CII Recommends Capital Gains exemption on Transfer of Shares by Sponsor to REITs/InvITs

Exemp REITs/ InvITs from MAT and DDT at SPV level: CII

The Budget 2014-15 notified the norms where Real Estate Investment Trust (REITs)/ Infrastructure Investment Trust (InvITs) was provided the ‘pass through’ status for the purpose of taxation to attract long-term foreign and domestic investors. Later, SEBI had put in place the regulations for listing of new business trust structure that would help attract more funds in a transparent manner into the realty sector. However, much needs to be done on the tax structures of this instrument for it to become more efficient for domestic as well as overseas investors, stated CII in a press release issued here today.

For sponsors to structure REITs/ InvITs, there is a need to exchange shares in Special Purpose Vehicles (SPVs) with units of REITs/InvITs. Such exchange of shares is in reality not a commercial transaction as the stakeholders of shares of SPVs are the same as unit holders of REITs/InvITs. Hence, there is no sound basis of taxing such an exchange in the absence of real income. Finance (No. 2) Bill, 2014 proposed capital gain tax on capital gains arising to the Sponsor on sale of REITs units held by the Sponsor (post listing of units). The Bill proposed deferment of capital gains tax on capital gains arising at the time of exchange of shares in SPVs with units of the REITs, and taxing the capital gains at the time of disposal of units by the sponsor. Currently, Sponsors / Promoters of listed companies enjoy the benefit of long term capital gain tax exemption where STT is levied / paid. CII has recommended that long term capital gains tax should be exempted for sponsors of REITs/ Invits.

Mr Chandrajit Banerjee, Director General, CII mentioned that “as exchange of shares is being done only to initialize REITs/ InvITs with assets, therefore such gains should be exempt from Minimum Alternate Tax (MAT) as well as this act of exchange is not a transaction and therefore should not be treated as such.  There could be a potential MAT liability on such transfer, and CII has suggested for an exemption from the potential MAT liability also on such cashless transfers, since there is no change in the ultimate economic owner of the asset.”

Further, since REITs are required to mandatorily distribute almost the entire annual income as dividends to unit holders, the underlying SPV would necessarily have to suffer the dividend distribution tax (DDT) liability when it distributes income to the REIT. “This results in a multiple layer of tax, since the SPV would suffer this DDT levy in addition to corporate income tax on its taxable income. Outflow of Corporate Tax and DDT will bring down the earnings for distribution.  Hence, SPV should be exempt from DDT on dividend distributed to REITs/InvITs”, stated Mr Banerjee. CII recommended that DDT exemption is imperative on REITs/Invit to provide an effective tax structure and therefore, DDT exemption should be extended to SPVs where REITs hold the minimum stake as required by the regulations.

CII has said that easier taxation rules could provide a fillip to REITs as a lot of global capital is looking at new investment opportunities and business friendly regulations would help attract more funds in a transparent manner into the real estate sector.

The 4th CII National Conference on AgriBiotechnology ‘Smart Agriculture: Transformation through Biotechnology’

Shri Mohanbhai Kalayanjibhai Kundariya, Minister of State (Agriculture) addressing the 4^th CII National Conference on AgriBiotechnology at New Delhi said, “Our Government under the leadership of our Prime Minister Shri Narendra Modi is committed to working with industry leaders to bring about a revolution in the agricultural sector in India. We will discuss the various issues and challenges around agriculture, agri-biotechnology and other related areas raised during today’s conference and come up with measures to provide an impetus to the sector.”

He further added that the role of private players is extremely important in bringing quality and affordable food to our growing population and that the government would work to provide better crop prices to farmers, remove trade barriers and support technologies that are environment friendly. Stressing on the importance of producing more from the available land and water, Mr. Kundariya said, “Technology, like agri-biotechnology, if used intelligently will play an important role in improving our agricultural output especially in the light of our limited land and water resources which are reducing day by day. ”Shri Kundariya absorbed the key challenges and issues in the agri-biotech sector raised by the various presenters.

The Conference started with highlighting the emerging context and major issues such as Sustainability, Innovation & Technology, limitations – both economical and ecological – of the tools used currently in Agriculture along with Climate Change and Food Inflation and Food Quality and others.

The first day of the conference witnessed eminent personalities from Government, Industry, Institutions and associations who deliberated key issues. An interesting mix of topics including sustainable Resource Use – Challenges and Answers, Lab to field – Successfully Reaping benefits and resolving Farmer & Consumers Challenges – Role  of Biotechnology were discussed at length during the first day of the Conference.

The Opening session of the conference was presided by welcome and introductory remarks given by Mr. Ashwin Shroff, Co-Chairman, CII National Conference on Biotechnology & Chairman and MD, Excel Industries Ltd“ Last century belonged to India because of IT and this century will belong to India because of Biotechnology”. He further said Potential of Biotechnology is often curbed by the pulls and pressures of the myths associated with it due to which opportunities are missed.

 

(L-R) Dr. Rajiv K Sinha, Former Associate Professor, Griffith University, Brisbane, Australia; Mr Ashwin Shroff, Co- Chairman, CII National Committee on Biotechnology & Chairman and MD , Excel Industries Ltd; Hon’ble Mr Mohanbhai Kalayanjibhai Kundariya, Dr. A. K. Sikka, Dr A M Sheikh. 

While addressing the opening session Dr. P. S. Ahuja, Director General, Council of Scientific & Industrial Research (CSIR) said 4-5% Agricultural is needed to annually to meet the growing demand. He said there is a need to combat salinity for making it drought resistant.

Mr. Rajesh Kumar Singh, Joint Secretary (Seeds), Ministry of Agriculture and Cooperation, Government of India in his address said there needs to be a harmony in the new seeds bill to bring about positive change. He also added that integration of biotech to farming can revolutionize India. He further added that GM momentum is lost and it needs to be introduced in other areas of technology.

Mr. Ram Kaundinya, Director General, ABLE-AG stressed upon proper infrastructure and support to innovation and technology. He mentioned that there is a need to educate and aware all stakeholders about the evolving technologies.

The need to constantly & effectively communicate the responsible and safe use of Biotechnology by Government Agencies, Academia & the private players was emphasised.

Sustaining Economic Growth & Development – Creating an Equitable & Strife Free Workplace

Industrial progress plays an important role in the growth of the Indian economy. Some of the key factors necessary for sustaining economic growth and development through industries are – Adequate Infrastructure, Access to Capital, Trade Liberalization, Competent Personnel and Amicable Industrial Relations.

Given with workplace disputes over the past few years, on the rise, the need for amicable industrial relations has achieved critical importance.

Industrial relations deals with the relationship between workers of an organization and its management. As workers form the largest section of the employed workforce, and represent a significant part of the social strata, industrial relations has a far reaching impact on the well being of workers, societies and nations. In the context of the manufacturing industry, the key stakeholders typically involved in industrial relations are – Primary: Government, Employers, Workers and Trade Unions, Secondary: Industry Bodies and Society. The role of trade unions has evolved since their inception centuries ago. Today, trade unions work towards the Economic, Social and Intellectual progress of workers.

The CII’s 5^th IR & HR Summit, brought together thought leaders from the public and private sector, civil society, trade unions and the government to share their opinion sand debate on three crucial perspectives which underpin the theme of ‘Sustaining Economic Growth & Development: Creating an Equitable & Strife free Workplace’.

The debate themes were:

• Do equitable and just practices at the workplace make Unions redundant?
• Archaic and inflexible labour laws create strife at work place
• Bad practices of management or opportunistic practices of union leaders – Who is more responsible for criminalization of trade unions?

The discussions led to the conclusion that amicable industrial relations is a collective responsibility of all the stakeholders, and that it is in their best interests too.

The desired role to be played by the primary stakeholders and the gap existing today can be understood by evaluating the Intent, Framework and Execution of these stakeholders.

This analysis leads to the following immediate steps to be taken by the stakeholders:

• Organizations to mete out respectable treatment to their workers, and ensure meeting of all the hygiene factors, through a positive organization culture
• Workers not to misuse the labour laws meant to protect them, and trade union leaders to act as moderators between the employer and workers
• Government to create strong deterrents for mala fide acts by either stakeholder, and review labour and other related laws to promote fair treatment

Additionally, a round-table can be convened comprising industry bodies, trade unions and the government to discuss and deliberate on the key emergent issues. While these steps will address the concern and control further disputes, the need in the long run is to identify a cure. One of the approaches to achieve the same is to equate the factors of engagement for white and blue collared employees with the management. Today, the basis of engagement of blue collared employees with the management is Protection. It is important to transition this to Performance, which is the basis of engagement of white collared employees with the management. In other words, the purpose and function of industrial relations and human relations should be aligned, not distinct. This equity is the desired objective of all organizations employing workers, as workers will continue to be better connected, mobile and more aspirational and soon be no distinct from white collared employees.

Click here to download the Report on Sustaining Economic Growth & Development – Creating an Equitable & Strife Free Workplace

Saying Yes to Affirmative Action the India Inc Way

Affirmative Action for the Scheduled Castes and Scheduled Tribes communities is defined as a voluntary commitment by Indian companies to help the Government and civil society in the national endeavour to ensure equal opportunity to members of the Scheduled Castes and Scheduled Tribes communities.

The code of conduct adopted by CII members states that the industry would discourage conscious discrimination in any form, give preference in selection of business partner to socially disadvantaged sections, upgrade skills and provide continuous training to the employees belonging to the socially disadvantaged sections of society. The companies will also partner with educational institutions to support and aid students from the Scheduled Castes and Scheduled Tribes.

Corporate India is thinking out of the box to fulfill the government’s affirmative action agenda of ensuring inclusive growth through sustainable livelihoods for the weaker sections of society. Read about the two PPP strategies that could change the discourse on affirmative action between government and industry!