i
Unlike joint ventures in India, Joint venture
undertakings are established abroad by the Indian entrepreneurs for building up
an export potential for their products manufactured through foreign
collaboration in the developing countries where there is a favorable political
climate and a demand for the Indian products. For this purpose, the Government
offers the following opportunities:
i
opportunities to increase the export
potential of the Indian company;
ii
facility of repatriation to India of capital
and dividend and royalty and remuneration earned outside India from joint
ventures;
iii
incentives under the Income-tax Act.
iv
Compliance with requirements for setting up
joint ventures.-The following requirements will have to be complied with for
setting up joint ventures abroad :
a.
Under Companies Act.-Since the Government’s
policy is to encourage only the corporate bodies to invest in joint ventures
abroad application should be made to the Central Government, Department of
Company Affairs under section 372 (4) if the Companies Act,
1956 in Form 34-B prescribed under the
Companies (Central Government’s) General Rules and Forms, 1956. [Form No. 1
below].
b.
Under FERA.- Section 27 of Foreign Exchange
Regulation Act, 1973, requires that persons resident in India including firms
and companies (other than foreign nationals) should obtain prior permission of
the Government of India to associate themselves with, or participate in,
whether as promoters or otherwise, any concern outside India engaged in, or
intending to engage in, any activity of a trading, commercial or industrial
nature, whether such concern is a body corporate or not. The application has to
be made in the prescribed Form PFCE (See Form No. 31 in Chapter 12).
c.
Approval of Reserve bank.-An application has
to be made to the Reserve Bank of India in the prescribed Form GRI/EP (Form
Nos. 2 and 3 below) for export of plant and machinery and other capital goods
or equipment from India towards the Indian collaborator’s contribution to the
ventures abroad.
d.
For sending representatives.-If the Indian
company sends its representative abroad for purposes of the overseas venture,
application has to be made to the Reserve Bank of India for exchange in the
prescribed Form TRB 2 (Form No. 4 below).
e.
Remittance of cash.-If the Central Government
permits remittance of cash towards equality participation on the overseas
concern, application for release of foreign exchange will have to be made in
the prescribed Form A 2, (Form No. 5 below).
f.
Holding shares and securities abroad
g.
Holding shares and securities abroad –An
application has to be made n the prescribed Form FADI (Form No. 6 below) to the
Controller, Exchange Control Department, Reserve Bank of India, Central Office
(Foreign Accounts Division ) Bombay-1 for licence to hold the shares or
securities abroad.
ii
Tax concessions under Income-tax Act.-The
following tax concessions and incentives are provided by the Income-tax Act in
respect of joint venture abroad :
a. Deduction of 50% (25% up to
31.3.1987) of profits and gains from projects outside India.Section 80 HHB of
the Income-tax Act, inserted w.e.f. 1.4.11983, provides for a deduction of 50%
(25% up to 31.3.1987) of profits and gains of an Indian company or a
non-corporate resident assessee derived from the business of execution of a
foreign project –undertaken by the assesee in pursuance of a contract entered
into with the Government of a foreign State or any statutory or other public
authority or agency in a foreign State or a foreign enterprise if the following
conditions are fulfilled:
a.
The foreign project must be a project for
construction of any buildings, road, dam, bridge or other structure outside
India or the assembly or installation of any machinery or plant outside India,
or the execution of such other work which may be prescribed.
b.
The consideration for the execution of the
foreign project is payable in convertible foreign exchange.
c.
The assessee keeps separate accounts of such
profits and gains from the foreign project. Where the assessee is a person
other than an Indian company or co-operative society, the accounts are audited
by an accountant, and a report of such audit in the prescribed form and signed
and verified by such accountant is furnished along with his return of income.
d.
An amount equal to 50% of such profits and
gains is debited to the profit and loss account of the previous year of the
assessee and credited to a reserve account is to be utilised by the assessee
during a period of five years next following for the purpose of its business.
It should not be distributed by way of dividend or profits.
e.
An equal amount of 50% of such profits and
gains is brought by the assessee into India in convertible foreign exchange in
accordance with the provisions of the Foreign Exchange Regulation Act. 1973,
within six month from the end of the previous year. Where the amount brought
into India in convertible foreign exchange falls short of 50% , deduction
allowed will be limited to the amount credited or brought into India.
b. Deduction of 50% of
royalties, commission, etc., received from foreign enterprises.-Under Section
80-O of the Income-tax Act, a deduction of an amount equal to 50% of income by
way of royalty, commission, fees or any similar payment received by an Indian
company from the Government of a foreign State or a foreign enterprise in
consideration for the use outside India of any patent, invention, model,
design, secret formula or process, or similar property right, or information
concerning industrial, commercial or scientific knowledge, experience or skill
made available or provided or agreed to be made available or provided to such
Government or enterprise by the assessee, or in consideration of technical
services rendered or agreed to be rendered outside India to such Government or
enterprise by the assessee, is allowed.
For availing this deduction, the
following conditions will have to be satisfied:
i
such income should be received under an
agreement approved by the Board up to 31.3.1989 or by the Chief Commissioner or
the Director General from 1.4.1989.
ii
such, income should be received in
convertible foreign exchange in India, or having been received in convertible
foreign exchange outside India, or having been converted into convertible
foreign exchange outside India, is brought into India, by or on behalf of the
assessee in accordance with any law for the time being in force for regulating
payments and dealings in foreign exchange.
iii
such income should be received in India
within a period of six months form the end of the previous year or within such
further period as the Chief Commissioner or Commissioner may allow.
Section 80-O does not specify who the
party of the other part to the agreement should be. It is, therefore, difficult
to imply that the party of the other part must be the Government of a foreign
State or an foreign enterprise. Even in terms of the objects of the section
there is no reason why the agreement should be restricted to one entered into
with the Government of a foreign State or a foreign enterprise. Regardless of
who the party of the other part is, if the conditions of the section have been
complies with, there will be an augmentation of the foreign exchange resources
of the country. [Petron Engg. Constructions (P.) Ltd. v. CBDI, (1987) 34 Taxman
401 (Bom)].
Further, the words “the Government of a
foreign State or foreign enterprise’ must be read together. The words ‘foreign
enterprise’ must take colour from the words ‘the Government of a foreign
State.’ The words ‘foreign enterprise’ cannot, upon an interpretation of
section 80-O, be held to apply to an establishment or undertaking or branch or
unit of an Indian company in a foreign country. Such establishment,
undertaking, branch or unit may well be an ‘enterprise’ but it is not a
‘foreign enterprise’ within the meaning of these words as used in section 80-O
.[Petron Engg. Constructions (P.) Ltd. v. CBDT, (1987) 34 Taxman 401 (Bom)].
However, there is nothing in section
80-O which requires that the agreement should necessarily be between the assessee
and the foreign party. If the conditions set out in section 80-O are fulfilled,
the agreement would qualify for approval. [Indian Hume Pipe Co. Ltd. v. CBDT,
(1986) 27 Taxman 90 (Bom)]. If the agreement is entered into by the Indian
company with a foreign Government but the Indian company appoints an Indian
contractor to execute the work under the agreement, there would be sufficient
compliance with the provisions of section 80-O and the agreement would deserve
approval. [Ganon Dunkerely & Co. Ltd. v. CBDT, (1986) 156 ITR 162 (Bom)].
The very object of the section is that
the identity of the Indian company must be different from that of the foreign
company and that the managing or running a foreign company by the Indian
company would not amount to rendering of technical services, because when the
Indian company manages or runs the foreign company, then the identity of the
Indian company would be lost and, therefore, the remuneration obtained from
managing or running a foreign company would be in the nature of profits while
section 80O restricts itself to income by way of royalty, commission or fees
and excludes all other types of remuneration. [J.K. (Bombay) Ltd. v. CBDT,
91979) 118 ITR 312 (Del), distinguished in Oberoi Hotels (India) (P). Ltd. v. CBDT,
(1982) 135 ITR 257 (Del) in connection with managing a modern hotel].
It may be noted that technical services
should be rendered outside India and not in India, e.g., testing samples of
products in laboratory in India would not amount to rendering technical
services outside India. [Scarle (India) Ltd. v. CBDT, (1984) 145 ITR 573
(Bom)].
The information received from Indian
consultants by the British Broadcasting Corporation, (BBC) on attitudes of the
Indian audience for use by the BBC can be said to be used outside India.
[E.P.W..Da Costa v. Union of India, (1980) 121 ITR 751 (Del)].
The information received from Indian
consultants by the British Broadcasting Corporation, (BBC) on attitudes of the
Indian audience for use by the BBC can be said to be used outside India.
[E.P.W.Da Costa v. Union of India, (1980) 121 ITR 751 (Del)].
c. Deduction in respect of
remuneration of Indian technician for services outside India.-A technical who
is a citizen of India is entitled to the deduction from his remuneration
received by him in foreign currency from any employer (being a foreign currency
from any employer (being a foreign employer or an Indian concern) for any
services rendered by him outside India for a period of 3 years, of the higher
of the following :
i
50% of remuneration, or
ii
75% of such remuneration as is brought into
India by or on behalf of the assessee in
accordance with the Foreign Exchange
Regulation Act, 1973 and any rules made thereunder. [See section 80 RRA,
Income-tax Act].
It is significant that section 80-O RRA
of the Income-tax Act, 1961, uses the expression “remuneration” and not
“salary”, for a citizen of India, who receives remuneration in foreign currency
for services rendered outside India, to be entitled to the deduction provided
therein. There is no warrant for restricting the meaning of the expression
“remuneration “ only to salary received by an employee abroad. “Remuneration”
will cover fees paid to a consultant or technician. Further the word “employer”
is used in section 80 RRA not in any technical sense but as meaning a person
who uses or services of any person : It comprehends whole time servant or
part-time engagee. [ CBDT v. Aditya V. Birla’ (1988 170 ITR 137 (SC)].
iii
Model Forms
Registration No. of the Company…………………………………………
Nominal capital
Rs……………………………………………………………
THE COMPANIES ACT, 1956
Form of Application to the Central
Government for Purchaser by Companies of Shares of Other Companies Note
:1 i Company (in this form) means
company which proposes to make the investment, and ‘other body corporate’ means
the company in which investment is proposed to be made.
ii
Information should be furnished as on the
date of application unless otherwise indicated in the form.
iii
The application should be accompanied by the
documents mentioned in Appendix 1. The company is advised that, for expeditious
disposal of the application , the information regarding the financial position
of the company and also of the other body corporate according to the latest published
balance sheets, should also be furnished in the proforma contained in Appendix
II.
iv
The reference to “debentures” in the proforma
should be read with the provisions of section 372
(12).
i
a.
Name of the company.
b.
Management structure (composition of board of
directors giving their names and addresses and particulars regarding manager,
managing director, if any). c.
Capital
structure
1.
Share capital Authorised Rs. Subscribed Rs.
Paid-up Rs. (Separately indicating equity and preference share capital).
2.
Debentures Rs.
3.
Long term loans Rs.
II.
a.
Name of the other body corporate :
b.
Management structure (composition of board of
directors giving their names and addresses and particulars regarding manager or
managing director, if any).
c.
Capital structure :
1.
Share capital Authorised Rs. Subscribed Rs.
Paid-up Rs. (Separately indicating equity and preference share capital).
2.
Debentures Rs.
3.
Long term loans Rs.
Note
:
In the case of new companies and companies still to be registered particulars
of the proposed arrangement should be furnished.
III.
Main business of the company :
a.
Main business of the other body corporate.
b.
In what way would be proposed investment be
in the interest of the company and of the other body corporate.
IV.
Particulars of the proposed investment :
a.
Nature of investment (equity/preference) or
debenture with rate of preference / dividend / debenture interest, terms of
redemption, etc .
b.
Amount to be invested.
c.
Number of shares / debentures to be
purchased.
d.
Nominal value of the shares / debentures.
e.
If the shares are quoted on any recognised
stock exchange, current market quotations.
f.
If the shares are not quoted on any
recognised stock exchange, details as to the break-up value, yield and fair
value.
g.
Rate at which the shares/debentures are to be
purchased (in case the price to be paid is higher than the market value or the
fair value of the shares justification for the same.)
h.
Form of payment , i.e. in cash or by issue of
shares of the company or by transfer of property (details to be given).
i.
Dividend declared on the shares of the other
body corporate during the preceding three year, if any.
j.
Whether the shares/debentures are being
purchased out of the fresh issue from the company.
k.
If the shares/debentures are being purchased
from the existing shareholders, indicate the name and address of the
transferors and their relationship, if any, with any of the director/directors
or manager or the company. In case the transferor is a body corporate, indicate
the interest of the director/directors or manager of the company, in the said
body corporate with the percentage of their shareholding. State the
shares/positions held by them or their relations.
l.
Whether section 108-A of the Act is
applicable to the proposed acquisition of shares. If so, whether application
for approval has been made to the Central Government under the said Section.
m.
Indicate the amount of foreign exchange, if
any, required to be remitted for this investment with the name of the country
to which remittance is to be made.
n.
Whether with the proposed investments the
burden of foreign exchange remittance regarding dividends, etc., of the other
body corporate is likely to be reduced and, if so, give details.
V.
a. Full details of the
investment, if any, already made by the company in the shares or debentures of
other bodies corporate distinguishing between investment made in bodies
corporate in the same group and outside the group indicating the bodies
corporate which inter se in the same group though may not be in the same group
as that of the company :
1.
Names of the other bodies corporate.
2.
Nominal value of the shares/debentures of
each of them.
3.
Cost price of the shares in which investments
were made.
4.
Present market price of the shares.
5.
Whether quoted on any recognised stock
exchange.
6.
Dividends paid during the last three years
separately, in respect of shares of each such other body corporate.
7.
Subscribed capital of each company in which
investments to the subscribed capital of each.
b.
The percentage which the proposed investment
(face value) together with any previous investments made by the company would
bear in relation to the subscribed capital of the other body corporate.
c.
The percentage which the cost price of the
proposed investment along with that of all existing investments in other bodies
corporate, bear to the subscribed capital of the company.
VI.
Whether the other body corporate is in the
same group as the company within the meaning of section 370 of the Act. If so,
state the particular clause of the section which is attracted indicating the
circumstances in which the companies are regarded as coming under the same
group, and
the percentage which the cost price of
the proposed investment along with that of all existing investments in the same
group bears to the subscribed capital of the company.
VII.
Full details of the existing borrowings of
the company indicating the amount due, source from which obtained, rate of
interest payable, terms regarding repayment and security and separately showing
the amounts due to
a.
Central State Governments.
b.
Financial institutions.
c.
Nationalised banks
d.
Insurance companies.
e.
Others.
VIII.
a.
The net excess of current assets over current
liabilities of the company according to the latest balance sheet, indicating
details of the calculations.
b.
Full details of the cash and bank balance and
easily realisable securities and investments according to the latest balance
sheep of the company.
IX.
a.
Source from which the proposed investment is
to be financed, indicating detailed particulars, the period over which the
payment will be spread over giving a cash-flow statement.
b.
If any part of the amount to be invested is
to be financed by borrowings, he amount of the loan and the source from which
it is to be obtained should be indicated together with the terms regarding
interest, repayment, security to be furnished, etc.
X.
Equity /preference shares held by each of the
following indicating separately the percentage the same bears to the total
equity, preference share capital of the investing company : a. Controlling block :
1.
Shares held by directors and their relatives.
2.
Other companies in the same management.
b.
Central /State Governments
c.
Financial institution (by individual names).
d.
Nationalised banks.
e.
Non-residents :]
3.
Companies not incorporated in India
4.
Foreign nationals
f.
Shareholders not covered in (a) to (e) above
holding 1 per cent or more of the equity shares.
g.
Others :
5.
Companies
6.
Individuals.
XI.
Equity/ preference share held by each
following indicating separately the percentage the same bears to the total
equity/preference share capital of the other body corporate. a. Controlling block :
1.
Shares held by directors and their relatives.
2.
Others companies in the same management.
3.
Investing company.
b.
Central /State Governments.
c.
Financial institutions(by Individual names).
d.
National banks.
e.
Non-residents :
1.
Companies not incorporate in India.
2.
Foreign nationals.
f.
Shareholders not covered in (a) to (e) above
holding 1 per cent or more of the equity shares. g. Others :
1.
Companies.
2.
Individuals.
XII.
Equity /preference shares held by each (as in
para XI) after making the proposed investment.
XIII.
a.
Whether the company is registered under
section 26 of the Monopolies and Restrictive Trade Practices Act, 1969. If so,
registration No. under the Act ?
b.
Whether the company has submitted an
application under section 21 or 22 or 23 of the Monopolies and Restrictive
Trade Practices Act, 1969, also in this regard ?
XIV.
Whether there are any arrears of provident
fund in respect of the employees of the investing company ? If so, the details
thereof.
XV.
Any other information which may have a
bearing on the proposed investment.
Dated………………….day of Signature
…………………198…… Designation
APPENDIX I
a.
A copy of the resolution passed by the
company in general meeting together with a copy of the resolution of the Board
approving the investment.
b.
A copy each of the Memorandum and Articles of
Association of the company and of the other body corporate.
c.
Copies of the balance sheets of both the
companies and of the other body corporate for the last three financial years.
d.
A copy of the prospectus issued by the other
body corporate.
APPENDIX II
A. Financial and liquidity position of
the company according to the latest balance sheet. Current Assets Rs. Rs.
(including investments other than trade investments in subsidiary and/or
managed companies).
Less :
Current
liabilities (including short-term loans and liabilities) ………. ………. ………. ……….. Liquid
surplus Add :
a.
Fixed assets
b.
Trade investment and investment in subsidiary
and and /or managed companies .
…………. ………..
………….. ………..
Less :
Long –term loans and liabilities Net
worth as on (Date of balance sheet)
Note :
In making the above computation of the
net wroth adjustments in respect of the following items shall be made :
i
intangible assets, e.g. goodwill, etc.
ii
Doubtful assets, e.g. doubtful and bad debts,
etc.
iii
Deferred revenue expenditure iv Accumulated losses v Arrears of depreciation vi Arrears of preference shares
dividend vii Any other amount,
appearing in the balance sheet required to be deducted in accordance with
accounting practice.
Total
………… ……… Reconciliation of net worth paid-up capital Add :
Reserve (Please specify details)
Less :
Intangible assets and any other amount
required to be deducted (vide Note above)
………
……….
Net worth as on
Date of balance sheet)
B. Financial position of the
other body corporate ………………. according to the latest balance sheet
Total assets ………………………. Rs. Rs.
Less :
i Intangible assets like
goodwill, etc.
ii Doubtful assets like
doubtful and bad debts, etc. iii Deferred revenue
expenditure.
iv accumulate losses v Arrears of depreciation vi Arrears of preference shares
dividend.
vii Any other amount
required to be deducted in accordance with accounting practice
Rs.
……………..
Total (X) ………………..
Less :
Liabilities
Net worth as on
(Date of balance sheet)
Reconciliation of net worth paid-up
capital
………. ……….
Add:
Reserve (please specify details)
Less :
Intangible assets, etc.
(Vide (X) above)
Net worth as on
(Date of balance sheet)
…………….
……………
Signature
Designation
Date the……………..day of………….,2000.
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