CLARIFICATION UNDER SECTION 372A(3) OF THE COMPANIES ACT, 1956
General Circular No.: 06 /2013
Dated: 14/03/2013
It
is observed from the Budget 2013-14 authorizes Union Govt to raise
Rs.
50,000 crores (Tax Free Bonds). These bonds carry a lower rate of interest,
currently in the range of 6.75% to 7.50% which is tax free under Section 10(15)
(iv)(h) of the Income Tax Act, 1961. Such bonds were also provided for in
Budget 2012-13, but the response had been poor due to restrictions under
Section 372A(3) of the Companies Act, 1956.
Ministry
of Finance had drawn the attention of this Ministry to Section 372A (3) of the
Companies Act with a view to effectively implement the announcement made in the
Budget. Section 372A (3) of the Act interalia provides that "No loan to anybody
corporate shall be mode at a rate of interest lower than the prevailing bonk
rate, being standard rate made public under section 49 of the Reserve Bonk of
lndio Act, 1934 (2 of 1934)".
lt
is hereby clarified that in cases where the effective yield (effective rate of
return) on tax free bonds is greater than the yield on prevailing bank rate,
there is no violation of Section 372A(3) of Companies Act, 1956.
Regards
CA. Mona Singhal
Partner
Arpit Gupta & Associates
Chartered Accountants
701, Nirmal Tower,
26, Barakhamba Road,
Connaught Place, Delhi-110001
Mobile:- +91-9873082769
Website: www.caaga.co.in
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