valid, void or voidable. Validity of marriage is the first criteria needed to be fulfilled to seek divorce under this act. The conditions for a valid Hindu marriage are laid down under section 5 of the act. The following are the conditions for a valid marriage:

• MONOGAMY:  neither party should have a spouse living at the time of marriage.
• SOUNDNESS OF MIND:  neither party should be incapable of giving valid consent to the marriage in consequence of unsoundness of mind. Neither party should suffer from mental disorder of such a kind that he or she becomes unfit for marriage or procreation of children. Neither party must be suffering from any kind of insanity or epilepsy (the clause for epilepsy was removed under the amendment act of 1999).
• AGE:  the bridegroom must complete the age of 21 years and the bride must complete the age of 18 years.
• BEYOND SAPINDA: the parties must not be Sapinda of each other unless the custom provides for it. For example: a person cannot marry his brother’s daughter.
• BEYOND PROHIBITED RELATIONSHIP:  the parties should not come under the degrees of prohibited relationship unless the customs so provide. For example: a person cannot marry his daughter in law.

The grounds for divorce

A marriage may, on petition presented by either husband or wife, be dissolved by a decree of divorce on the grounds mentioned under section 13 of this act.  These grounds are faulty grounds and are available to both husband and wife. The grounds are as follows:ADULTERY: where the other party has been involved in any kind of sexual relationship outside the marital tie

• CRUELTY: where the other party has treated the petitioner with cruelty

• DESERTION: where the other party has deserted the petitioner for a continuous period of 2 years
• CONVERSION: where the other party has converted into some other religion
• UNSOUNDNESS OF MIND: where the other party suffers from incurable form of unsoundness of mind or of any kind of mental disorder which has made the petitioner unable to live together
• LEPROSY: where the other party suffers from virulent and incurable from of leprosy

• VENEREAL DISEASE: where the other party is suffering from some kind of venereal disease
• RENUNCIATION OF WORLD: where the other party has renounced the world by entering any religious order
• PRESUMED DEATH: where the other party has not been heard of being alive for a period of 7 years preceding the date of presenting the petition
• NON-RESUMPTION OF COHABITATION: where there has been no resumption for cohabitation for a period of one year or more after passing the decree of judicial separation
• FAILURE TO COMPLY WITH DECREE FOR RESTITUTION OF CONJUGAL RIGHTS: where there has been no restitution of conjugal rights between the parties for a period of 1 year or more after the passing of the degree of restitution of conjugal rights

There are some additional grounds available only to the wife under section 13(2) of this act. The grounds are as follows:

• BIGAMY: where husband has a spouse living at the time of marriage

• RAPE, SODOMY OR BESTIALITY: where the husband is guilty of rape, sodomy or bestiality

• FAILURE OF MAINTENANCE BY THE HUSBAND: where the husband has failed to provide maintenance to the wife

• OPTION OF PUBERTY: where the wife was below the age of 18 years at the time of marriage

Divorce by mutual consent

Section 13(b) was incorporated in the Marriage Laws (amendment) Act 1976. Section 13(b) provides for divorce by mutual consent. The petition for divorce by mutual consent is to be moved jointly by the parties to the marriage in the district court, on the ground that they have been living separately for a period of one year or more and they have not been able to live together and also they have jointly agreed that the marriage should be dissolved.

The petition cannot be withdrawn before 6 months and after 18 months from the date of presentation of the petition. If the petition is not withdrawn within the stipulated time, the court may after hearing the parties and making reasonable inquiry.

SPECIAL MARRIAGE ACT (1954)

The Special Marriage Act (1954) extends to the whole of India except the state of Jammu and Kashmir. It is applicable to all the citizens on India domiciled within the territories to which this act extents.

Conditions for valid marriage

Section 4 of the act provides for the conditions which need to be fulfilled for a marriage to be valid under this act. The conditions are as follows:

• MONOGAMY: neither party should have a spouse living at the time of the marriage
• SOUND MIND: the parties to the marriage must be of sound mind and should not be a lunatic
• PROHIBITED RELATIONSHIP: the parties to the marriage should not come under prohibited relationship
• AGE: the bridegroom must be above 21 years of age and the bride must be above 18 years of age
• JAMMU AND KASHMIR: if any person marries according to the special marriage act in the state of Jammu and Kashmir, he has to prove that he has domicile in any other part of India where this act extends as this act is not extended to the state of Jammu and Kashmir.

Grounds for divorce

Section 27 of the act provides for the grounds of divorce. The grounds are almost similar to the grounds of divorce except for some exceptions. The grounds are as follows:

• ADULTERATION: neither of the spouse must be involved in any sexual relationship outside the marital tie.
• DESERTION: either of the spouse has deserted the other for a continuous period of not less than 2 years
• CRUELTY: where the other party has treated the petitioner with cruelty
• INSANITY: where the other party suffers from incurable unsound mind or where the other has such a kind of mental disorder which makes the petitioner unable to live together
• VENEREAL DISEASE: where the other party is suffering from any kind of communicable venereal disease
• LEPROSY: where the other party suffers from leprosy of virulent and incurable form
• PRESUMED DEATH: where the other party has not been heard of being alive for a continuous period seven years immediately preceding the date of presenting the petition

When a petition for dissolution of marriage has been filed due to any of the grounds in section 27 except for ‘presumed death’, the court may pass a decree of judicial separation instead of divorce if it feels necessary (section 27A).

Any petition for dissolution of marriage shall be presented after the expiration of one year since the date of entering the certificate of marriage in the Marriage Certificate Book. The court may entertain any petition filed before the expiration of one year on the condition that the petitioner has suffered exceptional hardships or the respondent has caused exceptional depravity to the petitioner. If the court feels that the petitioner has misrepresented the incidents and taken leave to present the petition, the court, may dismiss the decree or suspend the degree till the expiration of the said one year. While disposing of any application under this section for leave to present a petition for divorce before the expiration of one year from the date of marriage, the court shall have regard to any interest of children of marriage and to the question whether there is a reasonable probability of a reconciliation between the parties before the expiration of the one year (Section 29).

When the decree of the divorce has been passed and no appeal has been made before the expiration of the time to appeal or when an appeal has been made but dismissed, either party has the right to re-marriage (section 30).

Divorce by mutual consent

The petition for divorce by mutual consent may be presented to the district court by both the parties on the ground that they have been living separately for or more than a year and it is not possible for them to cohabit together and they have mutually agreed dissolve the marriage. The petition can be withdrawn after the expiration of 6 months and before the expiration of 18 months from the date of presentation. (Section 28)

THE DIVORCE ACT 1869

The Divorce Act 1869, extents to the whole of India except the state of Jammu and Kashmir. This act applies only to the Christians domiciled in India at the time of presenting the petition.

Grounds for divorce

Section 10 of the act provides for the grounds for dissolution of marriage. Both the husband and wife can move to court to seek a decree for divorce under this act.  The grounds are as follows:

• ADULTERY: The respondent has committed adultery
• CONVERSION: The respondent has ceased to be a Christian by conversion to another religion
• LEPROSY: The respondent has been suffering from a virulent and incurable form of leprosy for a period not less than two years immediately preceding the presentation of the petition
• VENEREAL DISEASE: The respondent has been suffering from a venereal disease in a communicable form for a period not less than 2 years immediately preceding the presentation of petition
• PRESUMED DEATH: The respondent has not been heard to be alive for continuous period of 7 years or more
• NON-CONSUMMATION: The respondent has willfully refused to consummate the marriage and therefore the marriage has not been consumated
• FAILURE TO COMPLY WITH THE DECREE OF RESTITUTION OF CONJUGAL RIGHTS: The respondent has failed to comply with the decree of restitution of conjugal rights
• DESERTION: The respondent has deserted the petitioner for a continuous term of 2 years or more immediately preceding the presentation of petition
• UNSOUND MIND: The respondent has been incurably of unsound mind for a continuous period of not less than two years immediately preceding the date of presentation of the petition
• CRUELTY: The respondent has treated the petitioner with such cruelty that it has created a reasonable apprehension in the mind of the petitioner that it would be injurious to live with the respondent.

The act provides that the wife may also present a petition for dissolution of marriage on the ground that the husband has committed an act of rape, sodomy or bestiality

Divorce by mutual consent

Section 10A of the act provides for dissolution of marriage by mutual consent. The petition for divorce by mutual consent may be presented to the district court by both the parties on the ground that they have been living separately for or more than a year and it is not possible for them to cohabit together and they have mutually agreed dissolve the marriage. The petition can be withdrawn after the expiration of 6 months and before the expiration of 18 months from the date of presentation.

Nullity of marriage

Any husband or wife may present a petition to the district court praying that his or her marriage may be declared null and void. The grounds for presenting the petition to nullify the marriage are as follows:

1. The respondent was impotent at the time of marriage and at the time of institution of suit
2. The parties were within the prohibited degree of consanguinity or affinity
3. Either party was a lunatic or idiot at the time of marriage
4. The former husband or wife of either party was living at the time of marriage

THE MUSLIM LAW

The Muslim laws are governed by the holy book of Quran. The personal laws of the Muslims such as marriage, divorce, succession etc are derived from the religious holy book of Quran and therefore there is no specific legal enactment present for the same.    

Conditions of a valid Muslim marriage

Muslim marriages are called ‘NIKAAH’. ‘NIKAAH’ is a contract therefore like any other contract there are certain conditions which need to be fulfilled in order to make it valid. The conditions are as follows:

1. The bride and bridegroom must be clearly identified by name or description
2. The bride and bridegroom or their agents must be physically present at the marriage
3. The presence of ‘wali’ is must. ’ Wali’ is the person who does the contract on behalf of the wife.
4. Dower must be paid to the bride by the bridegroom or his family
5. There must be two male or one male and two female witnesses present at the marriage.
6. The marriage must be announced. There must not be any secret.

Modes of divorce

A husband can divorce his wife by repudiating the marriage without giving any reason. Pronouncement of such words which express the intention to disown the wife is sufficient.  The wife can only divorce the husband if she has been delegated such rights by the husband in the agreement. After the Dissolution of Muslim Marriage Act 1939 has been passed, the wife has got various grounds under which it can divorce the husband.

The modes of divorce can be categorized as the following:

1. Extra judicial divorce

Extra judicial divorce can be divided into three types:

• By husband- talaaq, ila and zihar
• By wife- talaaq-i-tafweez and lian
• By mutual- khula and mubarat

2. Judicial divorce

Conditions of a Valid Talaaq

There are certain conditions which need to be fulfilled in order to declare a talaaq to be valid. The conditions are as follows:

1. Capacity: the husband must be of sound mind, has attained the age of puberty and has the capacity to pronounce talaaq
2. Formalities: according to Sunni law, talaaq must be either in oral or expressed in a written document called talaaqnama. According to Shia law, talaaq must only be in oral form except where the husband cannot speak, or else it is void
3. Free consent: except for Hanafi law, the consent of the husband must be free from compulsion, coercion, undue influence, fraud or voluntary intoxication or else it is void. Under Hanafi law, talaaq pronounced under involuntary intoxication is void
4. Express words: the word talaaq must clearly indicate the intention of the husband to dissolve the marriage

CONCLUSION

As we know marriage and divorce laws vary from one custom to another but the essence remains the same, that is, to provide justice to the victim. The law ensures that the husband and wife respects the sacramental tie of marriage as well as one another but at the same time it ensures that nobody must carry the burden of torture and disrespect  and has full freedom to break this when necessary. Apart from divorce there are various other ways by which a relief can be granted to the victim such as restitution of conjugal rights and judicial separation. The law also ensures that the spouse is well maintained even after divorce by directing the husband to pay alimony to the wife.

External  reference used:

• Legalserviceindia.com
• Wikipedia

In this blog post, Aditya Arora, a student pursuing B.A. LLB from Jindal Global Law School and pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, details how the income received on GDR is taxed.  

Global Depository Receipts (GDR) are negotiable financial instruments issued outside India by a depository bank on behalf an Indian Company. The entity holding Depository Receipts have an interest in the shareholding of the company similar to that of an ordinary shareholder. The rationale behind issuance of such receipts are to increase the global presence of the company in order to expand the capital infusion by inducing foreign buyers. It provides an access to the Indian companies to foreign trading platforms. The concept of GDR became famous in India in early 1990s, which also became the sole source of foreign investments in Indian Companies. Global Depository Receipt therefore is a negotiable security issued outside India by a foreign depository to the foreign investors against an underlying interest which is subsequently deposited with a custodian in India.

The entity holding a Global Depository Receipts has rights at par with that of a common shareholder with regard to dividends and capital gains and can be transferred or sold like  any other security. This in turn allows the trading of securities of a company in other country, barring all the barriers attached to it such as exchange rate, accounting practices, language, etc.

The issuance and trading of Global Depository Receipts were earlier governed under the ‘Foreign Currency Convertible Bonds and Ordinary Shares Scheme 1993’ which was subsequently replaced with the introduction of ‘Depository Receipt Scheme’ in 2014 as it wasn’t in consonance with the evolving financial markets. The salient features of the 2014 Scheme allowed a public as well as private company to trade its underlying permissible securities such as shares, debt, etc. There was a specific mechanism laid down in the erstwhile scheme for taxing in case of conversion of GDRs into shares whereas the 2014 scheme didn’t address this issue of taxing on conversion of GDRs into securities or shares.

How Does it Work?

A Global depository receipt is issued and administered by a depository bank for the corporate issuer. It is based on a Deposit Agreement between the bank and the issuer specifying rights and duties of each of the parties, both to the other party and to the investor. It includes setting record dates, voting the issuer’s underlying shares, depositing the issuer’s shares in the custodian bank, the sharing of fees, and the execution and delivery or transfer and surrender of GDR shares.

The company shares are held by a custodian bank separately which is located in the home country of the issuer and holds the shares of the Global Depository Receipt for safekeeping. The depository bank then buys the shares of the company and deposits it with the custodian bank while issuing GDRs representing an ownership interest in the shares.

The custodian bank in such circumstances are selected by the depository banks which also collects the dividends and forwards the communications received from the issuer to the depository bank, which sends them to the GDR holder.

Taxing of GDRs

Under FEMA

Global Depository Receipts are one of the ways to directly subscribe to another Company’s capital in India by the non-residents which in turn falls under the ambit of Foreign Direct Investment (FDI) and therefore various sectoral caps apply to such issue of shares as set by the finance ministry. The Companies are subsequently eligible to issue GDRs as per the sectoral caps laid down. Therefore, in order to understand the tax regime, it is important to determine the possible ways where the investor can divest his GDRs. The non-resident investor has the following options in order to divest the investment made in the capital of an Indian company without triggering the FEMA:

1. As per the regulations laid down under FEMA, a non-resident Indian can transfer the GDRs to another non-resident Indian by either selling it or as a gift.
2. A non-resident Indian is also allowed to gift his GDRs to a resident Indian. Furthermore, the Non-resident has the option of either getting the GDR converted into shares and sell it subsequently or get the GDRs converted abroad and transfer the shares to an Indian.
3. The third option lying with a non-resident Indian holding GDRs is to get it converted into shares and then trade it in the Indian Stock Market. There are no specific restrictions laid down under the FEMA guidelines apart from certain procedural guidelines.

From the abovementioned options that are available with a non-resident Indian in order to divest the GDRs, once the Situs of the Depository Receipts is concluded to be in India, the individual can be taxed in the following manner as per the guidelines of FEMA:

1. As discussed above, on the event where a non-resident transfers the GDRs to another non-resident Indian in foreign exchange, it triggers Section 115AC of the Income Tax Act and can subsequently be taxed under the same. But as per the exemptions laid down under Section 47 of the Income Tax Act, it relieves such transfer as doesn’t fall under the ambit of capital gain to be taxed in India.
2. In the event of the non-resident wishes to transfer the GDRs to a resident Indian, the exemption laid down under Section 47 of the Income Tax Act fails to apply and therefore the transfer will be taxed under the Income Tax Act. Such transfer will fall under the ambit of section 115AC of the Income Tax Act and will be taxed depending upon the nature of the capital gain. However, if the transfer is made in the form of a gift to a resident India, it will have implications on the latter as gifts received are taxed under section 56 of the Income Tax Act.
3. The third option in the hands of a non-resident Indian is to get the GDRs converted into shares and then trade it in the Indian Stock Market. Though this sounds simple, this is the most complicated option out of the three mentioned above. The first step in this option is to convert the GDR into shares. Since GDR and Shares are two different instruments with different rights, risks involved, etc, therefore surrendering GDR into shares from the perspective of the values derived out of it is taxable in India.

Another perspective of this conversion that will attract the Income Tax Act is that on conversion the class of equity may shift from A to B or vice versa which has its own gains and rights. Therefore, the gains accruing from such transfers may also attract the Income Tax Act.

The second step where the GDR is converted into equity shares and are up for sale in the Indian Stock Market, it clears the ambiguity with regard to the situs of the shares which is India. Therefore, depending upon the nature of the gain, the sale will attract the provisions of the Income Tax Act. If there is a long term gain from the sale, it will be exempted from tax under Section 10(38) of the Act, whereas short term gain will be taxed @ 15%.

Under Income Tax Act

Any form of income generated from any securities issued by an Indian Company especially GDRs is taxed under section 115 (AC) as well as section 115 (aca) of the Income Tax Act. It lays down the tax liability on the subscriber depending upon the nature of gain. Under this section of the Income Tax Act, if the nature of gain is ‘long term’ the income is charged at a concessional rate of 10%.  Similarly, section 115ACA also applies to the gains from the dividends accrued from the GDRs. “Section 115AC similarly taxes the income from DR’s to a non-­resident at a concessional rate of 10%. The non-Resident, further need not file his return of income if he has only income covered under this section taxable in India and appropriate TDS has been deducted on the said income. Further since the DR is just a change in nomenclature of shares any transfer/ surrender of DR during a course of amalgamation/demerger under section 47 should not attract the term ‘Transfer’.”

Conclusion

From the above mentioned provisions, though it facilitates the Indian companies to extend its investments from different countries, the procedure involved seems to be very chaotic when it comes to its conversion. The process of conversion of GDRs into shares isn’t that easy as it seems as it involves many procedural issues varying from currency rate to the accounting principles. Though there lies a vested interest of making such harsher rules and regulations as well as taxation policies, it discourages the Non-Resident Indians to invest in such kind of securities.