Thin Dividing Line by Paranjoy Guja Thakurta

Author:Paranjoy Guja Thakurta
Language: eng
Format: epub
ISBN: 9789386815828
Publisher: Penguin Random House India Private Limited
Published: 2017-11-21T05:00:00+00:00

According to Bhattacharyya, the usage and interpretation of the term ‘general permission’ was contentious. The RBI granted ‘general permission’ to non-residents—other than NRIs or OCBs controlled by them—to transfer their shares either through a sale or gifting (transaction) to any person residing outside India, including NRIs. This decision was taken against the background of regulation 3 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000,8 which states that no person resident outside can issue or transfer any security, provided that the security issued prior to, and held on, has been issued and is governed by the requisite regulations. Additionally, the RBI, under the act, has the power to permit a person resident outside India to issue or transfer any security, subject to such conditions as may be considered necessary.

While the regulations of 2000 under the FEMA did not mention the phrase ‘general permission’ which the RBI did, according to Bhattacharyya, the ‘general permission’ (granted by the FIPB) was important as its absence would not have allowed two non-residents to transact business as well as to effectively take funds out of India. After the ‘general permission’, the funds had gone out to Hong Kong directly from the Cayman Islands. If the general permission had not been granted, the funds would have had to come to India first. The question of foreign outward remittances would have arisen only subsequently. It was at that stage that the entire issue of tax deducted at source would have come into play. The line of demarcation between ‘freely allowed’ and ‘allowed’ as a sequel to ‘general permission’ must be grasped in this context. The facility to remit funds outside India directly, as a sequel to permission (or general permission) in no way makes India’s tax provisions redundant and nugatory.

The Supreme Court judgment polarized opinion. Those who apprehended that the ‘attitude’ of the country’s income tax authorities would dissuade existing and potential foreign investors felt relieved, while a few, including Bhattacharyya, disagreed. Representatives of chambers of commerce and industry associations, corporate captains, many politicians and almost all financial analysts and business journalists supported the judgment. Those who differed were relatively few. Bhattacharyya raised two pertinent questions. The first was that if the FIPB had territorial jurisdiction over the remittance/transaction, why not the CBDT and through it the income tax department since all these were wings of the Government of India and situated in North Block. (Incidentally, while the FIPB was initially constituted under the Prime Minister’s Office, in 1996 the board was transferred to the Department of Industrial Policy and Promotion in the Ministry of Commerce and Industry, and thereafter in 2003 transferred again to the Department of Economic Affairs in the finance ministry.) Bhattacharyya’s second question was simple: How could the Vodafone transaction be deemed to be an FDI when not a single dollar came to India?

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