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We are a consulting firm and have received a foreign currency payment
in cash from our non-resident clients. What are the exchange control
regulations that presently apply to such payments? Specifically,
can we keep the cash or do we need to deposit it with our bank?
Your firm cannot retain more than $2,000 in cash in aggregate and
must within seven days of receipt of the foreign currency (i) sell
the foreign currency to an authorised dealer in India for Rupees,
or (ii) use it to discharge a debt/liability denominated in foreign
exchange, or (iii) retain and hold the foreign currency in an account
with an authorised dealer in India to the extent specified by the
Reserve Bank of India. If your firm has an EEFC account, you can
deposit the foreign currency in the EEFC account. However, only
50 per cent of the foreign currency will be credited into your firm's
EEFC account and the remaining 50 per cent will be credited into
your Rupee account.
We are a US company and have a wholly-owned
subsidiary in India. We plan to invest in another Indian company.
From an Indian income tax view point, should we or should our Indian
subsidiary make the investment in the new company?
It may be advantageous for your US company to
directly invest in the other Indian company (NewCo) from a tax standpoint
and also from the point of view of maximising returns on its investment.
Under the Double Taxation Avoidance Agreement
between India and the US and the amendments proposed to the Income
Tax Act, 1961 (ITA) by the 2002 Budget, during the financial year
2002-2003, the US company will be liable to pay income tax on dividends
received from an Indian company at 15 per cent while your Indian
subsidiary will be taxed at 36.75 per cent on its income-including
its dividend income. Though, under the proposed Section 80M of the
ITA, the amount received as dividend by your Indian subsidiary from
NewCo is deductible, while computing your Indian subsidiary's income,
up to the amount declared and paid as dividends by your Indian subsidiary
to the US company.
Long-term capital gains, i.e., gains from the
sale of shares of NewCo held for more than 12 months from the date
of issue will be the same for your US company and your Indian subsidiary,
that is, 20 per cent, though short-term capital gains would be higher
at 42 per cent for your US company as compared to 36.75 per cent
for your Indian subsidiary.
Dividends can be declared or paid by an Indian
company for any financial year, out of profits of the company for
that year only after the transfer of a prescribed minimum percentage
of profits of that year to free reserves of the company. This has
the effect of lowering annual repatriable profits outside India
if the investment is made by your Indian subsidiary as funds get
locked up in statutory reserves of both Indian companies.
Can one person be appointed as proxy for
more than one shareholder at a shareholders meeting? If yes, what
voting rights will such proxy have?
A person can be appointed to act as proxy for
more than one shareholder. In any case, a proxy (i) is not counted
for purposes of quorum at the shareholders meeting, and (ii) is
not entitled to speak at a shareholders meeting unless permitted
to do so. A proxy can only vote on a poll and not by a show of hands
unless permitted by the articles of association of the company.
On a vote on poll, a proxy can vote in respect of all the shares
of the shareholders for whom he is authorised to act. If the company's
articles of association provide for voting by a show of hands by
a proxy, such proxy's vote would be counted as a single vote and
not as a vote for each of the shareholders whose proxies he holds.
The views expressed here should not be construed
as legal opinion and is for reference only. Business Today and/or
the author will not be responsible for any decision taken by readers
on the basis of these views. Please send in your queries to Legal.bt@intoday.com
or Going By the Book, c/o Business Today, F-26, Connaught Place,
New Delhi-110001.
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