FEMA_Practicle Problems_12

Examine whether the following transactions are permissible or not under the above Act as Capital Account transactions :

i investment by person resident in India in Foreign Securities.
ii Foreign currency loans raised in India and abroad by a person resident in India.
iii Export, import and holding of currency/currency notes.
iv Trading in transferable development rights.
v Investment in a Nidhi Company.

i Investment by person resident in India in Foreign Securities is a capital account transaction. It is permitted within the limit, subject to the compliance of conditions and if declaration is made as per the provisions contained in the Regulations relevant to the transaction (viz., Foreign Exchange Management (Investment in Foreign Securities by a person resident in India) Regulations, 2000). However, drawal upto $ 2,00,000 is permitted without requiring any compliance with these Regulations, in accordance with the provisions contained in the Liberalised Remittance Scheme for Resident Individuals.

ii Foreign currency loans raised in India and abroad by a person resident in India is a capital account transaction. It is permitted within the limit, subject to the compliance of conditions and if declaration is made as per the provisions contained in the Regulations relevant to the transaction.

iii Export, import and holding of currency/currency notes is a capital account transaction. It is permitted 'within the limit, subject to the compliance of conditions and if declaration is made as per the provisions contained in the Regulations relevant to the transaction.

iv trading in transferable development rights is prohibited since no person resident outside India shall make investment in India in any entity which is engaged, or proposes to engage in trading in Transferable Development Rights (TDRs) (Regulation 4 of Foreign Exchange Management 'Permissible Capital Account Transactions Regulations, 2000).

v investment in a Nidhi Company is prohibited since no person resident outside India shall make investment in India in any entity which is engaged, or proposes to engage as Nidhi company (Regulation 4 of Foreign Exchange Management (Permissible Capital Account Transactions Regulations, 2000).

FEMA_Practicle Problems_11

Mr. Sekhar resided for a period of 150 days in India during the financial year 2003-2004 and thereafter went abroad. He came back to India on 1st April, 2004 as an employee of a business organisation. What would be his residential status during the financial year 2004-2005?

The residential status of an individual for a particular financial year is determined with reference to his residence in India in the immediately preceding financial year. In the problem given, Mr. Sekhar resided in India for less than 183 days in the financial year 2003-2004. Therefore, for the financial year 2004-05 he is a 'Person resident outside India' irrespective of the purpose or duration of his stay. Unless an individual resides in India for more than 182 days in the preceding financial year, he can in no case be termed as a person resident in India.

FEMA_Practicle Problems_10

Examine with reference to the provisions of the Foreign Exchange Management Act, 1999, the residential status of the branches mentioned below:

i NNM Ltd. an Indian Company having its registered office at Mumbai, India established a branch at New York U.S.A. on 1st April 2005.

ii DDI Ltd. a company incorporated and registered in London established a branch at Kanpur in India on 1st April 2005.

iii DDI Ltd. has a branch office at Singapore which is controlled by its Kanpur branch.

Section 2(u) defines a 'person'. As per this definition, the following shall be covered in the definition of a ‘person’:
a. A company
b. Any agency, office or branch owned by a 'person'.

Section 2(v) defines a 'person resident in India'. As per this definition, the following shall be covered in the definition of a 'person resident in India':
a. Any person or body corporate registered or incorporated in India.
b. An office, branch or agency in India owned or controlled by a person resident outside India.
c. An office, branch or agency outside India owned or controlled by a person resident in India.

The answer to the given problem is as under;
i

NNM Ltd. as well as the New York branch of NNM Ltd. is a 'person'. Therefore, residential status under FEMA shall be determined for each of them separately.

NNM Ltd. is incorporated in India. Therefore, it is a 'person resident in India'.

NNM Ltd. (a 'person resident in India') has established a branch outside India. Therefore, the New York branch of NNM Ltd. falls under the clause 'an office, branch or agency outside India owned or controlled by a person resident in India' and so the New York branch is a 'person resident in India'.

ii

DDI Ltd. as well as Kanpur branch of DDI Ltd. is a 'person'. Therefore, residential status under FEMA shall be determined for each of them separately.

DDI Ltd. (a foreign company) does not fall under any of the clauses of the definition of a 'person resident in India'. Therefore, DDI Ltd. is a person resident outside India.

The Kanpur branch of DDI Ltd. is a "person resident in India' since it falls under the clause 'an office, branch or agency in India owned or controlled by a person resident outside India'.

III

The Singapore branch of DDI Ltd., though not owned, is controlled by the Kanpur branch. The Singapore branch is a 'person resident in India' since it falls under the clause 'an office, branch or agency outside India owned or controlled by a person resident in India'.