i
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 Governments 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
Governments) 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
collaborators 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 abroadg. 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.iii
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.a.b.c.a.b.c.a.b.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.a.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
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)].a.b.c.
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, orii
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)].iiiiiiiiiiii
Model
FormsRegistration
No. of the CompanyNominal
capital RsTHE
COMPANIES ACT, 1956Form
of Application to the Central Government for Purchaser by Companiesof
Shares of Other CompaniesNote
:1i
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.iii
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.iv
The
reference to debentures in the proforma should be read with the provisions of
section 372 (12).ia. Name
of the company.b. Management
structure (composition of board of directors giving their names and addresses
and particulars regarding manager, managing director, if any).c. Capital
structure1.
Share
capital Authorised Rs. Subscribed Rs. Paid-up Rs. (Separately indicating equity
and preference share capital).2.
Debentures
Rs.3.
Long
term loans Rs.I.II.a.
Name
of the other body corporate :b.
Management
structure (composition of board of directors giving their names and addresses
and particulars regarding manager or managing director, if any).c.
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.I.II.III.
Main
business of the company :a.
Main
business of the other body corporate.b.
In
what way would be proposed investment be in the interest of the company and of
the other body corporate.I.II.III.IV.
Particulars
of the proposed investment :a.
Nature
of investment (equity/preference) or debenture with rate of preference /
dividend / debenture interest, terms of redemption, etc .b.
Amount
to be invested.c.
Number
of shares / debentures to be purchased.d.
Nominal
value of the shares / debentures.e.
If
the shares are quoted on any recognised stock exchange, current market
quotations.f.
If
the shares are not quoted on any recognised stock exchange, details as to the
break-up value, yield and fair value.g.
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.)h.
Form
of payment , i.e. in cash or by issue of shares of the company or by transfer
of property (details to be given).i.
Dividend
declared on the shares of the other body corporate during the preceding three
year, if any.j.
Whether
the shares/debentures are being purchased out of the fresh issue from the
company.k.
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.l.
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.m.
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.n.
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.I.II.III.IV.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 :1. Names
of the other bodies corporate.2. Nominal
value of the shares/debentures of each of them.3. Cost
price of the shares in which investments were made.4. Present
market price of the shares.5. Whether
quoted on any recognised stock exchange.6. Dividends
paid during the last three years separately, in respect of shares of each such
other body corporate.7. Subscribed
capital of each company in which investments to the subscribed capital of each.a.b.
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.c.
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.I.II.III.IV.V.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.VII.
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 toa.
Central
State Governments.b.
Financial
institutions.c.
Nationalised
banksd.
Insurance
companies.e.
Others.I.II.III.IV.V.VI.VII.VIII.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.I.II.III.IV.V.VI.VII.VIII.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.I.II.III.IV.V.VI.VII.VIII.IX.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.a.b.
Central
/State Governmentsc.
Financial
institution (by individual names).d.
Nationalised
banks.e.
Non-residents
:]3. Companies
not incorporated in India4. Foreign
nationalsa.b.c.d.e.f.
Shareholders
not covered in (a) to (e) above holding 1 per cent or more of the equity
shares.g.
Others
:5. Companies6. Individuals.I.II.III.IV.V.VI.VII.VIII.IX.X.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.a.b.
Central
/State Governments.c.
Financial
institutions(by Individual names).d.
National
banks.e.
Non-residents
:1. Companies
not incorporate in India.2. Foreign
nationals.a.b.c.d.e.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.I.II.III.IV.V.VI.VII.VIII.IX.X.XI.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 ?I.II.III.IV.V.VI.VII.VIII.IX.X.XI.XII.XIII.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 Signature198
DesignationAPPENDIX
Ia.
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
IIA.
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
surplusAdd
:a. Fixed
assetsb. 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 expenditureiv
Accumulated
lossesv
Arrears
of depreciationvi
Arrears
of preference shares dividendvii
Any
other amount, appearing in the balance sheet required to be deducted in
accordance with accounting practice.Total
Reconciliation of net worth paid-up capitalAdd
:Reserve
(Please specify details)Less
:Intangible
assets and any other amount required to be deducted (vide Note above).Net
worth as onDate
of balance sheet)B.
Financial position of the other body corporate .according
to the latest balance sheetTotal
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
lossesv
Arrears
of depreciationvi
Arrears
of preference shares dividend.vii
Any
other amount required to be deducted in accordance with accounting practiceRs...Total
(X) ..Less
:LiabilitiesNet
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).SignatureDesignationDate
the..day of.,2000.