Reply :

Unless Bonds have matured before 1-3-2002, R.B.I. shall continue to pay interest at old rates. Clarification by RBI is as under :-

The Government of India has, in the Union Budget 2002-2003 decided to reduce the rate of interest payable on tax-free Relief Bonds from 8.5 per cent per annum to 8 per cent per annum with effect from March 1, 2002. Consequent to this change, the Relief Bonds issued on or after March 1, 2002 will bear interest at 8 per cent per annum and simultaneously the sale of bonds bearing interest at 8.5 per cent per annum will cease.

Till they receive the Government decision of reduction in interest rate, the receiving offices may, however, treat valid applications as applications for subscription under the 8.5% Relief Bonds, 2001 Scheme.

It is also clarified that the bonds issued under the earlier schemes, namely, 9 % Relief Bonds 1987, 10% Relief Bonds 1993, 9% Relief Bonds 1993, 10% Relief Bonds 1995, 9 % Relief Bonds 1999 and 8.5% Relief Bonds 2001 will carry post maturity interest at the rate of 8 per cent with effect from March 1, 2002.

Further, the maximum limit for investments in Relief Bonds, 2002 will be Rs.2, 00,000 per investor in a 12 month period commencing Mach 1, 2002 and the maximum limit of Rs.2, 00,000 per investor will also be applicable in respect of re-investments and to Relief Bonds which have matured but have not been encashed on or after March 1, 2002.

Press Release: 2001-2002/977

Reply :

The R. B. I. has issued A. P. Direction Circular on 04-03-2002.   The said circular is as under enclose herewith.  The same is self explanatory.

To
All Authorised Dealers in Foreign Exchange

Madam/ Sirs

Attention of authorised dealers is invited to "Foreign Exchange Management (Deposit) Regulations, 2000" notified under Notification No. FEMA 5 /2000-RB dated May 3, 2000. In terms of sub-regulations 1(iv) and (v) of Regulation 5, authorised dealers/authorised banks are permitted to accept deposits from persons resident outside India under the Non-Resident (Non-Repatriable) Rupee Account Scheme, (NRNR account), and the Non-Resident (Special) Rupee Account Scheme, (NRSR account), specified in Schedules 4 and 5 respectively to the above Notification.

2. With a view to providing full convertibility of deposit schemes for non-resident Indians and rationalising the existing non-resident deposit schemes, it has been decided to discontinue NRNR account and NRSR account schemes with effect from April 1, 2002. Accordingly, with effect from April 1, 2002 :-

1. authorised dealers/authorised banks shall not accept any fresh deposits or open any fresh account, by way of renewal or otherwise, under the above two schemes.

2. The existing accounts under NRNR account scheme may be continued only upto the date of maturity. The maturity proceeds of the deposits under NRNR Account Scheme shall be credited to the accountholder’s Non-Resident (External) Rupee Account (NRE account), after giving notice to the accountholder. For this purpose, the authorised dealers and authorised banks may give a notice to the accountholder that the maturity proceeds shall be credited to his NRE accounts. The accountholders may choose to credit the maturity proceeds to his NRE saving bank account or current account or open a fresh NRE term deposit account. The authorised dealers or authorised banks may also permit the accountholder, on his request, to credit the maturity proceeds to his NRO account. In case no reply is received from the accountholder, the maturity proceeds of deposits under NRNR account Scheme may be credited to his NRE account.

3. The existing term deposits under the NRSR account scheme may be continued till the maturity and the maturity proceeds shall be credited to the Non-Resident (Ordinary) Rupee Account (NRO account) of the accountholder.

4. The existing NRSR account, other than term deposit, shall not be continued after September 30, 2002, and may, at the option of the accountholder, be closed or balance thereof be credited to his NRO account on or before that date. For this purpose, a notice to the accountholders may be given and in case no reply is received the said NRSR account may be closed and the balance transferred to the NRO account of the accountholder.

3. While the facilities currently available to the account holders for premature withdrawal continue, in the event of premature closure of the term deposits, under both the schemes, the option of reinvesting the proceeds will, however, be restricted to the NRO account of the accountholder.

4. A copy of Notification No.FEMA 52 /RB-2002 dated March 1, 2002, amending the Foreign Exchange Management (Deposits) Regulations, 2000, is enclosed.

5. Authorised dealers/authorised banks may bring the contents of this circular to the notice of their constituents concerned.

6. The directions contained in this circular have been issued under Section 10(4) and Section 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999).

Reply :

The R.B.I. has issued A.P.Direction Circular on 4-3-2002. The said circular is given in reply of Query-2 . The same is self explanatory.

Reply :

Yes it is advisable if the company declaring dividend is Private Ltd. Company.

In case of Public Limited Companies which are required to comply with the listing guidelines, declaration of dividend within the financial year may not be possible. Attempt by a few companies to declare interim dividend has been frustrated by the SEBI who, under instructions from Finance, Ministry, insist on compliance of the minimum time requirement for book closure which is 30 days or 42 days depending upon whether shares are under demat or otherwise.

There is, however some risk attached in the case of all companies in view of the provisions of clause (b) of section 8 which provides that interim dividend shall be deemed to the income of the previous year in which the amount of dividend is unconditionally made available to the member who is entitled to it. In case of delay in actual receipt of dividend warrant by the shareholders, a dispute may be raised which will frustrate the object of tax - planning. It may lead to double taxation of the same income – in the hands of the company u/s 115-0 for Assessment Year 2002-2003 and in the hands of shareholder as per section 8(b) of the I.T. Act for Assessment Year 2003-2004.

Since yours is a Private Limited Company you are not bound by the listing guidelines. If your company intends declaring dividend within this financial year, you should take care to ensure that dividend cheques are encashed by the shareholders on or before 31-03-2002.

Reply :

It depends upon the wordings in the partnership deed. If the deed permits payment of interest upto 12%, there is no need to redraw the deed. However, if the deed prescribes payment of interest at 15% or above Sec.28(v) comes into play.

Sec. 28 – The following income shall be chargeable to income tax under the profits and gain of business or profession.

Clause (v) - Any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm :

Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under clause (b) of section 40, the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted ;

However, it is always advisable to draw simple agreement altering interest to partners (Addendum to Partnership Deed).