How can illegal passport touts audaciously call themselves “online passport agents” and advertise brazenly on the Internet?
If you go to the passport website of the ministry of external affairs (MEA) and click on this link: http://passportindia.gov.in/AppOnlineProject/pdf/Public_Notice.pdf, you will see the public notice which reads: “Members of the public are advised to desist from dealing with touts / agents who may be charging exorbitantly for their service and further, may be making false promises about arranging assured urgent appointment or faster passport service delivery. After the launch of Passport Seva Kendras, the appointments are available to general public through the website. Alternatively, certain categories of applicants are allowed to walk in without appointment, details of which are available on the website.
“The Government has not authorised any intermediary/ representative to undertake such activity or to give such assurances. Such incidents of harassment/ influence by them may be reported to the concerned Passport Officer.”
If the public notice is in such uncertain terms, why is it that the website www.justdial.com is filled with contacts of “online passport agents” from various cities like Delhi, Chennai, Coimbatore, Kolkata, Jaipur, Mumbai, Pune and you can just go on and on. Why is it that the harassment of not getting online appointments by citizens across cities, due to an obvious nexus between passport agents and passport officials, which helps agents to probably ‘block’ appointments and deny it to the rightful applicant. Is not being tackled?
For further proof, some of the passport agents of Pune met Prakash Javadekar, Pune’s Rajya Sabha MP, who has taken up the issue for Pune, with the ministry of external affairs (MEA). They confessed that each one of them has access to a keyword/ codeword which helps them block two appointments per agent. Obviously, the number of passport agents seems to be large enough to ensure that individuals do not get their rightful chance. That the passport agent fraternity is having the alleged backing of the powers-that-be can be established by the fact that they continue to go about their business in brazen ways.
Moneylife which has been carrying a sustained campaign against the Pune passport mess had a comment on 3rd April (in the reader’s comment slot under an article), by a passport agent openly advertising that he charges Rs500 “for booking online slot in any of the PSK (Passport Seva Kendra)”.
Naresh Kevalramani, one of the readers of Moneylife wrote to JustDial on 22nd March, “It is very sad that when the Government of India has banned all agents/ middlemen for passport applications/ processing, your website is showing passport agents by the dozen.
I think that your portal—JUSTDIAL—which is one of the leading service providers in India is doing an ILLEGAL ACT by promoting PASSPORT AGENTS whom the GOVT OF INDIA itself has banned.
I have marked a copy of this mail to Ms Deshmukh who is heading Pune Passport Grievance Forum (PPGF).”
Anita Singh, customer service officer of JustDial replied:
“Thanks for writing to just-dial.com .
With respect to your below mail we appreciate your concern and for bringing it to the notice of just-dial.com. We shall look into the matter and do the needful. For any further queries, kindly contact customer service on 02261607080.
You can also mail us on - [email protected].
Thanks and regards
Anita (CS) “
Well, sadly, JustDial’s reply seems to be a standard one for every such complaint, as no action has been taken as yet. Advertisements of “online passport agents” merrily flourish.
Redington’s management indicated that based on the advice from two out of the big four audit firms in India and eminent tax lawyers, it is confident that this tax liability will likely be reversed
As per Redington India’s filing with the BSE, the Indian income tax (I-T) department has proposed to bring to taxation the imputed profits on transfer of Redington Gulf FZE, Dubai shares to Redington International Holdings (RHIL), Cayman Island leading to potential demand of Rs1.38 crore ex interest for year 2008-09.
The company indicated that this transaction was disclosed fully in FY09 to the relevant authorities, including the I-T department and its discussion with tax experts indicates that it has a strong case. Analysing the case, Nomura Equity Research in its Quick Note has included seven cases where shares were transferred to a group entity without consideration out of which in five cases the verdict was in favour of the company.
Redington Gulf shares were transferred to a newly formed entity RIHL to facilitate investment by Investcorp, a private equity investor
Nomura Equity Research states that Redington’s Middle East and Africa business, Redington Gulf FZE (RGF), Dubai was a 100% subsidiary of Redington (India) before FY09. In FY09, private equity investor, Investcorp Gulf opportunity fund (as it is a Middle East-focused fund) wanted to purchase a stake in RGF. As per Jafza law in Dubai which applied to RGF, the entity can only have one shareholder. To facilitate investment by Investcorp, Redington International Holdings (RIHL), Cayman Island was created as a fully owned subsidiary of Redington India, which had a 100% shareholding in RGF. Subsequently, Investcorp bought a 27% stake in RIHL.
Management remains confident on reversal of tax liability
Redington’s management indicated that based on the advice from two out of the big four audit firms in India and eminent tax lawyers, it is confident that this tax liability will likely be reversed. According to management there are precedents where shares were transferred to a group entity without consideration (called ‘gifting’) and the transaction was treated as tax exempt.
Tax liability of Rs138 crore (ex interest); no deposit to be paid now
Going further Nomura states that while there was no consideration paid on transfer of RGF from Redington India to RHIL, the I-T department has made a potential demand of Rs138 crore. This is based on a fair value ascribed by the tax authorities at that point of time to RGF of Rs800 crore (and a cost base of around Rs210 crore). The company has indicated that it does not have to pay any penalty, as both the income tax department and RBI were informed about this transaction and re-organization. However, in case the verdict does go against the company in the dispute resolution panel (DRP), Income Tax Appellate Tribunal (ITAT), high court and eventually Supreme Court, the company will be liable to pay interest as well on the amount of Rs138 crore. The company does not have to deposit anything until this case is with the DRP (which has to decide at the latest by Dec 2013), but may have to pay 50% of the demand amount or bank guarantee if the dispute escalates to ITAT/high court/Supreme Court.
Precedents – favourable and unfavourable rulings
Goodyear Tyre and Rubber Company, 2011: The Delhi High Court dismissed the petition filed by the I-T department against the Authority of Advance tax Ruling (AAR) in the case of Goodyear Tyre and Rubber Company. Goodyear US held a 74% stake in Goodyear India (GIL), which was transferred to Goodyear Orient Company (Pte) Singapore, a 100% subsidiary of Goodyear US. The AAR ruled that no capital gains tax would accrue where shares were transferred 'without consideration' by the holding company in the US to its wholly owned subsidiary in Singapore. As well, transfer pricing provisions will not be applicable in the absence of liability to pay tax.
Deere & Company, 2011: The AAR ruled that gift of shares by the applicant, a US-based company to its group company in Singapore made without any consideration, has to be held as a gift and therefore will not be subject to tax in India.
Nadatur Holdings and Investment, 2012: The Karnataka High Court dismissed the revenue department’s appeal and upheld the genuineness of gift on the basis that there is no bar for gifting of shares to a company. The high court held that the definition of ‘gift’ means transfer by one person to another of an existing property made voluntarily and without consideration and includes deemed transfer or conversion of any property. Since the taxpayer was a separate legal entity, shareholders of the company can gift shares to the company.
DP World, 2012: The Mumbai Tribunal held that there is no restriction under the Transfer of Property Act on gift of shares between companies, if permitted by Articles of Association.
Dana Corporation (2009) and Amiantit International Holding (2010): The AAR held that once the transaction is held to be outside the purview of Indian tax net, the question of applying provisions of transfer pricing and treating the arm’s length price as the transfer price would not arise.
Orient Green Power, 2012: The AAR has held that ‘gift’ of shares between two corporations is a “strange transaction” and would not fall under Section 47(iii) of the Act. Further, it declined to give ruling on taxability of gift of shares of an Indian company by a foreign company, citing lack of material to conclude on the genuineness and validity of the transaction as reason.
Castleton Investment, 2012: The AAR has held that the transfer pricing provisions are applicable to “any income arising from an international transaction” and that the word ‘income’ has a wide connotation. Accordingly, AAR held that application of transfer pricing provisions are mandatory for correct determination of gains accruing from an international transaction irrespective of the fact whether the same is chargeable to tax in India or not. In other words, the AAR held that applicability of transfer pricing provisions (i.e., Section 92 to 92F of the Act) does not depend on the chargeability under the I-T Act.
Redington India remains buyers of India’s largest distributor of IT and electronic products. Nomura concludes with the view that the potential of the Indian market should be seen in the context of a doubling of the middle-class population in the next 10 years (source: Dell), which is likely to mean increasing average disposable income that should drive IT/electronic penetration rates in India, in our view. The company has end-to-end coverage of the distribution value chain (procurement, warehousing, non-banking team. It has a credible history of managing inventory and credit risk, which we consider key to success in the distribution business. Average provisions for inventory and receivables were 0.04% and 0.1% over FY08-FY12 for India and overseas business over the same period, respectively.
Redington India was trading at Rs42.70 on the BSE in noon trade today. The brokerage states that the current P/E valuation at 6.7x FY14F EPS is a 43% discount to its six-year average of 11.7x and is an attractive entry point.
While it does not make much sense to have a free look-up period for products such as NSC, PPF and other deposits schemes supported by the government, the introduction of a free look-up period in case of variable return and high-fee products makes sense
I recently received an email from a New Delhi-based senior citizen aged 78. The email describes how a private sector bank allegedly mis-sold him a fixed maturity plan of DWS Mutual Fund. As per the mail written by the investor he was made to invest in Rs4 lakh in “DWS Hybrid Fixed Term Fund Series 10 Growth”. The investor in his mail writes, “The bank manager, suo moto, had visited my residence and misguided me. I signed the cheque in the name of DWS. I was explained that this means Development of Wealth Scheme, rest of the name as well as other particulars in the form was completed by the bank”. He does not want to remain invested in this scheme as he wants his money back. Though the incidence of mis-selling cannot be established based on the mail alone, this case raises some serious issues which need a solution.
The problem in this case is not that the scheme has lock-in period of five years. The problem is that of liquidity. The KIM of the scheme states, “No redemption/ repurchase of units shall be allowed prior to the maturity of the scheme. Investors wishing to exit may do so through stock exchange mode”. It is very obvious that stock exchanges offer very limited liquidity and market depth and trading is not done frequently in various schemes of mutual funds. While mutual funds do list their schemes on stock exchange, they cannot ensure trading. Liquidity remains elusive in these schemes and investors have no or very limited option of redeeming these units, in spite of a token exit option being given to them.
While establishing cases of mis-selling may not be very easy and I do not have sufficient evidence to establish whether it is a case of mis-selling or not, the incident has definitely made me think. How can investors be protected against mis-selling, especially when an investment product has a lock-in period and an impractical exit route? Even if there is a volume in some mutual fund units, how will a gullible investor take the route of opening a demat account and trading account to sell the otherwise illiquid investment product.
In my opinion, the solution lies in introducing a “free look-up period” in all mutual fund products with a lock-in period. Plans such as the fixed term plans, recently introduced RGESS (Rajiv Gandhi Equity Saving Scheme), have lock-in periods and cannot be directly redeemed with the mutual fund. These investment products earn a huge fee for distributors and hence there is the possibility of mis-selling. Since investors, especially those who can be easily made victims of mis-selling, may find their money locked for considerable period of time, it makes sense to provide some kind of protection mechanism to investors. Considering that this problem may be faced by many investors, there should be at least 15 days’ free look-up period in case of all such investment products.
While it does not make much sense to have a free look-up period for products such as NSC, PPF and other deposits schemes supported by the government, introduction of a free look-up period in the case of variable return and high fee paid products make sense. The modalities for a free look-up period can be worked out by the regulator in consultation with the fund house and AMFI (Association of Mutual Funds in India). Till financial literacy isn’t prevalent, providing legal support to investors to reduce incidences of mis-selling is the need of the hour.
(Vivek Sharma has worked for 17 years in the stock market, debt market and banking. He is a post graduate in Economics and MBA in Finance. He writes on personal finance and economics and is invited as an expert on personal finance shows.)