DPIIT accepts working group demands on angel tax.
The Department for Promotion of Industry and Internet Trade (“DPIIT”) has reportedly accepted a majority of the proposals proposed by a working group committee consisting of leading start-up related associations (such as NASSCOM, Indian Angel Network amongst others) (“Working Group”) with the intention of providing guidelines on angel tax.
Section 56(2) of the Income Tax Act, 1961 (“IT Act”), more commonly referred to as angel tax imposes a tax when a company issues shares at a price that is more than its fair market value. The difference is treated as income from other sources.
It is expected that the DPIIT and the Central Board for Direct Tax (“CBDT”) will issue separate notifications with regards to the same.
Some of the recommendations that have been accepted are:
- All DIPP level 1 recognized start ups are to be given blanket exemption from Section 56(2) of the IT Act;
- The definition of start-ups is to be amended. Currently, any company which is less than 7 years old can be considered as a start-up. It has been proposed to extend this time limit to 10 years;
- The threshold limit for angel tax (aggregate amount of paid-up share capital and premium of the shares issued by the start-up) to be increased from the existing INR 10 Crores to INR 25 Crores.
The Working Group has proposed the following working model to be followed by start-ups in order to get exemption from paying angel tax:
- Start-ups to submit all relevant documents (along with PAN card) to DPIIT;
- DPIIT, on reviewing the documents, should submit the names of the start-ups, along with the relevant PAN number to CBDT;
- The CBDT, on receiving the above-mentioned information from the DPITT, to set up an internal mechanism where such recognized start-ups do not get any notices under Section 56(2) of the IT Act.
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If the DPIIT and the CBDT accept these proposals, it will bring closure to the entire issue of angel tax that has negatively impacted the start-up eco-system for the last few years. Accepting these proposals, will increase the confidence of investors, and thus, increase the amount of funding that start-ups receive thus, improving the start-up ecosystem, and generally, increasing innovation in the country.
Non-parties to an arbitration agreement cannot be made parties to an arbitration: Delhi HC
The Delhi High Court (“Delhi HC”), in the case of Royale India Rail Tours Ltd v. Cox and Kings India Ltd and Anr held that parties that have not executed an arbitration agreement cannot be made parties to an arbitration.
In this case, Cox and Kings India Ltd (“Cox and Kings”) and the Indian Railway Catering and Tourism Corporation (“IRCTC”) had entered into an agreement for running a luxury train called the ‘maharaja’s express’. To do so, Cox and Kings and IRCTC entered into a Joint Venture Agreement (“JVA”) and created a joint venture company called Royale India Rail Tours Ltd (“RIRTL”). Both the JVA and RIRTL’s Articles of Association contained arbitration clauses and mentioned that the same was applicable only on Cox and Kings and IRCTC. Further, RIRTL did not sign the JVA and neither was its name mentioned in either of the arbitration clauses.
When IRCTC, via letter dated August 08, 2011, terminated the JVA alleging default by Cox and Kings, Cox and Kings invoked the arbitration clause of the JVA and made RIRTL a party to the same.
The Delhi HC, on hearing both parties ruled that, whilst section 8 of the Arbitration and Conciliation (Amendment) Act, 2015 allows for the courts to permit non-parties of an arbitration agreement to become parties to an arbitration proceeding, the same is only applicable in the event that it is the intention of the parties to have such a third party be part of the arbitration proceeding whilst executing the arbitration agreement. In the present case, as it was expressly mentioned in the arbitration clause that the same will only be applicable on Cox and Kings and IRCTC, neither party intended to make RIRTL party to the arbitration agreement. Therefore, the Delhi HC ruled that RIRTL cannot be made party to the arbitration.
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- This judgement has clarified the position on who can be made parties to an arbitration. On a review of the same, we can conclude, that a party can be part of an arbitration only if (i) the party has executed an arbitration agreement; or (ii) if it was the intention of the parties that executed the arbitration agreement to make the third party, a party to the arbitration agreement.
- Another point that has been raised as a result of this judgement is that it is now left to the discretion of the courts to determine if it was the intention of the parties that executed the arbitration agreement to include the third party in the arbitration clause. It is therefore, recommended that parties make detailed arbitration clauses specifying all the parties that will be governed by the arbitration clause.
Claim for gratuity beyond the prescribed limit is not beyond the scope of the PG Act: Delhi HC
The Delhi HC, in the case of M/S BCH Electric Limited (“Petitioner”) v. Pradeep Mehra (“Respondent”) held that the Payment of Gratuity Act, 1972 (“PG Act”) will be applicable even if the amount of gratuity paid is more than the threshold prescribed under Section 4(3) of the PG Act.
In this case, the Respondent, the CEO of the Petitioner company, had resigned after 12 years of service. The Petitioner Company, accordingly, paid INR 10 lakhs to the Respondent as gratuity. The Respondent, however, filed a suit claiming that he is entitled to INR 1,83, 75,000 before the controlling authority as prescribed under Section 7 of the PG Act. The controlling authority ruled in the Respondent’s favour after which, the Petitioner approached the Delhi HC. The Petitioner claimed that as Section 4(3) of the PG Act prescribes a threshold of INR 10 Lakhs, the Respondent is entitled to the same and not more.
The Delhi HC, rejected the claim of the Petitioner and held that although Section 4(3) recommends a threshold of INR 10 Lakhs, Section 4(5) of the PG Act overrides Section 4(3) of the PG Act and carves out an exception for those employees who have better terms of gratuity under an award, or an agreement or contract with the employer. The Delhi HC therefore, directed the Petitioner to pay the Respondent the claimed sum of gratuity.
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- This judgement clarifies that the provisions of Section 4(5) of the PG Act shall override the provision of Section 4(3) of the PG Act. This is helpful for any person who is entitled to gratuity more than INR 10 lakhs. This is because, earlier, it was not clear as to whether they could use the dispute mechanism set out in the PG Act. Post this judgement, it is clear that any person who is entitled to gratuity will be governed by the PG Act, and therefore, can approach the controlling authority as prescribed under Section 7 of the PG Act.
Gujarat HC adjourns appeal pertaining to legalizing poker
The Gujarat High Court (“Guj HC”) has adjourned appeals that have been filed by the Indian Poker Association of India and Dominance Games Private Limited that sought to challenge a December 04, 2017 judgement of the Guj HC that held poker to be a game of chance and if the game is played within Gujarat, it would be a criminal offence.
The matters have been adjourned till February 14, 2019 and to be heard before a bench comprising of the acting Chief Justice Anant Dave and Justice Biren Vaishnav.
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- In our opinion, it is critical that the Guj HC takes a decision of this at the earliest. As this will have repercussions on other similar pending disputes before other courts, it is important that the Guj HC decides on this matter at the earliest.
Disclaimer: This post has been prepared for informational purposes only. The information/or observations contained in this post does not constitute legal advice and should not be acted upon in any specific situation without seeking proper legal advice from a practicing attorney.