Archive for April 2010

FAQs on FOREIGN INVESTMENT IN INDIA

1. What are the legal forms in which a foreign company or a foreigner can conduct business in India?

a. By incorporating a company under the Companies Act 1956, which may be a joint venture or a wholly owned subsidiary.
b. By opening an office of a foreign entity which may be a liasoning office, representative office, a project office or a branch office.

2. What are the two routes through which foreign investment is permitted in India?
a. Automatic route
b. Government route.

3. What is automatic route of Foreign Investment?
Under this up to 100% of investment is permitted in most of the activities and sectors. There is no requirement of any prior government approval for the investments in this route. The investor shall notify the Reserve Bank of India within 30 days of the receipt of the inward remittance and file the required documents with RBI within 30 days of issue of shares to the non resident investors.

4. Explain Government route of Foreign Investment?
These are sectors or activities where foreign investment requires prior government permission from Foreign Investment Promotion Board (FIPB). These include:
a. Sectors mentioned in Press Note I(2005 series) issued by the Government of India
b. Areas reserved for Small Scale sector.

5. Which are the areas where Foreign Direct Investment is not permitted in India?
A.   a. Retail Trading
b. Atomic Energy
c. Lottery business
d. Gambling and betting
e. Chit fund
f. Nidhi company
g. Agricultural or plantation activities
h. Housing and real estate business.
i. Transferable Developmental Rights.

6.  Can a foreigner repatriate the profits made in India?
Yes.

7. Can a foreigner do partnership or proprietorship concern business in India?
No. However NRIs and PIOs are permitted for the same. But the profits are not repatriable.

SOME FAQs ABOUT CAPITAL GAIN

1.What are capital assets?
A.Capital assets are properties of any kind held by a person whether or not connected with his business or profession.

2.What is capital gain?
A.Any profit or gain arising from transfer of capital asset is capital gain.

3.Which are the two types of capital gains?
A.Short term capital gain and long term capital gain.

4.What is Short term capital gain?
A.Capital gain accrued by the transfer of a capital asset (shares or securities within one year and other properties within three years of acquisition) is called short term capital gain.

5.What is long term capital gain?
A.Capital gain accrued by the transfer of a capital asset (shares or securities after one year and other properties after three years of acquisition) is called long term capital gain.

6.How is capital gain calculated?
A.Capital gain = ( full value of consideration received on transfer)- ( cost of acquisition of capital asset + cost of improvement of capital asset+ expenditure incurred  in connection with transfer of capital asset).

7.What are the ways to minimize the incidence of capital gain?
A.The ways to minimize the incidence of capital gain are (i) by investing in capital gain bonds (ii) by reinvesting in residential properties.

8) What is the rate of income tax on a short term capital gain?
The short term capital gain is calculated along with the other sources of  income of the assessee and is subjected to a maximum  tax rate of  30%.

9) What is the rate of income tax on a long  term capital gain?
The long  term capital gain is subjected to a tax rate of  20%.

10) What are the transfer related expenditures which can be minimised from the sale value of an asset for the calculation  of capital gain?
a.Brokerage charges
b.Stamp duty and registration fee
c.Travel expenses

11) What is the formula to find the indexed cost of acquisition of a capital asset in the case of long term capital gain?

Cost of acquisition= Cost of purchase x CII(Cost Inflation Index) of current  year
—————————————————————
CII of Purchase year

12) Are cost of acquisition and cost of improvement indexed in the case of a short term capital gain?
No.

13)What are the exemptions of agricultural land from capital gain?
Capital gain from sale of agricultural land is exempted from tax subject to the following conditions:
a.Land should have been used by the assessee or his parents for agricultural purposes for the last two preceeding years.
b.The assessee shall purchase agricultural land within 2 years from the date of transfer and shall not sell the same for three years .
c. If the assessee does not purchase the agricultural property within 2 years, he may deposit the capital gain in the CGAS(Capital Gain Account Scheme) of the specified bank.

14) How can  long term capital gain from transfer of a residential unit minimised?

a.As per section 54, if the assessee within a period of two years after the transfer  or one year before the transfer  of the property purchase a residential house, then the capital gain tax will be exempted.

b.If the assessee within a period of three  years after the transfer   of the property construct  a residential house, then the capital gain tax will be exempted.

c. The assessee shall not transfer the new house within a period of three years from the date of its purchase or construction.

d. If the capital gain cannot be reinvested as above them the same shall be deposited in CGAS to claim exemption.

15)  How can  long term capital gain from transfer of a non residential asset minimised?
a.As per section 54F, if the assessee within a period of two years after the transfer  or one year before the transfer  of the property, purchase a residential house, using the net consideration, then the capital gain tax will be exempted.

b.If the assessee within a period of three  years after the transfer   of the property construct  a residential house, using the net consideration,  then the capital gain tax will be exempted.

c.However the assessee shall not own more than one residential house.
d. The assessee shall not transfer the new house within a period of three years from the date of its purchase or construction.
e. If the net consideration cannot be reninvested as above then the same shall be deposited in CGAS to claim exemption.

SOME FAQs ABOUT DISSOLUTION OF A PARTNERSHIP

1. What are the circumstances in which a partnership firm is compulsorily dissolved?

A. A firm is dissolved-
       a) By the adjudication of all the partners or of all partners but one as insolvent or,
       b) By the happening of any event which makes it unlawful for the business of the firm to be carried on or for the      partners to carry it on in partnership.

2. What are the contingencies on the happening of which a partnership firm is dissolved?
 
A. Subject to contract between the partners a firm is dissolved -
a) If constituted for a fixed term, by the expiry of that term
b) If constituted to carry out one or more adventures or
    undertakings by the completion thereof.
c) By the death of a partner.
d) By the adjudication of a partner as an insolvent.

3. What is meant by partnership at will?
A. Where no provision is made by contract between the partners for the duration of their partnership, or for the determination of their partnership, the partnership is said to be at will.

4. How can a partnership at will be dissolved?
A.Where the partnership is at will the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm.

5. For a partnership at will when is the firm treated as dissolved?
A. The firm is dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of the communication of the notice.

6. What are the circumstances in which a court can dissolve a partnership firm?
A. At the suit of a partner, the Court may dissolve a firm on any of the   following grounds, namely:
a) That a partner has become of unsound mind.
b) That a partner, other than the partner suing, has become in any way    permanently incapable of performing his duties as partner.
c) That a partner, other than the partner suing, is guilty of conduct which is likely to affect prejudicially the carrying on of the business.
d) That a partner, other than the partner suing, willfully or persistently commits breach of agreement relating to the management of the affairs of the firm or the conduct of its business, or otherwise so conducts himself in matter relating to the business that it is not reasonably practicable for the other partners to carry on the business in partnership with him.
e) That a partner, other than the partner suing has in any way transferred the whole of his interest in the firm to a third party.
f) That the business of the firm cannot be carried on save at a loss.
g) On any other ground which renders it just and equitable that the firm should be dissolved.

7. What is the extent of liability of partners for acts done after dissolution?
A. After the dissolution of a firm, the partners continue to be liable as such to third parties for any act done by any of them which would have been an act of the firm if done before the dissolution until public notice is given of the dissolution.

8. What are the instances where the authority of the partner to bind the firm and mutual rights and obligations of the partner continue even after dissolution?
A. After the dissolution of a firm the authority of each partner to bind the firm, and the other mutual rights and obligations of the partners, continue notwithstanding the dissolution, so far as may be necessary to wind up the affairs of the firm and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise.
                 
9. Can a partner carry on similar business using firm’s name?
A. After a firm is dissolved, every partner or his representative may in the absence of a contract between the partners to the contrary, restrain any other partner or his representative from carrying on a similar business in the firm name or from using any of the property of the firm for his own benefit, until the affairs of the firm have been completely wound up.

            Provided that where any partner or his representative has bought the goodwill of the firm, the said partner can use the firm name.

10. What is meant by goodwill of a firm?
•It is the value of reputation and connection which a firm establishes over time due to its integrity, efficient services to customers, quality of its products, industry etc.
•It is a commercial rather than a legal term.
•Supreme Court has held that the goodwill is an intangible asset of a firm. It is the whole advantage whatever it may be of the reputation, and the connections formed with the customers together with the circumstances which make the connections durable. 
 

11. Can a partner who has bought the goodwill of the firm, use the firm name after dissolution of firm.
A.Yes.

12. What happens to a partnership firm of 2 partners when one of the partners resigns?
A. It gets dissolved.

13.Under what circumstance the individual asset of a partner becomes a partnership firm asset?
To be treated as partnership firm property, the individual property of a partner needs to be explicitly agreed by the partner to be brought in as a partnership asset.
Even if a partner uses his personal property to do business of the firm, it does not become a property of a firm unless he specifically agrees to do so.

 

SOME FAQ’S ABOUT DIVORCE

1) How are children affected by Divorce?
Ans) A Divorce cuts off the relationship between the husband and wife. But no Divorce order can cut off the relationship between the parents and the children. Socially and emotionally, children of divorced parents will have trauma and injury. Irrespective of the custody of children with one parent after Divorce, the other parent will have an access and visitation rights over the children.

2) How to file for a Divorce?
Ans) A Divorce needs to be filed in a jurisdictional family Court, preferably with the assistance of an expert family lawyer. The following points need to be kept in mind before filing of a Divorce petition.
a)Whether the particular court has jurisdiction.
b) Whether any waiting period is there before approaching the court.
c) Whether the petition is under the correct provision of Law.
d) Whether sufficient grounds are urged in the petition.
e) Whether sufficient documents are produced along with the petition.
f) Whether the prayer is properly worded.

3) What are the documents required for a Divorce petition?
Ans) The following are the basic documents required for a Divorce petition in India:
a) Marriage photo
b) Marriage invitation card
c) Marriage certificate (if the same is registered)

4) How long does it take to get a Divorce in India?
Ans) A mutual consent Divorce petition may take about one month if the waiting period of 6 months is dispensed by court. If waiting period is not dispensed, it may take about 7-8 months.
             For a contesting Divorce petition, it may take about 1-1 ½   years to conclude. An exparte Divorce proceeding may conclude within 6-9 months.

5) What is an exparte Divorce petition?
Ans) On filing of a Divorce petition, the Court will issue a notice to the other party for appearance. After the receipt of the notice, if the other side does not appear in the court, the court declares the matter as exparte. Thereafter the matter will proceed purely in a one sided manner and the Court will pass the decree accordingly.

6) How can I find out if a Divorce has been filed?
Ans) By enquiry in the family register of a family court one can find out whether the Divorce has been filed or not.

7) How long should I wait to remarry after Divorce?
Ans) One has to wait for the appeal period to remarry after the decree of Divorce. In India the appeal period is normally 90 days.

8) Are fathers entitled for the custody of children during Divorce?
Ans) A Divorce proceeding normally ends with a decision on the custody of the children. With whom the welfare of the children is best protected, is the yard stick that decides the custody of the children. As per most of the Indian personal Laws, father is the natural guardian of the minor. However mothers are usually preferred by Indian Courts to give the custody of the children. However this does not rule out entitlement of the father to get the custody of the children in appropriate cases.

IS ANTICIPATORY BAIL AVAILABLE WHEN A COMPLAINT IS NOT REGISTERED?

Registration of an FIR is not mandatory for a person to approach the court of law for an order of anticipatory Bail. There are various citations of Supreme Court and High Courts in this regard.   Even in the absence of a pending criminal complaint against a person, if such person has an apprehension of arrest, he can approach the Sessions court or High court for an order of Anticipatory Bail. The apprehension of arrest may be elicited from the facts and circumstances of the matter, conduct of respondent police, the acts and communications of the potential complainant etc. On the whole, the applicant must convince the court, primarily that there is every likelihood for a criminal complaint to be lodged against him and the probability of respondent police arresting him based on the said complaint.

             An applicant cannot expect a blanket order from the court granting Anticipatory Bail. The applicant need to specify in his application the probable sections under which his opponent  may file a complaint against him,  which is even more difficult in comparison to a scenario where the complaint is already registered against him. This is because, if a complaint is already registered against the applicant, then the applicant as well as the court,  both are  convinced as to what are the sections which constitute the alleged offence. However in a case where the FIR is not yet registered, it is left to the mental exercise of both the applicant as well as the court to figure out the probable offence.
                                  
             The requirement of spelling out the exact provisions of the offence in an application for Anticipatory Bail may cause a technical difficulty for the applicant.  For instance if a court grants anticipatory bail to an applicant for an offence punishable under certain penal sections, his opponent can still trap him by lodging a complaint under some other sections. This dilutes the effect of the result got by the applicant. However the applicant is entitled to file for a fresh anticipatory bail and the obtainment of previous anticipatory bail will definitely be a plus factor while considering the second bail application.

             Similarly in matters where the FIR is not yet registered, courts have a tendency to grant anticipatory bail for limited periods like 45 days, 60 days etc. This again puts the applicant into some inconvenience, as his opponent may wait for the period to elapse for filing a complaint against him. In such a scenario the applicant can file one more application and obtain an anticipatory bail. The earlier anticipatory bail will definitely assist him in the obtainment of a new anticipatory bail.