Card frauds are taking place all over the world. Is the Indian government taking any precautions to make card transactions more secure?

Published: Mon 29 Jul 2013, 9:34 PM

Last updated: Sat 4 Apr 2015, 11:18 AM

K.V. Gupta, Dubai

The Reserve Bank of India has made it mandatory for banks to have cards with magnetic stripes as well as chips. These cards can only be used by the card holder who has his own personal identification number which has to be entered in EMV machines while undertaking a transaction. It is now proposed that in future cards will have to be authenticated biometrically at the point of sale. This will be done by using a USB scanner which will be connected to the card swipe machine at point of sale terminals.

This proposal will be based on Aadhaar Cards, which are now issued to millions of Indians. This will ensure that if a card is stolen or misplaced, no frauds can be committed. For this purpose, the Aadhaar number will have to be integrated with the relevant credit or debit card. It has been found that even the present cards with chip and PIN are safe to use and are widely accepted in India at point of sale terminals.

I have suffered a stock derivative trading loss. These transactions are carried on by me through a company set up in India. Will it be possible for the company to set off these losses against its trading profits in commodities?

S.K. Dhanuka, Doha

There seems to be some difference of opinion amongst courts in India. In a recent case, the Delhi High Court held that under section 73 of the Income-tax Act, 1961, companies which are in the business of purchase and sale of shares are deemed to be carrying on a speculative business. According to the court, the objective of this section is to deny speculative businesses the benefit of carry forward of losses.

The court considered the provisions of section 43(5) which deal with computation of business income. Under this provision, derivatives are excluded from the definition of speculative transactions. According to the Court, this exclusion is limited for the purpose of computation of business income and it does not apply to carry forward of losses under section 73.

The Delhi High Court has, therefore, disallowed set off of speculative loss by a company against its other income and has held that such loss can only be set off against speculative profits which are made within the subsequent four years.

An American company wants to set up a subsidiary company in India with the object of carrying on marketing activities and providing after sale services. Will the American company be taxable on its profits in India on the ground that it has a permanent establishment in India?

S. Rodrigues, Abu Dhabi

If the subsidiary company has the authority to execute contracts in India on behalf of the American company, the latter would be deemed to have a permanent establishment in India. This would be so both under the Income-tax Act, 1961 as well as under the double tax avoidance treaty. On the other hand, if the subsidiary company does not have the authority to enter into contracts on behalf of the American company and it does not maintain stock of goods of the American company in India, there would be no permanent establishment in India.

It is also necessary that the transactions between the American company and the subsidiary company should be at arm’s length. Courts have emphasised the point that a wholly owned subsidiary company set up in India does not necessarily result in the foreign company having a permanent establishment in India.

The writer is a practising lawyer, specialising in tax and exchange management laws of India

By H. P. Ranina

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