Weekly Legal Updates- Jai Kumar

Hey friends -- Jai here.

Again, thank you for taking the time to read these financial news that unfolded this week.

As a reminder, every Saturday, I'm going to publish news around Income Tax, Compliance, Due Diligence, Corporate Laws, Auditing, and much more.

My purpose of these newsletters is to ensure this brings you value and most importantly, save your time by bringing everything in one place.

Today, we're going to cover some of most important news around:

1. Income Tax
2. Corporate Law
3. Other Laws
4. Funding News

The goal is for you to take this and make changes to your ongoing procedures.

Let's get into it.

Part1: INCOME TAX

• Mergers and business reorganization take time

There is always a time gap between the date of effectivity of order and issuance of the final order. 

CBDT, finally recognizing this, has announced filing a modified tax return in Form ITR - A by the successor entity. 

Once filed, the Assessing Officer shall pass an order modifying the total income or proceed to complete the assessment or reassessment proceedings by order of the business reorganization and the revised return so furnished.

• Additional guidelines on deduction of tax under Section 194R issued by CBDT

The Finance Act, 2022, had inserted a new Section 194R to the Income-tax Act, 1961, providing for deduction of tax at source (TDS) on benefit or perquisite in respect of business or profession.

To remove difficulties in implementing the provisions of Section 194R, the CBDT, vide Circular No. 12 of 2022, dated 16-06-2022, issued guidelines that contained 10 FAQs on specific aspects of Section 194R. Now the CBDT has issued a new guideline to give more clarity on the FAQs released earlier.

• 'OLA' isn't liable to deduct tax under Sec. 194C while making payment to cab drivers: ITAT

The assessee had paid the cab drivers for "carrying out work" relating to the carriage of passengers. 

The Assessing Officer (AO) treated the assessee as assessee-in-default as it failed to deduct tax at source (TDS) under section 194C while making the payments to the cab drivers.

On appeal, the CIT(A) upheld the view of AO. Aggrieved-assessee filed the instant appeal before the Tribunal.

In the instant case, much like Uber B.V./ Uber India, the assessee only provides the mobile app "OLA," on which the Driver lists themselves to provide transportation services to the Rider.

The terms of the agreements of the assessee clearly show that the Driver will provide transportation service to the Rider and not the assessee. 

Even the invoices raised on the Rider demarcate this distinction. Therefore, the person responsible under section 204(iii) to invoke the provisions of section 194C is the Rider and not the assessee.

The Rider is entitled to use the assessee's platform or avail transportation services only for personal use, per the User Terms and Subscription Agreement. 

Since such personal use by the Rider is exempt from liability to deduct tax, as per section 194C(4), no liability can be fastened on the assessee.

• Delhi High Court upholds validity of reassessment notice issued within period extended by TOLA 2020

Continuing the Saga. Delhi court, too, upholds the validity of the reassessment notice. The assessee contended that the present proceedings for the AY 2013-2014 are time-barred and were not held correct. 

Delhi High Court held that the time limit for issuing notice under unamended Section 149, which fell between 20-03-2020 and 31-03-2021, was extended by Section 3 of TOLA read with Notification No. 20/2021 dated 31-03-2021, and Notification No. 38/2021 dated 27-04-2021, until 30-06-2021.

Part 2: COMPANY LAW

• NFRA's Interpretation of Para 21 of SA 260(Revised) includes interpretation of the terms "Communicate," "TCWG," and "Timely"

Para 21 of the SA 260 (Revised) says, "The auditor shall communicate with those charged with governance on a timely basis."

Merely informing the Audit Committee about the status of impairment through a presentation made just a day before the date of signing of the Audit Report cannot be considered a discussion of the matter with those charged with governance (TCWG) as it is a one-sided communication without any written record of the views of both the parties and is a violation of provisions of SA 260 (Revised).

Further, it is not a 'timely' communication as envisaged by SA 260(Revised). Nor is it communication to TCWG as Audit Committee is not TCWG1.

• Small Companies redefined

To further ease doing business in India, through the Ministry of Corporate Affairs, the Government of India has amended the definition of Small Companies under the Companies Act, 2013, widening the scope.

The two criteria that decide whether or not a company is small - paid-up capital and turnover originally had a threshold of Rs.50 Lakhs and Rs. 2 Crores, respectively.

This was changed in Budget 2021 w.e.f April 2021 to Rs. 2 Crores and Rs. 20 Crores, respectively.  

Now, the Ministry vide notification date. 15th September 2022 has further increased these limits to Rupees 4 Crores and turnover to 40 Crores.

But how does that ease doing business?

Small Companies enjoy various exemptions under Company Law, and the widening scope will only cover more companies under its ambit and reduce the compliance burden.

Some of the exemptions enjoyed by the Company include:

1. Exemption from requirement of the preparation of Cash Flow Statements (CFS)
2. Exemption from requirement of holding minimum 4 Board Meetings in a year
3. Exemption from the applicability of CARO, 2020
4. Exemption from certification of Annual Return by a Company Secretary in Practice
5. Exemption from the reporting on the adequacy of internal financial controls and its operating effectiveness in the auditor's report
6. Exemption from the requirement of mandatory rotation of auditors

Out of the 15 Lakhs active companies in India, approximately 50% of these companies would fall under the amended definition. A welcome move.

• Have unspent CSR Funds? Then you must have to constitute a CSR committee.

To ensure the CSR amount is spent, the Government has mandated the Companies having unspent CSR funds to constitute a CSR committee.

Further, a new reporting format for CSR activities was notified.

OTHER LAWS

• A Shift from BRR to BRSR- Enhanced Reporting by Top Listed Companies

The business Responsibility Report (BRR) framework was an initial step to integrate ESG with the Indian regulatory regime the stakeholders have given more prominence to non-financial disclosures for the evaluation of a company's sustainable business model, and SEBI has come out with the amendment to regulation 34 (2) (f) of LODR regulations and introduced a new reporting format, i.e., Business Responsibility and Sustainability Report (BRSR).

The requirement of submitting a BRR shall be discontinued after the financial year 2021–22, and thereafter, with effect from the financial year 2022–23, reporting shall be made in BRSR, being applicable for the top one thousand listed entities based on market capitalization. However, the SEBI has encouraged to voluntarily submit a BRSR in place of the mandatory BRR even during the financial year 2021–22.

 BRSR is a more comprehensive framework for disclosing non-financial information than the BRR that was provided until FY 2021-22. 

And...

• Foreign Trade - FTP 2015-2020 amended to permit payment of exports & imports in INR to sync with RBI guidelines - NOTIFICATION NO. 33/2015-20 date 16/09/2022
• In a first, the Government has proposed amendments in Telecom Bill to include the OTT platforms in its ambit.

Funding for the week :

1. Zopper, an insurtech startup, raised $75 million from Creaegis, ICICI Venture, Bessemer Venture Partners, and Blume Ventures.
2. Light Microfinance raised Rs 196 crore from British International Investment, Nordic Microfinance Initiative, Triple Jump BV, and Incofin IM.
3. Join Ventures, a house of D2C brands platform, raised $23.5 million from MO Alternate Investment, Convivialité Ventures, and DSG Consumer Partners.
4. Audio platform KukuFM raised $21.8 million from The Fundamentum Partnership, Paramark, KRAFTON Inc, 3one4 Capital, Vertex, and Verlinvest.
5. Math learning platform Bhanzu raised $15 million from Eight Roads Ventures and B Capital.
6. Farm-to-consumer brand Deep Rooted raised $12.5 million from IvyCap Ventures, Mayfield, Accel, and Omnivore.
7. House of brands platform FS Life raised Rs 50 crore from Fireside Ventures and other prominent angel investors.

Source: Yourstory

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