JOINT VENTURES ABROAD

	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 

(f)	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  to  equal 50% of such profits  and gains  is debited to the  profit

(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 80-O  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)].

©	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.
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.

The reference to “debentures” in the proforma should be read with the provisions of section 372 (12).

I.	(a)	Name of the company.
Management structure (composition of board of directors giving their names and addresses and particulars regarding manager, managing director, if any).
Capital structure
1.	Share capital			Authorised Rs.
					Subscribed Rs.
					Paid-up Rs.
					(Separately indicating equity and
					preference share capital).

          Debentures Rs.
          Long term loans Rs.

II.(a)	Name of the other body corporate :
Management structure (composition of board of directors giving their names and addresses and particulars regarding manager or managing director, if any).
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.

Main business of the company :
Main business of the other body corporate.
In what way would be proposed investment be in the interest of the company and of the other body corporate.
Particulars of the proposed investment :
Nature of investment (equity/preference) or debenture with rate of preference / dividend / debenture interest, terms of redemption, etc .
Amount to be invested.
Number of shares / debentures to be purchased.
Nominal value of the shares / debentures.
If the shares are quoted on any recognised stock exchange, current market quotations.
If the shares are not quoted on any recognised stock exchange, details as to the break-up value, yield and fair value.
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.)
Form of payment , i.e. in cash or by issue of shares of the company or by transfer of property (details to be given).
Dividend declared on the shares of the other body corporate during the preceding three year, if any.
Whether the shares/debentures are being purchased out of the fresh issue from the company.
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.
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.
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.
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 :
Names of the other bodies corporate.
Nominal value of the shares/debentures of each of them.
Cost price of the shares in which investments were made.
Present market price of the shares.
Whether quoted on any recognised stock exchange.
Dividends paid during the last three years separately, in respect of shares of each such other body corporate.
Subscribed capital of each company in which investments to the subscribed capital of each.
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.
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.

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 

Central State Governments.
Financial institutions.
Nationalised banks
Insurance companies.
Others.
Vlll.(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 :]
	(1)	Companies not  incorporated  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.
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.
©	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.