Showing posts with label income tax act. Show all posts
Showing posts with label income tax act. Show all posts

Thursday, June 15, 2017

Supreme Court of India's on Aadhar PAN Link

1.    The Hon’ble Supreme Court of India in its Landmark Judgement has upheld Section139AA of the Income Tax Act,1961 as constitutionally valid which required quoting of the Aadhaar number in  applying for  PAN as well as for filing  of income tax returns.

2.    The Hon’ble Court also held that the “Parliament was fully competent to enact Section 139AA of the Act and its authority to make this law was not diluted by the orders of this Court.” Therefore, no violation of the earlier Supreme Court orders were found in enacting the provision.

3.    The Hon’ble Court has also held that Section 139AA of the Act is not discriminatory nor it offends equality clause enshrined in Article 14 of the Constitution.
4.    Section 139AA is also not violative of Article 19(1)(g) of the Constitution in so far as it mandates giving of Aadhaar number for applying PAN and in the income tax returns and linking PAN  with Aadhaar number. 
5.    Section 139AA(1) of the Income Tax Act,1961 as introduced  by the Finance Act, 2017 provides for mandatory quoting of Aadhaar/Enrolment ID of Aadhaar application form, for filing of return of income and for making an application for allotment of PAN with effect from 1st July, 2017.

6.    Section 139AA(2) of the Income Tax Act,1961 provides that every person who has been allotted PAN as on the 1st day of July, 2017, and who is eligible to obtain Aadhaar, shall intimate his Aadhaar on or before a date to be notified by the Central Government. The proviso to section 139AA (2) provides that in case of non-intimation of Aadhaar, the PAN allotted to the person shall be deemed to be invalid from a date to be notified by the Central Government.

7.    The Hon’ble Supreme Court has upheld Section 139AA(1) which mandatorily requires quoting of Aadhaar for new PAN applications as well as for filing of returns.

8.    The Hon’ble Supreme Court has also upheld Section 139AA(2) which requires that the Aadhaar number must be intimated to the prescribed authority for the purpose of linking with PAN.

         9.    It is only the proviso to Section 139AA(2) where the Supreme Court has granted a partial stay for the time being pending resolution of the other cases before the larger bench of the Supreme Court. The Hon’ble  Supreme Court has unequivocally stated as follows:
      “125. Having said so, it becomes clear from the aforesaid discussion that those who are not PAN holders, while applying for PAN, they are required to give Aadhaar number.  This is the stipulation of sub-section (1) of Section 139AA, which we have already upheld.  At the same time, as far as existing PAN holders are concerned, since the impugned provisions are yet to be considered on the touchstone of Article 21 of the Constitution, including on the debate around Right to Privacy and human dignity, etc. as limbs of Article 21, we are of the opinion that till the aforesaid aspect of Article 21 is decided by the Constitution Bench a partial stay of the aforesaid proviso is necessary.  Those who have already enrolled themselves under Aadhaar scheme would comply with the requirement of sub-section (2) of Section 139AA of the Act.  Those who still want to enrol are free to do so.  However, those assessees who are not Aadhaar card holders and do not comply with the provision of Section 139(2), their PAN cards be not treated as invalid for the time being.  It is only to facilitate other transactions which are mentioned in Rule 114B of the Rules.  We are adopting this course of action for more than one reason.  We are saying so because of very severe consequences that entail in not adhering to the requirement of sub-section (2) of Section 139AA of the Act.  A person who is holder of PAN and if his PAN is invalidated, he is bound to suffer immensely in his day to day dealings, which situation should be avoided till the Constitution Bench authoritatively determines the argument of Article 21 of the Constitution.  Since we are adopting this course of action, in the interregnum, it would be permissible for the Parliament to consider as to whether there is a need to tone down the effect of the said proviso by limiting the consequences.”
10.  Finally the effect of the judgement is as following 
   (i)     From July 1, 2017 onwards, every person eligible to obtain Aadhaar must quote their Aadhaar number or their Aadhaar Enrolment ID number for filing of Income Tax Returns as well as for applications for PAN;
 (ii)  Everyone who has been allotted permanent account number as on the 1st day of July, 2017, and who has Aadhaar number or  is eligible to obtain Aadhaar number, shall intimate his Aadhaar number to  income tax authorities for the purpose of linking PAN with Aadhaar;
 (iii) However, for non-compliance of the above point No.(ii), only a partial relief  by the Court has been given to those who do not have Aadhaar and who do not wish to obtain Aadhaar for the time being, that their PAN will not be cancelled  so  that other consequences under the Income Tax Act for failing to quote PAN may not arise.

Thursday, April 4, 2013

Guide to Incorporate Company in India

For setting up a business establishment in India, first step is to incorporate a company whether a private limited or a public limited, which includes:
ü      obtaining director identification number (DIN),
ü      obtaining digital signature certificate,
ü      reserving the company name with the Registrar of Companies (ROC),
ü      paying stamp duties
ü      filing all incorporation forms and documents  and
ü      obtaining the certificate of incorporation.
Thereafter, it is required to get the other necessary formalities done such as:
ü      Company seal
ü      Permanent Account Number (PAN).
Based on the nature of business, it may further be required to obtain a
Tax Account Number (TAN) come taxes deducted at source (TDS).
Subsequently, depending upon the nature of business additional requirements may include
ü      registration for Value Added tax (VAT),
ü      registration with Employees' Provident Fund Organization,
ü      registration for medical insurance (ESIC)
For incorporating a company in India, there is a series of steps required for incorporating a private or public limited company in India. These steps work according to the guidelines provided by The Company’s Act, 1956.
1. The very first step of formation for incorporating a company is to get the name of the company registered at the Registered of Companies (ROC) in the territory of the company’s registered office. The company’s name should not match any existing name. ROC at least takes a week from the date of registration of the name to assure that the name does not exist before.
2. After the completion of this process, the company has to file a Memorandum of Association and Articles of Association with ROC itself. For a public company, the company’s name should end up with “Limited” and for a private company; the company’s name should end up with “Private Ltd”.
3. After submitting the Memorandum of Association and Articles of Association, ROC issues an incorporated certificate only after receiving a mandatory registration fees.

4. After these steps, the next main step is to get the address of the registered office. It is not mandatory for the registered office to be the same building from where all the work is being carried out.
5. Foreign companies need to fill up a FNV-5 form with the Reserve Bank of India to get the permission to start the manufacturing and trading activities in India without an Indian partner. Any Indian or foreigner can be the director of a company in India. Any person whether he/she is Indian or foreigner and any Indian company or foreign company can be shareholder of an Indian company.

6. For incorporating a Public Company, a minimum of three directors and seven shareholders are required and for incorporating Private Company, a minimum of two directors and two shareholders are required.
7. After the registration and certification, each company needs to designate an Auditor. He has a very important duty to perform in the company. All the balance sheets, company’s documents and company’s meetings are scrutinized by him.
8. Every company should have an account book and written records of all the directors, shareholders and the employees. Account book takes care of all income, including profits and losses and the records register takes care of all the past and present work of the people associated with the company.
9. At last, each company should have a different logo, and a stamp of that logo which is imprinted on each written record and each written document of the company. 

Sole proprietorship firm converted to a company

Many entrepreneurs start their businesses as a sole proprietorship due to the low compliance requirements. As the business and the revenues grow, there is a need to separate the bank accounts and the tax filings of the sole proprietor and that of the business. To achieve this separation a possible solution is to convert the sole proprietorship into a private limited company. In this article, we discuss how this conversion can be done and you as a shareholder can avail of the provisions of law in this regard.
To convert a sole proprietorship concern into a private limited company, an agreement has to be executed between the sole proprietor and the private limited company (once it is incorporated) for the sale of the business. Further, such private limited company so incorporated must have “the takeover of a sole proprietorship concern” as one of the objects in its Memorandum of Association. Further, there are also certain other requirements and issues related to this process as set forth below:
A.         Requirements under the Companies Act:
Section 75 of the Companies Act, 1956, as amended (Companies Act) states that whenever a company makes any allotment of its shares as fully or partly paid up otherwise than in cash, to any person, then a written contract of sale, or a contract for services or other consideration in respect of which that allotment was made must be produced for inspection to the relevant Registrar of Companies (RoC). Further, such company is also required to within thirty (30) days, thereafter, file with the RoC within thirty (30) days, copies of all such contracts and a return stating the number and nominal amount of shares so allotted and the extent to which they are paid up along with the mode of consideration.
B.         Exemption under the Income Tax Act:
Conversion of a sole proprietorship into a private limited company entails a “transfer” within the meaning of the Income Tax Act, 1961, as amended (Income Tax Act). That is, the assets of the sole proprietorship concern are considered transferred to the newly formed company, which makes the sole proprietor liable to pay tax for any capital gains calculated on such transfer. However, there is a provision under section 47(xiv) of the Incoem Tax Act, which lays down certain conditions for exemption from any capital gains.
The conditions are:
All the assets and liabilities of the sole proprietary concern relating to the business immediately before the succession become the assets and liabilities of the company;
The shareholding of the sole proprietor in the company is not less than fifty per cent (50%) of the total voting rights in the company and such shareholding continues to so remain as such for a period of five years from the date of the succession; and
The sole proprietor does not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company;
If any of the conditions laid down above are not complied with (say the sole proprietor sells his share in two years instead of holding on to the shareholding for five years), the amount of profits or gains arising from the transfer of such capital assets or intangible assets not charged earlier by virtue of these conditions, shall be deemed to be the profits and gains chargeable to tax of the successor company for the previous year in which the requirements are not complied with.
So therefore,
If you are a sole proprietor who intends to convert his sole proprietorship into a private limited company, and also allot shares to yourself, then it is imperative that an agreement is entered into for such allotment and one of the conditions in the agreement should state that your shareholding / voting rights will not fall below fifty per cent (50%) in the next five years.