<h2>Facts of the Case</h2>
 
The A.O. noticed that during the year under consideration, the assessee society had deposited a sum of Rs. 83,95,000/- in its bank account maintained with Axis bank Ltd., Sikar. The assessee society has not filed its return of income for the year under consideration. Notice U/s 148 of the Act was issued to the assessee.
 
In compliance of the notices issued, the assessee filed its return of income on 28/09/2017 declaring NIL income.
 
Assessing Officer completed the assessment after due consideration and examination of allthe issues specifically related to the corpus donation and he was satisfied with the evidences andsubmissions of the assessee as well as the manner in which it was shown in the accounts of theassessee. He mentioned his satisfaction in the office note attached with the assessment order, which isthe part of the assessment order. The copy of the certified copy of office note is attached herewith forready reference at Page No. 12 of Paper book. The relevant portion of the office note is reproducedhere under-
 
<blockquote class="wp-block-quote">
"(ii) Issue of Corpus donation has been examined carefully and satisfying with evidence produced by the assessee during the course of hearing, no adverse inference has beendrawn on this issue."
</blockquote>
 
<h2>Findings of the CIT(E)</h2>
 
The ld. CIT(E) in his order has observed that the assessee has no details of donors and whenever this detail is sought, it comes up with a story to avoid it.
 
The ld. CIT(E) further observed that in the order sheet, the A.O. has noted that corpus donations have been examined, he has not made any of requisite inquiries regarding identity and address of the claimed donors, particularly when all these donations were received in cash, therefore, the ld. CIT(A) has held that the order passed by the A.O. is deemed to be erroneous in so far as it is prejudicial to the interest of revenue within the meaning of Explanation 2(a) r.w. Section 263 of the Act.
 
Against the order of the ld. CIT(E), the assessee is in further appeal before the ITAT..
 
<h2>Grounds of the Assessee</h2>
 
<blockquote class="wp-block-quote">
the order of CIT(E) is illegal and against the law because the Ld. Assessing officer has examined and considered the matter involved in this order. 
the donation so received was received for a specific purpose and use, hence it was Corpus Donation. The corpus donation cannot be treated as part of Income and Expenditure account.
the order of the CIT(E) is otherwise unjustified because the assessee submitted the sufficient and proper explanation during the course of assessment proceedings and accepted by the Ld. Assessing officer
</blockquote>
 
<h2>ITAT held</h2>
 
The tribunal held that assessment order under consideration does not fall in any of the limb mentioned in the explanation 2 of the Section 263(2) of the Act, therefore the assessment is proper and cannot be said as erroneous and prejudicial to the interest of the revenue.
 
The assessee replied the queries raised by the assessing officer during the course of assessment _proceedings. After examination of the records and submissions found him satisfied and complete the assessment. Therefore, it could not be said the assessing officer has not examined the issue raised in the show cause notice under consideration. It is also reveals from the certified copies of the order sheet that the issue which is limited issue related to the cash deposited into bank, in spite of that he went beyond mandate and examined the entire issues, which is also without getting permission of the Commissioner. Hence it cannot be said that the assessment was without any enquiry or investigation.
 
The issue was already examined, discussed and considered by the then Assessing officer and issue of show cause notice by the CIT(E) on the very same issue is amounts to change of opinion
 
The ld AR of the assessee apart from the other grounds as discussed by us in detail, has also submitted before us that the notice issued by the ld. CIT(E) was on the basis of proposal of subsequent ITO, therefore, this act does not provide such powers to the ITO U/s 263 of the Act. The ld AR also submitted that as per provisions of Section 263 of the Act, the Pr.CIT/CIT may call for and examine the proceedings under this Act if he considers that any order passed therein by the A.O. is erroneous in so far as it is prejudicial to the interest of the revenue but in the present case, the proposal was sent by the subsequent A.O. to the CIT(E) on the basis of which a show cause notice was issued which is against the provisions of the Act. However, on this proposition, our view is not in favour of the ld AR as we convinced with the arguments of the ld. CIT-DR who had submitted that there is no prohibition U/s 263 of the Act for the Commissioner to act on the basis of proposal by the A.O. if other conditions under the said Section are satisfied. In this regard, the ld. CIT-DR has relied on the decision in the case of Apollo Tyres Ltd. Vs ACIT (1998) 65 ITD 263 (Delhi) and Stewarts and Lloyds of India Ltd. Vs CIT (2016) 67 taxmann.com 41, therefore, we reject this contention raised by the assessee.
 
<h2>Conclusion</h2>
 
The Tribunal allowed the appeal of the assessee and quash the revisionary proceedings u/s 263 initiated by issuing impugned show cause notice.
 
<h2>Citation</h2>
 
Swami Keshwanand Sikshan Sansthan Versus C.I.T. (Exemption) , Jaipur (Rajasthan) ITA No. 273/JP/2020 (Assessment Year: 2010-11) Dated 18 January 2021

No revision u/s 263 on Change of Opinion even though proposal was sent by the subsequent AO to the CIT

Hon'ble Madras HC in its recent decision upheld the findings of Tribunal and observe that the only expenditure, which was proved to be incurred in relation to earning of tax free income, could be disallowed and such provision could not be extended to disallow the expenditure, which was assumed to have been incurred for earning tax free income.
 
The AO found that the assessee had invested in SBI Magnum Insta Cash Fund to the tune of Rs.7.25 Crores and secured loans, which were outstanding as on 31.3.2011. The Assessing Officer also found that the assessee incurred finance cost, out of which, a sum of Rs. 12.93 Crores was towards interest on term loan and working capital facilities, that the assessee company made investments in mutual funds, out of which, there was a POSSIBILITY OF EARNING DIVIDEND INCOME. Accordingly, a notice was issued to show cause as to why the disallowance should not be made under Section 14A of the Act.
 
The assessee sent a reply stating that they had not incurred any expenditure for making such investment and that in the absence of any expenditure incurred, the question of disallowance did not arise. However, AO rejected the stand taken by the assessee and made disallowance u/s 14A.
 
The assessee preferred an appeal before the CIT(A) who allowed the appeal by order dated 16.6.2016. The CIT(A) accepted the stand taken by the assessee that the investments were in growth funds and not dividend funds and therefore, did not constitute tax free income. In this regard, the CIT(A) referred to the decision of the Delhi High Court in the case of Cheminvest Ltd. Vs. CIT [reported in (2015) 378 ITR 33] as well as the decision of the Chennai Tribunal in the case of ACIT Vs. M.Baskaran [ITA.No.1717/Mds/2013 dated 31.7.2014] and accordingly set aside the finding rendered by the Assessing Officer. The Tribunal took note of the decision of this Court in the case of Redington India Ltd. Vs. CIT [reported in (2017) 77 Taxmann.com 257] and dismissed the appeal filed by the Revenue.
 
The Hon'ble Madras HC held that "we find that the Tribunal rightly understood the scope of the transaction done by the assessee. The consistent case of the assessee was that they invested a sum of Rs.7.25 crores in SBI Magnum Insta Cash Fund, that the amount was invested on 30.3.2011, that they had not incurred any expenditure in making such investment and that at the year end, the assessee did not earn tax free income from such investments. In terms of Section 14A of the Act, the only expenditure, which was proved to be incurred in relation to earning of tax free income, could be disallowed and such provision could not be extended to disallow the expenditure, which was assumed to have been incurred for earning tax free income."
 
Hon'ble HC also observed that "to apply the provisions of Section 14A of the Act, the Assessing Officer should have recorded a finding as to how SubSection (1) of Section 14A of the Act would stand attracted. In the absence of any such finding, the disallowance made was not justifiable. In fact, the Assessing Officer straightaway proceeded to the second limb of Section 14(2) of the Act, which is impermissible. The Tribunal rightly took note of the decision in the case of Redington India Ltd., wherein it was held that the provisions of Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 cannot be made applicable in vacuum i.e in the absence of exempt income. Therefore, we find that the Tribunal was right in deciding the issue against the Revenue and in favour of the assessee."
 
Citation: Tax Case Appeal No.26 of 2018, Madras HC.

Investment in Growth Fund does not attract 14A disallowance

Mutual fund taxation, growth fund, 14A deduction, income tax

Get the insight of important judicial precedent on Section 36(1)(iii) by clicking on the following link-
 
<h2><a href="https://public.tableau.com/shared/BMY3C6KS7?:display_count=y&amp;:origin=viz_share_link&amp;:showVizHome=no" target="_blank" rel="noreferrer noopener">Tableau Public (Link)</a></h2>
 
Just hover over the chart area, you will get the citation and head note of the case law.
 
Author, Manish Harchandani, CA

Insight of important judicial precedent on Section 36(1)(iii).

judgments on section 36(1)(iii) interest deduction, tax benefit 

A formal Memorandum of Understanding (MoU) was signed today between the CBDT) and the SEBI for data exchange. This will facilitate the sharing of data and information between SEBI and CBDT on an automatic and regular basis. The information will also be shared on request and&nbsp;suo moto&nbsp;basis for the purpose of carrying out their functions under various laws. The formal press release is as under:
https://www.sebi.gov.in/media/press-releases/jul-2020/sebi-signs-mou-with-cbdt_47030.html

CBDT and SEBI sign MoU for data sharing

CBDT Income tax MoU with SEBI, data sharing MoU

Hon'ble Kolkata ITAT allowed the appeal of the assessee and directed the AO to re-compute the disallowance under Rule 8D(2)(iii) by taking into consideration only the value of investment in shares which actually fetched exempt dividend income to the assessee during the year under consideration.
 
The learned counsel for the assessee had contended that the disallowance u/s 14A read with rule 8D is required to be worked out by taking into consideration only the value of investment in shares which actually fetched the exempt dividend income to the assessee and not the value of entire investment as done by the AO. This contention of the learned counsel for the assessee was duly supported by the decision of Hon'ble Kolkata High Court in the case of REI Agro Ltd. GA No. 3022 of 2013 (ITAT No. 161 of 2013).
 
Citation: ITA No. 2061/Kol/2019
 
Author, Manish Harchandani, CA
 
Disclaimer: The contents of this article are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Harchandani &amp; Associates does not accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.

Disallowance u/s 14A r.w. rule 8D to be made by taking into consideration only the value of investment in shares which actually fetched exempt income and not the all investments

14A disallowance, Rule 8D, investment in shares 14A disallowance

Delhi ITAT delete the addition made on account of agency commission paid to Foreign Party (Non Resident) - relied on assessee's own case, wherein it was held that
 
<blockquote class="wp-block-quote">
"the assessee-firm&nbsp; made&nbsp; payments&nbsp; of commission&nbsp; to&nbsp; those&nbsp; agents,&nbsp; since&nbsp; those agents had&nbsp; their&nbsp; offices&nbsp; situated&nbsp; abroad&nbsp; and, moreover, services&nbsp; were&nbsp; also&nbsp; rendered&nbsp; by them&nbsp; outside&nbsp; India, assessee&nbsp; was&nbsp; not required&nbsp; to&nbsp; deduct&nbsp; tax&nbsp; at&nbsp; source while making&nbsp; payments&nbsp; in&nbsp; question.&rdquo;
</blockquote>
 
Citation: ITA.No.5959/Del./2017
 
Author,
 
Manish Harchandani, CA
 
https://harchandani.in/

Agency commission paid to non resident - not taxable in India

TDS on commission, commission payment to non resident, tds on NRI

In today&rsquo;s global economy, Indian companies frequently leverage international expertise to scale. When it comes to compensating these foreign consultants, many businesses explore the possibility of issuing equity shares in lieu of cash.
While this is a strategic way to manage cash flow and align interests, the regulatory landscape in India makes a clear distinction between different types of services.
<h3 data-path-to-node="5">Can we issue shares to a foreign consultant instead of a fee?</h3>
Generally, yes, but with specific conditions. Under Indian regulatory control guidelines, a company can issue shares against "funds payable" to a non-resident. Essentially, if you have a legal obligation to pay a consultant for services, you may be able to "capitalize" that debt into equity. However, this is primarily reserved for specific high-value contributions like technology transfers.
<h3 data-path-to-node="7">Does the nature of the service matter?</h3>
Absolutely. This is the most critical factor in determining if the transaction is allowed under the "Automatic Route" (without prior regulatory approval).
<ul data-path-to-node="9">
<li>
Lump-sum Technical Know-how &amp; Royalties: If the consultant is providing technical blueprints, specialized technology, or intellectual property, the law generally allows for the issuance of shares against these dues.
</li>
<li>
General Consultancy &amp; Legal Services: If the services are purely advisory, such as marketing strategy, general management, or legal counsel, the direct issuance of shares is typically not allowed without prior permission from the authorities.
</li>
</ul>
<h3 data-path-to-node="10">What are the key tax considerations?</h3>
One cannot simply convert the total invoice value into shares. The transaction must be analyzed net of applicable taxes.
<ul data-path-to-node="12">
<li>
TDS Obligations: The Indian company must satisfy Tax Deducted at Source (TDS) requirements in cash before the equity is allotted.
</li>
<li>
DTAA Analysis: It is vital to review the Double Taxation Avoidance Agreement (DTAA) between India and the consultant's home country. This analysis ensures the correct tax rate is applied and prevents the consultant from being taxed twice on the same income.
</li>
</ul>
<h3 data-path-to-node="13">Is a valuation report mandatory?</h3>
Yes. You cannot decide the share price arbitrarily. To ensure the shares are issued at a fair value, a formal valuation certification from a registered professional (such as a Chartered Accountant or a Merchant Banker) is required. This protects the company from future scrutiny regarding "undervalued" share issuances to non-residents.
<h3 data-path-to-node="15">What about reporting?</h3>
Even though no actual money enters a bank account, the issuance of shares is considered a "deemed" inflow. Therefore, the company must complete formal reporting with the RBI within 30 days of the allotment. This filing must be supported by the underlying service agreements and the valuation certificate.
<h3 data-path-to-node="18">How We Can Assist</h3>
Navigating cross-border equity issuance requires a blend of corporate law expertise and tax precision. We look forward to providing services relating to the above matter, including:
<ul data-path-to-node="20">
<li>
Classifying service agreements to meet "Technical Know-how" standards.
</li>
<li>
Conducting detailed DTAA and tax withholding analysis.
</li>
<li>
Facilitating the valuation and regulatory reporting process.
</li>
</ul>
Please let us know if you would like to schedule a consultation to discuss your specific requirements.

Shares for Services: A Guide to Non-Cash Allotment for Foreign Consultants

Shares for Services: A Guide to Non-Cash Allotment for Foreign Consult

FEMA Mode of Payment Rules 2025: Complete Guide to FDI Payment & Remittance Compliance

FEMA Mode of Payment Rules 2025: Complete Guide to FDI Payment & Remit

Foreign Direct Investment (FDI) in India is governed by the Foreign Exchange Management Act (FEMA), and entities receiving FDI must adhere to strict reporting and compliance requirements. Non-compliance can result in penalties, making it crucial for businesses to be aware of their obligations. Below is a detailed breakdown of the reporting requirements under FEMA.
<h2>1. Form Foreign Currency-Gross Provisional Return (FC-GPR)</h2>
Indian companies issuing equity instruments to non-resident investors must report such transactions in Form FC-GPR within 30 days from the date of issue. This also applies to participating interest/rights in oil fields.
<h2>2. Annual Return on Foreign Liabilities and Assets (FLA)</h2>
Entities that have received FDI, including Limited Liability Partnerships (LLPs) receiving capital contributions, must submit Form FLA to the Reserve Bank of India (RBI) on or before July 15 each year. The financial year for this reporting runs from April to March.
<h2>3. Form Foreign Currency-Transfer of Shares (FC-TRS)</h2>
This form is required for the transfer of equity instruments under the following conditions:
<ul data-spread="false">
<li>
Between a non-resident on a repatriable basis and another non-resident on a non-repatriable basis.
</li>
<li>
Between a non-resident on a repatriable basis and a resident Indian.
</li>
<li>
Transfers on recognized stock exchanges.
</li>
<li>
Transfers related to participating interest/rights in oil fields.
</li>
</ul>
Deadline: Form FC-TRS must be filed within 60 days from the date of transfer or receipt/remittance of funds, whichever is earlier.
<h2>4. Form Employees' Stock Option (ESOP)</h2>
If an Indian company issues stock options to non-resident employees/directors, including those of its holding, joint venture, or wholly owned subsidiary, it must file Form ESOP within 30 days from the date of issue.
<h2>5. Form Depository Receipt Return (DRR)</h2>
Domestic custodians must report the issue or transfer of depository receipts under the Depository Receipt Scheme, 2014 in Form DRR within 30 days from the closure of the issue.
<h2>6. Form LLP (I) and Form LLP (II)</h2>
<ul data-spread="false">
<li>
Form LLP (I): Filed within 30 days of receiving FDI in the form of capital contribution.
</li>
<li>
Form LLP (II): Required for the transfer of capital contribution/profit shares between a resident and a non-resident within 60 days from receipt of funds.
</li>
</ul>
<h2>7. LEC (FII) and LEC (NRI)</h2>
<ul data-spread="false">
<li>
LEC (FII): Authorized Dealer Category I banks must report Foreign Portfolio Investment (FPI) transactions.
</li>
<li>
LEC (NRI): Reports the purchase/transfer of equity instruments by Non-Resident Indians (NRIs) or Overseas Citizens of India (OCIs).
</li>
</ul>
<h2>8. Form InVI</h2>
Investment vehicles issuing units to non-residents must file Form InVI within 30 days from the date of issue.
<h2>9. Downstream Investment Reporting</h2>
<ul data-spread="false">
<li>
DPIIT Notification: Entities making downstream investments must notify the Secretariat for Industrial Assistance (DPIIT) within 30 days.
</li>
<li>
Form DI: Required when downstream investment results in indirect foreign investment, to be filed within 30 days from allotment of equity instruments.
</li>
</ul>
<h2>10. Form Convertible Notes (CN)</h2>
<ul data-spread="false">
<li>
Startups issuing Convertible Notes to non-residents must file Form CN within 30 days.
</li>
<li>
Transfers of Convertible Notes between residents and non-residents must also be reported within 30 days.
</li>
</ul>
<h2>11. Late Submission Fee (LSF) for Delayed Reporting</h2>
Entities failing to comply with these reporting requirements may be subject Late Submission Fee (LSF) determined by the RBI in consultation with the Central Government from time to time.
<h2>Final Thoughts</h2>
Ensuring timely compliance with FEMA reporting obligations is critical for businesses receiving FDI in India. Engaging with an experienced legal or financial advisor can help avoid regulatory penalties and streamline compliance processes.

Reporting and Compliance under FEMA for Entities Receiving FDI

Revised Master Direction on Risk Management and Inter-Bank Dealings: Key Updates, FAQs, and Compliance Guide
The Reserve Bank of India (RBI) has issued the Revised Master Direction on Risk Management and Inter-Bank Dealings through A.P. (DIR Series) Circular No. 13, dated January 5, 2024. This revised direction, effective April 5, 2024, aims to streamline foreign exchange risk management practices by consolidating various regulations and incorporating stakeholder feedback.
<h2>Key Highlights of the Revised Directions</h2>
<h3>1. Consolidation of Regulatory Framework</h3>
The revised framework consolidates the regulations from the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000, and various amendments made since then. It integrates provisions from the Currency Futures and Exchange Traded Currency Options Directions, ensuring a comprehensive approach to risk management.
<h3>2. Expansion of Hedging Facilities</h3>
The updated guidelines provide enhanced hedging options for foreign exchange risks. Key changes include:
<ul data-spread="false">
<li>
Inclusion of Non-Deliverable Foreign Exchange Derivative Contracts (NDDCs) in hedging instruments.
</li>
<li>
Classification of users into retail and non-retail categories based on financial exposure and net worth.
</li>
<li>
Introduction of specific eligibility criteria for different market participants, including NBFCs, mutual funds, pension funds, and foreign investors.
</li>
</ul>
<h3>3. Eligibility and User Classification</h3>
Under the new classification:
<ul data-spread="false">
<li>
Non-retail users include entities such as banks, financial institutions, and large corporations with a minimum net worth of ₹500 crore or turnover of ₹1000 crore.
</li>
<li>
Retail users encompass smaller market participants who do not meet the above criteria but are still eligible to access risk management tools.
</li>
</ul>
<h3>4. Permitted Foreign Exchange Contracts</h3>
The revised Master Direction allows various foreign exchange and interest rate derivative contracts, including:
<ul data-spread="false">
<li>
Foreign exchange forward, swap, and currency swaps.
</li>
<li>
Foreign exchange options (European), including call and put options.
</li>
<li>
Interest rate derivatives, such as forward rate agreements and interest rate swaps.
</li>
</ul>
<h3>5. Free Cancellation and Rebooking of Contracts</h3>
A major relief for businesses, the RBI now permits free cancellation and rebooking of derivative contracts. Additionally:
<ul data-spread="false">
<li>
Net gains from anticipated exposure hedging contracts will be passed on only at the time of cash flow realization.
</li>
<li>
In exceptional cases where the underlying cash flow does not materialize, RBI allows gains to be passed on, subject to bank approval.
</li>
</ul>
<h3>6. Compliance and Reporting Requirements</h3>
To ensure regulatory compliance:
<ul data-spread="false">
<li>
Authorized Dealers (AD Category-I Banks) must report foreign exchange transactions and ensure transparency in derivative pricing.
</li>
<li>
Recognized stock exchanges must monitor user exposure and compliance with underlying exposure limits.
</li>
<li>
Financial Benchmark India Pvt. Ltd. (FBIL) Reference Rates will be used for settlement of INR-denominated contracts.
</li>
</ul>
<h2>Frequently Asked Questions (FAQs) on Forex Transactions by Residents</h2>
<h3>1. Can a resident person undertake forex transactions?</h3>
Yes, residents are permitted to undertake forex transactions only with authorized persons and for permitted purposes as defined under FEMA. Engaging in transactions with unauthorized persons or for unauthorized purposes can lead to penal action.
<h3>2. Who are authorized persons?</h3>
Authorized persons are entities authorized by the RBI to deal in forex. This includes authorized dealers, money changers, offshore banking units, or any other entities authorized under Section 10(1) of FEMA.
<h3>3. Can a resident person undertake forex transactions on internet/electronic trading portals?</h3>
Permitted forex transactions executed electronically should be conducted only on Electronic Trading Platforms (ETPs) authorized by the RBI or on recognized stock exchanges such as NSE, BSE, and MSE. Engaging on unauthorized ETPs is prohibited and may result in penal action.
<h3>4. What is an Electronic Trading Platform (ETP)? Do they require authorization from RBI to operate in India?</h3>
An ETP is any electronic system where transactions in securities, forex instruments, derivatives, etc., are conducted. Operating an ETP in India requires prior authorization from the RBI under the Electronic Trading Platforms (Reserve Bank) Directions, 2018.
<h3>5. Is there information available about entities not authorized to deal in forex?</h3>
Yes, the RBI has published an Alert List containing names of entities neither authorized to deal in forex under FEMA nor authorized to operate ETPs.
<h3>6. Can a resident individual remit margin overseas under the Liberalised Remittance Scheme (LRS) for online forex trading?</h3>
No, remittances under LRS can only be made for permissible current and capital account transactions. Remitting funds for margins or margin calls to overseas exchanges is not allowed under the scheme.
<h2>Can Residents Trade in Foreign Currency Derivatives Through Overseas Entities?</h2>
As per RBI regulations, Indian residents are not permitted to trade in foreign currency derivatives through overseas entities in which they have invested via Overseas Direct Investment (ODI). This would be considered a violation of FEMA guidelines.
<h2>Implications for Businesses and Investors</h2>
<h3>1. Enhanced Risk Management Tools</h3>
Corporates and financial institutions can now access a wider range of hedging instruments, allowing better risk mitigation strategies against foreign exchange volatility.
<h3>2. Increased Market Liquidity</h3>
The inclusion of NDDCs and the consolidation of exchange-traded currency derivatives into the Master Direction are expected to boost market liquidity and efficiency.
<h3>3. Greater Flexibility in FX Transactions</h3>
With relaxed rebooking norms and higher exposure limits without prior approvals, businesses have greater flexibility in managing their foreign exchange exposure.
<h2>Conclusion</h2>
The Revised Master Direction on Risk Management and Inter-Bank Dealings marks a significant step in enhancing India&rsquo;s foreign exchange market regulations. Businesses, financial institutions, and investors must familiarize themselves with these updates to effectively leverage new opportunities and mitigate risks in the evolving global financial landscape.
<h3>Stay Updated!</h3>
For more insights into RBI regulations and their impact on businesses, subscribe to our newsletter or follow us for the latest updates on foreign exchange management.
For further information, visit the official RBI FAQs on Foreign Exchange Transactions <a href="https://www.rbi.org.in/commonman/english/scripts/FAQs.aspx?Id=3347">here</a>.
&nbsp;

RBI’s Revised Master Direction on Risk Management & Forex Trading: Key Updates & FAQs

RBI’s Revised Master Direction on Risk Management & Forex Trading

The RBI has rationalised the FIRMS portal in order auto acknowledge the Forms and to process the same for determining any violation involved therein.
Following are the salient features of the changes made on the FIRMS portal:
- All forms submitted with the requisite documents will be auto-acknowledged on the FIRMS portal with a time stamp and an auto-generated e-mail will be sent to the applicant.
- The forms submitted within prescribed timelines, will be verified by the AD banks based on the uploaded mandatory documents and ensure that the same are in compliance with the extant guidelines.
- The system would identify the delay in reporting, if any.
- For forms filed with a delay less than or equal to three years, the AD banks will approve the same, subject to payment of LSF.
- The LSF will be computed by the system and an e-mail will be sent to the applicant and the concerned Regional Office (RO) of RBI specifying the amount and the timeline within which it is to be paid to the concerned RO of RBI.
- Once the LSF amount is realised, the concerned RO will update the status in the FIRMS portal and the updated status will be communicated to the applicant through a system generated e-mail, which can also be viewed in the FIRMS portal.
- The AD bank will approve the forms filed with a delay greater than three years, subject to compounding of contravention. The applicant may thereafter approach RBI with their application for compounding.
- The remarks of the AD Bank for rejection of forms, if any, will be communicated to the applicant through a system generated e-mail and the same can also be viewed in the FIRMS portal.
Conclusions:
These changes are welcomed steps which are intended to improve transparency and better implementation of the reporting requirements. Earlier, the AD Banks had to process these forms within three working days, however, now they have to process these forms within five working days. It is also important here to state that the relevant date for the compliance is date of reporting to the RBI by the AD Bank and not the date of uploading. So, it is advisable to the user to file the relevant forms much before the due date to avoid any delay which may result in Late Submission Fees or Compounding Fees.

Foreign Direct Investment in India - Update on Reporting and Compliances

FDI Foreign Direct Investment Reporting Compliances Update

<h2>Introduction of the One Person Company</h2>
One Person Company (OPC) in India is a new concept that has been introduced with the Companies Act 2013. This form of company is mainly designed for an individual who are not willing to enter in partnership with others but want a corporate structure. OPC can be termed as Organized / Corporate Structure of the Proprietorship along-with a feature of limited liability.
Section 2(62) of the Act provides that the &ldquo;One Person Company means a company which has only one person as a member.&rdquo; That means the 100% of shareholding being held by the single individual.
However, it is important to note that no individual shall be eligible to incorporate more than one OPC or become a nominee in more than one such company. However, if an individual, being a member in OPC becomes a member in another OPC by virtue of his being a nominee in that OPC within a period of 180 days then he shall withdraw his membership from either of the OPCs within 180 days.
<h2>Whether FDI in OPC is allowed?</h2>
In OPC, the whole shares are held by single individual i.e. a natural person and not by any legal entity. Therefore, FDI by the Foreign Company in the OPC will not be permissible as per the provisions of Companies Act however, FDI by non-resident Indian who is citizen of India may form an OPC.
NRIs can invest in OPC on non-repatriation basis as well as repatriation basis in OPC.
<h2>Investment on Non-Repatriation basis</h2>
Investment on Non-Repatriation basis is treated at par with domestic investment. Therefore, FEMA pricing guidelines and reporting compliances are not applicable at the time of investment. &nbsp;The disinvestment / sales proceeds shall be credited only to the NRO account of the person concerned, irrespective of the type of account from which the consideration was paid.
There are certain businesses in which investment is prohibited under this route such as a Nidhi company or a company engaged in agricultural or plantation activities or real estate business or construction of farm houses or dealing in transfer of development rights.
The amount of consideration shall be paid as inward remittance from abroad through banking channels or out of funds held in NRE/FCNR(B)/NRO account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.
<h2>Investment on Repatriation basis</h2>
Investment on Repatriation basis will require compliance with sectoral caps and conditions, FEMA pricing guidelines and reporting compliance such as FCGPR, FCTRS, FLA etc. The Sales proceed can either be credit to the NRE account or can be transfer to the foreign bank account (subject to deduction of applicable taxes)
In this route, the prohibited sectors are: (a) Lottery business including Government or private lottery, online lotteries, etc. (b) Gambling and betting including casinos, etc. (c) Chit funds (d) Nidhi company (e) Trading in Transferable Development Rights (f) Real estate business or construction of farm houses (g) Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes. (h) Activities or sectors not open to private sector investment e.g. (I) Atomic energy and (II) Railway operations (other than permitted activities mentioned in paragraph (3) of Schedule I) (i) Foreign technology collaborations in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for lottery business and gambling and betting activities.
The amount of consideration shall be paid as inward remittance from abroad through banking channels or out of funds held in NRE/FCNR(B)/Escrow account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.
Disclaimer
The information contained in this article is for general informational purposes only and is not intended as legal advice or to create an professional-client relationship. The contents of this article should not be relied upon as a substitute for obtaining legal advice from a qualified attorney. No professional-client relationship is formed by the use of this information, and no reader should act on this information without seeking professional / legal counsel. Hence, we recommend that professional advice is sought before taking any action on specific issues before entering into any investment or financial obligation based on this Content

Foreign Direct Investment (FDI) in One Person Company (OPC)

What is late submission fees (LSF) under FEMA as provided by the RBI?
LSF is simple process of paying a prescribed late fee to regularise reporting delays of various complianes applicable under the FEMA such as delay in reporting of Form ODI Part-II/ APR, FCGPR (B), FLA Returns, Form OPI, FC-GPR, FCTRS, Form ESOP, Form LLP(I), Form LLP(II), Form CN, Form DI, Form InVi, Form ODI-Part I, Form ODI-Part III, Form FC, Form ECB, Form ECB-2, Revised Form ECB or any other return which captures flows or returns which capture reporting of non-fund transactions or any other transactional reporting.
LSF payment is an additional facility for regularizing reporting delays without undergoing the lenghthy compounding procedure. LSF is voluntary and advisable. However, reporting party may still opt for compounding by not paying LSF.
&nbsp;
What is the process to LSF?
Belated reporting or cmpliances received by the AD Bank are forwarded to the RBI. The RBI shall then condone the delay and issue a conditional acknowledgment subject to payment of LSF within a stipulated timeframe.
LSF is levied as per the computation matrix. Final acknowledgment of reporting shall be issued only upon payment of LSF by the reporting party.
LSF is not refundable.
LSF Matrix
<table>
<tbody>
<tr>
<td width="312">
Type of Reporting delays
</td>
<td width="312">
LSF in Rs
</td>
</tr>
<tr>
<td width="312">
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form ODI Part-II
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; APR
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; FCGPR (B)
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; FLA Returns
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form OPI,
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; evidence of investment or any other return which does not capture flows or any other periodical reporting
</td>
<td width="312">
Rs. 7,500/-
</td>
</tr>
<tr>
<td width="312">
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; FC-GPR
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; FCTRS
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form ESOP
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form LLP(I)
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form LLP(II)
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form CN
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form DI
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form InVi
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form ODI-Part I,
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form ODI-Part III,
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form FC,
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form ECB,
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form ECB-2,
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Revised Form ECB or any other return which captures flows or returns which capture reporting of non-fund transactions or any other transactional reporting
</td>
<td width="312">
[ Rs. 7,500/- + (0.025% &times; A &times; n) ]
&nbsp;
&nbsp;
&nbsp;
</td>
</tr>
</tbody>
</table>
&nbsp;
Notes:
<ul>
<li>&ldquo;A&rdquo; is the amount involved in the delayed reporting.</li>
</ul>
&nbsp;
<ul>
<li>&ldquo;n&rdquo; is the number of years of delay in submission rounded-upwards to the nearest month and expressed up to 2 decimal points.</li>
</ul>
&nbsp;
<ul>
<li>LSF amount is per return. However, for any number of Form ECB-2 returns, delayed submission for each LRN will be treated as one instance for the fixed component. Further, &lsquo;A&rsquo; for any ECB-2 return will be the gross inflow or outflow (including interest and other charges), whichever is more.</li>
</ul>
&nbsp;
<ul>
<li>Maximum LSF amount will be limited to 100 per cent of &lsquo;A&rsquo; and will be rounded upwards to the nearest hundred.</li>
</ul>
&nbsp;
<ul>
<li>Where an advice has been issued for payment of LSF and such LSF is not paid within 30 days, such advice shall be considered as null and void and any LSF received beyond this period shall not be accepted. If the applicant subsequently approaches for payment of LSF for the same delayed reporting, the date of receipt of such application shall be treated as the reference date for the purpose of calculation of &ldquo;n&rdquo;.</li>
</ul>
&nbsp;
<ul>
<li>The facility for opting for LSF shall be available up to three years from the due date of reporting/ submission. The option of LSF shall also be available for delayed reporting/submissions under the Notification No. FEMA 120/2004-RB and earlier corresponding regulations, up to three years from the date of notification of Foreign Exchange Management (Overseas Investment) Regulations, 2022.</li>
</ul>
&nbsp;
<ul>
<li>In case a person responsible for any submission or filing under the provisions of FEMA, neither makes such submission/filing within the specified time nor makes such submission/filing along with LSF, such person shall be liable for penal action under the provisions of FEMA, 1999.</li>
</ul>
&nbsp;
Concluding Remarks:
LSF is business friendly approach which bypass the lenghthy process of compounding under the FEMA. This initiative can be viewed from the perspective of ease of doing business.&nbsp;

RBI Revised a matrix of late submission fees / penalty under FEMA vide RBI/2022-23/122 A.P. (DIR Series) Circular No. 16 dated September 30, 2022 

Late filing penalty under FEMA

New Overseas Direct Investment (ODI) / Overseas Investment (OI) Regime under the FEMA

FEMA ODI New Rules, Regulations Overseas Investment OI ODI new rules

<h2>1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Introduction</h2>
 
<ol type="1">
<li>This article provides the complete insight of the Acquisition and transfer of immovable property in India by-</li>
<li>Non-Resident Indian (NRI),</li>
<li>Overseas Citizen of India Card Holders (OCI) and</li>
</ol>
 
as per the provisions of the Foreign Exchange Management Act, 1999 (FEMA) and rules / regulations made thereunder.
 
<ol type="1">
<li>The acquisition and transfer of immovable property in India by PROI (Person Resident of India) and by some other specified persons (such as Long Term Visa (LTV) Holders, Foreign Embassies or Diplomats or Consulate Generals etc.) is not discussed in this article and the same will be discussed in upcoming article. Further, the conceptual clarity and difference between NRI, OCI, PROI, PRI, Citizen etc. is separate topic. This requires in depth understanding, therefore, the same will be discussed in separate article. The link of upcoming relevant articles will be shared in comment section for ease of reference.</li>
</ol>
 
<h2>2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Historical Background</h2>
 
<ul>
<li>[Before the enactment of FEMA] As we know, before the enactment of FEMA, there was Foreign Exchange Regulation Act, 1973 (Repealed by FEMA) and section 31(1) of said Act provided that &ldquo;No person who is not a citizen of India and no company (other than a banking company) which is not incorporated under any law in force in India shall, except with the previous general or special permission of the Reserve Bank, acquire or hold or transfer or dispose of by sale, mortgage, lease, gift, settlement or otherwise an immovable property situate in India.&rdquo;</li>
<li>[After the enactment of FEMA] The FEMA classifies each foreign transaction in two categories viz: Current Account Transaction and Capital Account Transaction. The Current account transactions are generally permitted unless prohibited and capital account transactions are generally prohibited unless specifically permitted. The Central Government has an exclusive jurisdiction to regulate current account transactions and Reserve Bank of India (RBI) had exclusive jurisdiction to regulate capital account transactions. Accordingly, as per the provisions of section 6(3)(i) (now omitted), the RBI had exclusive jurisdiction to prohibit, restrict or regulate the acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India</li>
<li>[Amendment by Finance Act 2015 in FEMA] Later on,the Finance Act, 2015 amended the section 6 of the FEMA and classifies the capital account transactions in two categories: viz capital account transactions, involving debt instruments and capital account transactions, not involving debt instruments. Further, it has been provided that the term &ldquo;debt instruments&rdquo; shall mean, such instruments as may be determined by the Central Government in consultation with the Reserve Bank.</li>
<li>[Current Position] As discussed above, by the Finance Act 2015, the capital account transactions were further classified in two categories: viz capital account transactions, involving debt instruments and capital account transactions, not involving debt instruments. The power to regulate the capital account transactions, involving debt instruments is with the RBI and the power to regulate the capital account transactions, not involving debt instruments is with Central Government.</li>
<li>Summary of Above Discussion: The above discussion is summarized as under:</li>
</ul>
 
<figure class="wp-block-image size-large"><img class="wp-image-362" src="https://harchandanica.files.wordpress.com/2021/06/fema-1.png?w=625" alt="" /></figure>
 
<h2>3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Important Terms</h2>
 
<ul>
<li>[Immovable Property]The term Immovable Property neither has been defined in the FEMA nor in rules / regulations. Therefore, the meaning of same can be borrowed from the General Clause Act, 1897. Section 3(26) of the said Act provides that &ldquo;immovable property&rdquo; shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth;Apart from the above, the Transfer of Property Act, 1882, Registration Act, 1908 and Real Estate (Regulation and Development) Act, 2016 also contain the definition of immovable property. However, in substance, all these enacts highlight similar view while defining &ldquo;immovable property&rdquo;.</li>
</ul>
 
<ul>
<li>[Acquire]The term acquire is not defined in the Rules or Act. Generally, it means &ldquo;to gain possession or control of; to get or obtain.&rdquo;</li>
</ul>
 
<ul>
<li>[Transfer]Transfer is Defined in FEMA. Section 2(ze) define [&ldquo;transfer&rdquo; includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer of right, title, possession or lien.]</li>
</ul>
 
<h2>4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; FEMA Provisions &amp; Relevant Rules</h2>
 
<ul>
<li>Section 6(2A) and 46(2)(ab) empower the Central Government to notify or make rules with respect to the permissible classes of capital account transactions (not involving debt instrument), the limits of admissibility of foreign exchange, and the prohibition, restriction or regulation of such transactions.</li>
</ul>
 
<ul>
<li>Therefore, in Oct. 2019, the Central Government notifies <a>Foreign Exchange Management (Non-debt Instruments) Rules, 2019</a> by suppressing the previous regulations made by RBI viz: Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2017 and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018.</li>
</ul>
 
<ul>
<li>Chapter IX of Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (&ldquo;Rules&rdquo;) contain the provisions regarding acquisition and transfer of immovable property in India.</li>
</ul>
 
<h2>5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; General (Rules applicable in all cases)</h2>
 
<ul>
<li>[All transactions should be done only through banking channel in India and subject to payment of applicable tax]
<ul>
<li>Any transaction involving acquisition or transfer of immovable property shall be undertaken through banking channels in India and subject to payment of applicable taxes and other duties or levies in India (e.g. Stamp Duty, Registration Fees, Applicable Income Tax etc.)</li>
</ul>
</li>
</ul>
 
<ul>
<li>[Prior approval of RBI required by citizens of certain countries]
<ul>
<li>Prior permission of the RBI required to acquire or transfer of immovable property in India (other than lease not exceeding five years) by the person who is citizen or legal person (company, LLP, Firm, Trust etc.) of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Hong Kong or Macau or Democratic People&rsquo;s Republic of Korea (DPRK).</li>
<li>Please note that this rule links the condition of prior approval of the RBI with the citizenship (including legal person incorporated in those countries), therefore, even if such citizens become Person Resident in India by virtue of provisions of Section 2(v), then still, they must obtain the prior approval of the RBI.</li>
<li>Now suppose, there are two persons being husband and wife and any of them is citizen of above country and another is citizen of India and both desires to purchase the property in joint name, then, in the opinion of author, still prior approval of RBI is must.</li>
<li>However, this prohibition is not applicable to OCI card holder (i.e. a person who is holding OCI card and is citizen of any of above mentioned country)</li>
</ul>
</li>
</ul>
 
<ul>
<li>[Prior approval of RBI is must in case of any deviation or non fulfilment of any condition]
<ul>
<li>Any transaction, which is not specified in Chapter IX of Rules or in case of any deviation or non fulfilment of any conditions, requires prior approval of RBI before the execution of such transaction.</li>
</ul>
<ul>
<li>In case if person fails to obtain prior approval, wherever required, and execute the transaction, then this may attract the adjudication or person have to file compounding application for compounding of offence before the RBI.</li>
</ul>
</li>
</ul>
 
<h2>6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Rules for NRI and OCI</h2>
 
<ul>
<li>[Acquisition other than gift or inheritance]
<ul>
<li>NRI and OCI can acquire any immovable property other than an agricultural land or farm house or plantation property</li>
</ul>
<ul>
<li>Permitted mode of payment: (i) funds received in India through banking channels by way of inward remittance from any place outside India or (ii) funds held in any non-resident account maintained in accordance with the provisions of the Act, rules or regulations framed thereunder (such as NRE / FCNR / NRO account). However, property acquired by utilizing funds of NRO account cannot be repatriate outside India (see para 7 of this article).</li>
</ul>
<ul>
<li>Prohibited mode of payment: payment made through traveller&rsquo;s cheque or by foreign currency notes or by any other mode other than those specifically permitted.</li>
</ul>
</li>
</ul>
 
<ul>
<li>[Acquisition by way of gift]
<ul>
<li>NRI and OCI can acquire any immovable property in India (other than agricultural land or farm house or plantation property) by way of gift from a person who is either person resident in India or NRI or OCI.</li>
</ul>
<ul>
<li>Further, such donor (who is giving gift of immovable property) should be relative of such NRI / OCI with the meaning of section 2(77) of the Companies Act, 2013.</li>
</ul>
<ul>
<li>Section 2(77) of Companies Act, 2013 define relative as under;</li>
</ul>
</li>
</ul>
 
<blockquote class="wp-block-quote">
(77) "relative", with reference to any person, means any one who is related to another, if&mdash;
(i) they are members of a Hindu Undivided Family;
(ii) they are husband and wife; or
(iii) one person is related to the other in such manner as may be prescribed (following relations are prescribed)
(1) Father (includes step-father)
(2) Mother (includes the step-mother)
(3) Son (includes step son)
(4) Son&rsquo;s wife.
(5) Daughter.
(6) Daughter&rsquo;s husband.
(7) Brother (includes step brother)
(8) Sister (includes the step-sister)
</blockquote>
 
<ul>
<li>[Acquisition by way of inheritance]
<ul>
<li>Sub-section (5) of section 6 of FEMA provides that</li>
<li>A person resident outside India</li>
<li>may hold, own, transfer or invest</li>
<li>in Indian currency, security or any immovable property situated in India</li>
<li>if such currency, security or property was acquired, held or owned by such person</li>
<li>when he was resident in India or inherited from a person who was resident in India.</li>
</ul>
</li>
<li>Section 6(5) of FEMA allows the PROI to hold any immovable property situated in India property if such property was acquired by such person when he was resident in India or inherited from a person who was resident in India. However, this section does not allow to acquire new property by PROI out of fund accumulated during the period when he was resident or funds received in inheritance and this can be appreciated from the reading of the part of the provision (may hold, own, transfer or invest) which does not contain acquire.</li>
<li>NRI and OCI can acquire any property (including agricultural land or farm house or plantation property) by way of inheritance from a person resident outside India who has</li>
</ul>
 
(a.) acquired such immovable property in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of these rules; or
 
(b.) from a person resident in India.
 
<ul>
<li>[Transfer of any property by NRI and OCI]
<ul>
<li>NRI and OCI can transfer any property (including agricultural land or farm house or plantation property) to a person resident in India.</li>
</ul>
</li>
</ul>
 
<ul>
<li>[Joint acquisition by the spouse of a NRI / OCI]
<ul>
<li>PROI, not being an NRI / OCI, who is a spouse of an NRI or OCI may acquire ONE immovable property (other than agricultural land or farm house or plantation property), jointly with his or her NRI or OCI spouse subject to following conditions:</li>
<li>Consideration for transfer, shall be made out of (i) funds received in India through banking channels by way of inward remittance from any place outside India; or (ii) funds held in any non-resident account maintained in accordance with the provisions of the Act and the regulations made by the RBI</li>
<li>No payment for any transfer of immovable property shall be made either by traveller&rsquo;s cheque or by foreign currency notes or by any other mode other than those specifically permitted as above</li>
<li>The marriage has been registered and subsisted for a continuous period of not less than two years immediately preceding the acquisition of such property</li>
<li>Such non-resident spouse is not otherwise prohibited from such acquisition (e.g. suppose if the Spouse is Citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Hong Kong or Macau or Democratic People&rsquo;s Republic of Korea (DPRK), then prior approval of RBI is mandatory)</li>
</ul>
</li>
</ul>
 
<ul>
<li>[Summary]
<ul>
<li>The above discussion is summarized as under:</li>
</ul>
</li>
</ul>
 
<figure class="wp-block-image size-large"><img class="wp-image-363" src="https://harchandanica.files.wordpress.com/2021/06/fema-2.png?w=626" alt="" /></figure>
 
<ul>
<li>Repatriation of sale proceed
<ul>
<li>[Repatriation by person referred in Section 6(5)] PROI or his successor (who acquired immovable property when he was resident in India or inherited from a person who was resident in India) shall not, except with the general or specific permission of the RBI, repatriate outside India the sale proceeds of any immovable property referred to in that sub-section.</li>
</ul>
<ul>
<li>[Repatriation by NRI / OCI] Subject to fulfilment of following conditions NRI / OCI may repatriate the sale proceed outside:</li>
<li>Sale proceed does not relates to agricultural land or farm house or plantation property in India</li>
<li>Such immovable property was acquired by the seller in accordance with the provisions of the foreign exchange law in force at the time of acquisition or the provisions of these rules</li>
<li>In the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties</li>
<li>The amount for acquisition of the immovable property was paid in foreign exchange received through banking channels or out of funds held in Foreign Currency Non-Resident Account or out of funds held in Non-Resident External Account. (it is apparent that, while acquiring, if funds were utilized from NRO account, then such proceed cannot be repatriate outside India. If funds were utilized partially from the NRO and partially from NRE account? In such case, in the opinion of the author, the prior permission of RBI is must.)</li>
</ul>
</li>
</ul>
 
<ul>
<li>Disclaimer</li>
</ul>
 
The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor the publisher or its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.
 
<ul>
<li>About Author</li>
</ul>
 
The author, Manish Harchandani (founder of Harchandani &amp; Associates, Chartered Accountants) is practicing Chartered Accountant and he can be reached at <a href="mailto:harchandanimanish@gmail.com">harchandanimanish@gmail.com</a> and at M. +91 9909880111

Acquisition and transfer of immovable property in India by NRI and OCI

<h2>Introduction</h2>
The Most Favoured Nation (MFN) clause in Double Taxation Avoidance Agreements (DTAAs) plays a crucial role in ensuring equitable tax treatment among treaty partners. This clause grants a contracting state the benefit of more favorable tax provisions that a country may subsequently offer to a third state. By doing so, the MFN clause promotes fair competition, prevents treaty shopping, and fosters uniformity in international taxation. However, its interpretation and application have been the subject of extensive debate, particularly in the context of judicial rulings and unilateral administrative positions. Over the years, the interpretation of MFN clauses has evolved, particularly in response to disputes regarding whether their application is automatic or requires a separate notification or protocol between treaty partners. By this article, the author focuses on the issues relating to the interpretation of the MFN clause and judicial precedents (across the Globe) relating to the interpretation and application of the MFN clause.
<h2>Historical Background</h2>
The concept of MFN treatment originates from international trade law and was later adapted into tax treaties. It traces its roots back to early bilateral trade agreements, where nations sought assurances that their exporters would not be disadvantaged compared to competitors from other countries. In the tax domain, the MFN clause was first incorporated into DTAAs to address disparities in withholding tax rates and other treaty benefits.
<h2>Model tax conventions and MFN</h2>
Neither the UN Model Tax Convention nor the OECD Model Tax Convention explicitly includes a Most Favoured Nation clause in their standard treaty provisions. The primary reason is that both models aim to provide a uniform framework for tax treaties, whereas an MFN clause inherently introduces variability by linking one treaty&rsquo;s benefits to those granted in another. Additionally, MFN clauses can create interpretational challenges, such as whether they apply automatically or require formal amendments, and whether they operate retroactively or prospectively. Given these complexities, the OECD and UN models avoid including MFN provisions and instead leave it to bilateral negotiations between countries.
Despite their absence from the model conventions, MFN clauses are frequently found in bilateral tax treaties, particularly in protocols or side agreements. Countries often include them to preserve competitive tax advantages, particularly in withholding tax rates on dividends, interest, and royalties. These clauses are common in treaties involving European and South Asian countries, where tax authorities seek to ensure that treaty partners do not receive less favorable terms than those granted to third countries. While MFN clauses offer benefits in ensuring parity, their interpretation and enforcement remain contentious in various jurisdictions.
<h2>Example</h2>
Consider a DTAA between Country A and Country B, where a 15% withholding tax rate on dividends is agreed upon. The treaty includes an MFN clause, stating that if Country B subsequently signs a tax treaty with any third country (Country C) offering a lower withholding tax rate, then the same lower rate shall apply to Country A as well. Later, Country B signs a DTAA with Country C, granting a 10% withholding tax rate on dividends. The natural expectation is that Country A should now benefit from this reduced rate.
<h2>Issues Surrounding MFN Clause:</h2>
<ol>
<li> Automatic vs. Non-Automatic Application: Some countries argue that the MFN clause applies automatically when a more favorable provision is granted to another country, while others insist that a formal notification or separate agreement is required.</li>
<li> Requirement of Similarity in Treaty Partners: Many treaties specify that the MFN clause applies only if the third country has a similar level of economic development or if it belongs to a particular group (e.g., OECD membership).</li>
<li> Interpretation of "More Favorable Treatment&rdquo;: There is no uniform definition of what constitutes &ldquo;more favorable treatment&rdquo; under an MFN clause. Some jurisdictions interpret it strictly (limited to tax rates), while others include broader treaty provisions such as capital gains exemptions.</li>
<li> Domestic Law vs. Treaty Interpretation: Some countries apply domestic tax law principles (rather than international treaty interpretation standards) when assessing MFN clauses, leading to inconsistencies and unilateral positions.</li>
<li> Withholding Tax Reductions and Treaty Shopping Concerns: Some countries fear that the MFN clause may be exploited for treaty shopping, where investors structure transactions through jurisdictions with the most favorable tax rates.</li>
<li> Retroactive vs. Prospective Application: A key dispute is whether MFN benefits should apply retroactively (from the date the third-country treaty was signed) or only prospectively after formal recognition by the tax authorities.</li>
<li> Unilateral Denial of MFN Benefits: Some countries have unilaterally denied MFN benefits even when their treaties clearly provide for them, leading to tax litigation and arbitration cases. Example: In Pakistan, the tax authority has refused to grant lower withholding tax rates under MFN clauses, leading to multiple tax disputes.</li>
</ol>
<h2>Judicial Pronouncements on MFN Clause in DTAAs</h2>
<table>
<tbody>
<tr>
<td width="56">
Country
</td>
<td width="94">
Case Name, Year and Court/Tribunal
</td>
<td width="85">
Key Issue
</td>
<td width="76">
Applicability
</td>
<td width="57">
Scope (Narrow/Broad)
</td>
<td width="47">
Covers Tax Rate?
</td>
<td width="76">
Covers Substantive Provisions?
</td>
<td width="110">
Key Ruling
</td>
</tr>
<tr>
<td width="56">
India
</td>
<td width="94">
Nestle SA v. Assessing Officer&nbsp;(2023) Supreme Court of India
(review petition also dismissed by the Supreme Court)
</td>
<td width="85">
Whether MFN benefits require a separate notification under Indian law
</td>
<td width="76">
Requires government notification
</td>
<td width="57">
Narrow
</td>
<td width="47">
Yes
</td>
<td width="76">
No
</td>
<td width="110">
MFN benefits cannot be claimed unless officially notified by India.
</td>
</tr>
<tr>
<td width="56">
India
</td>
<td width="94">
Steria (India) Ltd. v. CIT&nbsp;(2018) Delhi High Court
</td>
<td width="85">
Applicability of MFN clause to non-discrimination provisions
</td>
<td width="76">
Notification required
</td>
<td width="57">
Narrow
</td>
<td width="47">
No
</td>
<td width="76">
No
</td>
<td width="110">
MFN clause does not extend to non-tax procedural aspects.
</td>
</tr>
<tr>
<td width="56">
Switzerland
</td>
<td width="94">
Swiss Federal Tribunal Ruling&nbsp;(2018) Swiss Federal Tribunal
</td>
<td width="85">
Application of MFN clause concerning OECD membership status
</td>
<td width="76">
Treaty-specific requirement
</td>
<td width="57">
Narrow
</td>
<td width="47">
Yes
</td>
<td width="76">
No
</td>
<td width="110">
MFN clause applies only if the third country was an OECD member at the time of treaty signing.
</td>
</tr>
<tr>
<td width="56">
France
</td>
<td width="94">
Conseil d'&Eacute;tat Ruling&nbsp;(2020) French Supreme Administrative Court
</td>
<td width="85">
Extension of MFN clause to capital gains exemptions
</td>
<td width="76">
Treaty interpretation-dependent
</td>
<td width="57">
Broad
</td>
<td width="47">
Yes
</td>
<td width="76">
Yes
</td>
<td width="110">
Capital gains exemption under MFN clause allowed.
</td>
</tr>
<tr>
<td width="56">
Argentina
</td>
<td width="94">
France v. Argentina&nbsp;(2013) Argentine Supreme Court
</td>
<td width="85">
Necessity of domestic legislative approval for MFN clauses
</td>
<td width="76">
Requires formal agreement
</td>
<td width="57">
Narrow
</td>
<td width="47">
Yes
</td>
<td width="76">
No
</td>
<td width="110">
MFN benefit denied due to lack of domestic approval.
</td>
</tr>
<tr>
<td width="56">
United Kingdom
</td>
<td width="94">
HMRC v. Anson&nbsp;(2015) UK Supreme Court
</td>
<td width="85">
Application of MFN benefits to entity classification
</td>
<td width="76">
Context-specific
</td>
<td width="57">
Narrow
</td>
<td width="47">
No
</td>
<td width="76">
No
</td>
<td width="110">
MFN clause does not override domestic entity classification rules.
</td>
</tr>
<tr>
<td width="56">
Spain
</td>
<td width="94">
Maffezini v. Spain&nbsp;(2000) ICSID
</td>
<td width="85">
Extension of MFN clause to procedural rights
</td>
<td width="76">
Broad MFN Interpretation
</td>
<td width="57">
Broad
</td>
<td width="47">
Yes
</td>
<td width="76">
Yes
</td>
<td width="110">
MFN clause applies to both tax rates and procedural rights.
</td>
</tr>
<tr>
<td width="56">
Germany
</td>
<td width="94">
Federal Court of Finance Ruling&nbsp;(2019) Federal Finance Court
</td>
<td width="85">
Requirement of explicit mention of tax type for MFN applicability
</td>
<td width="76">
Strict textual interpretation
</td>
<td width="57">
Narrow
</td>
<td width="47">
Yes
</td>
<td width="76">
No
</td>
<td width="110">
MFN clause applies only if explicitly mentioned in the treaty.
</td>
</tr>
<tr>
<td width="56">
Canada
</td>
<td width="94">
Prevost Car Inc. v. R.&nbsp;(2008) Federal Court of Appeal
</td>
<td width="85">
Applicability of MFN clause to non-taxation issues
</td>
<td width="76">
Notification required
</td>
<td width="57">
Narrow
</td>
<td width="47">
No
</td>
<td width="76">
No
</td>
<td width="110">
MFN clause does not apply to non-taxation issues.
</td>
</tr>
<tr>
<td width="56">
Australia
</td>
<td width="94">
Technical and Further Education Commission v. FC of T&nbsp;(2013) Federal Court of Australia
</td>
<td width="85">
Applicability of MFN clause to payroll tax
</td>
<td width="76">
Treaty-specific requirement
</td>
<td width="57">
Narrow
</td>
<td width="47">
Yes
</td>
<td width="76">
No
</td>
<td width="110">
MFN clause does not apply to payroll tax.
</td>
</tr>
<tr>
<td width="56">
Japan
</td>
<td width="94">
Tokyo High Court judgment&nbsp;(2011) Tokyo High Court
</td>
<td width="85">
Applicability of MFN clause to taxes on income
</td>
<td width="76">
Treaty interpretation-dependent
</td>
<td width="57">
Broad
</td>
<td width="47">
Yes
</td>
<td width="76">
Yes
</td>
<td width="110">
MFN clause applies to taxes on income.
</td>
</tr>
<tr>
<td width="56">
Sweden
</td>
<td width="94">
R&Aring; 2009 ref. 112&nbsp;(2009) Swedish Supreme Administrative Court
</td>
<td width="85">
Applicability of MFN clause to social security contributions
</td>
<td width="76">
Treaty-specific requirement
</td>
<td width="57">
Narrow
</td>
<td width="47">
Yes
</td>
<td width="76">
No
</td>
<td width="110">
MFN clause applies to social security contributions.
</td>
</tr>
<tr>
<td width="56">
New Zealand
</td>
<td width="94">
Ben Nevis Forestry Ventures Ltd v. C of IR&nbsp;(2013) New Zealand Court of Appeal
</td>
<td width="85">
Applicability of MFN clause to forest sink credits
</td>
<td width="76">
Notification required
</td>
<td width="57">
Narrow
</td>
<td width="47">
No
</td>
<td width="76">
No
</td>
<td width="110">
MFN clause does not apply to forest sink credits.
</td>
</tr>
</tbody>
</table>
&nbsp;
<h2>India&rsquo;s Stand on MFN</h2>
The Supreme Court of India made a landmark decision in the case of Nestle SA v. Assessing Officer Circle (International Taxation) on October 19, 2023. This decision significantly impacted the application of the Most-Favoured-Nation (MFN) clause in Double Taxation Avoidance Agreements (DTAAs). The court ruled that for the MFN clause to be operational, a specific notification under Section 90 of the Income-tax Act, 1961, is mandatory. This means that even if the MFN clause is present in the treaty, its benefits cannot be availed automatically without such a notification. The SC also dismiss the review petition vide Diary No. 54088 of 2023) IN CIVIL APPEAL NO. 1427 OF 2023.
Recently, India has invoked the &ldquo;Most Favoured Nation&rdquo; (MFN) clause in its income tax treaty with Spain, reducing the tax rate on royalties for technical services from the standard 20% under Article 13 of the treaty to 10%. This adjustment follows a protocol in the treaty, which stipulates that if India enters into an income tax treaty with another OECD member state after 1 January 1990, imposing a lower tax rate on such royalties, the same rate shall apply to the India-Spain treaty. Crucially, this benefit has been extended through a formal government notification. On 19 March 2024, the Indian Ministry of Finance issued a notification confirming that the conditions for invoking the MFN clause had been satisfied, citing the India-Germany income tax treaty as the basis for the reduced rate. The revised 10% tax rate will take effect from the financial year 2024-25.
The judgment has significant implications for taxpayers and international agreements. Taxpayers intending to avail benefits under the MFN clause of a DTAA must ensure that the requisite notifications have been issued by the Indian government. Without such notifications, the MFN provisions remain inoperative. The decision also highlights the critical interplay between international agreements and domestic law, emphasizing the procedural compliance required to implement treaty benefits. Furthermore, in response to this ruling, Switzerland unilaterally announced the suspension of India's MFN status effective January 1, 2025, citing the Supreme Court's judgment as a basis for this decision.
Disclaimer:
The views expressed in this article are the author&rsquo;s personal opinions and do not constitute legal, tax, or financial advice. While every effort has been made to ensure accuracy, readers are advised to consult with a professional advisor before making any decisions based on the content. The author and publisher disclaim any liability for any errors or omissions in the information provided. This article is for informational purposes only and does not represent the official stance of any institution or organization.

Most Favoured Nation (MFN) Clause in DTAAs: Interpretation, Judicial Precedents, and India's Stand

Most Favoured Nation (MFN) Clause in DTAAs

Introduction
In the realm of international business transactions, taxation issues often arise, particularly when it comes to determining the taxability of income received from overseas subsidiaries. One such case of significance is the dispute regarding the taxability of guarantee commission received by Johnson Matthey Public Limited Company (hereinafter referred to as "the Company") from its Indian subsidiaries. This article delves into the legal intricacies surrounding this matter and the recent judicial interpretation thereof.
Background
The crux of the issue revolves around the tax treatment of guarantee charges received by the Company from its Indian subsidiaries under the India-UK Double Taxation Avoidance Agreement (DTAA). The Company initially characterized the guarantee charges as interest income, subject to taxation under Article 12 of the DTAA. However, during the assessment proceedings, the tax authorities took the stance that the guarantee charges should be classified as "other income" under Article 23(3) of the DTAA, thus subjecting it to taxation in India.
Legal Analysis
The primary contention before the court was twofold:
<ol>
<li>Whether the guarantee charges received by the Company from its Indian subsidiaries can be categorized as "interest" under Article 12 of the DTAA.</li>
<li>Whether the income derived from guarantee fees can be said to arise or accrue in India.</li>
</ol>
Upon careful consideration of the arguments presented, the court opined that the guarantee charges cannot be construed as "interest" under Article 12(5) of the DTAA. This conclusion stemmed from the fact that the guarantee charges were not received in connection with any debt owed to the Company by its Indian subsidiaries. Rather, they were remunerations for providing parent company guarantees and counter-indemnification services to lending entities extending credit facilities to the Indian subsidiaries.
Judicial Ruling
The court upheld the decision of the Income Tax Appellate Tribunal, affirming that the guarantee charges do not fall within the ambit of "interest" as defined in Article 12 of the DTAA. Consequently, the court ruled against the Company, holding that the guarantee charges are taxable under the category of "other income" as per Article 23(3) of the DTAA.
Conclusion
The judicial pronouncement in the case of Johnson Matthey Public Limited Company provides clarity on the tax treatment of guarantee charges received from Indian subsidiaries under the India-UK DTAA. While the court's decision sheds light on the characterization of guarantee charges, it leaves open the question of whether such income could constitute business income under Article 7 of the DTAA, to be addressed in future cases.
In conclusion, the case underscores the importance of carefully analyzing the nature of income in cross-border transactions to determine its taxability under relevant tax treaties and domestic laws.
Citation: ITA 727/2018, Delhi High Court

Taxability of Guarantee Commission Received by Johnson Matthey Public Limited Company from Indian Subsidiaries: A Legal Analysis

Taxability of Guarantee Commission Johnson Matthey Case India UK DTAA

<h2>Introduction:</h2>
Double Taxation Avoidance Agreements (DTAA) play a significant role in international taxation, aiming to prevent the double taxation of income earned by taxpayers in two different countries. However, the requirement of a Tax Residency Certificate (TRC) for claiming DTAA benefits has become a subject of legal complexities and practical challenges. In this article, we will delve into the various aspects surrounding TRCs, including their differentiation from other registration certificates, the legal issues surrounding Section 90(4) of the Income Tax Act, the absence of TRC provisions in India's DTAA agreements, and the implications for businesses.
<h2>TRC vs. Incorporation Certificate and Other Registration Certificates:</h2>
It is crucial to clarify that a TRC cannot be equated with an incorporation certificate or any other registration certificates. The provision stated in Section 90(4) of the Income Tax Act explicitly mandates the production of a TRC, along with other relevant information (in Form 10F), for claiming DTAA benefits. While obtaining a TRC can be challenging, especially for individuals, it is vital to comply with the law's mandate.
<h2>Legal Issues Surrounding Section 90(4):</h2>
One of the key legal issues arises from the potential contradiction between Section 90(4) and Section 90(2) of the Income Tax Act, as well as various judgments of the High Court, including the Supreme Court. These judgments establish that, in case of conflict between the Income Tax Act and the provisions of the DTAA, the provisions of the DTAA should prevail. This raises questions about the absolute necessity of a TRC as mandated by Section 90(4).
<h2>Skaps Industries India Pvt Ltd vs ITO, International Taxation, Ahmedabad ITAT</h2>
In this case, the ITAT held that Section 90(2) of the Income Tax Act, 1961 in India provides a unique and unqualified "treaty override" provision. This means that regardless of the provisions in the Income Tax Act, if a person is covered by an agreement under Section 90(1), the provisions of the Act will only apply to the extent that they are more beneficial to the taxpayer. The Act cannot impose a greater burden on the taxpayer than what is specified in the applicable tax treaty.
However, the only limitation to this unqualified treaty override provision is that the provisions of Chapter X-A, which deals with the General Anti Avoidance Rules, will apply to the taxpayer even if they are not beneficial. This exception is stated in Section 90(2A), which is the only provision in the Income Tax Act, 1961 that starts with a non-obstante clause in relation to Section 90(2). Therefore, it is the only restriction on the superiority of tax treaty provisions over the provisions of the Indian Income Tax Act, 1961.
ITAT also observe that:
<blockquote>
8. In the light of our this analysis, when we turn to Section 90(4), as indeed other sub sections of Section 90, we find that these provisions do not start with a obstante clause vis-&agrave;vis Section 90(2) and, therefore, these sub sections cannot be construed as limitation to, or rider to, somewhat unqualified treaty override stipulated in Section 90(2). Whatever interpretation one assigns to this sub section, essentially the fundamental approach has to be that this sub section will be applicable only when the same are more beneficial to the assessee vis-&agrave;-vis the provisions of the applicable tax treaty; that principle of treaty override, as set out in Section 90(2), remains unaffected by these provisions. As we hold so, we make it clear that whether the same position will also apply with respect to Explanations to Section 90 or not is still an open question, uninfluenced by these discussions, as Explanations to Section 90 may perhaps not have the same legal connotations as the sub sections to Section 90. We leave it that for the time being.
</blockquote>
The above decision was also cited and relied by Hyderabad ITAT in the case of Sreenivasa Reddy Cheemalamarri [TS-158-ITAT-2020(HYD)].
<h2>A Unilateral Attempt to Deny Treaty Benefits:</h2>
Furthermore, Section 90(4) can be seen as a unilateral attempt to deny treaty benefits, potentially conflicting with international law and the principles of reciprocity and mutual benefits that underpin international tax treaties. The timing of the insertion of Section 90(4) through the Finance Act 2012, which came after the conclusion of various DTAA agreements, adds to the complexity and requires careful evaluation.
In the realm of international law, the position on unilateral modification of treaties is guided by the principle of pacta sunt servanda, which means that treaties must be observed and complied with in good faith by all parties involved. This principle serves as the cornerstone of the international legal system and promotes stability, predictability, and trust among nations.
Under customary international law, a treaty can only be modified or terminated by the consent of all parties involved. This principle of consent ensures that the rights and obligations established by a treaty are protected and that no party can unilaterally alter or disregard the provisions of a treaty without the agreement of others.
Unilateral modification of a treaty by one party without the consent of the other parties is generally considered a violation of the treaty and may be viewed as a breach of international law. Unilateral modifications can undermine the integrity of the treaty and erode the trust and confidence among the parties.
<h2>Non-Inclusion of Mandatory TRC Requirement in India's DTAA Agreements:</h2>
A noteworthy observation is that none of India's DTAA agreements with other countries contain provisions specifically requiring the mandatory submission of a TRC for availing DTAA benefits. If the TRC were universally mandated, it would necessitate countries to enter into agreements clarifying that benefits can only be availed upon producing a TRC. However, the absence of such provisions in the DTAA agreements raises questions about the absolute necessity of a TRC for claiming DTAA benefits.
<h2>Navigating the Way Forward:</h2>
Considering the legal complexities and practical challenges surrounding TRCs, businesses are advised to make diligent efforts to obtain TRCs from payees. However, in cases where obtaining a TRC is not feasible, businesses must carefully assess the facts and circumstances of each case. This assessment should consider the legal issues discussed earlier, the absence of TRC provisions in DTAA agreements, and the potential risks and consequences of proceeding without a TRC.
It is essential to weigh the available legal avenues and evaluate the potential litigations that may arise from deviating from the TRC requirement. Seeking professional guidance is recommended to ensure compliance with prevailing regulations while balancing the practical challenges faced in obtaining TRCs.
<h2>Conclusion:</h2>
The requirement of a TRC for claiming DTAA benefits presents businesses with a complex and intricate landscape to navigate. While the legal issues surrounding Section 90(4) and the absence of explicit TRC provisions in India's DTAA agreements raise valid concerns about the essential nature of a TRC, businesses must still endeavor to obtain TRCs whenever possible. In cases where TRCs cannot be procured, a meticulous evaluation of the specific circumstances, coupled with expert guidance, is crucial to making informed decisions that ensure compliance and mitigate potential litigations.

Navigating the Complexities of Tax Residency Certificate (TRC) for DTAA Benefits

Navigating the Complexities of Tax Residency Certificate TRC for DTAA

<h2>Overview Tax Residency Certificate (TRC)</h2>
A tax residency certificate (TRC) is a document that confirms an individual's or a company's residency status for tax purposes. The certificate is issued by the tax authorities of the country where the taxpayer is considered a tax resident, based on the local tax laws and regulations.
The purpose of a TRC is to avoid double taxation on income earned in a foreign country. Double taxation occurs when two or more countries levy taxes on the same income. To prevent this, many countries have entered into Double Taxation Avoidance Agreements (DTAAs) with each other. These agreements typically provide for reduced withholding tax rates or NIL withholding on certain types of income, such as dividends, interest, royalties or business income.
To take advantage of these reduced tax rates, taxpayers must provide proof of their residency status in the form of a tax residency certificate. The certificate is usually valid for one fiscal year.
To obtain a tax residency certificate, the taxpayer needs to provide evidence of their residency status, such as proof of their address, employment, and income sources. The application process and requirements may vary depending on the country's tax laws and regulations.
<h2>Regulations for TRC in UAE</h2>
In UAE, the TRC is categorised in two broad catagoreis viz: (1) Natural persons &amp; (2) Legal persons
<h2>Eligibility Criteria Natural Persons</h2>
The applicant must have been a resident of the UAE for at least 180 days. Also an annual lease agreement officially documented by the competent authorities, such as EJARI in Dubai, municipalities in other Emirates and free zone authorities must be attached to the application.
<h2>Eligibility Criteria Legal / Judicial Persons</h2>
In order to be eligible to apply for a TRC, the legal person must have been established for a period of at least one year. Financial accounts must be audited or prepared by an accredited audit firm and attached with other required documents to the application. The report must be certified and stamped by the audit firm. The audited financial report to be attached to the application must cover the year for which the certificate is requested. If the certificate is requested for the present year, the audit report must be covering the past year.
(Note: Offshore companies are not allowed to apply for the service because they are not listed in the Double Taxation Avoidance agreements.)
However, the Cabinet Decision which is effective from 1 Mar 2023 provides that a juridical person shall be considered a Tax Resident in the State in either of the following cases:
1. It was incorporated, formed or recognised in accordance with the legislation in force in the State, and that does not include the branch that is registered by a foreign juridical person in the State. 
2. It is considered a Tax Resident in accordance with the Tax Law in force in the State.
<h2>TRC v/s Citizenship</h2>
It's important to note that tax residency is not the same as citizenship. A person may be a citizen of one country but a tax resident of another. Factors that determine tax residency status vary by country but generally include the number of days spent in the country, the person's permanent home, and the location of their economic interests.
Overall, a tax residency certificate is a useful tool for avoiding double taxation and accessing tax benefits under DTAAs. It's important for taxpayers to understand the local tax laws and regulations and maintain proper documentation to obtain and keep their tax residency certificate.
<h2>Benefits of Having TRC</h2>
TRC is now a days part of legal framework of many contries. In India, section 90(4) of the Income tax Act, 1961 mandatorily requires TRC for availing the benefits of the Double Tax Avoidance Agreements (DTAAs). Such benefits are:
<ul>
<li>Avoidance of double taxation</li>
<li>Reduced or NIL withholding tax rates</li>
<li>Access to tax benefits under the DTAA</li>
<li>Considered as an evidence for the purpose of determing resident country</li>
</ul>
<h2>Connect with Us</h2>
In case if you want to apply for the TRC in UAE or India, then connect with us. Our contact details are as follows:
Mail: <a href="mailto:info@harchandani.in">info@harchandani.in</a>
Mobile: +91 9909880111
WhatsApp: +91 9909880111

How to Apply for Tax Residency Certificate (TRC) of the United Arab Emirates (UAE)

Apply for Tax Residency Certificate (TRC) of UAE

The Hon'ble Bangalore Tribunal while dealing with the matter related to the claiming of Foreign Tax Credit (FTC) held that on perusal of provisions of Rule 128 (8) &amp; (9), it is clear that, one of the requirements of Rule 128 for claiming FTC is that Form 67 is to be submitted by assessee before filing of the returns. The Tribunal opined that this requirement cannot be treated as mandatory, rather it is directory in nature. This is because, Rule 128(9) does not provide for disallowance of FTC in case of delay in filing Form No.67. This view is fortified by the decision of coordinate bench of this Tribunal in case of Ms.Brinda Kumar Krishna vs.ITO in ITA no.454/Bang/2021 by order dated 17/11/2021.
During the hearing, the assessee submitted that "when there is no condition prescribed in DTAA that the FTC can be disallowed for non-compliance of any procedural provision. As the provisions of DTAA override the provisions of the Act, the Assessee has vested right to claim the FTC under the tax treaty, the same cannot be disallowed for mere delay in compliance of a procedural provision."
Accordingly, the Tribunal remand this issue back to the AO to consider the claim of assessee in accordance with law, based on the verification carried out in respect of the supporting documents filed by assessee.

Foreign Tax Credit cannot be denied merely because assessee has not filed the Form 67

FTC, foreign tax credit, DTAA, Form 67 of Income Tax 

On 11th October 2021, CBDT issued vide Notification No.119/2021/F. No. 225/76/2021-ITA.I exempting certain non-resident from furnishing of the Income Tax Return for the AY 2021-22 and onwards subject to fulfilment of certain conditions. The class of person and corresponding conditions are stated as under:
<table>
<tbody>
<tr>
<td width="96">
Sr. No.
</td>
<td width="258">
Class of Person
</td>
<td width="270">
Conditions
</td>
</tr>
<tr>
<td width="96">
1
</td>
<td width="258">
(i)&nbsp; a&nbsp; non-resident,&nbsp; not&nbsp; being&nbsp; a company; or
(ii) a foreign company
</td>
<td width="270">
(i)&nbsp; &nbsp;The&nbsp; said&nbsp; class&nbsp; of&nbsp; persons&nbsp; does&nbsp; not&nbsp; earn&nbsp; any&nbsp; income&nbsp; in India,&nbsp; during the previous&nbsp; year,&nbsp; other&nbsp; than the income&nbsp; from investment&nbsp; in&nbsp; the&nbsp; specified&nbsp; fund referred&nbsp; to in sub-clause&nbsp; (i) of&nbsp; clause&nbsp; (c)&nbsp; of Explanation to&nbsp; clause&nbsp; (4D)&nbsp; of&nbsp; section&nbsp; 10&nbsp; of the said Act; and
&nbsp;
(ii)&nbsp; The&nbsp; provisions&nbsp; of&nbsp; section&nbsp; 139A&nbsp; of&nbsp; the&nbsp; said&nbsp; Act&nbsp; are&nbsp; not applicable&nbsp; to&nbsp; the&nbsp; said&nbsp; class&nbsp; of&nbsp; persons subject&nbsp; to&nbsp; fulfillment of&nbsp; the&nbsp; conditions&nbsp; mentioned&nbsp; in&nbsp; sub-rule &nbsp;(1)&nbsp; of&nbsp; rule&nbsp; 114AAB of&nbsp; the&nbsp; Income-tax&nbsp; Rules,&nbsp; 1962&nbsp; (hereinafter&nbsp; referred&nbsp; to&nbsp; as &ldquo;said rules‟)
</td>
</tr>
<tr>
<td width="96">
2
</td>
<td width="258">
a&nbsp;&nbsp;&nbsp; non-resident being&nbsp;&nbsp;&nbsp; an eligible foreign investor
</td>
<td width="270">
(i)&nbsp; The&nbsp; said&nbsp; class&nbsp; of&nbsp; persons,&nbsp; during&nbsp; the&nbsp; previous&nbsp; year,&nbsp; has made&nbsp; transaction &nbsp;only&nbsp; in&nbsp; capital&nbsp; asset&nbsp; referred&nbsp; to&nbsp; in&nbsp; clause (viiab)&nbsp; of&nbsp; section&nbsp; 47&nbsp; of&nbsp; the&nbsp; said&nbsp; Act,which&nbsp; are&nbsp; listed on&nbsp; a recognised&nbsp;&nbsp; stock&nbsp;&nbsp; exchange&nbsp;&nbsp; located&nbsp;&nbsp; in&nbsp;&nbsp; any&nbsp;&nbsp; International Financial Services Centre and the consideration on transfer of such capital asset is paid or payable in foreign currency;
&nbsp;
(ii)&nbsp; The said&nbsp; class&nbsp; of&nbsp; persons&nbsp; does&nbsp; not&nbsp; earn&nbsp; any&nbsp; income&nbsp; in India,&nbsp; during&nbsp; the&nbsp; previous&nbsp; year,&nbsp; other&nbsp; than&nbsp; the&nbsp; income&nbsp; from transfer of capital asset referred to in clause (viiab) of section 47 of the said Act; and
&nbsp;
(iii)&nbsp; &nbsp;The provisions&nbsp; of&nbsp; section&nbsp; 139A&nbsp; of the&nbsp; said&nbsp; Act are&nbsp; not applicable&nbsp; to&nbsp; the&nbsp; said&nbsp; class&nbsp; of&nbsp; persons&nbsp; subject&nbsp; to&nbsp; fulfillment of the conditions mentioned in sub-rule (2A) of rule 114AAB of the said rules
</td>
</tr>
</tbody>
</table>
&nbsp;
&nbsp;

CBDT conditionally exempts certain non-residents from furnishing ITR

CBDT Circular, Non Resident Return, Income Tax on Non Resident

The Income Tax Appellant Tribunal finds Assessee's reasons behind filing of TRC before CIT(A) instead of Assessing Officer is justifiable
In this case, the Assessee-Individual, a non-resident, in his return of income for AY 2014-15 sought to avail special rates of tax on income from fixed deposits and bank deposits under the India-USA DTAA
Assessee's claim was denied by the AO as the Assessee failed to furnish TRC and information in Form No. 10F under Rule 21AB during the course of assessment proceedings
Assessee's furnished TRC&nbsp;and Form No. 10F as additional evidence before CIT(A) who also rejected Assessee's claim due to delay in furnishing&nbsp;TRC&nbsp;and Form No.10F by holding that Rule 21AB casts an obligation&nbsp;on the assessee to&nbsp;maintain and furnish the documents, therefore, the said information ought to have been available with the Assessee at the time of filing of the return of income itself and was required to furnish&nbsp;TRC and Form No.10F and thus, held that the Assessee failed to comply with the mandate of Section 90(4)/(5).
The Hon'ble ITAT Directs the Assessing Officer to determine the taxability on interest income as per the special rate of tax under the India-USA DTAA.
Rule 21AB(2A) provides as under:
<blockquote>
<div>(2A) The assessee shall keep and maintain such documents as are necessary to substantiate the information provided under sub-rule (1) and an income-tax authority may require the assessee to provide the said documents in relation to a claim by the said assessee of any relief under an agreement referred to in sub-section (1) of section 90 or sub-section (1) of section 90A, as the case may be.]</div>
</blockquote>
<div>The Tribunal considered the facts of the case at length and held as under:</div>
<div>
<blockquote>
After perusing the aforesaid facts, we are of the considered view that there were justifiable reasons for the assessee in not filing the TRC in the course of the assessment proceedings. But then, we cannot also remain oblivious of the fact that the A.O had declined to apply the special rate of tax as per the DTAA, for the reason, that the assessee had failed to substantiate that the interest income in question was offered by him for tax in his return of income filed in U.S.A. As observed by us hereinabove, the very basis of rejection of the assessee‟s claim for applying of special rate of tax as per the India-USA DTAA by the A.O is absolutely misconceived and in fact misplaced. As stated by the ld. A.R, and rightly so, the assessee was not seeking credit of taxes paid on his income abroad, but was seeking taxing of his interest income as per the special rates on the basis of the India-USA DTAA. Considering the fact that the assessee had filed the TRC with the A.O though after the conclusion of the assessment, coupled with the reasons that had led to delay in obtaining of the same alongwith the Form 10F, we are unable to persuade ourselves to the summarily rejection or in fact discarding of the same by the CIT(A). We, thus, in the backdrop of our aforesaid deliberations, are of the considered view, that as the assessee had filed the TRC and Form 10F, therefore, there was no justification in declining the applying of the special rate of tax qua the interest income on fixed deposits &amp; bank interest...
</blockquote>
Accordingly, the Tribunal allowed the appeal of the assessee and finds Assessee's reasons behind filing of TRC before CIT(A) instead of Assessing Officer is justifiable.
</div>

Delay in furnishing TRC justifiable. ITAT Allows benefit of India-USA DTAA

TRC, non availability of TRC, India US DTAA

The Hon'ble Supreme Court in it's recent decision in the case of DIT vs. Samsung Heavy Industries (Civil Appeal No. 12183 of 2016) dismissed the appeal of the department and held that project office of the assessee is not permanent establishment within the meaning of the Article 5 of India-Korea DTAA. Although, it is settled position of law that the Project Office is PE (subject to threshold of numbers of days as per relevant DTAA), however, looking the facts of the case, the Hon'ble Supreme Court held that the Project Office in the question is not a PE withing the meaning of the Article 5(1) of DTAA rather it would fall within Article 5(4)(e) of the DTAA. Lets the discuss the facts of the case and findings of the each authority.
 
The critical fact of the case are that the ONGC awarded a &ldquo;turnkey&rdquo; contract to a consortium comprising of the Assessee, i.e. Samsung Heavy Industries Co. Ltd. (a Company incorporated in South Korea), and Larsen &amp; Toubro Limited, being a contract for carrying out the &ldquo;Work&rdquo;, inter alia, of surveys, design, engineering, procurement, fabrication, installation and modification at existing facilities, and start-up and commissioning of entire facilities covered under the &lsquo;Vasai East Development Project&rsquo;
 
The Assessee set up a Project Office in Mumbai, India, which, as per the Assessee, was to act as &ldquo;a communication channel&rdquo; between the Assessee and ONGC in respect of the Project. Accordingly for the AY 2007-08 the assessee filed nil return and claimed the losses.
 
During the assessment proceedings, the AO concluded that "the Project in question is a single indivisible &ldquo;turnkey&rdquo; project, whereby ONGC was to take over a project that is completed only in India. Resultantly, profits arising from the successful commissioning of the Project would also arise only in India."
 
The DRP also concluded that "the Assessing Officer has given a specific finding that the assessee had a project office in India, when it was given the contract. The assessee has not contested the existence of the Project office in India but it has only contested that the project was used merely for preparatory and auxiliary activities. This submission of the assessee does not hold merit because if it wanted to perform only preparatory and auxiliary activities then it could have opened a liaison office. The opening of a project office clearly shows that the assessee was doing something more than what would have been done through liaison office. In any case nature and purport of activities undertaken in India determine the existence of PE. Considering the nature of activities undertaken in India it is clear that PE existed in the case of assessee."
 
During the hearing before the ITAT, the Ld. DR bought on record the resolution of Board of Directors meeting dated 3rd April, 2006. The opening para of said resolution provides that "the company hereby open one project office in Mumbai, India for coordination and execution of Vasai East Development Project for Oil and Natural Gas Corporation (&ldquo;ONGC&rdquo;), India". Based on such resolution, the Ld. DR concluded that these documents make it clear that all the activities to be carried out in respect of impugned contract will be routed through the project office only. However, it is noteworthy to state here that the Ld. DR only reproduce the first para of the Board Resolution, the second para of said resolution provides that "That the Company hereby does make and constitute Mr. Sangsoon Park Yard General Manager of the Company, as the Company&rsquo;s true and lawful representative with full power and authority for the purpose of establishing a project office and coordinating and executing delivery of documents in connection with construction of offshore platform modification of existing facilities for ONGC above."
 
On other hand, the assessee before the ITAT argued that the Project Office was only an auxiliary office, and did not involve itself in any core activity of business, as accounts that were produced would show that there was no expenditure which related to execution of the project. The Hon'ble Tribunal disposed off that argument of the assessee by stating that "the way the terms of the contract are described and the way the work on contract has to proceed clearly describe that in all the activities of contract there will be the role of Mumbai project office as the same has to work as a channel between assessee company and ONGC. If PE of the assessee exists within the meaning of Article 5.1 and 5.2 and assessee claims that despite there being PE in terms of clause 5.1 and 5.2, it falls under exclusionary Article 5.4 then onus is on assessee to prove that activities of its PE are in the nature of preparatory or auxiliary in nature. No material has been brought on record by the assessee to prove the said fact. The arguments put forward in this respect are only by inference such as the accounts maintained by the assessee in India through which it is the argument of the ld. Counsel of the assessee that it does not contain any expenditure relating to execution of the contract. But such argument is not acceptable as the maintenance of account is in the hands of assessee and mere the mode of maintaining the accounts alone cannot determine the character of PE as the role of PE only will be relevant to determine what kind of activities it has carried on." However, the ITAT found that there was a lack of material to ascertain as to what extent activities of the business were carried on by the Assessee through the Mumbai Project Office, and therefore it was considered just and proper to set aside the attribution of 25% of gross revenue earned outside India &ndash; which was attributed as income earned from the Mumbai project office &ndash; the matter being sent back to the Assessing Officer to ascertain profits attributable to the Mumbai project office after examining the necessary facts.
 
Surprisingly, the Hon'ble High Court pronounced its decision on entire different footing. The core grievance of the assessee was regarding considering the PO as PE by the lower authorities looking to the peculiar facts and circumstances of the case. However, the High Court re-framed the question of law as "can it be said that the Agreement permitted the India Taxing Authority to arbitrarily fix a part of the revenue to the permanent establishment of the appellant in India?&rdquo;
 
Accordingly, the Hon'ble High Court held - "that being the situation we allow the appeal, set aside the judgment and order under appeal as well as the assessment order insofar as the same relates to imposition of tax liability on the 25% of the receipt upon the appellant in the circumstances mentioned above, and observe that the questions of law formulated by us, while admitting the appeal, have not, in fact, arisen on the facts and circumstances of the case, but the real question was, whether the tax liability could be fastened without establishing that the same is attributable to the tax identity or permanent establishment of the enterprise situate in India and the same, we think, is answered in the negative and in favour of the appellant."
 
However, the Supreme Court while pronouncing its decision, gone into details and considered the findings of the all lower authorities. The critical findings of the Hon'ble Supreme Court are with regards to documents filed by the assessee before the RBI and which was heavily relied by the ITAT also. The Hon'ble quote the Board Resolution of the assessee company and held that "A reading of the Board Resolution would show that the Project Office was established to coordinate and execute &ldquo;delivery documents in connection with construction of offshore platform modification of existing facilities for ONGC&rdquo;. Unfortunately, the ITAT relied upon only the first paragraph of the Board Resolution, and then jumped to the conclusion that the Mumbai office was for coordination and execution of the project itself. The finding, therefore, that the Mumbai office was not a mere liaison office, but was involved in the core activity of execution of the project itself is therefore clearly perverse. Equally, when it was pointed out that the accounts of the Mumbai office showed that no expenditure relating to the execution of the contract was incurred, the ITAT rejected the argument, stating that as accounts are in the hands of the Assessee, the mere mode of maintaining accounts alone cannot determine the character of permanent establishment. This is another perverse finding which is set aside."
 
The Hon'ble Supreme Court further observe that "Though it was pointed out to the ITAT that there were only two persons working in the Mumbai office, neither of whom was qualified to perform any core activity of the Assessee, the ITAT chose to ignore the same. This being the case, it is clear, therefore, that no permanent establishment has been set up within the meaning of Article 5(1) of the DTAA, as the Mumbai Project Office cannot be said to be a fixed place of business through which the core business of the Assessee was wholly or partly carried on. Also, as correctly argued by Shri Ganesh, the Mumbai Project Office, on the facts of the present case, would fall within Article 5(4)(e) of the DTAA, inasmuch as the office is solely an auxiliary office, meant to act as a liaison office between the Assessee and ONGC."
 
Therefore, it is rightly to conclude here that for the purpose of applying the DTAA, the legal form is not much relevant where the facts says something different. In this case, even the office of the assessee was registered as Project Office with the RBI, however, the Supreme Court went on the facts, considered the actual activities carried out by such office, considered the purpose of such office and concluded that the Project Office in question is not a PE rather it would fall within Article 5(4)(e) of the DTAA, inasmuch as the office is solely an auxiliary office, meant to act as a liaison office between the Assessee and ONGC.
 
(views are personal, for more details, it is advisable to go through with the order of the SC)

Project Office is not PE; SC affirm substance over legal form

project office, LO PO BO FEMA, Permanent Establishment Income tax

Mumbai ITAT allowed the appeal of assessee by relying upon the judgement in the assessee's own cases for the AY 2003-04 to AY 2011-12.
 
During the course of assessment proceedings, it was submitted by the assessee that the Tribunal in its own case for A.Y 2003-04, A.Y 2005-06, A.Y 2006-07, A.Y 2007-08, A.Y 2009-10 &amp; A.Y 2011-12, had held the receipts earned by the assessee under similar fact pattern as its &ldquo;business income&rdquo;, which in the absence of its &ldquo;Permanent Establishment&rdquo; (PE) in India were not taxable in India. Further, the assessee drawing support from the &ldquo;Software Distribution Agreements submitted, that the distributors/resellers sold the shrink-wrap software bought in the fully packaged condition, as received from the assessee to the end users in India i.e without opening the package. It was further submitted by the assessee, that the SolidWorks software was given to the customers in India along with and pursuant to an end user license agreement. Although the end user license agreement was not physically signed, it was buit-in-as a part of the installation process and would &lsquo;pop up&rsquo; on the computer screen, and had to be indispensably &lsquo;accepted&rsquo; by the user, as it was only then the user could operate the software. It was further submitted by the assesee, that the end-user had limited rights to use the software for internal purposes, right to copy the software on hard disk or to make copies for archive purpose. It was the clam of the assessee, that the end-user was divested of any right to transfer the software or reproduce the same, as the same per the terms of the license agreement were specifically prohibited. The assessee also made submissions before the A.O on the scope of the term &lsquo;royalty&rsquo; as per &lsquo;Explanation 2&rsquo; to Sec. 9(1)(vi); the meaning of the term &lsquo;copyright&rsquo; under the Copyright Act, 1957; the amendment introducing &lsquo;Explanation 4&rsquo; below Sec. 9(1)(vi) and its impact on software distributor and on the DTAA; and the definition of &lsquo;royalty&rsquo; under the India-USA tax treaty.
 
A.O after deliberating on the contentions advanced by the assessee, therein observed, that as per the &lsquo;License and Subscription Service Agreement&rsquo;, SolidWorks granted the end-user a non-exclusive nontransferable license to use the software and the printed or electronic documentation. I was observed by the A.O, that in lieu of the single user license which entitled the end-user to use one copy of the software or a multiple user or network license, as the case may be, the end-user would pay license fees. Admittedly, as claimed by the assessee, it was observed by the A.O that the software was owned by SolidWorks and the copyright, trademark and proprietary rights were retained by it and not transferred to the end-user. At the same time, the A.O held a conviction that the software was not goods or tangible property but was an intangible intellectual property, which being similar to patent, invention, design, secret formula etc. would fall within the meaning of &lsquo;process&rsquo; as mentioned in &lsquo;Explanation 2&rsquo; to the definition of &lsquo;royalty&rsquo; under the Act. In support of his aforesaid view, the A.O relied on the CBDT Circular No. 621 of 19/12/1991 to hold that payment for acquisition of software was to be held as &lsquo;royalty&rsquo;. Insofar the claim of the assessee that the issue was covered in its favor by the orders of the Tribunal in its own case for the preceding years, the A.O observed that the same had been assailed by the revenue before the Hon&rsquo;ble High Court, and thus had not yet attained finality.
 
Also, it was observed by the A.O, that the Hon&rsquo;ble High Court of Karnataka in the case of CIT Vs. Samsung Electronic Co. Ltd (2012) 345 ITR 494 (Kar), had concluded, that the payments received by the assessee from the resellers in India for the acquisition of computer software was in the nature of &lsquo;royalty&rsquo;, and thus chargeable to tax. Also, the A.O in order to drive home his aforesaid conviction relied on the amendment to &lsquo;Explanation 4&rsquo; to Sec. 9(1)(vi) of the Act, that was made available on the statute vide the Finance Act, 2012, w.r.e.f 01.06.1976.
 
The Tribunal concluded that the factual situation pertaining to the year under consideration had not witnessed any change as in comparison to the immediately preceding year, therefore, respectfully following the view taken by the Tribunal in the assesses own case for A.Y 2015-16 in ITA No. 7027/Mum/2018, dated 10.01.2020, we herein conclude that the addition made by the A.O by treating the sale receipts of shrink-wrap software as &lsquo;royalty&rsquo; cannot be sustained, and is hereby vacated.
 
Citation: ITA No. 7313/MUM/2019
 
Author, Manish Harchandani, CA
 
Disclaimer:&nbsp;The contents of this article are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Harchandani &amp; Associates does not accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.

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