NRI’s Rupees 3 crores gift to his mother is genuine, not taxable and cannot be treated as unexplained cash credit under Section 68 of the I-T Act – Held ITA Tribunal

 

NRI’s Rupees 3 crores gift to his mother is

 genuine, not taxable and cannot be treated as

 unexplained cash credit under Section 68 of the

 I-T Act – Held ITA Tribunal

NOT A CIRCULAR TRADING TRANSACTION

The Mumbai ITAT ruled in favor of a taxpayer who received a ₹3 crore gift from her NRI son. The I-T department questioned the gift's legitimacy, alleging a circular trading transaction, but the tribunal upheld the gift's validity due to  the son's proven financial capacity and dismissed the circular trading claim by ITO.

The gift is from a NRI son, who is a prominent hedge fund operator based in Hong Kong.

The IT officer sought to tax this sum in the hands of the mother.

GIFTS EXCEEDING RS 50,000 ARE TAXABLE

Under the I-T Act, gifts exceeding Rs 50,000—barring for events such as marriage are generally taxed in the hands of the recipient at the applicable slab rates under the head ‘Income from Other Sources'.

GIFTS MADE TO CLOSE RELATIVES ARE NOT TAXABLE IN THE HANDS OF THE RECIPIENT

However , gifts made to close relatives are not taxable in the hands of the recipient.

UNEXPLAINED CASH CREDIT UNDER SECTION 68 OF THE I-T ACT

I-T officer treated the Rs 3 crore received by the mother as unexplained cash credit under Section 68 of the I-T Act and sought to tax it in her hands. Tax laws prescribe for a higher rate of 60% (plus cess and surcharge) on sums classified as  unexplained cash credit.

This action by the I-T officer was dismissed by the commissioner (appeals), but the I-T department went ahead and filed an appeal with the ITAT.

A COLOURABLE DEVICE

As per IT department a subsequent grant of an unsecured loan given by the mother to an Indian company was a colourable device to invest in the Indian security market—it was a circular trading transaction .

GIFT RECEIVED AND RETURNED BACK

The gift amount was received in 2010-11 and in 2012-13, this sum was returned to her son.

ITAT viewed that "The actions of the recipient (mother) of investing the gift amount in an Indian company and subsequently returning the funds to her son are unrelated to the issue of addition under Section 68."

 EARLIER RULINGS ON GIFTS RECEIVED

·      This ruling follows a similar August 2024 decision, where the Mumbai ITAT held that a Rs 20 lakh gift from a UAE-based NRI to his sibling in India was not taxable.

·      GIFT RECEIVED FROM NRI BROTHER CAN BE EXCLUDED FROM TAXATION AND NOT TAXABLE : INCOME TAX APPELLATE TRIBUNAL

https://rvseckarfema.blogspot.com/2024/08/gift-received-from-nri-brother-can-be.html

KEY HIGHLIGHTS ON UPDATE IN RBI MASTER DIRECTIONS FOR OVERSEAS INVESTMENS (OI) BY INDIVIDUALS UNDER FEMA

 

KEY HIGHLIGHTS ON UPDATE IN RBI

 MASTER DIRECTIONS FOR OVERSEAS

 INVESTMENS (OI) BY INDIVIDUALS

 UNDER FEMA

https://www.linkedin.com/pulse/key-highlights-update-rbi-master-directions-overseas-oi-r-v-seckar-jvf1c/

Courtesy : Greenlife

R V Seckar , FCS , 79047 19295  

rvsekar2007@gmail.com

FEMA :- NRE and NRO Account Guide

 FEMA :- NRE and NRO Account Guide

   https://www.linkedin.com/pulse/fema-nre-nro-account-guide-r-v-seckar-ggcoc/

1) NRE Account is rupee denominated account, funds deposited in it must originate from foreign sources.

2) NRP Account is rupee denominated account, funds can be deposited from foreign sources and India.

3) NRO accounts are restrictive in nature

.4) Many NRI open NRO account even if they have NRE account, they do no use it often and they do in piecemeal.

5) To transfer the money from an NRO to an NRE account or to a foreign account, NRI need documentary proof of the source of funds being used for repatriation. They need to fill in form 15CA.

6) Some transactions require form 15CB and CA certificate. In many cases, only form 15CA is needed. If 15CA Part A, B or D is provided, it does not require Form 15CB or CA certificate.Form 15CB is required only in the case of Form 15CA part C

.Source: Hindustan Times

SEBI STUDY UNCOVERS ALARMING TRENDS IN ROYALTY PAYMENTS BY LISTED COMPANIES- EVEN LOSS MAKING COMPANIES ARE ALLOWED TO PAY ROYALTIES

 SEBI STUDY UNCOVERS ALARMING TRENDS IN ROYALTY PAYMENTS BY LISTED COMPANIES- EVEN LOSS MAKING COMPANIES ARE ALLOWED TO PAY ROYALTIES

ROYALTY AND FOREIGN TECHNICAL COLLABORATION PAYMENT

Royalty and Foreign Technical collaboration payment are governed by the RBI circular AP ( DIR Series) Circular No 5 dated 21 July 2003.

LIBERALIZED  THE FOREIGN TECHNOLOGY COLLABORATION AGREEMENT POLICY

Under  liberalized  the foreign technology collaboration agreement policy through Press Note No 2 (2003 Series) dated 24 -06-2003 , irrespective of who have entered into foreign technology collaboration agreements were  permitted on the automatic approval route to make royalty payments at 8% on exports and 5% on domestic sales without any restriction on the duration of royalty payments.

AUTOMATIC ROUTE:

The Government of India has reviewed the extant policy vide the press note no 8 (2009  series ) dated 16th December 2009 and it has been decided to permit, with immediate effect, payments for royalty, lumpsum fee for transfer of technology and payments for use of trademark/brand name on the automatic route without any limit as stated in the following table  i.e. without any approval of the Government of India. All such payments will be subject to Foreign Exchange Management (Current Account Transactions) Rules, 2000 as amended from time to time.

With effect from16-12.2009,  after issue of Press Note 8 (2009 series)

For more details , please visit the following link:

https://rvseckarfema.blogspot.com/2011/02/foreign-technology-colloborations.html

ROYALTY PAYMENTS EVEN BY LOSS MAKING COMPANIES

In one out of four times, listed entities paid royalties exceeding 20% of their net profits to related parties.

And 185 instances of royalty payments were by companies that made losses.

SEBI Study found that some listed companies dolled out more than 20 per cent of their net profits as royalty to related parties.

SEBI study analysed 233 listed companies over a period of ten years, starting from financial year 2014 (FY14).

LESS THAN 5% AND MORE THAN 5%

SEBI study found 1,538 instances of royalty payments (RPs) below the approval requirement threshold, which is set at 5 per cent of the turnover.

Royalty payments of more than 5 per cent of the turnover must be ratified by majority of minority shareholders.

The cumulative 185 royalty payments by 63 loss-making companies amounted to Rs 1,355 crore.

SKIPPING OF DIVIDEND PAYMENT

Further, one out of two times, listed companies that paid royalty, did not pay dividend or paid more royalty to RPs than dividend paid to non-RP shareholders, the study revealed.

POOR DISCLOSURE LEVELS, UNFAIR PAYOUTS

SEBI’s study throws a light on poor disclosure levels, unfair payouts and unjustified payments for brand usage and technology know-how by these companies.

“In case of MNCs, shareholders of the Indian subsidiary have little information on the rates of royalty being charged from fellow subsidiaries in other geographies,” SEBI study said.

NO ADEQUATE DISCLOSURES IN ANNUAL REPORT

The SEBI study stated, "It has been observed that many of the companies are disclosing the royalty payment just as an item under the statement of transactions with RPs in the Annual Report, with no details being provided with respect to the rationale and rate of such royalty paid."

NON-DISCLOSURE OF PERIOD OF ROYALTY PAYMENTS

The SEBI study stated that the companies seeking approval of shareholders with respect to royalty payments, are not disclosing period or tenure of approval of such transactions. This is suggestive of the company seeking a perpetual approval for transactions."

ROYALTY PAYMENTS IN EXCESS OF 20% OF NET PROFITS

When analyzing consistent royalty payers, of which there were 79 companies, the study found that eleven out of them consistently paid royalty exceeding 20% of net profits during all the 10 years.

MY VIEWS:

·      Government should ban the loss making companies to pay royalties as it will diminish the forex reserves of the nation. Only profit making companies should be allowed to pay royalties.

·      In Directors Report , there should be a report on royalty paid , rate of royalty paid , turnover on which royalty paid so that shareholders will come to know the details about the royalties paid.

·      Audit committee should thoroughly scrutinize the amount of royalty paid, the justification for the payment .

Courtesy : SEBI STUDY REPORT

R V SECKAR, FCS 4075, 7904719295

#GIFT RECEIVED FROM NRI BROTHER CAN BE EXCLUDED FROM TAXATION AND NOT TAXABLE : INCOME TAX APPELLATE TRIBUNAL

 #GIFT RECEIVED FROM NRI BROTHER CAN BE EXCLUDED FROM TAXATION AND NOT TAXABLE : INCOME TAX APPELLATE TRIBUNAL

#DISH TV PENALISED BY BSE, NSE FOR LACKING BOARD STRENGTH

 

#DISH TV PENALISED BY BSE, NSE FOR LACKING BOARD STRENGTH

#NFRA LEVIED A HEFTY RS 10-CR PENALTY ON BSR & ASSOCIATES AUDIT FIRM IN COFFEE DAY CASE AND DEBARS TWO OF ITS AUDITORS.

 

#NFRA LEVIED A HEFTY RS 10-CR PENALTY ON BSR & ASSOCIATES AUDIT FIRM IN COFFEE DAY CASE AND  DEBARS TWO OF ITS AUDITORS.

#GOVT SIMPLIFIES FDI RULES TO HELP INDIAN COMPANIES EXPAND VIA MERGERS, ACQUISITIONS THROUGH SHARE SWAPS

 

#GOVT SIMPLIFIES FDI RULES TO HELP

 INDIAN COMPANIES EXPAND VIA 

MERGERS,ACQUISITIONS THROUGH 

SHARE SWAPS

The Finance Ministry on Friday issued a notification amending the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, to simplify FDI rules for enabling easier cross-border share swaps between Indian and foreign companies.

In an important amendment to the FEMA (Non Debt Instruments) Rules, 2019, which deal with foreign investment in Indian entities, it is now permitted to issue shares by an Indian company against swap of equity capital of an overseas company.

Earlier:

1. An Indian company could issue its own equity shares to a non-resident/ foreign entity against acquisition of shares of an “Indian company”; or

2. An Indian company could sell its equity capital in an overseas entity to an overseas company against shares being issued by such overseas acquirer to the Indian company.

ODI-FDI Share Swap not permitted earlier:

However, in a non-cash transaction involving share swap, issuance of shares by an Indian company to a non-resident/ foreign entity against acquisition of shares of an overseas company owned by such foreign seller was not permitted.

Effective Share Swap:

While an effective swap could be effectuated through acquisition of an overseas company from a foreign entity by the Indian company for cash consideration, and thereafter issuance of shares by the Indian company to the overseas seller against cash consideration, complications in terms of conceptualising the construct of binding documents and foreign exchange loss arose.

With this amendment, a direct swap is now permissible, and logically so, the said complications could now be addressed.

It sounds like RBI wants to facilitate acquisition offshore but not the capital flow? Effectively a company in India wanting to set up a WoS could identify a target & share swap to own it - with little or no cash considerations?

https://pib.gov.in/PressReleasePage.aspx?PRID=2046086