In this blog post, Vikram Chaudhuri, Student of Department of Law, Calcutta University, and pursuing a Diploma in Entrepreneurship Administration and Business Laws by NUJS, discusses the liability of an Internet Service Provider when an online trademark is infringed upon. 

In this blog post, Balaji AG, a qualified ACA, ICWA, ACS and CIMA (UK) Industry Consultant and a CFO of a Listed Company for over five years, and who is currently pursuing his Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, analyzes the need for a responsive corporate reporting system in India.

Evolution of Corporate Reporting in India

Separate legal entity and its ability to raise funds from Public at large without yielding control of operations have paved the way for a corporate form of entity being the most preferred option for doing and scaling up businesses. This has also resulted in the need to communicate about the financial and non-financial information relating to the resources, actions, and performance of the company. In the context of increased economic market and regulatory pressures that corporates are faced with, corporate reporting system has gained significant focus.

Historically, Corporates focussed on providing information required under the statute under which they were incorporated, i.e., Companies Act, 1956 in respect of companies incorporated in India. These disclosures were typically required to be made in the Annual Report which is published by each company once in a year. With the evolution of Indian stock markets and increased participation of general public in investments in corporates, the demand for information started increasing. Stock exchanges through listing agreements sought disclosure of information in a more timely manner. Financial performance was required to be provided on a quarterly/half yearly basis. Further, price sensitive information was required to be disclosed immediately.

Post liberalization, with the influx of foreign institutional investors (FIIs) and corporates raising funds from outside of India, the demands of corporate reporting system has increased manifold. Global best practices and framework for corporate reporting became the guidelines for corporate reporting

Wide and Deep

The requirements of corporate reporting have been increasing horizontally and vertically. The regulations concerning corporate reporting arise principally from statute and accounting standards, with the listing requirements of Stock Exchanges being a further consideration for listed companies. Broad components of Annual Report include the following, Financial Statements with notes, Directors’ Report, and Auditors’ Report.

Financial Statements

Financial statements initially comprised of Profit & Loss Account, Balance Sheet, Schedules and Notes to Financial Statements. There have been continuous changes both under Company Law and the accounting standards. For that matter, both company law and accounting standards themselves have changed in recent years.

Disclosure requirements under Schedule VI of Companies Act have undergone continuous revision. There has been the addition of quantitative particulars about capacities, production, etc., the inclusion of cash flow statement as part of financial statements. In addition to this, a couple of years back the Schedule VI was revamped, and a revised Schedule VI was introduced. Under the Companies Act, 2013, the disclosure requirements are mainly covered under Schedule 3.

Accounting Standards determine the disclosures for the various types of economic events of entities. Accounting standards have undergone revisions resulting in changes in disclosure requirements. Fresh accounting standards have been issued providing guidance for new types of transactions/economic events. Recently, Ind AS, an entire set of accounting standards which are based on International Financial Reporting Standards have been made mandatory for listed companies with a net worth more than Rs. 500 crores. This brings in a significant change in disclosure requirements.

Directors’ Report

Directors’ report initially reviewed operational and financial performance. Companies Act has been introducing a lot of additional reporting requirements like Particulars of Employees drawing salary above a certain amount, details of energy conservation, technology absorption, foreign exchange earnings and outgo. In the recent years with lot of focus on corporate governance, Companies Act, and SEBI has introduced additional disclosures to be included as part of Directors’ Reports, like:

• Directors’ Responsibility Statement.
• Management Discussion and Analysis.
• Policy on nomination, remuneration, board diversity, evaluation and succession of Board members, key management personnel.
• Remuneration of Managerial Personnel.
• Internal Financial Controls concerning financial statements.
• Corporate Social Responsibility philosophy and projects, etc.

Auditors’ Report 

Auditors’ report format has also undergone changes given Companies (Auditor’s Report) Order being amended at periodic intervals. Further, Auditors are required to report on Internal Financial Controls, Corporate Governance compliance, etc. Also, an auditor is now required to include his opinion on certain matters under Companies (Audit and Auditors) Rules 2014

Summary

From the above, it is clear that there is a significant increase in the range of matters to be reported to shareholders. It is also evident that the details required on matters reported have also been continuously expanding. This is only in respect of the annual report.

Apart from this, there are periodical disclosures to be made to stock exchanges regarding the listing agreement. Some of these disclosures are required to be published in newspapers. The main aspect of this relates to quarterly results and associated disclosures. Another important requirement of listing agreement is disclosure relating price sensitive information.

Voluntary Disclosures

Details about many new areas have been included in the annual reports of the major Indian Companies recently. This is given the voluntary effort on the part of companies to educate the shareholders to give a better insight of the management, operations, economy and prospects of the Corporation. These deal with:

1. Management objectives and policies – The current trend in annual accounts is to impart more transparency by disclosing various corporate and management objectives and policies, analyses of financial conditions and prospects.
2. Economic Value Added (EVA) – Extensive equity research has now established that it is not earnings per share, but the value which is important. EVA is a new concept being applied to understand and evaluate financial performance.
3. Brand Value – It is becoming increasingly clear that intangible assets have a significant role in the growth of a company. Intangible assets which are created through research or acquired find a place in financial statements. However, a brand is much more than a trademark, or a logo is built over many years of operation. It is a trust mark of the promise of quality and authenticity that client can rely upon. The value of the corporate’s brand is not captured as part of financial statements. Some companies provide information on independent valuation of the brand.
4. Human Resource Accounting – Service sector’s contribution to India’s GDP is significant. Non-human assets are recognized in the books of accounts whereas human assets are not recorded. The fact that intellectual capital is important and the valuable asset have been validly recognized. Valuation of the same popularly called as human resources accounting.

Responsive Corporate Reporting System

The current corporate reporting framework was largely established during the pre-liberalisation era. Subsequent changes to the reporting framework have been largely appended rather than integrated into a system that is now increasingly stressed and reliant on information provided outside of the mainstream financial reporting system.

Considering the humongous increase in corporate reporting requirements over the recent years, the system should be made comprehensive and integrated. While financial information would be an integral part and fulcrum of the overall corporate reporting system, it is essential to have a comprehensive Corporate Reporting System which also tracks the non-financial information essential for decision making and communication.

The environment in which the corporate reporting system operates has changed beyond all recognition, with the pace of change now increasing at a phenomenal rate. Globalization, unprecedented growth and giant leaps in technology present a whole new series of challenges to a fragmented reporting system. The way forward is not going to be any different. Given that these three key aspects are here to stay, the corporate reporting system should:

1. Be able to deliver continuously increasing information requirements of the shareholders/investors in line with increasing complexity of the business environment.
2. Be organized and structured so that it can anticipate and respond effectively to shifts in the business environment.
3. Go beyond mere compliance with regulatory requirements and be used to build the corporate image, a leading example in Indian context would be “Infosys.”
4. Be aligned with management reporting system. Rather, information management system should be built in such a manner that the information used for external reporting is effectively used in an internal decision-making process.
5. support shareholder/investor decision-making.

The ability of corporate reporting system to evolve and meet business and society’s changing needs is an essential part of minimizing the threat of future systemic risk.

References: 

• Companies Act 1956/2013
• Article – Recent Trends in Corporate Reporting – Akshay Gupta
• CIMA Global.com Article – The need for a responsive Corporate Reporting System
• The Corporate Reporting Practices in India – An Analysis – Dr. K Sudhakara Rao

In this blog post, Aranya Saha, a student of Jogesh Chanda Chaudri Law College, Calcutta University, who is currently pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, analyses the provisions for the protection of the rights of minority shareholders present in the Companies Act, 2013 

In this blog post, Arvind Radhakrishnan,  a partner at Synacrity Advisors LLP and a student pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, describes the remittance to be paid by foreign companies and repatriation of dividends.

In this blog post, Amala Haidar, a student pursuing a Diploma in Entrepreneurship Administration and Business Laws by NUJS, describes the process undertaken while investigating an International Cybercrime. 

In this blog post, Nimisha Srivastava, a student of Gujarat National Law University, Gandhinagar, discusses the policy framework of Foreign Direct Investment in India.

With the emergence of Multi National Corporations (MNCs), the economies of the world have become more liberalized. Governments of countries around the world started adopting measures and policies to attract these MNCs, and increased private capital flows in form of Foreign Direct Investment (FDI). Through the method of FDI, countries raise funds from abroad, which is a crucial thing for the growth of a developing economy like India. Information technology helps in achieving technical know-how and generating employment.

Foreign companies have the advantage of getting lower wage rates, tax exemptions, etc. when they invest in India. Indian government has taken numerous steps to encourage a favourable policy regime for foreign investor to come.

Framework

The Foreign Exchange Management Act, 1999, was enacted with the objective to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. FDI in India is governed by Section 6(3) of the FEMA read with Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time.

The policy framework of FDI is embodied in Circular on Consolidated FDI Policy, updated annually. Further, the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry, Government of India makes policy pronouncements on FDI notified by the Reserve Bank of India as amendments to the Foreign Exchange Management (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000 (notification No.FEMA 20/2000-RB dated May 3, 2000). In case of any conflict, the relevant FEMA Notification will prevail. The procedural instructions are issued by the Reserve Bank of India vide A.P. (DIR Series) Circulars. The regulatory framework, over a period of time, thus, consists of Acts, Regulations, Press Notes, Press Releases, Clarifications, etc.

Sectors where FDI is not permitted

Gambling, betting, lottery, chit fund, Nidhi Company[1], housing and real estate[2], agriculture[3], manufacturing cigars, cheroots, cigarillos and cigarettes, trading in Transferable Development Rights (TDRs), activities/sectors, are not open to private sector investment.

Procedure for receiving FDI by an Indian Company

There are two methods by which an Indian company can receive FDI.

1. Automatic Route: No prior approval of government or RBI is required.
2. Government Route: The approval of Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance is required. Application can be made in Form FC-IL. Plain paper applications carrying all relevant details are also accepted. No fee is payable. Government approvals are required where:
3. a) Indian company established with foreign investment is not owned or controlled by resident entity,
4. b) Control/ownership of existing company is being transferred to non resident entity.

Who is eligible to invest in India?

Any resident/entity outside India, NRIs resident in Bhutan and Nepal, citizens of Nepal and Bhutan, a company, trust and partnership firm incorporated outside India and owned and controlled by NRIs, Overseas Corporate Bodies (OCBs incorporated outside India and not under adverse notice of RBI). However, citizen/entity of Bangladesh can invest only under Government route and a citizen/entity of Pakistan can invest, only under the Government route, in sectors/activities other than defence, space and atomic energy.

(i) Foreign Institutional Investor (FII) and Foreign Portfolio Investors (FPI) (registered under FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations, invest in the capital of an Indian company under the Portfolio Investment Scheme which limits the individual holding of an FII/FPI below 10% of the capital and the aggregate limit for FII/FPI investment to 24% of the capital. This aggregate limit of 24% can be increased to the sectoral cap/statutory ceiling, as applicable, by the Indian company concerned through a resolution by its Board of Directors followed by a special resolution to that effect by its General Body and subject to prior intimation to RBI.

Investee

Indian companies, Partnership Firm/Proprietary Concern (not engaged in agriculture, plantation, real estate), Trusts, LLPs (where 100% FDI is allowed through automatic route, without any conditions), investment vehicle.

Types of instruments

Indian companies can issue following type of securities: equity shares, fully and mandatorily convertible debentures/preference shares, optionally convertible, partially convertible, non-convertible shares.

Optionally clauses enable the investor to exit without any assured return by obliging buyback of securities from investor at a prevailing price determined at the time of exercising optionality. They are allowed in equity and compulsorily and mandatorily convertible preference shares/debentures. There are a few conditions for the application of such clauses:

• Minimum lock in period of one year or as prescribed under FDI Regulations (higher one)
• After the lock in period, the non-resident investor shall be eligible to exit.

Sectoral caps and compliances

Footnotes:

[1] Nidhi company, is one that belongs to the non-banking Indian Finance sector and is recognized under section 406 of the Companies Act, 2013. Their core business is borrowing and lending money only between their members.

[2] except development of townships, construction of residen­tial/commercial premises, roads or bridges

[3] excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc. under controlled conditions and services related to agro and allied sectors

[4]“developed plots” will mean plots where trunk infrastructure i.e. roads, water supply, street lighting, drainage and sewerage, have been made available.

In this blog post, Kaushik Neogi,  a student pursuing his LL.B (4th year) from Delhi Metropolitan Education, affiliated to Guru Gobind Singh Indraprastha University and aDiploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses the Income Declaration Scheme, 2016 which will give people an opportunity to declare any previously undisclosed income subject to certain taxes, penalties and surcharge.

Introduction

The issue of black money has been a much debated issue in India. After several attempts made by the government over various years to get black money of Indian nationals stashed in offshore accounts, the present government came up with a national policy to get hold of undeclared black money in India.

The Finance Bill, which the Ministry of Finance releases every year with the union budget to keep the economic policies of the country updated and in line with the best interest of the growing Indian economy, saw a few major schemes this year. One such scheme is the Income Declaration Scheme, 2016. Under this scheme, people will now have the opportunity to declare any previously undisclosed income subject to certain taxes, penalties and surcharge.
The Finance Bill for 2016 was proposed on the 29^th of February 2016 &, the Bill received the assent of the President of India on the 14^th of May 2016 and became the Finance Act, 2016 No. 28 OF 2016.

The provisions of the Act relating to the Income Declaration Scheme

Who can declare:

Section 183 of the Act provides for declaration of undisclosed income. According to 183(1)-

• Subject to the provisions of the income declaration scheme, 2016, any person may make, on or after the date of commencement of the Scheme which is the 1^st of June 2016 but before the 30^th of September 2016, a declaration in respect of any income chargeable to tax under the Income Tax Act for any assessment year prior to the assessment year beginning on the 1st day of April, 2017—
• for which he has failed to furnish a return under section 139 of the Income-tax Act;
• which he has failed to disclose in a return of income furnished by him under the Income-tax Act before the date of commencement of this Scheme;
• which has escaped assessment by reason of the omission or failure on the part of such person to furnish a return under the Income-tax Act or to disclose fully and truly all material facts necessary for the assessment or otherwise.

As per Section 183(2) where the income chargeable to tax is declared in the form of investment in any asset, the fair market value of such asset as on the date of commencement of this Scheme shall be deemed to be the undisclosed income for the purposes of sub-section (1).

Section 183(3) provides the fair market value of any asset shall be determined in such manner, as may be prescribed which is provided under Rule 3[1] of the Income Declaration Scheme Rules, 2016.

Section 183(4) provides that no deduction in respect of any expenditure or allowance shall be allowed against the income in respect of which declaration under this section is made.

How much tax to be paid:

Section 184 provides for the provisions of tax and surcharge. As per Section 184(1)

• Not contrary to the provisions of the Income Tax Act or in any Finance Act, the undisclosed income declared under section 183 shall be chargeable to tax at the rate of 30% of such undisclosed income.

And as per Section 183(2), the amount of tax chargeable under sub-section (1) shall be increased by a surcharge, for the purposes of the Union, to be called the Krishi Kalyan Cess on tax calculated at the rate of 25% of such tax so as to fulfil the commitment of the Government for the welfare of the farmers.

Section 185 of the Act provides for the provision of penalty. Under this Section-

Not contrary to the provisions of the Income Tax Act or in any Finance Act, the person making a declaration of undisclosed income shall, in addition to tax and surcharge under Section 184, be liable to penalty at the rate of 25 % of such tax.

Declaration how to be made:

Section 186 provides for the manner of declaration. As per Section 186(1)

• A declaration under Section 183 shall be made to the Principal Commissioner or the Commissioner and shall be in such form and be verified in such manner, as may be prescribed. The Form released for the purpose of declaration is Form 1.[2] For a better understanding of the procedures related to Form 1, please view the Form manual-[3]

As per Section 183(2) the declaration shall be signed—

Section 186(3) provides that any person, who has made a declaration under sub-section (1) of Section 183 in respect of his income or as a representative assessee in respect of the income of any other person, shall not be entitled to make any other declaration, and any such other declaration, if made, shall be void.

Time period for payment:

Section 187 provides for time for payment of tax. As per Section 187(1)-

• The tax and surcharge payable under Section 184 and penalty payable under Section 185 in respect of the undisclosed income, shall be paid on or before a date to be notified by the Central Government in the Official Gazette. Which as notified are –
• the 30th of November, 2016, for an amount not less than 25% of such tax, surcharge and penalty
• the 31st of March, 2017, for an amount not less than 50% of such tax, surcharge and penalty as reduced by the amount paid by 30^th of November, 2016.
• the 30th of September, 2017, for the 100% amount payable under section 184 and 185 as reduced by the amounts paid by 30^th of November 2016 and 31^st of March 2017.

As per Section 187(2) the declarant shall file the proof of payment of tax, surcharge and penalty with the Principal Commissioner or the Commissioner, as the case may be, before whom the declaration under Section 183 was made. This proof of payment shall be in Form 3, which is to be submitted after an acknowledgement is received as Form 2 by the declarant.

As per Section 187(3), if the declarant fails to pay the tax, surcharge and penalty in respect of the declaration made under section 183 on or before the date specified, the declaration filed by him shall be deemed never to have been made under this Scheme.

Declared income not to be total income:

Section 188 provides that the amount of undisclosed income declared in accordance with Section 183 shall not be included in the total income of the declarant for any assessment year under the Income-tax Act, if the declarant makes the payment of tax and surcharge by the dates specified.

Declaration does not affect previous proceedings:

Section 189 provides undisclosed income shall not affect finality of completed assessments. Under this Section-

• A declarant under this Scheme shall not be entitled, in respect of undisclosed income declared or any amount of tax and surcharge paid thereon,
• to re-open any assessment or reassessment made under the Income Tax Act or the Wealth Tax Act, 1957, or
• claim any set off or relief in any appeal, reference or other proceeding in relation to any such assessment or reassessment.

Provisions for declaration relating to benami transactions:

According to Section 190-

• The provisions of the Benami Transactions (Prohibition) Act, 1988 shall not apply in respect of the declaration of undisclosed income made in the form of investment in any asset
• if the asset existing in the name of a benamidar is transferred to the declarant
• being the person who provides the consideration for such asset, or his legal representative, within the period notified by the Central Government.

For the purpose of this section the period notified is the 30^th of September 2017.

Tax paid to be non-refundable:

Section 191 of the Act provides that any amount of tax and surcharge paid or penalty paid in pursuance of a declaration made shall not be refundable.

Declaration not be treated as evidence:

Section 192 provides that not contrary to anything contained in any other law for the time being in force-

• nothing contained in any declaration shall be admissible in evidence against the declarant for the purpose of any proceeding relating to imposition of penalty, other than the penalty under section 185, or for the purposes of prosecution under the Income Tax Act or the Wealth Tax Act, 1957.

Which declarations are void:

Section 193 provides that not contrary to anything contained in this Scheme-

• where a declaration has been made by misrepresentation or suppression of facts
• such declaration shall be void and shall be deemed never to have been made under this Scheme.

Certain exemptions under the scheme:

Section 194 provides for exemption from wealth Tax in respect of assets specified in declaration. As per Section 194(1)

• Where the undisclosed income is represented by cash (including bank deposits), bullion, investment in shares or any other assets specified in the declaration made—
  • in respect of which the declarant has failed to furnish a return under Section 14 of the Wealth Tax Act, 1957, for the assessment year commencing on or before the 1st day of April, 2015; or
  • which have not been shown in the return of net wealth furnished by him for the said assessment year or years; or
  • which have been understated in value in the return of net wealth furnished by him for the said assessment year or years,

• then, notwithstanding anything contained in the Wealth Tax Act, 1957, or any rules made thereunder—
• wealth-tax shall not be payable by the declarant in respect of the assets referred to in clause (a) or clause (b) and such assets shall not be included in his net wealth for the said assessment year or years;
• the amount by which the value of the assets referred to in clause (c) has been understated in the return of net wealth for the said assessment year or years, to the extent such amount does not exceed the voluntarily disclosed income utilised for acquiring such assets, shall not be taken into account in computing the net wealth of the declarant for the said assessment year or years.
• Where a declaration is made by a firm, the assets referred to in the point above or, as the case may be, the amount referred to in the point above shall not be taken into account in computing the net wealth of any partner of the firm or, as the case may be, in determining the value of the interest of any partner in the firm.

As per Section 194(2) the provisions of sub-section (1) shall not apply unless the declarant pays the tax and surcharge before the prescribed time and file the proof of payment.

Applicability of certain laws:

Section 195 provides that-

• the provisions of Chapter XV of the Income Tax Act relating to liability in special cases and of Section 119, Section 138 and Section 189 of that Act or
• the provisions of Chapter V of the Wealth Tax Act, 1957 relating to liability in respect of assessment in special cases shall,
• so far as may be, apply in relation to proceedings under this Scheme as they apply in relation to proceedings under the Income-tax Act or, as the case may be, the Wealth Tax Act, 1957.

Persons restricted to apply:

Section 196 provides that the provisions of this Scheme shall not apply—

• to any person in respect of whom an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974:

Provided that—

• such order of detention, being an order to which the provisions of Section 9 or Section 12A of the said Act do not apply, has not been revoked on the report of the Advisory Board under Section 8 of the said Act or before the receipt of the report of the Advisory Board; or
• such order of detention, being an order to which the provisions of section 9 of the said Act apply, has not been revoked before the expiry of the time for, or on the basis of, the review under sub-section (3) of Section 9, or on the report of the Advisory Board under Section 8, read with sub-section (2) of section 9 of the said Act; or
• such order of detention, being an order to which the provisions of Section 12A of the said Act apply, has not been revoked before the expiry of the time for, or on the basis of, the first review under sub-section (3) of that section, or on the basis of the report of the Advisory Board under Section 8, read with sub-section (6) of Section 12A, of the said Act; or
• such order of detention has not been set aside by a court of competent jurisdiction;

• in relation to prosecution for any offence punishable under Chapter IX or Chapter XVII of the Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Unlawful Activities (Prevention) Act, 1967 and the Prevention of Corruption Act, 1988;
• to any person notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992;
• in relation to any undisclosed foreign income and asset which is chargeable to tax under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015;
• in relation to any undisclosed income chargeable to tax under the Income-tax Act for any previous year relevant to an assessment year prior to the assessment year beginning on the 1st day of April, 2017—
• where a notice under Section 142 or sub-section (2) of Section 143 or Section 148 or Section 153A or Section 153C of the Income Tax Act has been issued in respect of such assessment year and the proceeding is pending before the Assessing Officer; or
• where a search has been conducted under Section 132 or requisition has been made under Section 132A or a survey has been carried out under Section 133A of the Income Tax Act in a previous year and a notice under sub-section (2) of Section 143 for the assessment year relevant to such previous year or a notice under Section 153A or under Section 153C of the said Act for an assessment year relevant to any previous year prior to such previous year has not been issued and the time for issuance of such notice has not expired; or
• where any information has been received by the competent authority under an agreement entered into by the Central Government under section 90 or section 90A of the Income-tax Act in respect of such undisclosed asset.

Clarification of doubts:

Section 197 provides for the provisions for the removal of doubts.

As per Section 197(a)-

• keeping in mind the provision 183(1), nothing contained in this Scheme shall be construed as conferring any benefit, concession or immunity on any person other than the person making the declaration under this Scheme;

As per Section 197(b)-

• where any declaration has been made under Section 183 but no tax, surcharge and penalty has been paid within the time specified under Section 187,
• the undisclosed income shall be chargeable to tax under the Income Tax Act in the previous year in which such declaration is made;

As per Section 197(c)-

• where any income has accrued, arisen or received or any asset has been acquired out of such income prior to commencement of this Scheme, and no declaration in respect of such income is made under this Scheme—
• such income shall be deemed to have accrued, arisen or received, as the case may be; or
• the value of the asset acquired out of such income shall be deemed to have been acquired or made,
• in the year in which a notice under section 142, sub-section (2) of section 143 or section 148 or section 153A or section 153C of the Income-tax Act is issued by the Assessing Officer, and the provisions of the Income-tax Act shall apply accordingly.

Conclusion

The Income Declaration Scheme, 2016, is a very healthy scheme initiated by the government. The scheme gives a very pleasant opportunity to tax defaulters and evaders to declare previously undisclosed income. The government with this scheme makes an effort to get hold of previous tax dues keeping up to the progress with the GST policy which is aiming to bring down tax evaders in the future.

Footnotes:

[1]http://www.incometaxindia.gov.in/_layouts/15/dit/Pages/viewer.aspx?path=http://www.incometaxindia.gov.in/Documents/IDS-2016/IDSR2016_R1_R4.htm?int=1&grp=&searchFilter=&k=&IsDlg=0

[2]http://www.incometaxindia.gov.in/forms/income%20declaration%20scheme%20rules,%202016/form_66807_1.pdf

[3]http://www.incometaxindia.gov.in/Documents/IDS-2016/Form-1-User-Manual.pdf

In this blog post, Harsh Moorjani, a student pursuing his final year LLB at Government Law College, Mumbai and a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses the importance of corporate communication with respect to media and advertising relations. 

In this blog post, Akriti Sarkar, an Associate with Khaitan & Co., Mumbai, and a student pursuing a Diploma in Entrepreneurship Administration and Business Laws by NUJS, provides an overview on licensing rules under the Karnataka Factories Rules, 1969.

In this blog post, Arushi Chandak, a student pursuing her 2^nd Year Student, BA.LLB. (Hons.) from Symbiosis Law School, Pune, and a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, explains the process of declaration of dividend. 

Dividend relates to the return on the investment made in the shares; either equity or preference which is paid out of the profits of the company. Section 2(35) of the Companies Act, 2013 defines that dividend includes any interim dividend and is, therefore, an inclusive definition. According to the commonly accepted definition, dividend implies the profit of a company that is not retained in the business but is in fact distributed among the shareholders in proportion to the amount paid-up on the shares held by them. Being the owners of the company, the shareholders are entitled to get their share of profit in the form of a dividend.

The regulating legislature, the Companies Act, 2013 provides the regulations for the declaration and distribution of dividend in Section 205. As per the provisions, all companies that have a share capital, except those mentioned in Section 25 and make a profit, are mandated by law to declare and distribute dividends.

A dividend, including interim dividend, may be paid out of either current profits or profits accumulated over the previous years. Although, the depreciation for the entire year has to be provided before a dividend is declared or paid. For this, the Board needs first to approve the provisional financial results (unaudited) and a working of the profits available for distribution as a dividend that is available post providing for depreciation for the full year and amount required to be transferred to reserves as per the Companies Act.[1]

Moreover, a separate bank account needs to be opened, into which the amount of dividend will need to be transferred. The dividend so declared will have to be remitted within 30 days of the said declaration and the other procedures mandated need also to be complied with.

Steps Involved for the Declaration of Dividend

A step-by-step procedure is mentioned below for the declaration of dividend:

1. Computation of depreciation

By the rate specified in Schedule XIV or any other basis approved by the Central Government, the depreciation shall first be computation.

2. Mandatory transfer of profits to reserves

Before declaring the dividend, some part of the profit has to be obligatorily transferred to the reserves of the Company. The amount to be transferred is based on the proposed rate of dividend.[2]But, the voluntary transfer of a higher percentage of profits to the reserves is permitted subject to the conditions stipulated in the Act.

3. Board Resolution

The Board Resolution is one of most, if not the most, vital steps in the process for the declaration of dividends. Until and unless the Board endorses the payment of dividends, it cannot be declared at an Annual General Meeting.

4. Annual General Meeting (AGM)

The agenda notice for an AGM must compulsorily mention the declaration of dividends and is required to be sent to both members as well as creditors. An ordinary resolution is required for the declaration of dividend. But it is notable to mention that the shareholders are not permitted to increase the amount of dividend recommended by the Board.

5. Time limit for payment of dividend

A separate dividend account is required to be opened with the Company’s bankers. The dividend amount payable should then be transferred to the new account and within 30 days of the AGM, the dividend warrants should be sent out to the shareholders.

6. Transfer to unpaid dividend account

Within 7 days from the date of expiry of 30 days of the date of dividend declaration, the amount remaining unclaimed or unpaid needs to be transferred to the ‘unpaid dividend account’ that is to be opened in a scheduled Bank. The dividend which remains unpaid or unclaimed for 7 years is supposed to be transferred to the Investor Education and Protection Fund within a period of 30 days of its becoming due for the transfer.[3]

7. Circumstances under which dividend need not be paid

1. Where it cannot be paid because of operation of any law
2. Where a shareholder has given direction to the company regarding payment of dividend and those directions could not be complied with
3. Where there is a dispute regarding the right to receive the dividend
4. Where the company has lawfully adjusted the dividend against any sum due from the shareholders
5. Where the dividend could not be paid not due to any default on the part of the company.

8. Tax limit

In conjunction with the income-tax chargeable in respect of the total income of a company for any assessment year, any amount declared, distributed or paid by such company by way of dividends, interim or otherwise and also whether paid out of the current or accumulated profits is charged with an additional tax at the rate of 15%.

The liability regarding the payment of tax is the Principal Officer of the Company. This tax is to be paid within 14 days of declaration, distribution or payment of any dividend, whichever is the earliest.

9. Special provisions relating to Listed Company

Supplementing to the steps step above, listed companies also have to give prior intimation regarding the venue of the Board Meeting to the stock exchange where the securities are listed. Within 15 minutes of the closure of the Board Meeting, an intimation is also to be sent to the stock exchange enclosing the particulars of the dividend. These details are also to be given to the Stock Exchange.

The various steps above are usually involved in the declaration of dividend by a Company incorporated under the Companies Act, 2013. However, the Memorandum and Articles of Association of the Company may bring a deviation to the said steps.

Footnotes:

[1] Transfer of Profits to Reserves Rules, 1975

[2]The Companies (Transfer of Profits to Reserves) Rules, 1975

These Rules set out different thresholds for the percentage of profits to be transferred to reserves depending upon the extent of the dividend proposed to be paid. Under the said Rules, if the proposed dividend exceeds 20% of the paid-up capital, the amount to be transferred to reserves should be at least 10% of the current profits.

[3]Investor Education and Protection Fund (Awareness and Protection of Investors) Rules, 2001 and Section 205 C of the Companies Act, 2013