BSE to suspend trading in 12 firms on non-compliance

Mumbai: The Bombay Stock Exchange (BSE) today said it has decided to suspend trading in 12 companies, including Vishal Exports, for varying periods with effect from 13 January, 2011, on non-compliance with the Listing Agreement, reports PTI.

“... a company listed on BSE is required to comply with various clauses of the Listing Agreement, failing which trading in securities of such defaulting companies is liable for suspension,” the exchange said in a statement.

Apart from Vishal Exports, Ambalal Sarabhai, Bafna Spinning Mills, CMM Broadcasting Network, Computech International, Enso Secutrack, Indage Restaurants, Indo-Pacific Software, Invicta Meditek, Linkhouse Industries, NetVision Web Tech and Orind Exports, have failed to comply with various provisions of the Listing Agreement up to quarter ended June 2010, it said.

If a company will be able to comply with all the provisions of the agreement on or before 3 January 2011, trading will be suspended for only five trading days in 2011, but if the company complies before 28th January, trading will be suspended for 30 days, the statement added.

It, however, said that in case the company will fail to comply with the provisions of the listing agreement on or before 28 January 2011, the suspension will continue till the company complies with the procedure prescribed for revoking suspension in a scrip.

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M-commerce will revolutionise the way we deal in money; but how safe is it?

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Dewang Neralla, director, atom Technologies and co-founder, Financial Technologies, discussed the modalities and merits of using mobile phones as a medium of transaction, at a Moneylife Foundation seminar at the weekend

It is the slated to be the next big thing in payments systems that could revolutionise the way we do day-to-day business. Mobile commerce, this much-talked about system, is witnessing a phenomenal growth of 100% every year and is likely to grow multi-fold in the near future, says Dewang Neralla, director of Atom Technologies. It will facilitate smoother transfer of money through a mobile device. While it could make life a whole lot easier, it is necessary to understand just how it works. How will it benefit users? Will it ensure that transactions are safe and secure? These were some of the issues that were discussed at length by Mr Neralla at the Welingkar Institute of Management Development & Research in Mumbai on Saturday.

Mr Neralla made a detailed presentation highlighting how the future is likely to be shaped more and more around mobility. "The future is increasingly linked to mobility. There is no better way to describe this than how we are going to perceive money and spend money. There is going to be a strong tectonic shift in the way people look at money."

He discussed at length how the banking and payment systems in have evolved in the country and how the mobile platform and financial system is slowly but surely converging to create an ecosystem for mobile commerce. "From the era of cash-based transactions, we moved into a period where cheques replaced cash, and then credit and debit card payments took over. Now, mobile phone transactions seem set to change everything," Mr Neralla said and he listed the advantages that a mobile phone enjoys which will drive the adoption of this new concept. "It is ubiquitous, has multi-purpose functionality with low adoption hurdles, is highly interactive and provides security as well."

Consumers are increasingly looking for ease of use and convenience in the execution of daily transactions. People would like to avoid standing in long queues to make payment for their shopping at the counter. They want a hassle-free experience. This is where the mobile commerce platform comes into the picture. "Simplicity, speed and security" will be the fundamental blocks on which the mobile commerce platform will be built, Mr Neralla said. He explained that it will benefit all participants in the ecosystem-customers, banks, merchants and telecom operators. Customers are already using their mobile phones to re-charge talk-time as well as DTH subscriptions, buy train and movie tickets. Soon, they will be able to also pay utility bills, shop online, send gifts, and so on. "The customer will have the liberty to experiment in shopping as he pleases," he said.

While the promise of mobile commerce is phenomenal, it has not yet reached the 'tipping point' or a stage of exponential growth and there are some issues that need to be ironed out before large-scale usage of the platform becomes possible.

The penetration of electronic transactions remains strikingly low in India compared to  the US and South Korea. Today, only 3% of the transactions in the country are done electronically, whereas in the US, electronic transactions account for almost 52% of total traffic. "Even if we can achieve 20%, it will mean a huge jump. The sheer size of our economy and consumption power is very large. The moment we get organised retail onto the electronic payments bandwagon, the transaction volumes will be phenomenal," Mr Neralla suggested. atom Technologies, which is involved in building the platform for m-commerce, is witnessing a daily volume of 25,000-30,000 transactions.

Mr Neralla admitted that it would take some time for the customer's mindset to be tuned to accept this new technology as many are wary about security issues when transacting online. "This confidence has to be first created in the minds of users. A lot of educational drive will be required to get customers onto this platform."

But how safe is it to use the mobile phone as a transaction medium? "Yes, it is very safe," assured Mr Neralla, "I don't think people should be worried about someone snooping on their transactions, because all security checks have been built into the platform itself." He elaborated the security features that would ensure safety during transactions-like PIN protection, data encryption, security at data level and security certifications like PCI-DSS and PA-DSS. He pointed out precautionary measures that one should employ while using this system. "Just as one is careful while using the internet or credit/debit cards, customers should exercise the same level of caution with their cell phones." For instance, one must not store his or her password or PIN on the phone itself.

The workshop saw healthy participation from an eager audience. After the presentation, the participants asked many questions during an extended Q&A session. A participant raised the issue of having to use and remember multiple PINs or passwords for transacting on the phone. Mr Neralla replied that this need not be the case as ultimately there will be aggregation of all services at one service provider itself, which will enable users to transact with the help of one PIN.

Asked whether stored value on the mobile phone is the first step towards full-fledged mobile commerce, Mr Neralla said that although stored value exists in the form of pre-paid cards, it faces problems in terms of the need for KYC documentation. RBI currently does not allow transaction amount of more than Rs1,000 daily without KYC documentation.

Will transaction costs impede the growth of mobile commerce, another participant asked. "I don't think cost is an impediment right now. Here the biggest impediment is in terms of availability of smart GPRS enabled phone. There are 10 million people having GPRS in the country. Impediments are more in terms of network availability."

atom Technologies is helping to advance mobile commerce in a big way in the country. atom is already actively helping business houses and individuals to build convenient transaction systems that are quick and secure. The company is expected to play an increasingly important role in expanding mobile commerce in India.

As director of atom Technologies, Mr Neralla has played a key role in identifying and implementing the architectural and product strategies and plans for the technology business. Through atom, a Financial Technologies group company, he has defined the technology roadmap of the entire organisation and drives the vision, strategy and architecture for the company's products, solutions and services.

Mr Neralla is also co-founder and principal technology architect at Financial Technologies. He has initiated new technology architecture, components and protocols for dealing room solutions, internet trading engines, exchange trading systems and messaging solutions.
 
Moneylife Foundation is holding a day-long seminar titled 'Investor, Empower Yourself!' in Vashi on Saturday, 8 January 2011. The seminar will discuss 'How to be safe and smart with your money', explain the importance of 'Wills, Nominations and Transmission' and 'How to invest smartly in mutual funds'. Click here for details and registration

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IT industry suffers blow from tribunal order in Microsoft tax matter

Delhi tribunal rules that sale of software can be characterised as royalty from license income, and not a ‘sale of product’ and therefore is taxable

The Indian software and information technology industry is facing uncertainty in several tax issues, the most fundamental of them being the characterisation of its income from sale of software licenses.

The controversy is over whether the sale of software-specially shrink-wrapped software-constitutes license income (that is, royalty) or whether it is sale of a product. While globally, sale of software has been regarded as sale of a product, a controversy erupted in India over the characterisation. Just when it seemed that the controversy in India was being settled through the judicial process, in line with the global practise, a Delhi tribunal has again upset the applecart with a ruling that the sale of software is not a sale of a product but license /royalty income and, therefore, it is subject to tax under the Income Tax Act (ITA). This ruling was delivered in a case involving software giant Microsoft.

Web of agreements

The dispute arose after a series of business developments with regard to the company's direct distributor agreement with Indian distributors. Microsoft Corporation, USA (MS Corp) had granted Gracemac Corporation, USA, a wholly-owned subsidiary, the exclusive rights to manufacture and distribute Microsoft products. Gracemac passed on a non-exclusive license to Microsoft Operations Pte Ltd Singapore (MO) to manufacture and distribute MS products, for which MO paid Gracemac royalty on each product sold.

MO entered into a distribution agreement with Microsoft Regional Service Corporation, Singapore (MRSC) for distribution of MS products in Asia, including India. The products were sold through distributors /resellers in India, appointed by MRSC. Importantly, all intellectual property in MS products vested with MS Corp and the end-users signed an end-user license agreement with MS Corp that laid down the terms of use of the product.

MSRC claimed that income from the sale of software in India was not liable to tax, on the grounds that the sale of 'off-the-shelf'/shrink-warped software constitutes sale of products. Besides, MSRC did not have a permanent establishment in India. It also argued that the other US-based entities earned royalties from the Singapore entity, which was out of the Indian tax jurisdiction. It tried to distinguish between sale of a copyrighted product (which is the software) and the grant of copyright in the product.

The tax officer, predictably, did not agree with Microsoft Corporation and held that the payments were for the grant of license, that they should be regarded as royalties and were, therefore, liable to tax in India. The tax authorities also pointed out that the end-user license agreement mentioned the fact that the software is not sold but only licensed. Further, sensing a window of opportunity for tax collection, the tax officer disregarded the myriad agreements and ruled that all entities were liable to tax in India. Consequently, the tax authority determined the royalty income at Rs2,240 crore, nearly three times that which was originally assessed. The tribunal agreed with the assessment of the tax officer.

Tribunal's explanation

In its order, the Delhi tribunal said that according to the end-user license agreement and the restrictions put on the end-users, the transactions were essentially a license for MS products and not an outright sale as claimed by the entities. The tribunal rejected the difference between 'copyright' and a 'copyrighted article', and rejected that reference to the Tata Consultancy Services versus State of Andhra Pradesh case, saying that it was about a sales tax matter. The Tribunal also declined to rely on the OECD Commentary and US Regulations, stating that the definition of royalty and consequent taxation was appropriately clear under the Income Tax Act.

The tribunal said in its order that the royalty payments received by Gracemac was liable to tax in India under section 9 of the Act, according to which royalty income of a non-resident shall be deemed to accrue in India irrespective of whether the non-resident has a residence or a place of business, or business connection in the country.

Besides the characterisation issue, the tribunal also made some observations with respect to the principles of 'treaty override'. It said that in the event of a conflict between the provisions of domestic law and a tax treaty, domestic law would override the treaty.

While the ruling comes as a shot in the arm for tax authorities who appeared to be fighting a losing battle, the IT industry is naturally unhappy with the ruling. It believes that the tribunal has gone overboard, disregarding a Supreme Court ruling in a similar matter, and that the suggestion that domestic law supersedes a tax treaty is inconsistent with the Income Tax Act.

The industry is considering challenging the ruling of the tribunal in the Supreme Court, where it hopes to rely on earlier rulings by various authorities. Already it is struggling with transfer pricing adjustments and the expiry of a tax holiday at the year end and such rulings only compound the difficulties for business.

(Mr Doshi is a partner, International Tax& Advisory Services, at SK Parekh, Chartered Accountants)
 

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COMMENTS

Prakash

6 years ago

Hi,

Isn't the sub-title different from the content of the article ? I think it is a mistake due to overlook. The sub title should convey 'it is characterised as sale of licence instead of sale of product'.

REPLY

Debashis Basu

In Reply to Prakash 6 years ago

Thanks for pointing out the error.
We have changed it

Ramanand

6 years ago

The tax officer is correct in stating that shrink wrapped IT product transactions are actually licences rather than product sales. The software companies actually have a bold statement on every End User License Agreement that what the user is getting is a 'Non Exclusive License to use the software'. There is no transfer of ownership in the transaction. There is no property/goods acquired by the purchaser. Hence, all software 'sales' should be subject to the royalty income tax rather than sales tax.
Software companies have religiously held that they 'own' the exclusive rights to the software and in fact the software is their 'Intellectual Property'. Now is the time for them to pay the tax due to use of the property.

REPLY

Prakash

In Reply to Ramanand 6 years ago

If it is a 'sale of licence', then why levy "VAT" on it which is supposed to be tax on 'GOODS', i.e. product ? This is a clear contradiction of interpretations of software sale. Software sale worldover is treated as Product Sale. Not only that, in USA, if the same is bought over the net and delivered as 'download', then VAT or Sales Tax is not levied.

Ramanand

In Reply to Prakash 6 years ago

Indeed, dual tax should not apply. Software is either a 'good' on which taxes related to goods should apply or a 'service' on which taxes related to services should apply or its a 'license' on which taxes related to royalty income should apply.
Tax department should immediately withdraw all forms of sales and service taxes (incl VAT) on shrink wrapped software and apply only royalty income tax. Charging both forms of tax serves only to confuse and weaken tax dept.s case of software being a license transfer.
Also, since royalty income tax is due on account of intellectual property ownership of the software by the company, the same cannot be passed on to users along the lines of sales tax/service tax/VAT.

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