Leagal aspect 1. All agreements are not contracts, but all contracts are agreements. Comment.

Contract A contract is an agreement, enforceable by law, made between at least two parties by which rights are acquired by one and obligations are created on the part of another. If the party, which had agreed to do something, fails to do that, then the other party has a remedy. Example: D Airlines sells a ticket on 1 January to X for the journey from Mumbai to Bangalore on 10 January. The Airlines is under an obligation to take X from Mumbai to Bangalore on 10 January. In case the Airlines fails to fulfil its promise, X has a remedy against it. Thus, X has a right against the Airlines to be taken from Mumbai to Bangalore on 10 January. A corresponding duty is imposed on the Airlines. As there is a breach of promise by the promisor (the Airlines), the other party to the contract (i.e., X) has a legal remedy. Agreement Sec.2(e) defines an agreement as every promise and every set of promises forming consideration for each other. In this context, the word promise is defined by Sec.2(b). In a contract there are at least two parties. One of them makes a proposal (or an offer) to the other, to do something, with a view to obtaining the assent of that other to such act. When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted becomes a promise (Sec.2(b)). Enforceability by law: The agreement must be such which is enforceable by law so as to become a contract. Thus, there are certain agreements which do not become contracts as this element of enforceability by law is absent. Essentials of a contract Sec.10 provides that all agreements are contracts, if they are made by free consent of parties, competent to contract, for a lawful consideration, and with a lawful object, and are not expressly declared by law to be void. To constitute a contract, there must be an agreement between two or more than two parties. No one can enter into a contract with himself. An agreement is composed of two elements offer or proposal by one party and acceptance thereof by the other party. Effect of absence of one or more essential elements of a valid contract: If one or more essentials of a valid contract are missing, then the contract may be either voidable, void, illegal or unenforceable. Classification of contracts Contracts may be classified as follows: Classification of contracts according to formation: A contract may be (a) Made in writing (b) By words spoken and (c) Inferred from the conduct of the parties or the circumstances of the case.

Formal and informal contracts: This is another way of classifying contracts on the basis of their formation. A formal contract is one to which the law gives special effect because of the formalities or the special language used in creating it. The best example of formal contracts is negotiable instruments, such as cheques. Informal contracts are those for which the law does not require a particular set of formalities or special language. Classification according to validity: Contracts may be classified according to their validity as (i) Valid, (ii) Voidable, (iii) Void, (iv) Unenforceable. A contract to constitute a valid contract must have all the essential elements discussed earlier. If one or more of these elements are missing, the contract is either voidable, void, illegal or unenforceable. As per Sec.2(i) A voidable contract is one which may be repudiated (i.e., avoided) at the will of one or more of the parties, but not by others.

MAY 14, 2012 MF0011 [Mergers and Acquisitions] Set1 Q6 Q.6 What are the motives for a joint venture, explain with an example of a joint venture.

Ans:

As there are good business and accounting reasons to create a joint venture with a company that has complementary capabilities and resources ,such as distribution channels, technology, or finance, joint ventures are becoming an increasingly common way for companies to form strategical liances. In a joint venture, two or more parent companies agree to share capital, technology, human resources, risks and rewards in a formation of a new entity under shared control. Broadly, the important reasons for forming a joint venture can be presented below:

Internal Reasons to Form a JV Spreading Costs: You and a JV partner can share costs associated with marketing, product development, and other expenses, reducing your financial burden Opening Access to Financial Resources: Together you and a JV partner might have better credit or more assets to access bigger resources for loans and grants than you could obtain on your own. Connection to Technological Resources: You might want access to technological resources you couldn't afford on your own, or vice versa.Sharing innovative and proprietary technology can improve products, as well as your own understanding of technological processes. Improving Access to New Markets: You and a JV partner can combine customer contactsand together even form a joint product that accesses new markets.

Help Economies of Scale: Together you and a JV partner can develop products or services that reduce total overall production expenses. Bring your product to market cheaper where the customer can enjoy the cost savings.

External Reasons to Form a JV

Develop Stronger Innovative Product: Together you and a JV partner may be able to share ideas to develop a product that is more competitive in your industry. Improve Speed to Market: With shared access to financial,technological, and distribution resources, you and a JV partner can get your joint product to market faster and more efficiently.Strategic Move Against Competition: A JV may be able to better compete against another industry leader through the combination of markets, technology,and innovation.

Strategic Reasons Synergistic Reasons: You may find a JV partner with whom you can create synergy, which produces a greater result together than doing it on your own. Share and Improve Technology and Skills: Two innovative companie s can share technology to improve upon each other's ideas and skills. Diversification - There could be many diversification reasons: access to inverse markets, development of diverse products, diversify the innovative working force, etc. Don't let a JV opportunity pass you by because you don't think it will fit in with your own small business. Small and big companies alike can benefit from the reasons listed above. Analyze how your company can benefit internally, externally, and strategically, and then find a joint venture partner that will fit with your needs

Given below are the key motives behind the joint ventures: To augment insufficient financial or technical ability to enter a particular line or business. To share technology & generic management skills in organization, planning & control. To diversify risk To obtain distribution channels or raw materials supply To achieve economies of scale

 To extend activities with smaller investment than if done independently To take advantage of favorable tax treatment or political incentives (particularly in foreign ventures).

Joint ventures are new enterprises owned by two or more participants. They are typically formed for special purposes for a limited duration. It is a combination of subsets of assets contributed by two (or more) business entities for a specific business purpose and a limited duration. Each of the venture partners continues to exist as a separate firm, and the joint venture represents a new business enterprise. It is a contract to work together for a period of time each participant expects to gain from the activity but also must make a contribution.

For example: GM-Toyota JV: GM hoped to gain new experience in the management techniques of the Japanese in building high-quality, low-cost compact & subcompact cars. Whereas, Toyota was seeking to learn from the management traditions that had made GE the no. 1 auto producer in the world and In addition to learn how to operate an auto company in the environment under the conditions in the US, dealing with contractors, suppliers, and workers. Question01:-Tax evasion In view of the facts set out so far, it becomes necessary to look at the extent ofcompliance of tax laws in India. Though many estimates of black money have beencoming forth, an attempt was made to determine the extent of tax evasion in theMumbai Income Tax charge, which collected about 35% of the Income Tax collections ofthe country and 43% of the corporate tax collections. The study was made on the basisof results of the survey and search cases for all the years covered by such cases. Itcame to light that none of the taxpayers concerned declared for taxation purposesanything more than 25% of their true incomes after 1999. The figure arrived at wasgiven to the press specifying the basis on which it was so calculated. Not a singleprotest was received from any of the taxpayer, including companies. The said figurewas thereafter cited for some more time, and even thereafter no protest was received.There was, therefore, every reason to believe this estimate. However, there appears 10to be higher tax evasion in the case of companies. Some of the companies have showntheir entire capital as having come from the countries regarded as Tax Havens.Considering the extent of Indian monies stacked in Swiss Bank Accounts, and bankaccounts of the developed countries, and comparing the same with the annual incometax collections of the Central Government, it appears that the real income admitted fortaxation purposes is less than 25% . The extent of evasion appears to be very muchhigher in the case of companies as the companies have resorted to evolution of taxevasion devices in the accounts and such methods have not yet been properlyinvestigated by the Income Tax Department. There are companies which havecamouflaged their capital investments and shown it in the books as if it is explainedcapital for income tax purposes. The Indian Scenario - Peculiar problems of tax evasion :

It will be appropriate at this stage to highlight some of the key problems from the viewpoint of computerisation in India: (a) Investments in Real Estate: The one field where black monies have been investedon the largest scale is that of real estate properties. Lands were sold for only 20% oftheir real values and the balance 80% given in cash out of the tax evaded monies, eversince 1947. But later on when the tax rates were lowered to 30% for individuals and35% for companies, the black portion got reduced to 40% . It may be a difficult task totrace such black transactions through the computer system, suggested for adoption onthe U.S. pattern for India. But it is common knowledge that the black monies invested in land have been reinvested in bank accounts, shares and in other properties, apartfrom real estate property. It is now confirmed knowledge that in regard to buildingsconstructed, only 40% of the cost is shown to income tax. It is possible to detect suchinvestment by analysis of the data obtained from the trade and industry governingcommodities used for construction of buildings. Further, as all the transactionsrelating to sale of real estate properties are now recorded in computers maintained bythe Registration Offices all over the country, and if the same data is brought on thecomputers of the Income Tax Department, it should be possible to know many ownersof property who have not filed their tax returns at all so far. In India, there are only 3corers of tax assesses at present, and thus a large number of people with taxableincome have evidently chosen not to file income tax returns. (b) Gold and Jewellery Holdings: India is having the largest private holdings of goldand diamond jewellery among all the countries of the world. In the searches conductedby the Income Tax Department, huge unaccounted cash balances and gold anddiamond jewellery have been found in the bank lockers maintained by tax payers inbogus names and in their own names. At current market rates, purchases of gold,silver and diamonds may now reach about Rs. 80,000 crores a year. Gold and diamondtraders are mostly keeping their transactions outside bank accounts. They are alsogiving vouchers to the effect that raw gold has been given by the customers, though; infact, it would have come from the traders themselves. Therefore, it is necessary tointroduce a law requiring them to transact only through bank cheques and issuecomputerized bills, to facilitate proper flow of information to the computer system ofthe tax department. (c) Shares, Mutual Funds, etc : There are vast investments in shares and debentures,travelers cheques, mutual funds and the primary bonds issued by the Reserve Bank ofIndia. The data regarding company shares and other investments mentioned can beeasily transferred to the computer system of the Income Tax Department. The MumbaiStock Exchange is having a separate computer system with complete data on dailytransactions and the Income Tax Department has so far not made use of such data.There is also the data generated in the computers of the organizations in charge ofdemat of shares. Likewise, the data on post office savings and other accounts is easyto be brought on the computers of the tax department for verification with theindividual returns, which are available with the Government itself. d) Undisclosed Stock in-trade held by companies and traders :

Many firms andindividuals have also a tendency to keep undisclosed business assets like cars andprivate assets, unaccounted cash holdings etc., They have ability to give extensivebribes to protect business and other interests. All such practices would varnish oncefear is caused among the tax payers about the use of computerized data for taxationpurposes. Benami Investments : Benami investments are typical of the Indian economy. Evenbig companies have indulged in such practices to impart total secrecy to theirundisclosed accounts. It may be difficult to determine whether the investment found inthe computers of the income tax department is benami or not, and benami shares willhave to be traced sometimes by extensive studies to be conducted by teams of revenueofficers. This problem requires comprehensive study because it is peculiar to theIndian Taxation System. (f) Swiss Bank and other undisclosed bank accounts held abroad: Swiss Bank Accountsare shrouded in secrecy and hence no information will be available to the computersystem of the Income Tax Department. The amounts in Swiss Bank Accounts, whichare held in foreign currency, have been utilised by big companies and other taxpayersin India to import huge machineries at vastly underinvoiced prices. Such practicesenable payment of secret trade commissions in foreign currency and unaccountedfunds in Indian currency to those contesting general elections. Several majorcompanies have converted Swiss Account holdings into benami shares and debentures.The large amounts of Swiss Bank deposits have, thus, been utilized and every year,there are additions to the Swiss Bank Account holdings. b. Does black money cause Inflation? Answer: Illegally earned money is called black money. It is the result of hoarding, smuggling,tax evasion and dealing in immovable property for which the consideration is paid inblack. It has been beyond the control of the Government. The black money has alreadycreated a serious problem in our country.The Indian economy stands badly shattered because of the huge amount of this taintedwealth lying in the coffers of the rich. It has given rise to parallel economy operating inthe country. As a result, the prices continue to rise in spite of all government efforts tocontrol them. The poor go on becoming poorer while the rich go on becoming richer.The gap between the haves and the have nots is widening every day.Black money is used by the rich in various evil activities. They use this money forcorrupting and demoralizing social and political life. They display it in ostentatiousliving and wasteful luxuries. They bribe Government officers and lead them tocorruption and dishonesty. They purchase political bosses and control the strings of theGovernment. Thus the entire social structure comes to be badly polluted.It is difficult to form an exact idea of the amount of black money in circulation in thecountry. Searches and raids by Income Tax authorities are conducted from time totime. Such raids yield crores of rupees. But the people are, at times, cleverer than theovernment. They seek the aid of the best legal brains and get the law twisted in theirfavour. Most of the offenders use all their money and influence and go scot freewhenever they are caught. The Government has, at various times, announced somevoluntary disclosure schemes for unearthing the black money. These schemes haveproved successful to a very limited extent. What has come to the surface is believedonly to be the tip of the huge iceberg lying hidden underneath. The 1997 VoluntaryDisclosure Scheme announced by the Government of India

unearthed a big amount ofblack money as the tax rate in this scheme had been reduced to thirty per cent.The black money, according to some reliable estimates has gone up to Rs. 10,000 croresin our country. It is to a great extent responsible for a great rise in prices because thepurchasing power of the people has increased. People having black money are leadinga life of luxury whereas the poor people are leadinng a miserable life. Some leadingeconomists of the country have suggested stringent measures to the government tounearth black money but successive governments have been rejecting those measures.The vested interests always stand in the way of effective measures and get themdiluted.The government of the day appears to be doing its best to unearth black money. Anumber of steps have been taken. Taxation structure and system have been madeeasier. At different times, the government has brought forward several schemes andasked the people to declare their wealth. There has been some success. A lot soilremains to be done.It must be clear to all that the nation cannot shut her eyes to this state of affairs.Smugglers and black-marketeers can no longer be tolerated. They are striking at thevery roots of our democratic structure. All steps to weed the blackmoney out of circulation must be taken as early as possible. The government must come down with aheavy hand on smugglers, tax evaders, black-marketeers and hoarders. Black money isa curse. It must be rooted out from public life. Question.2:- Detail death cum retirement gratuity under Sec 17(1)iii of IT Act. Iscommutation of pension a viable option in terms of tax planning? Answer: Death-cum-retirement gratuity or any other gratuity which is exempt to the extentspecified from inclusion in computing the total income under clause (10) of Section 10.Any death-cum -retirement gratuity received under the revised Pension Rules of theCentral Government or, as the case may be, the Central Civil Services (Pension) Rules,1972, or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (suchmembers or holders being persons not governed by the said Rules) or to the membersof the all-India services or to the members of the civil services of a State or holders ofcivil posts under a State or to the employees of a local authority or any payment ofretiring gratuity received under the Pension Code or Regulations applicable to themembers of the defence service. Gratuity received in cases other than above onretirement, termination etc is exempt up to the limit as prescribed by the Board.Under the provisions of Section 10(10) of the IT Act, any death-cum-retirementgratuity of a government servant is completely exempt from income tax. However, inrespect of private sector employees gratuity received on retirement or on becomingincapacitated or on termination or any gratuity received by his widow, children ordependants on his death is exempt subject to certain conditions.The maximum amount of exemption is Rs. 3,50,000;. Of course, this is further subjectto certain other limits like the one half-month's salary for each year of completedservice, calculated on the basis of average salary for the 10 months immediatelypreceding the year in which the gratuity is paid or 20 months' salary as calculated.Thus, the least of these items is exempt from income tax under Section 10(10).Any payment in commutation of pension

received under the CivilPension(Commutation) Rules of the Central Government or under any similar schemeapplicable to the members of the civil services of the Union, or holders of civilposts/posts connected with defence, under the Union,or civil posts under a State, or tothe members of the All India Services/Defence Services, or, to the employees of a localauthority or a corporation established by a Central,State or Provincial Act, is exemptunder sub-clause (i) of clause (10A) of Section 10. As regards payments in commutationof pension received under any scheme of any other employer, exemption will begoverned by the provisions of sub-clause (ii) of clause (10A) of section 10. Also, anypayment in commutation of pension received from a Regimental Fund or NonPublicFund established by the Armed Forces of the Union referred to in Section 10(23AAB) isexempt under sub-clause (iii) of clause (10A) of Section 10. The entire amount of anypayment in commutation of pension by a government servant or any payment incommutation of pension from LIC [Get Quote] pension fund is exempt from income taxunder Section 10(10A) of IT Act.However, in respect of private sector employees, only the following amount ofcommuted pension is exempt, namely: (a) Where the employee received any gratuity,the commuted value of one-third of the pension which he is normally entitled toreceive; and (b) In any other case, the commuted value of half of such pension.It may be noted here that the monthly pension receivable by a pensioner is liable tofull income tax like any other item of salary or income and no standard deduction isnow available in respect of pension received by a tax payer