Revised Consolidated FDI Policy

The nodal agency for foreign investment policy, Department of Industrial Policy & Promotion will release Revised Consolidated FDI Policy Circular i.e., Circular 2 of 2010 on 30th September, 2010, which will incorporate all the changes effected in FDI policy post issue of Circular 1 of 2010.

It is to be noted that the Department of Industrial Policy & Promotion (DIPP) has released the Circular 1 of 2010- Consolidated FDI Policy on 31.03.2010, effective from 01.04.2010.

Further, the Department has invited comments/ suggestions on the Circular 1 of 2010 by 31st August, 2010.

The Consolidated FDI Policy makes all information on FDI policy available at one place and subsumes Government’s policy on FDI announced through earlier Press Notes/ Press Releases/ Clarifications issued by the DIPP, which were in force and effective as on date. It was earlier decided that the consolidated FDI Policy would be issued every six (6) months to update the FDI policy.

It is expected that revised Consolidated policy would contain change in the policy regarding cigarette and cigar manufacturing and may introduce the more relaxed policy regarding FDI in Multi-Brand Retail trading, Defence Sector. The recent changes in FDI Policy shows that the government is making continued efforts to make the FDI policy regime more attractive and investor friendly.

Consolidated FDI Policy - Circular 1 of 2010 is available here.

India Singapore Tax Treaty: Tax waiver for Advisory services

The Authority for Advance Ruling (AAR) has recently held that the fees paid by Indian Company for technical services of a foreign Company will not be taxed in India under the India-Singapore Treaty (“Treaty”). The rationale given behind this decision is that advisory services such as comments and suggestions do not fall within the purview of the term ‘Fee for Technical Services’ under Article 12 of the treaty. This ruling of AAR came in the wake of the application filed by the Bharati AXA General Insurance Co. Ltd. (“BAGICL”) to know that if the foreign Company AXA ARC has any liability to pay tax in India in respect of the fee received from the BAGICL.

This ruling has come as a relief to those foreign companies who render support services so as to ensure uniformity and flawless quality in the business dealings of the group entities. Further, this ruling can provide some respite to the companies which do not have a permanent establishment in India as this ruling also state that the payment received by the companies having no permanent establishment in India cannot be taxed as business profits under the Treaty.

It has been noted that AAR has decided similar issues in the application filed by Ernst & Young Pvt Ltd (AAR No. 820 of 2009) on the above lines.

We would like to remind our readers that although the ruling is binding to the parties appear before the authority and the transaction in relation to which the ruling was given because the ruling was rendered on a set of facts and cannot be of general application. However, it may have persuasive value.

FDI IN LLP

The Government may allow foreigners to set-up Limited Liability Partnership (LLP) in sectors where 100 % foreign investment is allowed.

The nodal agency for foreign investment policy Department of Industrial Policy & Promotion (DIPP), has written to the Ministry of Finance suggesting the broader scope in the proposed Foreign Investment framework for LLPs by allowing foreign Investment in LLPs with prior approval.

It is also expected that a discussion paper may be released in this regard in public domain so as to enable the Government to take an appropriate policy decision at the appropriate time.

It is important to note here that earlier this year after initial discussions, DIPP was not in favour of opening this form of entity for foreigners while the apex financial institution of the country's financial system Reserve Bank of India (RBI) as well as the finance Ministry has favoured FDI in LLP.

The Limited Liability Partnership (LLP) is viewed as an alternative corporate business vehicle that provides the benefits of limited liability but allows its members the flexibility of organizing their internal structure as a partnership based on a mutually arrived agreement

The Government has enacted Limited Liability Partnership Act, 2008, which extends to the whole of India.

Authority on Advance Ruling

The Finance Act, 1993, Chapter XIX-B of the Income Tax Act introduced the scheme of Advance ruling, which came into force from 1st June, 1993.

Advance ruling means written opinion or authoritative decision by an Authority empowered to render it with regard to tax consequences of a transaction or proposed transaction or an assessment in regard thereto.

The scheme of Advance ruling helps the non-residents and the residents having transaction with non-residents to bring the certainty of income tax liability and thus help them to plan their tax affairs in advance. It is faster and less expensive than litigation in the courts.


Following category of person can request for the advance ruling under Income Tax Act:
(i) Non-resident applicants
(ii) Resident applicants having residents having transactions with a non-resident.
(iii) Public sector companies

One of the salient features of the scheme of advance ruling is that it provides expeditious solutions to the income-tax problems. The time limit prescribed for the authority to pronounce its ruling is within 6 months from the date of receipt of the application.

Another important feature of this scheme is that it provides binding solution. Although the ruling is binding to the parties appear before the authority and the transaction in relation to which the ruling was given because the ruling was rendered on a set of facts and cannot be of general application. However, it may have persuasive value. It is important to note that no proceeding before, or pronouncement of advance ruling by, the Authority shall be questioned or shall be invalid on the ground merely of the existence of any vacancy or defect in the constitution of the Authority.


However, certain restrictions have been imposed on the admissibility of an application:

i. If the question is pending before any other authority;
ii. If the question related to the determination of market value of the property
iii. If the purpose of application is to avoid the income tax

Further, if the authority finds that the advance ruling pronounced by it, has been obtained by the applicant by fraud or misrepresentation of facts, the same may be declared void ab initio.

Eligible applicant can make a request for advance ruling in the prescribed form stating the question. The application should be accompanied by an account payee demand draft for requisite amount in favour of the Authority for Advance Rulings and made payable at New Delhi.

The application may be withdrawn within 30 (thirty) days from the date of the application.