SPN Missive March 2014

MISSIVE
Volume XXXIV
March 2014

Topics Page
No
Direct Tax 1
Transfer Pricing 5
Service Tax 7
Central Excise 8
Value Added Tax 8
Customs 9
FEMA 10
Company Law 12
Transactions that made
headlines
14
Never hold your head high with
pride or ego, even the winner of a gold
medal gets his medal only when he
puts his head down!!!
Index
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1
DIRECT TAX
CBDT Circular No. 5/2014 dated 11
February 2014
Disallowance under section 14A read with
Rule 8D
The current circular clarifies that the legislative
intent is to allow only that expenditure which is
relatable to earning of exempt income and it,
therefore, follows that the expenses which are
relatable to the earning of exempt income
have to be considered for disallowance,
irrespective of whether any such income has
been earned during the tax year or not.
The circular further explains that the heading
of the Section, which reads as “Expenditure
incurred in relation to income not includible in
Total income”, as also the language of Rule 8D
which refers to, “income from which does not
or shall not form part of total income”, support
that it is immaterial that the taxpayer should
have earned the exempt income during the
tax year under consideration for attracting
disallowance under the Section.
Key Highlights of Interim Budget of 2014-
15
No change in tax rates
The existing income tax rates for the tax year
2013-14 will continue for tax year 2014-15 as
well.
Tax holiday for the power sector comes to
an end
The Income Tax Act was amended by Finance
Act 2013 to extend the tax holiday for
undertakings engaged in power generation,
transmission or distribution if it begins to
generate power or starts transmission or
distribution before 31 March 2014 or
undertakes substantial renovation and
modernization of existing network of
transmission or distribution line before 31 March
2014. This being an Interim Budget, no further
extension has been proposed.
Concessional tax rate u/s 115BBD may
come to an end
Concessional tax rate of 15% on dividend
received from foreign company shall not be
available after 31 March 2014, i.e. dividends
earned from 1 April 2014 onwards would be
subject to regular tax rates.
New approach on tax benefits for funding
scientific research
A Research Funding Organization (RFO) is
planned to be set up that would fund research
projects selected through a competitive
process. Contributions to RFO shall be eligible
for tax benefits. At this stage, this is only a
proposal and for implementing this, changes
to the ITA need to be made.
Oswal Agro Mills Ltd. vs. Commissioner of
Income-tax (ITA No. 41/2000) (Delhi High
Court)
Section 43B doesn't apply to contractual
liability to pay customs duty to the
importer of goods
Facts

2
Oswal Agro Mills Ltd. (hereinafter referred to as
the “assessee”) engaged in manufacturing
and trading of products like de-oiled meals,
industrial hard oils, edible oils etc. claimed an
expenditure u/s 43B of Income Tax Act, 1961 of
Rs 1,60,33,064 and Rs 1,64,87,375 w.r.t AY 1986-
87 and 1987-88 respectively on account of
additional custom duty ( payable by the
assessee as per the terms of agreement with
the supplier “importers”) which is disputable
and pending before the Supreme Court via
writ petition filed by the importers. Assessing
Officer and Tribunal disallowed the claim
made by the assessee. Assessee is in appeal
before the High Court.
Held
High Court held against the assessee and
disallowed the expenditure so claimed based
on the following findings:
1. The liability in question is “contingent
liability” as defined under AS-29 and
the same would be payable by the
assessee (as per the terms of
agreement with the importers) only
when the importers shall be called
upon to pay the additional custom
duty. Since, the Writ petition with
respect to the same is pending before
the Supreme Court, hence, the liability
is contingent upon the happening of
an uncertain future event i.e. outcome
of the Writ petition so filed.
2. Held that a liability actually existing in
the relevant accounting year could be
deductible as expenditure for the
purposes of Income Tax, however,
contingent liabilities did not constitute
expenditure and could not be the
subject matter of deduction even
under the mercantile system of
accounting.
3. It was further explained that
expenditure is what is paid out and is
something which is gone irretrievably.
As per the facts of the case, the bank
guarantee provided by the assessee
cannot be said to be expenditure as
the same has not been encashed nor
appropriated by the customs
authorities. Also, since the ownership of
the bank guarantees remained with
the assessee, therefore, the amount
covered by the bank guarantees
would not qualify for deduction from
the total income as per the provisions
of section 43B.
Director of Income-tax vs. E Funds IT
Solution (ITA Nos. 735/2011 and others)
(Delhi High Court)
Indian subsidiary providing back office
services to foreign enterprise shall not be
deemed as its PE merely because it is
being indirectly controlled by it
Facts
E Funds Corporation and E Funds IT Solutions
Inc (assessee) are companies incorporated
and residents of US engaged in the business of
electronic payments, ATM management etc. E
Fund India (Indian Affiliate) is an Indian
company and an indirect wholly owned
subsidiary of E Funds Corporation. The Indian
affiliate supported the assessee as their back
office and also carried out data entry
operations with respect to the above
businesses of the assessee. The Tax authority
contended that the assessee had taxable
presence in India by way of business
connection as well as a PE as defined under
Article 5 of India-USA DTAA. Tribunal upheld the
Authority’s contention that a PE exists but

3
disputed the method of attribution so
adopted. Both appealed to the High Court
against Tribunal’s order.
Held
High Court held that no PE of the taxpayer
exists in India based on the following findings:
1. Business connection did exist in India as
the Indian affiliate was providing
information to the taxpayers for the
purpose of entering into contracts with
third parties. Also, the said contracts
were being performed partly or fully by
the subsidiary as an assignee or sub-
contractor. However, the taxpayers
could avail the more beneficial
provisions under the DTAA.
2. As per Article 5(6) of the DTAA, the
existence of a subsidiary does not, by
itself, constitute the subsidiary a PE of its
parent, unless the contrary is proved.
3. The competent authorities of the two
countries had agreed, under the
Mutual Assistance procedure (MAP)
provided in the DTAA, to taxation of
income of the taxpayers in India based
on a formula. This did not imply that the
taxpayer have conceded to a PE
presence in India. Whether or not a PE
exists is a matter of law and has to be
determined based on merits of the
case.
4. The taxpayers did not have any assets
or a licensed office as their presence in
India. There was no evidence that the
taxpayers had “right to use” or
“disposal right” over the premises of the
Indian affiliate. Hence, it would not
constitute fixed place PE in India.
Reliance was also placed on the SC
decision in case of Morgan Stanley and
Co.
5. None of the employees of the
taxpayers have visited India even for a
short period. Even the two employees
of the taxpayers who were transferred
to the Indian affiliate were working for
the Indian affiliate and their entire
expenditure was also to be borne by
Indian affiliate. Hence, they were not
rendering any services in India on
behalf of the foreign taxpayers.
Therefore, subsidiary cannot be
contended to constitute a service PE as
well.
6. Indian affiliate does not constitute
agency PE of the taxpayer as it was not
authorized to conclude contracts on
behalf of the taxpayer and did not
maintain any stock or merchandize or
secure orders on behalf of the
taxpayer.
M/S. KOSTUB INVESTMENT LTD. vs CIT (ITA
No. 10/2014) (Delhi High Court)
Amount spent on the higher education of
son of a Director is deductible as “business
expenditure” u/s 37 of Income Tax Act
1961
Facts
The appellant company claimed an expense
of INR 23,16,942 from the computation of total
income as the same was incurred for the
higher education of an employee who
happens to be the son of the Director. AO
disallowed the expenditure so claimed and CIT
(A) upheld the same. The Assesse is in appeal
before the High Court.
Held

4
High Court is of the opinion that the
expenditure claimed by the assessee to fund
the higher education of its employee to the
tune of `2316,942/- had an intimate and direct
connection with its business, i.e. dealing in
security and investments. The assessee
furnished its resolution authorizing disbursement
of the expenses to fund Dushyant Poddar’s
MBA. It secured a bond from him, by which he
undertook to work for five years after return
within a salary band and he had in fact
worked after graduating from the University for
about a year before starting his MBA course.
Whilst there may be some grain of truth that
there might be a tendency in business
concerns to claim deductions under Section
37, and foist personal expenditure, such a
tendency itself cannot result in an unspoken
bias against claims for funding higher
education abroad of the employees of the
concern. We do not see any such intent in the
statute which prescribes that only expenditure
strictly for business can be considered for
deduction. Necessarily, the decision to deduct
is to be case-dependent.
BBC World News Limited vs. ADIT (Delhi
High Court), Writ Petition (Civil) No.
9064/2011
Extended time limit of 6 years under
section 149(1)(b) requires data for prima
facie computation of income escaping
assessment.
Facts
BBC World News Limited (formerly known as
BBC World Ltd.), a company resident of and
incorporated in United Kingdom, a wholly
owned subsidiary of BBC Commercial Holdings
Limited which in turn is a wholly owned
subsidiary of the British Broadcasting
Corporation, has filed the present writ petition
for setting aside reassessment proceedings
initiated in respect of the assessment year
2003-04, by issue of notice dated 30th March,
2010 under Section 148 of the Income Tax Act,
1961.
Held
High Court held that reassessment is invalid
based on the following grounds:
1. In the present case reassessment
proceedings have been initiated after
four years from the end of the relevant
assessment year and as per the first
proviso to section 147 of the Act, it has
to be shown that there was failure on
the part of the assesse to disclose fully
and truly all facts necessary for the
assessment. In the reasons to believe, it
is mentioned that absence of “crucial
information” relating to income and
expenditure on account of the
activities of the petitioner in India had
resulted in improper computation of
income for the AY 2003-04. Once it is
held that the said details were
furnished, the reassessment notice
would fail and falter.
2. AO had contended that there was non
application of mind by the AO in the
original assessment proceedings, which
was apparent as the assessment order
was passed on 24th March 2006,
merely 2 days after the purported
submissions dated 22nd March 2006
running into 407 pages were filed by
the petitioner. Court held that once
detailed submissions were made, AO
had to apply his mind and form an
opinion. Added to it, the issue of
method of attribution of income to
Indian PE had been examined in the
immediately preceding AY by the
same AO. Also, the original assessment
order further records and mentions the
manner and mode of attributing
income to the PE in India. Hence, it is
merely a case of change in opinion.

5
3. As per the mandate of section
149(1)(b), income escaping assessment
should be or likely to exceed 1 lac
rupees. This requires prima facie
computation of income escaping
assessment. This in turn required
examination of data and figures
relating to "Indian operations”. If we
accept the stand of the revenue, then
the said data details were not
available in the records for AY 2003-04.
In the absence of the said details, the
averment made in the reasons to
believe will only be a guess work or
surmise and not cogent or reliable
material to form prima facie view.
Commissioner of Income Tax- II vs M/s
Maruti Suzuki (India) Limited (Delhi High
Court) vide Writ petition (Civil) No.
5086/2013
Constitutional validity of Section 254(2A)
w.r.t. the power of Tribunal to grant stay
against demand for a period exceeding
365 days
Facts
CIT filed a writ petition with the High Court
impugning orders passed by ITAT, extending
the stay of recovery of demand in favour of
the assessee beyond period of 365 days, in
respect of the stay applications filed by Maruti
Suzuki (India) Limited and Bose Corporation
India Pvt Ltd. The Revenue contended that
Tribunal does have power to grant stay of
demand pending consideration of the appeal
but the same could be exercised within the
four corners of Section 254(2A) which prohibits
extension beyond period of 365 days.
Held
High Court held as below:
1. The amendment made to the third
proviso vide Finance Act 2008 w.e.f.
1st October 2008, adding the words
“not attributable to the assessee”,
clearly highlights the intention of the
legislature that in any case, tribunal
cannot extent stay beyond the
period of 365 days from the date of
first order of stay.
2. In case default and delay is due to
lapse on the part of the revenue,
the tribunal is at liberty to conclude
hearing and decide the appeal, if
there is likelihood that the third
proviso to Section 254(2A) would
come into operation.
3. An assessee can file writ petition in
the High Court pleading and asking
for stay as High Court in exercise of
powers provided under Articles 226
and 227 of the Constitution, may
grant stay and issue directions to
the Tribunal as may be required.
TRANSFER PRICING
DCIT vs. Panasonic AVC Networks India Co
Ltd
(I.T.A. No. : 4620/Del/2011)
Adjustment to profit margin for “capacity
underutilization” can be made.
The Delhi bench of ITAT held that-
Rule 10 B (1)(e)(ii) of the Income Tax Rules 1962
provides that the net profit margin realized in
a comparable uncontrolled transaction is
adjusted for differences in enterprise entering
into such transactions, which could materially
affect the net profit margin in open market.
Capacity underutilization by enterprises is
certainly an important factor affecting net
profit margin in the open market because

6
lower capacity utilization results in higher per
unit costs, which, in turn, results in lower profits.
Thus such an adjustment cannot be denied.
In choosing comparables, there cannot be
a cherry picking for deciding parameters
of rejection.
The parameters for rejection of a comparable
have to be broad enough of being general
application. If a comparable is being sought to
be rejected on the ground of its differences vis-
à-vis the tested party, similar criteria must be
adopted for deciding suitability of other
comparables as well. All the comparables
must face the same test on which
comparability of a particular comparable is
being sought to be rejected.
Tata Communications Limited Vs DCIT
ITA (TP) no. 3121/Mum./2013; ITA(TP) no.
3122/Mum./2013
The Income Tax Appellate Tribunal in this case
held that the Commissioner cannot exercise
the revisionary jurisdiction under section 263 on
the order passed under section 92CA (3) by
the TPO. Therefore the order passed by the
Assessing Officer cannot be set aside as the
order of the TPO under section 92CA (4) is
binding on the Assessing Officer.
Lummus Technology Heat Transfer BV vs.
DCIT
(I.T.A. No. : 6227/Del/2012)
Unaudited segmental accounts can be
relied upon for comparing profitability of
controlled transactions with uncontrolled
transactions. While size is relevant in entity
level comparison, it is not relevant in
transaction level comparison within the
same entity
In applying the Transactional Net Margin
Method under Rule 10B(1)(e) it is not necessary
that the net profit computations, in the case of
internal comparables (i.e. assessee’s
transactions with independent enterprise),
have to be based on the audited books of
accounts or the books of accounts regularly
maintained by the assessee. All that is
necessary for the purpose of computing arm’s
length price, under TNMM on the basis of
internal comparables, is computation of net
profit margin, subject to comparability
adjustments affecting net profit margin of
uncontrolled transactions, on the same
parameters for the transactions with AEs as
well as Non AEs. As long as the net profits
earned from the controlled transactions are
the same or higher than the net profits earned
on uncontrolled transactions, no ALP
adjustments are warranted.
IJM (India) Infrastructure Ltd vs. ACIT (ITAT
Hyderabad)
Held - Transfer Pricing provisions do not apply if
the AE is assessed in India & there is no chance
of shifting of profits outside India or erosion of
tax base
In the present case, there is no possibility of
shifting of profits outside India or erosion of
country’s tax base because the PE profits of

7
the AE are assessable to tax in India. Therefore,
the transactions with the AEs are outside the
purview of the transfer pricing regulations
Tilda Riceland Pvt Ltd vs. ACIT
(ITA No. : 6279/Del /2012
In this case it was held that there is no bar on
reliance of private database under section
10D(3).
Rule 10 D(3) is only illustrative in nature and
merely describes the information required to
be maintained by the assessee under section
92D The logic employed by the Transfer Pricing
Officer that since databases compiled by
private entities is not included in rule 10D (3),
such databases cannot be relied upon by the
assessee is clearly fallacious in as much as an
item not being included in illustrative list of
required documents does not take outside the
ambit of ‘acceptable document’ for the
required purposes. It was open to the TPO to, if
he had any doubts, call for further information
from this database supplier and examine
authenticity of the data so furnished. Thus the
rejection of data as unreliable on a technical
ground is not tenable in law.
TNS India Pvt. Ltd. v. ACIT [TS-21-ITAT-
2014(HYD)-TP]
The taxpayer was engaged in conducting
quantitative and qualitative market research.
It had entered into several international
transactions with its associated enterprises
(AEs), of which the disputed transaction was
that of payment of management fees. The
other international transactions were
accepted as having arm’s length pricing, after
being aggregated and benchmarked using
Transaction Net Margin Method (TNMM). The
Transfer Pricing Officer (TPO) challenged the
management fee transaction and determined
its arm’s length price (ALP) to be NIL.
However, the Tribunal, in principle, allowed the
claim of management fees. It observed that
since the TPO had not examined whether or
not the payment of management fee was in
accordance with the pricing methodology laid
out in the inter-company service agreement,
the matter relating to quantification of the
claim was restored back to the TPO.
SERVICE TAX
Amendments in mega exemption
notification
Loading and unloading, packing, storage and
warehousing of Rice have been exempted
from levy with effect from 17 March 2014
Transportation of Rice, either by rail or vessel or
a goods transport agency, was exempt from
levy vide entry number 20 (i) and 21 (d) of
mega exemption notification. However,
loading and unloading, packing, storage and
warehousing of Rice were not exempt. By
virtue of entry number 40 in mega exemption
notification, with effect from 17 February 2014,
loading and unloading, packing, storage and
warehousing of Rice would also be exempt
from service tax levy.
Specified services provided by Cord Blood
Banks have been exempted from levy with
effect from 17 February 2014

8
Services provided by cord blood banks by way
of preservation of stem cells or any other
service in relation to such preservation has
been exempted from levy of service tax by
introducing new entry numbered 2A in the
mega exemption notification
Notification No. 4/2014-Service Tax dated
17th February, 2014
Levy of service tax on services provided
by an authorized person or sub-brokers to
the member of a commodity exchange for
the period 10.09.2004 to 30.6.2012
The central government has issued notification
3/2014-ST dated 3 February 2014 to waive past
dues of service tax payable on services
provided by the authorized person or sub-
broker to a member of a recognized or
registered association in relation to a forward
contract. Prior to Introduction of Negative List
there was common practice not to charge
service tax on services provided by sub-broker
to member of recognized association or a
registered association in relation to forward
contracts. This has been done under section
11C of the Central Excise Act, made
applicable to service tax by section 83 of the
Finance Act 1994. The said section 11C
provides that where duty/tax was not levied by
prevalent practice, it can be notified as
waived for that period. Those who paid it can
apply for refund.
Notification No. 03/2014-Service Tax dated
3rd February, 2014
CENTRAL EXCISE
Amendment in notification no. 12/2012
dated 17.03.2012
The central government has issued notification
3/2014-CE dated 3 February 2014, by which it
has exempted di-calcium phosphate (DCP) of
animal feed grade from excise duty; and also
provided a concessional rate of duty (12%) for
iron and steel for construction of railway or
tramway tracks.
Notification No. 03/2014-Central Excise
dated 3rd February, 2014
VALUE ADDED TAX
Withdrawal of AR-1 Form
Filing of Audit Report in its current format in AR-
1 has been withdrawn with immediate effect.
F.3 (384)/Policy/VAT/2013/1307-1319
dated 14th February, 2014
Online details of invoice and GR in respect
of goods procured from outside Delhi
The details of Invoice and Goods Receipt (GR)
Note in respect of all goods purchased or
received as stock transfer or received on
consignment agreement from outside Delhi
shall be submitted online by dealers, using their
login id and password, before the goods
physically enter the boundary of Delhi. The
details shall be submitted by all dealers,
except dealers exclusively dealing in Tax Free
Goods, having GTO > Rs. 1 crore in 2012-13 or
on any date in the current financial year on
which the dealer attained/attains the lower
limit of GTO of Rs. 1 crore. For furnishing online
details, the Form T-2 shall be filled for each
vehicle entering Delhi and by each dealer
whose goods are carried in that vehicle.
F.7 (433)/Policy-II/VAT/2012/1332-1342

9
CUSTOMS
Amendment in notification no. 12/2012
dated 17.03.2012
The CBEC has issued notification 4/2014-
Customs dated 3 February 2014, to exempt
customs duty on tunnel boring machines and
parts required for assembly of tunnel boring
machines.
Notification No. 04 /2014-Customs dated
3rd February, 2014
Conversion Rate for Foreign Exchange
Rate of exchange of conversion of each of the
following foreign currency into Indian currency
or vice versa shall, with effect from 21st
February, 2014 be the rate mentioned against
it in the given tables:
SCHEDULE-I
S.
No.
Foreign
Currency
Rate of exchange of
one unit of foreign
currency equivalent to
Indian rupees
(For
Imported
Goods)
(For Export
Goods)
1. Australian
Dollar
56.65 55.15
2. Bahrain Dinar 170.40 161.05
3. Canadian
Dollar
57.10 55.70
4. Danish Kroner 11.70 11.35
5. EURO 86.85 84.85
6. Hong Kong
Dollar
8.10 8.00
7. Kuwait Dinar 228.40 215.30
8. New Zealand
Dollar
52.25 50.95
9. Norwegian
Kroner
10.45 10.15
10. Pound
Sterling
105.30 103.00
11. Singapore
Dollar
49.95 48.75
12. South African
Rand
5.85 5.45
13. Saudi Arabian
Riyal
17.15 16.20
14. Swedish
Kroner
9.75 9.45
15. Swiss France 71.35 69.40
16. UAE Dirham 17.50 16.55
17. US Dollar 62.95 61.95
SCHEDULE-II
S. No. Foreign Currency Rate of exchange of 100 units of foreign cu
equivalent to Indian rupees
(For Imported Goods) (For Export G
1. Japanese Yen 62.00 60.50
2. Kenya Shilling 74.70 70.35
Notification No.13/2014-Customs (N.T.)
CASE LAWS
Global Waste Management Cell vs.
CCE
Business Auxiliary Services
The activity of the appellant providing
comprehensive sanitation assistance to
Municipal Corporation cannot be liable under
Business Auxiliary Services since Municipal
Corporation was not doing business of

10
providing sanitation work to be supported by
auxiliary service.
Manjit Singh vs. CCE (2013)
Maintenance and Repair services
Repairs and maintenance work carried out by
the appellant in respect of property of
municipality is not taxable under the category
of “management maintenance or repairs
services” since municipal roads are not
immovable properties under the Transfer of
Properties Act.
FEMA
A.P. (DIR Series) Circular No. 100 dated
February 4, 2014
Third party payments for export / import
transactions
A. P. (DIR Series) Circular No.70 dated
November 8, 2013, permitted to allow third
party payments for export of goods & software
/ import of goods subject to the conditions
stated therein.
In view of the difficulties faced by exporters /
importers in meeting the condition “firm
irrevocable order backed by a tripartite
agreement should be in place” specified in
the abovementioned Circular, it has been
decided that this requirement may not be
insisted upon in case where documentary
evidence for circumstances leading to third
party payments / name of the third party
being mentioned in the irrevocable order/
invoice has been produced. This shall be
subject to conditions as under:
 AD bank should be satisfied with the
bona-fides of the transaction and
export documents, such as, invoice /
FIRC.
 AD bank should consider the FATF
statements while handling such
transaction.
Further, with a view to liberalising the
procedure, the limit of USD 100,000 eligible for
third party payment for import of goods, stands
withdrawn.
All other terms & conditions mentioned in the
A. P. (DIR Series) Circular No.70 dated
November 8, 2013, remain unchanged.
February 11, 2014
Foreign Direct Investment – Reporting
under FDI Scheme:
Amendments in form FC-GPR
In order to further capture the granular details
of FDI as regards Brownfield/Greenfield
investments and the date of incorporation of
investee company, Form FC-GPR has been
revised. Accordingly, the details of FDI should,
henceforth, be reported in the revised Form
FC-GPR, which is annexed to this circular.
February 17, 2014
External Commercial Borrowings (ECB)
Policy –
Reporting Arrangements

11
In order to capture details of the financial
hedges contracted by corporates, of their
foreign currency exposure relating to ECB and
their foreign currency earnings and
expenditure, (Part-E) of the format of ECB-2
Return has been modified and the same has
been given in the Annex, annexed to this
Circular. The reporting in the modified ECB-2
Return will be applicable from the return of the
month April 2014 onwards.
There is no change in the reporting procedure
and corporates raising ECB shall continue to
submit ECB-2 Return on a monthly basis duly
certified by the designated AD Category-I
bank so as to reach Department of Statistics
and Information Management (DSIM) of
Reserve Bank of India within seven working
days from the close of month to which it
relates.
February 20, 2014
Foreign Direct Investment (FDI) into a Small
Scale Industrial Undertakings (SSI) / Micro
& Small Enterprises (MSE) and in Industrial
Undertaking manufacturing items reserved
for SSI/MSE
In terms of the Schedule 1 of the Foreign
Exchange Management (Transfer or Issue of
Security by a Person Resident outside India)
Regulations, 2000, an Indian company which is
a small scale industrial unit and which is not
engaged in any activity or in manufacture of
items included in Annex A, may issue shares or
convertible debentures to a person resident
outside India, to the extent of 24% of its paid -
up capital provided that such company may
issue shares in excess of 24% of its capital if:
 it has given up its small scale status,
 it is not engaged or does not propose
to engage in manufacture of items
reserved for small scale sector, and
 it complies with the ceilings specified in
Annex B to Schedule I of the
Notification, ibid.
With the promulgation of the Micro, Small and
Medium Enterprises Development (MSMED)
Act, 2006, the extant policy for foreign direct
investment (FDI) in Small Scale Industrial unit
and in a company which has de-registered its
small scale industry status and is not engaged
or does not propose to engage in
manufacture of items reserved for small scale
sector, has since been reviewed and it has
been decided that:
 a company which is reckoned as Micro
and Small Enterprises (MSE) (earlier
Small Scale Industries) in terms of
MSMED Act, 2006 and not engaged in
any activity/sector mentioned in Annex
A to schedule 1 to the Notification, ibid
may issue shares or convertible
debentures to a person resident
outside India, subject to the limits
prescribed in Annex B to schedule 1, in
accordance with the entry routes
specified therein and the provision of
Foreign Direct Investment Policy, as
notified by the Ministry of Commerce &
Industry, Government of India, from
time to time.
 any Industrial undertaking, with or
without FDI, which is not an MSE, having
an industrial license under the
provisions of the Industries
(Development & Regulation) Act, 1951
for manufacturing items reserved for
manufacture in the MSE sector may
issue shares in excess of 24 per cent of
its paid up capital with prior approval
of the Foreign Investment Promotion
Board of the Government of India.

12
Further, in terms of the provisions of MSMED
Act, (i) in the case of the enterprises engaged
in the manufacture or production of goods
pertaining to any industry specified in the first
schedule to the Industries (Development and
Regulation) Act, 1951, a micro enterprise
means where the investment in plant and
machinery does not exceed twenty five lakh
rupees; a small enterprise means where the
investment in plant and machinery is more
than twenty five lakh rupees but does not
exceed five crore rupees; (ii) in the case of the
enterprises engaged in providing or rendering
services, a micro enterprise means where the
investment in equipment does not exceed ten
lakh rupees; a small enterprise means where
the investment in equipment is more than ten
lakh rupees but does not exceed two crore
rupees.
COMPANY LAW
Amendments in Schedule VII of the
Companies Act, 2013
[Order dated 27th February, 2014]
The Central Government has made the
following amendments to Schedule VII of the
Companies Act, 2013, in exercise of powers
conferred by sub section (1) of section 467 of
Companies Act, 2013 with effect from 1st April,
2014:
Previously notified items and entries in
Schedule VII shall be substituted by the
following items and entries namely:-
(i) Eradicating hunger, poverty and
malnutrition, promoting preventive health care
and sanitation and making available safe
drinking water;
(ii) Promoting education, including special
education and employment enhancing
vocation skills especially among children,
woman, elderly and the differently abled and
livelihood enhancement projects;
(iii) Promoting gender equality, empowering
women, setting up homes and hostels for
women and orphans; setting up old age
homes, day care centres and such other
facilities for senior citizens and measures for
reducing inequalities faced by socially and
economically backward groups;
(iv) Ensuring environmental sustainability,
ecological balance, protection for flora and
fauna, animal welfare, agroforestry,
conservation of natural resources and
maintaining quality of soil, air and water;
(v) Protection of national heritage, art and
culture including restoration of buildings and
sites of historical importance and works of art;
setting up public libraries, promotion and
development of traditional arts and
handicrafts;
(vi) Measures for the benefit of armed forces
veterans, war widows and their dependents;

13
(vii) Training to promote rural sports, nationally
recognized sports, paralympic sports and
Olympic sports;
(viii) Contribution to the prime ministers relief
fund or any other fund set up by the central
government for socio-economic development
and relief and welfare of the Scheduled castes
and Scheduled Tribes, other backward classes,
minorities and women;
(ix) Contribution and funds provided to
technology incubators located within
academic institutions which are approved by
Central Government;
(x) Rural development projects.
Effective date of provisions of section 135
and Schedule VII of Companies Act, 2013
The Central Government has appointed the
1st day of April, 2014 as the date on which the
provisions of section 135 and Schedule VII of
the Companies Act, 2013 shall come into
force, in exercise of powers conferred by sub
section (3) of section 1 of the Companies Act,
2013.
Companies (Corporate Social
Responsibility Policy) Rules, 2014
The Central Government has notified the rules
relating to corporate social responsibility which
are known as Companies (Corporate Social
Responsibility Policy) Rules, 2014 in exercise of
powers conferred by sub section (1) and (2) of
section 469 of Companies Act, 2013 with effect
from 1st April, 2014.
Clarification with regard to Section 185 of
the Companies Act, 2013
[Circular No 3/2014]
Section 372A of the Companies Act, 1956,
specifically exempts any loans made, any
guarantee given or security provided or any
investment made by a holding company to its
wholly owned subsidiary. Whereas, Section 185
of the Companies Act, 2013 prohibits
guarantee given or any security provided by
holding company in respect of any loan taken
by its subsidiary company except in the
ordinary course of business.
In order to maintain harmony with regard to
applicability of Section 372A of the Companies
Act, 1956 till the same is repealed and Section
185 of the Companies Act,2013 is notified, any
guarantee given or security provided by a
holding company in respect of loans made by
a bank or financial institution to its subsidiary
company, exemption as provided in clause (d)
of sub-section (8) of section 372A of the
Companies Act, 1956 shall be applicable till
section 186 of the Companies Act, 2013 is

14
notified. This clarification will, however, be
applicable to cases where loans so obtained
are exclusively utilized by the subsidiary for its
principal business activities.
Use of word ‘National’ in the names of
Companies or Limited Liability Partnerships
(LLPs)
[Circular No. 2/2014]
As per the Circular, no company should be
allowed to be registered with the word
‘National’ as part of its title unless it is a
government company and the Central/State
Government has a stake in it. This should be
stringently enforced by all Registrar of
Companies (ROCs) while registering
companies. Similarly, the word ‘Bank’ may be
allowed in the name of an entity only when
such entity produces a ‘No Objection
Certificate' from the RBI in this regard. By the
same analogy the word “Stock Exchange" or
"Exchange" should be allowed in name of a
company only where ‘No Objection
Certificate' from SEBI in this regard is produced
by the promoters.
TRANSACTIONS THAT
MADE HEADLINES
 GSN acquires social bingo game
creator Bash Gaming for around $160M
 Hitachi to acquire 76% stake in IT firm
Micro Clinic India
 Piccadily Agro buys 89% stake in wine
maker Nirvana Biosys
 JSW Steel to acquire 50% stake in
Vallabh Tinplate for $7.4M
 Facebook buys Whatsapp for $19B:
 Quatrro sells game testing firm Babel
Media to Irish company Keywords for
$8.8M
 Lodha Group acquires second London
asset for $150M
 IDBI-led consortium in talks to sell over
38% in rating agency CARE for more
than $140M
 Asian Paints hikes stake in Singapore
arm to 96.7%, gets it delisted from SGX
 DLF sells Aman Resorts back to founders
for $358M

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This publication is intended as a service to clients and associates
and to provide them with details of the important Transaction
updates. It has been prepared for the general guidance on
matters of interest only, and does not constitute professional
advice. No person shall act upon the information contained in this
publication without obtaining specific professional advice. Due
care has been taken while compiling the information, however, no
representation (express or implied) is given as to the accuracy or
completeness of the information contained in this publication

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