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MUMBAI: Startups and unlisted subsidiaries of some major Indian companies and multinationals find themselves in the crosshairs of the income tax department for raising funds through preference shares in excess of what it considers the fair market value.

The investigation arm of the income tax department has sent notices to about 200 entities under Section 56(2)(vii)(b) of the Income Tax Act, 1961, in August, two people with direct knowledge of the matter told ET.

Fair market value is assessed by the tax department based on past transactions and the record of similar, comparable companies. The Section is often applied when it’s suspected that companies may be issuing shares at a premium over the fair value for laundering unaccounted cash.

“In cases where deals have been done at valuations higher than the fair value arrived at by tax authorities, queries have been raised,” said Abhishek Goenka, partner, corporate and international taxation, PwC India.

“While this section doesn’t apply to non-residents, explanation is sought in all transactions even where funds have been raised at the subsidiary level.”

The notices have struck fear in recipients given the government’s stated determination to go after black money and the gravity with which the investigation arm’s notices are regarded. ET has refrained from naming the companies involved as they couldn’t be independently verified.

Lawyers and consultants profess themselves to be somewhat mystified by the move, which carries echoes of a similar initiative last year.

“What I fail to understand is why investigation arm of income tax would question about a particular transaction?” said a legal expert handling one of the cases for an Indian company. “There could only be one explanation — either it is a scare tactic or the department suspects some wrongdoing in these transactions.” Tax officials believe the section confers on them the power to slap levies on the excess amount.

“Any consideration received by a company (startup) from a resident, against issue of shares, exceeds the fair market value of such shares, such excess consideration is taxable in the hands of the startup, as an income,” according to the Section 56 (2) (vii) (b). That is, the excess amount becomes income on companies’ books and is liable to be taxed at 30%.


BENGALURU: Regional content is turning out to be king for YouTube India. The video platform claims the growth of regional viewership has tripled over the past two years, helping to make content creation in languages ranging from Haryanvi to Tamil and Telugu a profitable business.

“Apart from Hindi, Telugu, Tamil, Kannada and Malayalam are seeing massive growth in watch time, with other languages including Haryanvi, Marathi, Bengali and others following closely behind,” Satya Raghavan, head of entertainment at YouTube India, told ET.

The top 10 regional YouTube channels in India have subscriber bases ranging from 3,00,000 to over 8,00,000. Haryanvi comedy channel Nazar Battu Productions has a following of over 6,00,000 and earns $3,000-4,000 a month from sponsors and advertisers. “We started in December 2015 and our first video went completely viral reaching 2.5million views,” Ameen Khan, cofounder of Nazar Battu Productions, told ET. “We then started making videos on trending issues ranging from the odd-even policy in Delhi to Salman Khan’s verdict and within nine months, we had 1 lakh subscribers. This was a huge growth.”

According to YouTube, the target viewership that consumes content from Nazar Battu Productions is individuals aged 18 to 28, with 70% of them being male. Nazar Battu Productions creates about four videos a month and earns revenue through branded content, advertising and sponsorships. “Farhan Akhtar’s movie Lucknow Central is one of the sponsors. This is one of the easiest ways for them to promote a film since our channel has a targeted viewership,” said Khan.

According to Raghavan, YouTube shares a majority of the revenue generated with the content creators.

“Brands now realise they can reach consumers in different pockets of India by partnering with these content creators. For instance, Hindustan Unilever would show only Hindi ads and now they have the opportunity to make advertisements in diverse Indian languages,” he said.

Since 2011, YouTube has worked with regional studios to help them get a wider distribution. In 2014, content creators from Mumbai including TVF and AIB were making waves on YouTube and gaining traction. A large portion of this content was a mix of Hindi and English, which proved to be popular in the metropolitan cities including Mumbai, New Delhi and Bengaluru.


NEW DELHI: The state-owned telecom firm BSNL expects to start field trial of 5G services by the end of this financial year, company’s chairman and MD Anupam Shrivastava said on Wednesday.

“We had interaction with Nokia last week (on 5G). Next we are going to present about our requirements after which field trail concept is there. It should start before the end of this financial year,” Shrivastava told reporters.

The state-run firm has started discussion with Larsen & Toubro and HP for end devices that will be required for 5G services.

He was speaking on the sidelines of signing its knowledge sharing agreement on 5G technology with network firm Coriant.

Under the terms of the agreement, Coriant and BSNL will cooperate to accelerate network architecture and service innovation for 5G services.

“This (MoU with Coriant) is only knowledge sharing agreement. There are no commercials involved. We are at nascent stage. By this agreement, we will get to know more about 5G through this and other agreements,” Shrivastava said.

He said the speed of the 5G is going to be much faster than 4G and it will use same 4G and 3G network but with optimised network.

“Latency is going to be in 5G technology which is time taken by data to reach one point to other. 5G ecosystem will be developed based on used cases which will differ from country to country. Like smart car parking may not be a priority for India but it e-health, waste management can be used case of India,” Shrivastava said.

He said that BSNL owns largest optical fibre network, which can provide highest data speed, in the country to the tune of over 7 lakh kilometer.


NEW DELHI: German sportswear maker Adidas is looking to tighten its belt in India, which may lead to reduction in employee strength and franchise partners in the country. The company, which owns Reebok, could lay off around one-fourth of its staff in the coming months, said sources, and has been in talks with Reliance Brands to hand over a chunk of its franchise business.

When asked about the impending firing, an Adidas India spokesperson said, “We will continue to strategically increase our focus and investments in India and we are not aware of any workforce reductions. Suggestions regarding this is entirely speculative. We regularly explore business partnerships across the industry, however, as a company policy we do not comment on any specific opportunity.”

Adidas has approval from the Department of Industrial Policy & Promotion (DIPP) to open its own stores in the country. It is keen on large-format stores as it feels bigger stores with a complete range of footwear and apparel have a better chance of becoming profitable. For this, it needs franchisees with deep pockets, and although it has reduced the number of its franchise partners to around 70 from 500 earlier, a further cut is on the cards. Darshan Mehta, chief executive officer of Reliance Brands, said although talks with potential partners is an ongoing process, it would not be appropriate to divulge details of any negotiations, unless finalised.


NEW DELHI: Directors of shell companies which have not filed tax returns for three or more years will be barred from taking similar positions elsewhere or getting reappointed, the government said, as it intensified the crackdown on firms that exist only on paper.

The government has struck more than 2 lakh shell companies off the Register of Companies and put restrictions on their bank accounts as part of its clampdown on black money. Directors of the companies that were struck off the RoC could face up to 10 years in jail if they were found siphoning off funds, the government said on Wednesday. The government said it is compiling the profiles of the directors at such companies in collaboration with enforcement agencies and expects the move to cover 2-3 lakh people.Professionals such as chartered accountants, company secretaries and cost accountants associated with shell companies and involved in illegal activities have also been identified, according to a statement.

The decisions were made at a review meeting chaired by the minister of state for corporate affairs, PP Chaudhary, to strengthen the rules and procedures of corporate governance, it said. The move “would not only help in checking the menace of black money but also would promote an ecosystem of ‘ease of doing business’ and enhancing investors’ confidence”, Chaudhary said.

Enforcement agencies are compiling profiles of directors, including their background, antecedents and role in the operations and functioning of these companies.

“All efforts are also being made to identify the actual beneficiaries and persons behind such shell companies,” the government statement said. The government is also monitoring action being taken by professional institutes such as the Institute of Chartered Accountants of India and Institute of Company Secretaries of India.



NEW DELHI: Full service Indian carrier Vistara will launch international operations anytime next year after March. The Tata Sons-Singapore Airlines JV will have 20 planes in its fleet by March 2018, three months ahead of earlier planned schedule to meet this cutoff for Indian airlines to fly abroad. The airline will fly long and medium haul to places like Japan as it plans to induct wide body aircraft in its fleet, apart from places close to India in the range of narrow body planes like its Airbus A-320.

Vistara CEO Phee Teik Yeo said: “We are very close to finalizing our plans for international operations. Vistara will fly to places like Japan as that is a very important market. We are very excited by the aircraft order (the airline will place) to support our aggressive overseas plan. At this stage, I cannot share the aircraft type and how many wide and narrow body we will need for our plan. Or how soon will we fly abroad. We will make all these announcements very shortly.”

At present, only full service Air India and Jet Airways have medium and long haul international operations. IndiGo and SpiceJet use their fleet of narrow body planes for flying to neighbouring places like Gulf and Southeast Asia. These two budget carriers are eyeing long haul flights on wide body planes, with IndiGo expressing its interest in acquiring AI and AI Express.

Vistara currently has 16 aircraft, all Airbus A-320s, in its fleet. Indian rules now stipulate an airline must have 20 planes to start overseas flights. “We will have 20 planes by next march and be eligible to fly abroad after that,” Phee Teik said, while hinting at placing a large number.

The Vistara CEO said this on Thursday when the airline signed an MoU with Japan Airlines to “pursue commercial opportunities that combine the synergies of both with the aim of providing greater convenience to their joint customers travelling between India and Japan, and through Japan to points beyond.” This agreement allows the two airlines to codeshare, offer frequent flyer partnership.


KOLKATA: Sales of televisions, refrigerators and washing machines dropped by 1-2% this year during Onam and Ganesh Chaturthi compared with last year, creating a flutter in the white goods industry as these two occasions set the tone for sales during the crucial festive season that ends with Diwali.

Companies said the decline is due to consumers advancing purchases during the pre-GST sales in June with retailers in a hurry to liquidate stock on a huge discount to minimise losses on transition stock. There was no growth even during the Independence Day sales, which too had become a big shopping period for retailers and brands in the last few years.

“Sales in Onam and Ganesh Chaturthi were not as we had expected,” said Godrej Appliances business head Kamal Nandi. “The lag effect of pre-GST sales continued to drag overall demand, though we had expected it to revive.”

The industry reported 80-100% growth in sales in June during the GST discounting and several leading retailers like Reliance Digital, Vijay Sales, Viveks and Great Eastern had reported sales at the same scale as Diwali. The companies also believe the 3-4% price hike from July due to GST may have dampened consumer sentiments.

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