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    THE COMPANIES AMENDMENT BILL, 2016 [BILL 73 of 2016] – A REVIEW- PART-5 (continued from September-2016 wiki)


    Section(s) under the CA,

    Clause No. in the

    Proposed amendment relating to



    2013, amended



    Amendment Bill














    S e c t i o n


    3 8 4


    Amendment to Section (2) of Section 384 of the Act, to

    Amendment to remove ambiguity.





    include Section 135 of Act, thereby making the provisions of



    Return, Registration of





    Corporate Social responsibility CSR applicable to a Foreign










    Company, in addition to the applicability of the provisions of




    and  their





    Section 71, 92, 128, Chapter-VI &Chapter-XIV of the Act.















    Section - 403 – Fee for


    Amendment to replace the existing 1st proviso to Sub-Section

    Welcome Amendment, to remove


    filing, etc.





    (1) of Section 403 of the Act, with new a proviso, so as to








    include the details of the relevant sections [i.e., 89, 92, 117,








    121, 137 or 157] under which filings can be done within a








    period of 270 days from the expiry of the period so provided in








    those sections, on payment of such additional fee.








    Amendment to replace the existing 2nd proviso to Sub-Section

    Welcome Amendment, to remove







    (1) of Section 403 of the Act, with new a proviso, so as to







    ambiguity and ease of operations.







    enable filing of returns relating to the sections referred in the








    1st proviso, beyond the time frame as given in the 1st proviso








    and with regard to the other sections, beyond the time frame








    given in the respective section, on payment of such higher








    additional or additional fee.











    Section(s) under the CA,

    Clause No. in the


    Proposed amendment relating to



    2013, amended

    Amendment Bill
















    Insertion of a 3rd proviso to provide that in case of default on two





    or more occasions in filing of returns under section 89, 92, 117,





    121, 137 or 157, the provisions of the first and second provisos





    shall not apply, until the return is submitted, filed, registered or





    recorded, as the case may be, with additional fee, without





    prejudice to any legal action or liability under this Act.





    Amendment to Sub-Section (2) of Section 403 of the Act, to

    Amendment to remove ambiguity.




    substitute the words "first proviso to that sub-section" with





    words "relevant section”.










    Section - 406 -


    Amendment to substitute the existing section 406 of the Act

    Amendment to give more clarity.

    with a new section 406 with 5 sub-sections..  The new section



    Power to modify Act in





    is titled: “Provision relating to Nidhis and its application, etc.”.



    its  application  to











    The gist of the sub-sections is as below:















    (1)  A word “Mutual Benefit Society” has been added, and





    accordingly a Nidhi or a Mutual Benefit Society shall be a





    company  which  the  Central  Government  may  by





    notification in the Gazette, declare to be so.





    (2)  The Central Government may by notification in the





    Gazette, direct the applicability or non-applicability of the





    provisions of the Act to a Nidhi or Mutual Benefit Society.





    (3)  Placing of the draft of the proposed notification before





    each House of Parliament, while it is in session, for a total





    period  of  30  days,  and  if,  both  Houses  agree  in





    disapproving the issue of notification or both Houses





    agree in making any modification in the notification, the





    notification shall not be issued or, as the case may be, shall





    be issued only in such modified form as may be agreed





    upon by both the Houses.










    Section(s) under the CA,

    Clause No. in the


    Proposed amendment relating to






    2013, amended

    Amendment Bill




















    (4)  For the purpose of reckoning the period of 30 days, referred






    to in sub-section (3), any period during which the House






    referred to in sub-section (3), is prorogued or adjourned for






    more than four consecutive days, shall not be counted.






    (5)  Laying of Copies of every notification, before each House of






    Parliament, as soon as may be after it has been issued.










    Section – 409 –


    Amendment to Sub-Section (3) of Section 409 of the Act, in



    Qualification of

    connection with the eligibility of the Technical members of the








    President and


    National Company Law Tribunal.







    Members of Tribunal.
















    Section 411–


    Amendment to Sub-Section (3) of Section 411 of the Act, in



    Qualifications of

    connection with the eligibility of the Technical members of the








    chairperson And


    National Company Law Appellate Tribunal.






    Members of Appellate




















    Section – 412 -


    Amendment to Sub-Section (2) of Section 412 of the Act, in



    Selection of

    connection with the constitution of the Selection Committee,








    Members of Tribunal


    to recommend the appointment of Members to the National




    and Appellate


    Company Law Tribunal and the National Company Law






    Appellate Tribunal.







    Section - 435 –


    Substitution of the existing Section 435 of the Act, with a new

    Welcome Amendment to remove


    section,  to

    amend  provide  for






    Establishment of




    of  Metropolitan

    Magistrate  or






    Special Courts.






    Magistrate of the First Class in Special Court in case of offences











    punishable under the Act with imprisonment less than 2 years.






    The appointment by the Central Government shall be with the






    concurrence of the Chief Justice of the High Court within whose






    jurisdiction the judge to be appointed is working.






    Section(s) under the CA,

    Clause No. in the



    Proposed amendment relating to



    2013, amended

    Amendment Bill















    Section – 438 –



    Amendment of Section 438 of the Act, consequent upon the



    proposed amendment to Section 435 of the Act, thereby to



    Application of Code to







    replace the words "deemed to be a Court of Session", with the



    Proceedings  before







    words "deemed to be a Court of Session or the court of



    Special Court.







    Metropolitan Magistrate or a Judicial Magistrate of the First










    Class, as the case may be".










    Section – 439 -



    Amendment to Sub-section (2) of Section 439 of the Act to

    Welcome Amendment to remove


    include ”Member” in addition to the shareholders, for



    Offences to be non-






    making a complaint with respect to taking cognizance of










    offences under the Act by the Court.















    Section – 440–



    Amendment to Section 440 of the Act to provide that till



    Special Courts are established, the trial of offences shall be



    Transitional provisions.







    continued with Court of Sessionor Court of Metropolitan











    Magistrate or a Judicial Magistrate of the First Class, thereby






    to replace the words  " Court of Session", appearing in the





    section with the words " Court of Session or the court of





    Metropolitan Magistrate or a Judicial Magistrate of the First





    Class, as the case may be.










    Section –441 –



    Amendment to Sub-Section (1) of Section 441 of the Act to

    Welcome  Amendment,  giving


    replace the words "with fine only", appearing in the Sub-

    further  scope  to  compound


    Compounding of






    Section, with the words "not being an offence punishable with

    o f f e n c e s  p u n i s h a b l e  w i t h


    certain offences






    imprisonment only, or punishable with imprisonment and also

    imprisonment or with Fine, with









    with fine".

    imprisonment or with Fine or both







    with out the special permission of





    NOTE: Consequent upon amendment to Sub-Section (1) of

    the Special Court.












    Section 441, the clause (a) of Sub-Section (6) of Section 441,






    also needs amendment, but seems to have been missed out






    in the proposed amendment bill.










    Section(s) under the CA,

    Clause No. in the

    Proposed amendment relating to




    2013, amended

    Amendment Bill











    New Section


    Insertion of 2 new sections 446A & 446B, after the existing



    Section 446.











    Section 446A : Factors for determining level of punishment.

    Welcome inclusion





    The new Section provides that the court or the Special Court,






    shall consider the following factors, to decide the amount of






    fine or imprisonment under this Act.






    (a) size of the company; (b) nature of business carried on by






    the company;(c) injury to public interest;(d) nature of the






    default; and(e) repetition of the default.






    Section 446B: Lesser penalties for One Person Companies or






    small companies






    If a One Person Company or a small company fails to comply

    Welcome inclusion in favour of One





    with the provisions of Section 92(5), Section 117(2)(c),Section

    Person  Companies  and  Small





    137(3), such company and officer in default of such company

    Companies  and  the  officers,





    shall be punishable with fine or imprisonment or fine and

    reducing fine and imprisonment.





    imprisonment, as the case may be, which shall not be more






    than one-half of the fine or imprisonment or fine and






    imprisonment, as the case may be, of the minimum or






    maximum fine or imprisonment or fine and imprisonment, as






    the case may be, specified in such sections.






    Note: It is noticed that in the amendment bill they have






    referred Section 117 (2)(c), but the said sub-section does not






    contain any clauses, and it is assumed probably it is relating to






    Section 117 (3)(c) and not Section 117 (2)©.











    Flash News!!!


    The Central Government in exercise of the Powers conferred in 145(2) of the Income tax Act, 1961 notifies1 Income Computation and Disclosure Standards (‘ICDS’) to be followed by all assessees (other than exempted2 ) following mercantile system of accounting for the purpose of computing income under the head ‘Profits and Gains of Business or Profession’ or ‘Income from Other Sources’.


    This Notification will apply from Assessment Year 2017-18 and subsequent assessment years.


    The audit committee is a cornerstone of good corporate governance. Its mandate now extends well beyond oversight of financial reporting to include an array of key areas that support an organization’s performance, such as risk management, compliance, reliability and integrity of internal data, cyber risk, and the effectiveness of internal control over operations.


    Yet even as the list of oversight responsibilities gets longer and more complex, the amount of time that most audit committee members can reasonably commit to the part has not. The role of internal audit has traveled a parallel course with that of the audit committee, with internal auditors expanding their scope of responsibilities to meet organizational needs. Organizations are increasingly turning to the internal audit function to provide assurance and/or consulting services to better address their own needs. When a strong working relationship is in place with the audit committee, internal audit can enhance and protect organizational value by providing risk-based and objective assurance, advice, and insight. With its broad view of the organization and its familiarity with operations across all business units, the internal audit department is uniquely positioned to help the audit committee understand and evaluate risks that may affect the enterprise.


    FDI into Food Processing Products – various forms of business – FEMA Regulations


    Food Processing Sector has been on average growing at a faster rate than agricultural sector since last three years. During the last three years ending 2014-15, it is growing at Average Annual Growth Rate (AAGR) of around 2.26% as against 1.69% in the Agriculture and 6.23% in manufacturing at 2011-12 Prices1 .


    Food Processing has emerged as an important segment of the Indian Economy in terms of its contribution to GDP, employment and investment. The sector constitutes as much as 9.0% and 11.0% respectively of GDP in Manufacturing and Agricultural sector2 .


    Food Processing can be viewed as different levels of processing – Primary, Secondary, and tertiary. Primary processing relates to conversion of raw agricultural produce, milk, meat and fish into a commodity that is fit for human consumption. It involves steps such as cleaning, grading, sorting, packing etc., and subsequent processes are involved for making the processed inputs into finished goods and ultimate retail trading through sales distribution channels.


    Traditionally India was allowing Foreign Direct Investment (FDI) into the business of dealing with Food Products either by a manufacturer under automatic route for the products manufactured by them (Subject to MSMED regulations) or Trading of such goods via B2B e-commerce, Single Brand Retail Trading and Multi Brand Retail Trading etc., under automatic/approval route subject to various conditions


    Later the concept of e-commerce has been introduced for FDI purposes and detailed regulations have been made from time to time.


    Over the last two decades, rising internet and mobile phone penetration has changed the way we communicate and do business. E-commerce is relatively a novel concept. It is, at present, heavily leaning on the internet and mobile phone revolution to fundamentally alter the way businesses reach their customers.


    Now India is getting ready for introduction of Goods and Service Tax law (GST), it can further fuel the growth of e-commerce


    With the above background the author has made an attempt to bring the extantFEMA - Foreign Direct Investment Regulations for Food Processing Industries and/or trading in Food Products (including e-commerce)






    1Source: Annual Report 2015-16 of Ministry of Food Processing Industries, GOI


    2Source: Annual Report 2015-16 of Ministry of Food Processing Industries, GOI


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    SBS Wiki

    Brief Background:



    Before 2006

    FDI was prohibited into Retail Business

    10th February, 2006

    FDI in cash-and-carry (wholesale) brought under automatic route.


    Earlier, it was allowed under approval route. 51% FDI was permitted under


    Government approval into SBRT

    April, 2010

    Cash and Carry Whole Sale Trade is permitted subject to 25% intra group


    entities sales restriction

    July, 2010

    DIPP has issued second Discussion Paper FDI into MBRT

    7th December, 2011

    Union Cabinet Proposes 51% FDI in Multi-Brand Retail Trade

    10th January, 2012

    FDI into Single Brand Retail increased to 100% under Government route


    subject to stipulated Conditions

    14th September, 2012

    The Government opens FDI into Multi-Brand Retail Trade (MBRT) upto 51%


    subject to stipulated conditions

    20th September, 2012

    The Government clarifies the position that company having FDI cannot enter


    into e-commerce in both SBRT and MBRT

    January, 2014

    DIPP Releases a discussion paper on “E-Commerce in India, highlighting pros


    and cons of allowing FDI in the Sector”

    29th March, 2016

    DIPP has issued Press Note No. 3/2016, whereby the definition of E-


    Commerce has been divided into Inventory based Model and Market based



    24th June, 2016

    DIPP has issued Press Note No. 5/2016 for 100% FDI into Food Processing


    Industries and also relaxing local sourcing norms for SBRT


    Extant FDI Regulations for FDI into Food Processing Industries:


    1. Relevant Definitions:


    • E-commerce- E-commerce means buying and selling of goods and services including digital products over digital & electronic network.


    • E-commerce entity- E-commerce entity means a company incorporated under the Companies Act, 1956 or the Companies Act, 2013 or a foreign company covered under section 2 (42) of the Companies Act, 2013 or an office, branch or agency in India as provided in section 2(v)(iii) of FEMA 1999, owned or controlled by a person resident outside India and conducting the e-commerce business.


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    FDI into Food Processing Industry




    SBS Wiki                                                                                                                                            


    • Inventory based model of e-commerce- Inventory based model of e-commerce means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly.


    • Marketplace based model of e-commerce- Marketplace based model of e-commerce means providing of an information technology platform by an e-commerce entity on a digital & electronic network to act as a facilitator between buyer and seller.






























    Trader                                                                      2





















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    FDI into Food Processing Industry




    SBS Wiki                                                                                                                                             




    1. Manufacturer selling directly to Customer via Single Brand Retail Trade or Whole Sale Trade


    1. Manufacturer selling directly to the customer via E-Commerce
    2. Manufacturer selling to Trader (B2B Commerce/ Cash and Carry whole-sale trade)
    3. In turn, Trader selling to Customer through either Single Brand Retail Trade or Multi Brand Retail Trade or through E-commerce


    1. Flow of the FDI into Manufacturing Activity
    2. Flow of the FDI into Trading Activity (including e-commerce), where the trader is not having any manufacturing activity


    1. Guidelines for Foreign Direct Investment in Food Processing sector:


    • 100% FDI under Automatic route is permitted in Manufacturing of Food Products in India


    • 100% FDI under Automatic route is permitted in trading by the manufacturer of its own products– Wholesale and/or retail (including through e-commerce) in respect of Food Products manufactured and/or produced in India.


    • 100% FDI under Government approval route is permitted in trading (including through e-commerce) in respect of Food Products manufactured and/or produced in India.


    vBasedon the above one can understand the FDI into manufacturing activity related to Food Processing Activities is freely permitted upto 100% under automatic route; and

    vFDIinto MBRT/SBRT of own manufactured Food products is also under automatic route; and vFDIinto Trading of goods by the Traders (including e-commerce) is subject to approval of Central


    Government and permitted upto 100%


    Background of Safe Harbour: Tax payers often need to carry out complex transfer pricing analysis of their related party cross border transactions. Compelled to allocate resources for preparing detailed documentation, companies are thus burdened with significant costs associated with undertaking such an exercise. Moreover, transfer pricing analysis being a subjective exercise, may be viewed in different ways. The factual nature of transfer pricing determinations can be an extremely complex subject that frequently vexes both taxpayers and tax administrations alike. In the understandable desire to find bright line rules that do not require the exercise of judgment and analysis, it is often proposed that "safe harbors" be provided.


    Even OECD recognizes that applying the arm's length principle can be a fact-intensive process and uncertainty associated with it may impose a heavy administrative burden on taxpayers and tax administrations that can be aggravated by both legislative and compliance complexity. These facts have led a number of countries to consider whether transfer pricing safe harbors rules would be appropriate in the transfer pricing arena. The theory of a safe harbor is that the burdens imposed in applying the arm's length principle may be ameliorated by providing circumstances in which taxpayers could follow a simple set of rules under which a national tax administration would automatically accept transfer prices. In taxation contexts, the safe harbor concept typically refers to a statutory provision that applies to a given category of taxpayers and by substituting exceptional, usually simpler obligations, relieves eligible taxpayers from certain obligations that the tax code otherwise imposes. In effect, a safe harbor is a defined parameter. If the transfer pricing result falls within that parameter, tax administrations would not be allowed to make an adjustment. Hence, transfer pricing safe harbour rules would need to be designed to achieve the following objectives:


    • Compliance relief:


    • Certainty
    • Administrative simplicity


    The Finance (No 2) Act (FA), 2009 introduced provisions in the Indian Income-tax Law (ITL) that empowered the Central Board of Direct Taxes (CBDT), the apex Indian Tax Administration, to issue transfer pricing “safe harbor” rules. A “safe harbor” is defined in the ITL as circumstances in which the Tax Authority shall accept the transfer price declared by the taxpayer. The CBDT on 14 August 2013 released draft safe harbor rules for public comments. After considering comments of various stake holders, on 18 September 2013, the CBDT issued the final safe harbor rules.


    The rules provide minimum operating profit margins in relation to operating expenses a taxpayer is expected to earn for certain categories of international transactions, such as provision of software development services, information technology enabled services, (ITES), knowledge process outsourcing (KPO) services, contract research and development (R&D) services, manufacture and export of automotive components etc. that will be acceptable to the Tax Authority. The rules also provide acceptable norms for certain categories of financial transactions such as intra-group loans made or guarantees provided to nonresident affiliates of an Indian taxpayer.

    The transfer price contained in the safe harbor rules shall be applicable for five years beginning from financial year (FY) 2012-13. The safe harbor rules, optional for a taxpayer, contain the conditions and circumstances under which the norms/marginswould be accepted by the Tax Authority and the related compliance obligations. The taxpayer has flexibility in electing the years to be governed by the safe harbor rules within the five year period. Where a taxpayer’s transfer price is accepted by the Tax


    Authority under the safe harbor rules, the taxpayer shall not be entitled to invoke the mutual agreement procedure (MAP) under an applicable tax treaty.




    • If safe harbour opted, taxpayer not entitled to make any comparability adjustments nor avail benefit of the prescribed variation.
    • Taxpayer required to comply with TP documentation & Form 3CEB filing requirements even if they opt for the safe harbour rules.


    • Form 3CEFA to be furnished for the initial year to exercise safe harbour option. Option exercised to remain in force for lesser of the period specified in Form 3CEFA or 5 years, unless option held to be invalid or taxpayer opts out.


    • Relatively simplified audit process prescribed for taxpayers opting for safe harbour in respect of eligible transactions


    • Ineligible to invoke MAP if taxpayer’s safe harbour option is accepted


    APA vs Safe harbour rules:


    Concluding Remarks:


    The safe harbour program was intended to reduce the transfer pricing litigation and related compliances. However, the objective was not achieved because of the high margins prescribed for the various industries. Further, the APA program has been successful and the margins agreed in the APA programs have been much conducive and attractive to the taxpayers and thus the results followed. There are expectations from the government that they would shortly revisit the safe harbour and come out with a much better and tax friendly margins on par with the APA and the litigation results.


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