Income Tax Returns for AY 2020-21: Ready Referencer

With the extended time limit for filing of Income Tax Return (for AY 2020-21), u/s. 139(1), without late fees, for Non-Audit cases and for Non-Corporate assessees of 31st December 2020 fast approaching, given below is a quick guide for ready reference of some key changes that have been made in the respective Income tax return forms for this year.

Further, the conditions and features for eligibility of forms that are applicable for filing the correct income tax returns are also specified as follows:

Key Procedural Changes:

  • ITR 1 to ITR 4 can be filed using PAN or Aadhar by Individuals.
  • The submitted ITR forms display the ITR-V with a watermark ‘Not Verified’ until the same is verified either electronically by EVC or by sending the same via post after manual signing.
  • The unverified form ITR-V will not contain any income, deduction and tax details. The unverified form will only contain basic information, E-filing Acknowledgement Number and Verification part.
  • The unverified acknowledgement is titled as ‘INDIAN INCOME TAX RETURN VERIFICATION FORM’ & final ITR-V is titled as ‘INDIAN INCOME TAX RETURN ACKNOWLEDGEMENT’.
  • Return filed in response to notice u/s. 139(9), 142(1), 148, 153A, and 153C must have DIN.
  • There is a separate disclosure for Bank accounts in case of Non-Residents who are claiming income tax refund and not having a bank account in India.

COVID related Changes:

  • The Government had extended the time limit for claiming tax deduction u/CH VIA to 31st July 2020, and the details of the same need to be reported in Schedule DI (details of Investment).
  • The time limit for investing the proceeds or capital gains in other eligible assets, so as to claim exemptions u/s 54/ 54B/ 54F/ 54EC, had been extended to 30th September 2020.
  • Penal interest u/s. 234A @ 1% p.m., where the payments were due between 20-03-20 to 29-06-20 and such amounts were paid on or before 30-06-20, had been reduced to 75%, vide ordinance dated 31-03-20.
  • Period of forceful stay in India, beginning from quarantine date or 22-03-20 in any other case up to 31-03-20, is to be excluded, for the purpose of determining residential status in India.[1]

Consequences of Late filing of Return of Income:

  • Late Fees u/s. 234F of INR. 5,000 up to 31.12.20 and INR. 10,000 up to 31.03.21. In case of total income up to 5 Lacs, the penalty is INR. 1,000.
  • Penal Interest u/s. 234A @ 1% per month
  • Reduced to 75%. vide Ordinance dated 31.03.20, where the payments were due between 20.03.20 to 29.06.20, and such amounts were paid on or before 30.06.20.
  • Vide CBDT Notification dt 24.06.2020, no interest u/s 234A if Self-Assessment tax liability is less than 1 Lac and the same has been paid before the original due date.
  • In case of a belated return, loss under any head of Income (except unabsorbed depreciation) cannot be carried forwarded.
  • Deduction claims u/s. 10A, 10B, 80-IA, 80-IB, etc would not be allowed.

Consequences of Late filing of Return of Income:

  • Late Fees u/s. 234F of INR. 5,000 up to 31.12.20 and INR. 10,000 up to 31.03.21. In case of total income up to 5 Lacs, the penalty is INR. 1,000.
  • Penal Interest u/s. 234A @ 1% per month
  • Reduced to 75%. vide Ordinance dated 31.03.20, where the payments were due between 20.03.20 to 29.06.20, and such amounts were paid on or before 30.06.20.
  • Vide CBDT Notification dt 24.06.2020, no interest u/s 234A if Self-Assessment tax liability is less than 1 Lac and the same has been paid before the original due date.
  • In case of a belated return, loss under any head of Income (except unabsorbed depreciation) cannot be carried forwarded.
  • Deduction claims u/s. 10A, 10B, 80-IA, 80-IB, etc would not be allowed.

Vide CBDT Notification dt 24.06.2020, no interest u/s 234A if Self-Assessment tax liability is less than 1 Lac and the same has been paid before the original due date.

  1. Section 5A: Apportionment of income between spouses governed by the Portuguese Civil Code.
  2.  115BBDA: Tax on dividend from companies exceeding Rs. 10 Lakhs; 115BBE: Tax on unexplained credits, investment, money, etc. u/s. 68 or 69 or 69A or 69B or 69C or 69D.
  3. Inserted in sec 139(1) by Act No. 23 of 2019, w.e.f. 1-4-2020:

Provided also that a person referred to in clause (b), who is not required to furnish a return under this sub-section, and who during the previous year:

  • has deposited an amount or aggregate of the amounts exceeding one crore rupees in one or more current accounts maintained with a banking company or a co-operative bank; or
  • has incurred expenditure of an amount or aggregate of the amounts exceeding two lakh rupees for himself or any other person for travel to a foreign country; or
  • has incurred expenditure of an amount or aggregate of the amounts exceeding one lakh rupees towards consumption of electricity; or
  • fulfils such other conditions as may be prescribed,

Shall furnish a return of his income on or before the due date in such form and verified in such manner and setting forth such other particulars, as may be prescribed.

4. Section 57: Deduction against income chargeable under the head “Income from other sources”.

5. Schedule DI: Investment eligible for deduction against income (Ch VIA deductions) to be bifurcated between paid in F.Y.19-20 and during the period 01-04-20 to 31-07-20.

6.High-value Transaction: Annual Cash deposit exceeding Rs. 1 crore or Foreign travel expenditure exceeding Rs. 2 Lakhs, Annual electricity expenditure exceeding Rs. 1 Lakh.
7.Schedule 112A: From the sale of equity share in a company or unit of equity- oriented fund or unit of a business trust on which STT is paid under Section 112A.

8. 115AD(1)(iii) proviso: for Non-Residents – from the sale of equity share in a company or unit of equity-oriented fund or unit of a business trust on which STT is paid under Section 112A.
9. Section 40(ba): any payment of interest, salary, bonus, commission or remuneration paid to a member in case of Association of Person (AOP) or Body of Individual (BOI).

10. Section 90 & 90A: Foreign tax credit in cases where there is a bilateral agreement; Section 91: Foreign tax credit in cases of no agreement between the countries.

[1] Circular No 11 of 2020 dated 08th May 2020.

References

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‘Technological Doping’: A Threat To Equity In Sports

Athletes thrive on success and are often willing to go the extra mile to achieve on-field success. The influx of technological advancements in our daily lives has naturally found its way onto the sports field; this has resulted in a race to look for the best sports equipment/gears and technology hence shifting the focus from physiological ability. This article focuses on issues related to the usage of performance enhancement technology in sports and the negative effect that it has had on the integrity of sports.

Background:

A sport remains competitive and fair as long as there exists a level playing field in all aspects of the sport. Track & Field has by far maintained equity among athletes. Further, in association with the World Anti-Doping Agency (WADA), the World Athletics has kept a strict vigilance on the conventional doping and performance enhancement techniques to a great extent.

Most of the sports, which have preset measurements for the equipment and athletic gears used in the games, leave comparatively less or no room for any kind of experiment, however, certain sports which have no preset rules for the equipment/gears are prone to such kind of manipulation thereby gaining an advantage over others.

A major controversy broke out in late 2019 when a Kenyan Athlete, Eliud Kipchoge, completed a marathon in less than two hours. The records by Eliud Kipchoge in Vienna and Brigid Kosgei in Chicago highlighted how the (shoe) technology had enhanced the performance of athletes. The common factor between these two record-breaking athletes, other than being from the same country and training together, was that both athletes were wearing a prototype of the new Nike Vaporfly 4%. These shoes had been proven by Nike to enhance the efficiency of the runners by adding more to what the runners expended, thus, giving runners an edge over others.

The Playbook:

The World Athletics, in its guidelines on shoes (before amendment in January 2020), provided that shoes used by athletes must not be those that create an “unfair advantage” and must be “reasonably available” to all. The rules were silent as to what would amount to an “unfair advantage”. On the application of these rules, the Nike Vaporfly 4% could be considered unfair as it had been proven to increase the efficiency of a runner, thereby creating an unfair advantage. There would be no issue of unfairness if these shoes were available to all runners. However, the high cost and non-availability of the shoes in the open market prevented the access of such shoes to all athletes. This thus, results in an unfair and non-level playing field and is regarded as an unconventional method of doping in running dubbed as “technological doping”.

Amended Technical Rules:

The revised Technical Rules of the World athletics (post-amendment) have impliedly given a green signal to performance enhancement shoes. World Athletics has disallowed any prototype shoe to be used in any competition but has permitted athletes to use shoes that are in sale in the market for a period of 4 months or more. Furthermore, the amendment has prohibited athletes from using shoes that have a sole thickness greater than 40mm.

This has surely indirectly legalized the Nike Vaporfly 4%, which has a sole thickness of 39.5mm and has resulted in an arms race of sorts amongst athletes to procure the most advanced and specialized shoes. Had the Tokyo Olympics held in 2020, the disparity in sporting performances might have been evident with the number of past records being broken with relative ease.

Technological Advancement Vs. Technological doping:

There is a thin line between technological advancements and technological doping in sports. ‘Advancement’ is a natural phenomenon, but its utilization to gain an unfair advantage is what converts it into ‘doping’. In the absence of any defined Rules, there exists an opportunity for some to find ways to gain that advantage over others by technological means. Further, the price and availability of such hi-tech equipment and gears would for sure deprive many able but financially weak athletes. Another point to ponder is– whether such technology dilutes human effort and has a decisive effect on the performance or whether it would create some sort of unrealistic targets and records.

Hence, fairness in sports can only be achieved if such technology is banned, or if allowed, made available to all at a reasonable price. Technological advancements in sports are inevitable and necessary, but to avoid such technology from being used to gain an unfair advantage in the sport, equity is to be maintained by ensuring equal and reasonable access for all athletes.

TECHNOLOGICAL DOPING ISSUES IN OTHER SPORTS:

Swimming in Beijing Olympics:

During the 2008 Beijing Olympics, most of the swimmers used the Speedo LZR swimsuit, which was specifically designed to improve the speed of the swimmer. The suit covered the whole body from shoulder to calf and was designed to optimize body compression and hydrodynamics. The suit allowed better oxygen flow to muscles, however, it also trapped air to add buoyancy.

According to Speedo, the suit reduced drag or water resistance by 38% compared to an ordinary LYCRA suit. This reduction in drag translated into approximately a 4% increase in speed for swimmers.

The advantage of using such a suit was so extreme that one did not even stand a chance if they competed without such a suit. Japanese swimmers even broke away from their sponsorship deals to use the Speedo swimsuits in the Olympics! The swimsuit aided in about 23 out of the 25 world records that were broken in the Beijing Olympics.

A moralistic issue arose as to how would one compare the athletes of the present to yesteryear, considering that they were not equipped with such suits? An athletes’ greatness is often measured by their performances in the Olympics; however, can one call such athletes great in light of the current technologies in sports? On the regulatory side of things, a defense was provided by Speedo that suggested the suit only improved the management of existing forces rather than generating new ones. FINA, however, banned such suits after the Beijing Olympics and disallowed swimmers from using suits that extended above the waist and below the knees. Only textile suits with relatively minimal coverage were allowed – which meant that the full-coverage low-drag (even buoyant) polyurethane swimsuits were out.

The move by FINA was crucial and widely celebrated because a simple sport such as swimming had become an expensive and inaccessible sport where all the benefits were going to the well-funded athletes. However, the world records were still upheld, and since the technology has been banned for future athletes, it is going to be a tough task for them to beat the stats.

Case of Oscar Pistorius:

Oscar Pistorius’s dramatic life story has moved the world. An 11 month old South African boy whose both feet were amputated due to a congenital defect, goes on to compete in both, Olympic Games and Paralympic Games before being charged with murder. He had wished to compete against able-bodied athletes using two prosthetic legs in both the Beijing Olympic and Paralympic events. His prosthesis used an ESR (Energy storage and return) mechanism which comprised of carbon fiber blades that compressed and extended under load, therefore, worked like a spring.

The IAAF had commissioned a report in 2007 on the ESR mechanism and claimed that it was an unfair technology as it provided Pistorius an unfair mechanical advantage over able-bodied athletes of more than 30%, had a 25% reduced energy output for maintaining the same speed and possessed inertial benefits due to the reduced mass of the prosthesis. On the basis of this report, the IAAF banned Pistorius from taking part in able-bodied Olympic events. However, in a separate report commissioned by Oscar Pistorius, he proved before the CAS that while he was mechanically different, he remained physiologically similar to other athletes.

The CAS had to determine whether the use of such prosthesis was in contravention to rule 144.2 (e) of the IAAF technical rules which is read as– “Use of any technical device that incorporates springs, wheels, or any other element that provides the user with an advantage over another athlete not using such a device.” Interestingly, the CAS analysed what constituted a spring and held that even the human leg was a spring. The CAS was not convinced that the ESR prosthesis provided Pistorius with an overall net advantage over the other athletes and hence over-turned the decision of the IAAF and subsequently allowed Pistorius to compete in able-bodied events.

Case of Markus Rehm:

It was a similar case to that of Pistorius. Markus is an amputee who wished to compete in the able-bodied sport in the long jump event in the 2016 Rio Olympics. The main issue, in this case, was that he was using his prosthetic leg to jump rather than his biological leg. The German Athletics Association considered his prosthetic limb an unfair advantage and did not allow him to participate. He did not appeal to the CAS and currently is a record holder in the Paralympic long jump event.

Case of Casey Martin:

Martin was a Pro-golfer but suffered from a circulatory disorder in his lower right leg, known as Klippel-Trenaunay-Webber syndrome. This made walking very hard for him and he was always at the risk of having his leg amputated if he happened to fall. Whilst attempting to qualify for the Professional Golf Association (PGA) tour, Martin played golf using a powered golf cart. He attempted to use this technology to support his transit between strokes but the PGA attempted to prevent this.

Golf carts were banned in professional golf at the time as it was felt that such technology would change the nature of the game by reducing the impact of the walk between each hole and provide players using them with an advantage over other golfers. Martin attempted to challenge the PGA decision using the American legal system by proposing that such technology was part of his professional occupation.

The Supreme Court ruled that the use of the cart would not be a fundamental alteration of the game and therefore would not disadvantage other players and organisers.

Regulations to Tackle Doping in Sports:

The WADA Anti-Doping code serves as the core regulatory framework to tackle conventional doping in sports. It harmonizes anti-doping policies, rules and regulations within sport organizations and among public authorities around the world. Almost every international sporting governing body is a signatory to the WADA anti-doping code, thus ensuring its universal application to tackling doping in sports.

The anti-doping code has defined what constitutes doping and maintains a list of prohibited substances and activities that would enable the WADA to take action against an athlete for doping.

Technological Doping & WADA:

WADA has recognised the threat posed by technological doping but has left it to the discretion of the independent sporting bodies to allow or ban a new technology in a sport. The general stance of the WADA on technological doping is that technology should be banned if they are “performance enhancing” or “against the spirit of the sport”.

Conclusion:

Technology has started playing a vital role in sports by not only improving it but also enhancing the sports viewing experience and altering the dynamics of sports gear, thereby paving the way for performance improvement. Ideally, technology has been traditionally utilized for the betterment of the game, safety and efficiency of the athletes, however, when it becomes the decisive factor in achieving on-field success, it raises concerns. The main issue with technological doping is that it dilutes human athleticism and the element of fairness in a game.

Technology has started playing a vital role in sports by not only improving it but also enhancing the sports viewing experience and altering the dynamics of sports gear thereby paving the way for performance improvement. Ideally, technology has been traditionally utilized for the betterment of the game, safety and efficiency of the athletes, however, when it becomes the decisive factor in achieving on-field success, it raises concerns. The main issue with technological doping is that it dilutes the role of human athleticism and also the element of fairness in a game.

References

Image Credits: Photo by Hunter Johnson on Unsplash

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Extended Filing of Tax Returns – Some Issues

Due to the country’s ongoing COVID pandemic situation and the resultant disruption in normal business operations, several representations from professional bodies and other stakeholders, were made to the Hon’ble Finance Minister to further extend the due dates for Income Tax Audit, GST Audit and filing of Income tax returns.

In response, the Government has, through its Press Release dated 30th December 2020, agreed to extend the various due dates, key details of which are tabulated below:

Direct Tax:

Description Extended due date1 Further extended due date
Income tax return (Non audit cases) 31st December 2020 10th January 2021
Income tax return where Audit is applicable (Including partner of the firm) 31st January 2021 15th February 2021
Tax audit, Transfer pricing audit or any other audit 31st December 2020 15th January 2021
Declaration under ‘Vivad se Vishwas Scheme’ 31st December 2020 31st January 2021

Indirect Tax:

Description Extended due date Further extended due date
GST Annual return in GSTR 9 for F.Y. 2019-20 31st December 2020 28th February 2021
GST Audit report in GSTR 9C for F.Y. 2019-20 31st December 2020 28th February 2021

Some practical issues that arise post this extension:

  1. The further extension granted is certainly a relief measure from the Government. However, keeping in mind the severity of the disruption that continues to be impacting the business operations of the country at large, this short extension, when compared with the representations that were made before the CBDT, is unlikely to satisfy the needs and expectations of many stakeholders and professionals.
  2. It is likely that despite the extension announced by the Government, professionals and stakeholders would be keenly awaiting the outcome of the writ filed before the Mumbai High Court 2 and Gujarat High Court 3 appealing for further extension.
  3. The waiver of interest u/s. 234A for interest on late filing of return, granted in the earlier Press Release, dated 24th October 2020, shall also stand extended till the new due dates i.e., 10th January 2021 and 15th February 2021. However, it may be noted that this benefit has been extended only for small assessees having self-assessment tax liability (i.e., after reducing TDS/TCS, advance tax, etc) up to Rs. 1,00,000 and that too, only if the same is paid within the extended due date.
  4. In case of senior citizens (above 60 years of age) and super senior citizens (above 80 years of age) if their tax liability exceeds Rs 1 lac, the interest u/s. 234A would be charged, even if the return is filed within the extended due date. Ideally, the interest waiver should have been extended to all senior and very senior citizens, as practically, it is difficult for them to venture out during the ongoing pandemic and arrange for the required documents etc, so as to be able to compute and pay their taxes within the original due date.
  5. Further, the Government has not reduced the fee u/s. 234F for belated filing of a return, which would have been only Rs. 5,000 in case the return was filed after the original due date but within 31st December 2020. However, currently, since the December period has elapsed, assessees would have to pay an increased fee of Rs. 10,000 in case there is further delay in filing the return beyond the extended dates. In case of assessees having total income up to 5,00,000, the maximum late fees will be Rs. 1,000.
  6. It would be worthwhile to see if the Government extends the due date for filing of “belated return” and “revised return” for FY 19-20 (AY 20-21), the statutory due date for which is 31st March 2021. Considering the revised extended deadlines now, there is hardly any time left for filing revised or belated returns. Ideally, this date should have also been pushed by 6 – 9 months (30th September 2021 or 31st December 2021). However, the Government has been silent on this issue.
  7. The Government has also not addressed the issues concerning assesses who may still be stranded outside India and hence are unable to e-file their Income tax returns for FY 19-20 on time.

Some key issues on which clarity from Government is still awaited are as follows:

  1. Although the Government has extended Income tax return filing dates both for audit and non-audit cases, however, no similar extension has been announced by the Ministry of Company Affairs (MCA), vis-à-vis compliances under the Companies Act. This makes the income tax extension less meaningful or severely dilutes the essence of income tax extension relief in case of companies and LLPs.
  2. Considering that the country-wide lockdown norms are not yet lifted and with the prevailing disruption in carrying normal business activities, it has been difficult for stakeholders to pay advance tax for F.Y. 2020-21. However, the Government has not yet announced any relaxations, either with respect to payment of Advance tax or waiver of penal interest for any non-payment or short payment of advance tax.
  3. The CBDT had, vide Circular no 11/2020, clarified some tax residency issues arising for F.Y. 2019-20. However, no such clarification has been issued till date for F.Y. 2020-21 impacting determination of residential status and related Permanent Establishment (PE) or Place of effective management (POEM) issues getting triggered.
  4. The extension of statutory filing deadlines for F.Y. 2019-20 has resulted in the overlapping of limited time for F.Y. 2020-21 compliance; as such, there would be a need for the Government to reconsider the statutory time limits with respect to TDS compliances, assessments, re-assessments, audits etc.

With respect to GST annual return and GST audit for F.Y. 2019-20, professionals and stakeholders have raised serious concerns for time limit being extended only up to 28th February 2021; as the utility for GST annual return and that for reconciliation statement, is made available only in the month of December 2020 and secondly the same overlaps with the extended time limit for income tax audit return, which is 31st January 2021.

With respect to GST annual return and GST audit for F.Y. 2019-20, professionals and stakeholders have raised serious concerns for the time limit being extended only up to 28th February 2021; as the utility for GST annual return and that for reconciliation statement, is made available only in the month of December 2020 and secondly the same overlaps with the extended time limit for income tax audit return, which is 31st January 2021.

References

  1.  Notification No 88/2020/F. No. 370142/35/2020 – TPL dated 29th October, 2020.
  2. The Chamber of Tax Consultants & Another Vs Union of India & Another (Bombay High Court)
  3. The All-Gujarat Federation of Tax Consultants Vs. Union of India (Gujarat High Court); Filing (Stamp) Number: Special Civil Application – No. 23375 of 2020

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A New Spin to Tagore’s Immortal Lines – “Where the Mind is Without Fear and the Head is Held High”

Two things happened in the past few days that got me thinking even more about something that has been playing on my mind for some time now. The first was a conversation I had with a friend, with whom I reconnected after a gap of several years. In the course of our conversation, he told me that his twenty five-year old son runs his own start-up that does cutting-edge work in the field of AI. I was somewhat surprised to hear this because when the children were in school, his wife would often complain about the boy’s poor academic performance. As if he had read my mind, my friend told me that he had given his son complete freedom to pursue his interests in life. He said, “The only thing I told him was to excel in whatever field he chose, and to be accountable for all his decisions in life”. Pretty good advice.

The second was that I read an article titled “Be humble but also be brave” by Mr. Ratan Tata. The article, which appeared in the Times of India on 27th December 2020, contains Mr. Tata’s views on what we as a nation need to do to improve our society. He writes about our collective responsibility towards the underprivileged sections of our society. He also writes about the importance of gender equality and equity in rewards given that women can (and will need to) play an important role in the nation’s growth. You may read the article here if you missed it earlier.

I agree with him on both counts. However, what resonated with me, even more, were his observations that India’s transformation will be powered by young people, and to enable this efficiently, we need to create a culture that is more supportive of innovation.

As I pondered the ways in which life has changed over the past nine months, it struck me that while technology has created “Digital” alternatives and workarounds, we as people have changed our mindsets too. This is in no small measure due to the pandemic. Being mistrustful of digital devices and ways of communication, many of us preferred to physically visit banks or shops. (Some will claim that they did so to maintain relationships- which is also a fair point). But while being forced to stay at home for several weeks, we discovered the freedom and convenience of banking and shopping from home. And now, this has become mainstream, thanks to the growing penetration of smartphones and hence, access to the internet.

I asked myself in what other areas do we need to change our mindsets and realized that change and shifts are inevitable in every walk of life. Here are five that immediately come to mind.

Parenting

At least in my generation (and earlier ones), the general paradigm was that “parents know what’s best for their children”. That may have been true during an era of relatively little change when things remained more or less the same for decades (say 1950-1990). But it is certainly not true anymore. So many career choices are coming up in the gig economy- but yet, many parents are even today fixated on Engineering, Medicine, MBA, Chartered Accountancy or Law. Maybe this explains why so many Indian executives are CEOs in global companies, but the number of innovations that have emerged from India and shaken up the world remains small. India has been an IT services powerhouse for more than two decades, but where are we with products? Zoho is perhaps one success, but there are not too many others I can think of. As parents, we need to be more encouraging of our children’s interests and allow them to pursue avenues that were once labelled as “offbeat”.

Education

Our education system has largely remained oriented towards rote learning and examinations. Marks and grades continue to be indicators of learning. But in a world where there are new problems crying out for new solutions, critical thinking skills become even more important. The new education policy alone is not adequate- all stakeholders including parents, teachers, society at large and students themselves need to change their mindsets. Risk-taking as a behavioural attribute has generally been suppressed in us right from a young age. “Don’t do this or you might hurt yourself” or “Don’t do that because it might damage the object” have been a part of our growing up years; we generously proffer the same advice to our children, and so the cycle continues.

This needs to change so that our youth are not afraid to take calculated risks. I am not advocating that they take wanton, senseless risks- but if they have a business idea, they should be encouraged to explore it and give it a shot- even when they are in say, middle school. They may fail, but their journey of pursuing their dreams will teach them so much more about life, success, failure, planning, preparation, resource management, handling people and so on than our institutions can. Just as only a tenth of an iceberg is visible above the water, 90% of failed start-up ventures remain invisible to the world. But the successful ones have ushered in so much transformation. Remember that only a few years ago, Uber, Zoom, Byju’s and Swiggy were all little more than ideas or early-stage start-ups.

Maybe the government needs to make it easier for new courses to be offered online, so that interested students, entrepreneurs, mid-career executives and professionals can expand their repository of skills- and in the process, also get awarded a certificate, diploma or even degree. The digital ecosystem is already a powerful catalyst for such a step. What is needed is a “nudge” in the form of reasonable regulatory unshackling to set up virtual universities, for example.

Innovation Ecosystem:

Depending on the idea and the problem it seeks to solve, the seed capital needed may vary from a few thousand to several lakhs. Not everyone will have access to the resources needed to set up a company and develop solution prototypes. But this does not mean these youngsters should not be given a fair opportunity. Some of the best ideas for solving our country’s problems come from young people.

The other day, I watched a video on the solar-powered ironing cart designed by Ms. Vinisha Umashankar, a fourteen year-old girl from Tamil Nadu. For a country like India, this is a great solution for three reasons. First, we have adequate sunlight throughout the year. Second, many people get their clothes ironed by people who use coal to heat their irons- and even this coal burning is a source of air pollution. Third, providing such services is a source of livelihood for many people in urban India. How she got thinking about this solution and how various entities got together to refine her prototype makes for interesting reading.

But not everyone will be as fortunate as young Vinisha, who seems to have had access to a supportive ecosystem through her school. To democratize access to resources, we need the government and the private sector to set aside more funds as “risk capital”. There are already several schemes at the central and state government levels, but awareness is limited. Teachers themselves do not have the necessary information to guide their students and help them apply for such funding. I am aware of executives who mentor and coach youngsters through NGOs and other social initiatives. I salute the people doing this and invite more people to volunteer.

For some years now, my colleagues and I have been assisting young entrepreneurs (on a pro bono basis) to give them advice and provide guidance on the legal aspects of setting up an entity in India, securing their IPR, etc. The Fox Mandal Foundation runs an early-stage incubation center in Bangalore. If you know of any start-ups looking for office space, legal assistance and mentorship, do ask them to contact me.

Regulatory Reforms

Entrepreneurs (and even established businesses, for that matter), spend inordinate amounts of time on seeking regulatory approvals and thereafter, on ongoing compliance. A certain amount of regulation is necessary- and in fact, desirable. But needless process delays (and instances of corruption) only cause frustration. For example, in today’s digital environment, it should be possible for company incorporation procedures to be completed within two business days. To be fair, the government has been taking steps to improve the “ease of doing business in India”. But more needs to be done- both by the central government and individual state governments.

Social Support

Not every startup idea will succeed. In fact, if history is anything to go by, 8 out of 10 will probably fail. This is where society at large has a role to play. Don’t chide or deride youngsters you know who have turned entrepreneurs and failed. If you have not done it yourself, you have no right to comment on others; at least they had the courage to take that risk. Perhaps this mindset should extend to parents preferring to give their children in marriage to those with “secure jobs”- which entrepreneurship is definitely not.

Unless we empower our youth to be bold and take calculated risks, we cannot expect India to transform at a pace that meets our aspirations. In this context, Gurudev Rabindranath Tagore’s famous lines, “Where the mind is without fear and the head is held high…”, take on a whole new meaning. We need our youth to be able to boldly take calculated risks and if they fail, move on to the next idea or do something different, without feeling like misfits, failures or under-achievers.

I wish you a happy new year!

Unless we empower our youth to be bold and take calculated risks, we cannot expect India to transform at a pace that meets our aspirations. In this context, Gurudev Rabindranath Tagore’s famous lines, “Where the mind is without fear and the head is held high…”, take on a whole new meaning. We need our youth to be able to boldly take calculated risks and if they fail, move on to the next idea or do something different, without feeling like misfits, failures or under-achievers.

Image Credits: Photo by Diana Parkhouse on Unsplash

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WhatsApps New Policy Changes – Engrossment or Entrapment?

Recently, there has been quite a brouhaha on WhatsApp’s policy changes that are slated to be effective from February 2021. Since WhatsApp is a household name when it comes to important and easy communication for over 200 million Indian subscribers, i.e. approx one-sixth of the Indian population, any modification in their Terms of Service and Privacy Policy would of course be intriguing and have huge ramifications across the country. Hence, policy changes affecting the users should have ideally been introduced after thorough deliberation and winning consumer credence. However, Whatsapp has preferred to impose this document on Indian consumers..

The new conditions are applicable to all WhatsApp users, for the services offered by WhatsApp LLC located in Menlo Park, California. However, services to the European region would come under WhatsApp Ireland Ltd. and European users would have to agree to separate Terms of Service and Privacy Policy. In short, for all non-European users of WhatsApp, the terms would be binding. WhatsApp has already started pushing for acceptance of the new Terms of Service and Privacy Policy when we open the application, and all Indian users are necessarily required to agree to them to get uninterrupted service.

The key element in the new Terms of Service is that WhatsApp is seeking consent to merge their services with other Facebook Group Companies. However, Whatsapp has now moved on to become a payment intermediary that enables sending and receiving money rather than a mere voice messaging, audio and video call application that it originally was. Since WhatsApp is now a business service provider offering financial intermediation services and a channel for communicating with businesses in India, it is required to comply with the provisions relating to Consumer Protection Act and other applicable laws in India. However, strangely the Terms of Services mentions that the applicable laws would be the laws of the State of California, and the forum for all dispute resolution would be the District Courts of Northern District of California or State Court located in San-Mateo County in California. Essentially, by this clause, Whatsapp is forcing the Indian users to concede the jurisdiction of a foreign court and foreign law.

Further, a company that owns, operates, or manages digital or electronic facilities or platforms for electronic commerce becomes an e-commerce entity. A company that owns, operates or manages digital or electronic facilities or platforms for electronic commerce becomes an e-commerce entity. When WhatsApp becomes a business service provider under Facebook Group Companies, it indirectly comes under the definition of an e-commerce service provider. Due to its unity in control with Facebook Group Companies, whether the services offered by Facebook Group Companies will be considered as services from a single source emanating from WhatsApp is something which requires deeper study. However, a prima facie inspection suggests that once these businesses start, WhatsApp and its group companies together could come under the classification of either an inventory e-commerce entity or a marketplace e-commerce entity depending on how they finally merge these businesses and offer it as a single service. In any case, the Terms of Service offered should be in accordance with Consumer Protection (E-commerce) Rules, 2020. As per the Rules, e-commerce service can be offered only by an Indian Company or a foreign company duly compliant with the Indian laws. However, the Terms of Service released by WhatsApp has no mention of any other Indian entity. News reports say WhatsApp has reportedly set up an Indian company called WhatsApp Application Services Pvt Ltd. but the Terms of Service has not linked or referred to that entity in any manner.

Moreover, as per the Rules, an e-commerce entity shall have an adequate grievance redressal mechanism including a separate grievance officer. However, strangely there is no such grievance mechanism provided for Indian users and no grievance officer has been stated to have been appointed. On the contrary, it is forcing consumers to seek redressal by approaching a foreign court in California under Californian laws. It is also imperative to note that linking Facebook Group Companies with WhatsApp services, sharing user data and forcing consumers to avail Facebook Group Company Services amounts to an unfair trade practice.

In addition, linking their services and enabling WhatsApp to be integrated with Facebook Group Companies should also be looked at in the perspective of Competition law, because the same is a unilateral act on the part of WhatsApp where its users are compelled to share their data with other businesses, which is an abuse of dominance and this activity may come under “combination”. A deeper scrutiny under the Competition Act is thus warranted to prevent the abuse of dominance. It is interesting to note that in response to the scrutiny of the European merger regulator some time back, while considering Facebook’s acquisition of Whatsapp, it was specifically assured by Facebook, that merging the subscriber data of these two services was not possible. In contrast, their new terms of services and the privacy notice are clearly against this submission and probably that is the reason that they have kept the terms for EU users intact.

The changes made in the Terms of Service also suggest that they might no longer be able to claim exemption from liability under §. 79 of the Information Technology Act or Information Technology (Intermediary Guidelines) Rules because their own affiliated entities are offering goods and services through this platform. In such case they are not mere conduit for business rather actual business provider. Hence, the changes made in the Terms of Service give a prima facie view that WhatsApp will no longer able to claim any benefits under §. 79 of Information Technology Act and will become an active business service provider.

On the privacy law perspective, if we read the modified WhatsApp Privacy Policy, it essentially takes away the entire privacy of users and enables the platform to provide all user data of every kind to Facebook Group Companies and third-party service providers. It enables them to pump advertisements and make marketing of Facebook services and third-party services, which grossly exceeds the essential purpose for which people joined WhatsApp. Even from a plain reading, the consent that they are seeking is excessive and will not come under any of the legitimate grounds for which data can be collected and shared as per globally accepted privacy principles. They have expressly stated that the data can be stored wherever they like and can be transported to wherever they desire. Such blanket permissions essentially vitiate the concept of privacy in all manners.

WhatsApp has, in recent years, become the common communication medium among the public at large and any changes in the business scheme has a widespread repercussion. It has become an essential service and yet, has made a unilateral dictation of its Terms of Service without giving its Indian users any choice and without acquiescing to Indian Courts and Indian Jurisdiction. The apparent laxity in complying with Indian laws is worrisome and require further inspection. Despite being one of the largest subscriber territories, WhatsApp LLC has made no effort to be compliant with Indian law. If this omission is intentional then Indian authorities and the public at large should force them to revisit the Terms of Service ad Privacy Policy to make it more legally compliant with the IT Act, Consumer Protection Act, Completion law, and privacy principles and with other relevant Indian laws. Whatsapp is duty-bound to protect the interest of Indian subscribers.

The new conditions are applicable to all WhatsApp users, for the services offered by WhatsApp LLC located in Menlo Park, California. However, services to the European region would come under WhatsApp Ireland Ltd. and European users would have to agree to separate Terms of Service and Privacy Policy. In short, for all non-European users of WhatsApp, the terms would be binding. WhatsApp has already started pushing for acceptance of the new Terms of Service and Privacy Policy when we open the application, and all Indian users are necessarily required to agree to them to get uninterrupted service.

References

Image Credits: Photo by Rachit Tank on Unsplash

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Guide to Income Tax Deduction from Salaries for the F.Y. 2020-21

Circular No 20/2020 (“the Circular”) was issued on 3rd December 2020 to provide procedures to be followed by employers for deducting Income tax (TDS) from the salary income of the Employee for Financial Year (F.Y.) 2020-21 relevant to Assessment Year (A.Y.) 2021-22 under section 192 of the Income tax Act, 1961 (“the Act”).

 

The guidelines/instructions laid down in the Circular are not exhaustive and in case of any doubt, reference may be made to the relevant provisions of the Act or the Income tax Rules 1962 (“the Rules”).

Here is a summary of the detailed Circular:

Rate of Tax:

The Circular notifies the rate of tax to be applied (depending upon the age of the Employee) to calculate Income tax of an individual on the income chargeable under the head “Salaries”. The tax so calculated is increased by applicable surcharges, if any, and Health and Education Cess. The tax on income under the head “Salaries” is to be calculated at the applicable rate or 20%, whichever is higher, as prescribed u/s. 206AA, in case of non-furnishing of Permanent Account Number (PAN) or Aadhar by the Employee. The Circular reiterates the allowability of Aadhar instead of PAN, in line with the Budget 2020 announcements, as valid compliance for the purpose of Section 206AA of the Act.

Finance Act 2020 had prescribed the choice of two alternate rates of tax i.e., old tax regime and the new tax regime for Individuals, as per their discretion. As such, an Individual / Assessee has the option to choose between the Old Regime i.e., Normal rate of tax or New regime i.e., Concessional rate of tax prescribed u/s. 115BAC of the Act, whichever is more beneficial to them.

Section 115BAC is an optional provision applicable to Individual and HUF, providing a concessional rate of tax, subject to the condition that the total income of the assessee shall be computed without specified exemptions or deductions, set off a loss or additional depreciation.

Further, in case of a person having income from business and profession, he would be required to exercise the option in the prescribed manner on or before the due date specified u/s. 139(1) of the Act. Such an option, once exercised, shall be applicable to all subsequent assessment years. However, the option once exercised can be withdrawn only once and such person shall never be eligible to exercise the option again unless such person ceases to have income from business and profession.

CBDT Circular No C1/2020, dated April 13, 2020 required an employee to intimate to his employer about the option he wishes to exercise between the old and the new tax regime, during each previous year and accordingly the Employer was required to calculate tax on the income of the employee. However, if no such intimation was given by the employee, the employer would have to make the TDS deduction without considering provisions of Section 115BAC. The intimation so made shall be only for the purposes of TDS during the previous year and cannot be modified during the year.

Method of Tax Calculation on Salary and Perquisite:

The Circular requires an employer to determine the estimated annual income under the head “Salaries” and calculate income tax on the same, by applying the applicable tax rate, based on the option chosen by the employee, as discussed above. The tax is to be then deducted at the applicable rate at the time of payment of salary to the employee.

No tax is to be deducted if the estimated salary income, including perquisite, does not exceed the basic exemption limit as provided by the Finance Act, 2020.

Also, the employer has been given an option to pay tax on the non-monetary perquisites given to the employee. To calculate tax on non-monetary perquisites, the Circular directs the employer to calculate the ‘average rate of tax’ and apply the said rate on the non-monetary perquisites to calculate tax on the same. The tax so paid by the employer based on the said calculation would be deemed as the TDS made from the salary of the employee.

As per Section 192(1C), an ‘eligible start-up’ as referred to in section 80-IAC, responsible for paying any income in the nature of perquisite u/s. 17(2)(vi) [Employee stock option plan or sweat equity shares] relevant to A.Y. 2021-22 or thereafter, is required to deduct or pay tax on such income within 14 days –

  1. After the expiry of 48 months from the end of the relevant A.Y.; or
  2. From the date of sale of specified security or sweat equity share by the assessee; or
  3. From the date of the assessee ceasing to be an employee,

whichever is the earliest, based on rates in force for the financial year in which the said specified security or sweat equity share is allotted or transferred.

More than one Employer:

In the case of more than one employer, the Circular requires the employer to deduct TDS on the aggregate income, including the salary received from former/another employer. The current employer is under the obligation to obtain details of income under the head “Salaries” due or received from former/other employer and deduct tax on the aggregate of such amount. The current employer is required to obtain such detail from the employee in writing and duly verified by the former/other employer.

Salary paid in Advance or Arrears:

In case of Salary paid in Advance or Arrears, the employee is entitled to claim relief u/s. 89 of the Act. The employee is required to furnish such particulars in Form No. 10E, duly verified by him, to the person responsible for deducting TDS and upon receipt of such information, the Employer is required to compute the said relief.

Income from other head:

The employer is required to consider the details of any other income submitted by the employee for the purpose of calculating the tax on salary. However, in case of loss, only loss under the head “Income from House Property” up to a maximum of Rs. 200,000 in a year can be considered and any other loss is to be ignored.

The employee is required to submit information regarding the computation of income and evidence of payment of interest under the head “Income from House Property” in Form 12BB.

(Notification No 36/2019 dated April 12, 2019, allows an employer to report only Income under the head “Income from House Property” and “Income from other sources”. Hence, any income under the head “Income from Business and Profession” and “Capital Gains” has to be ignored for the purpose of calculating TDS under the head “Salaries”)

Adjustment for excess or shortfall of deduction:

Section 192(3) of the Act allows the employer to adjust the shortfall or excess of tax deducted for any month in the subsequent months of the same financial year. There is no compulsion to deduct tax equally over the 12 months period.

Salary Paid in Foreign Currency:

In case of salary paid in foreign currency, the value of salary must be calculated by applying the “Telegraphic transfer buying rate”, prevailing on the date on which tax is required to be deducted at source, for the conversion of such currency and tax is to be calculated on the said converted value.

Person Responsible for deducting tax and their duties:

The Circular reiterates the provisions regarding the responsibility of the employer to deduct tax from the salary and emphasizes on timely deposit of TDS with the Central Government, furnishing of TDS return and the issue of Form 16, within the due dates as tabulated below:

Month Original Due Date Extended Due Date
April to June 31st July 2020 31st March 2021
July to September 31st October 2020 31st March 2021
October to December 31st January 2021 31st January 2021
January to March 31st May 2021 31st May 2021

The Circular also reminds about the penal consequences in cases of failure in payment of TDS, filing of TDS return, issuing certificate, or furnishing incorrect information, as prescribed in the Act.

  • TDS deducted for the month is to be deposited by the 7th of the subsequent month and 30th April of the subsequent financial year for the month of March in case of Non-Government Employer.

  • Interest @ 1% p.m. or part of the month is payable for non-deduction of TDS, from the date of which such tax was deductible up to the date of actual deduction.

  • Interest @ 1.5% p.m. or part of the month is payable for delayed payment of TDS from the date on which tax is deducted up to the actual date of payment of tax.

  • Delay in filing TDS return attracts penalty of Rs. 200 per day u/s. 234E, up to a maximum of the amount of TDS for the relevant quarter.

  • Penalty of Rs, 10,000 which may extend to Rs. 1,00,000 u/s. 271H for failure in furnishing statements or furnishing incorrect statements.

In case the employee has submitted a lower deduction certificate obtained from the income tax authorities, the employer is directed to deduct TDS at the rate mentioned in the certificate or deduct no TDS in the case of NIL rate, instead of the applicable tax rates.

TDS on Income from Pension:

In the case of pensioners who receive a pension from nationalized banks, not being family pension paid to the spouse, the instruction contained in this Circular would apply in a similar manner as they apply to salary income and TDS will be computed in the same manner as applicable in case of salary income. Further, all branches of the banks are bound u/s. 203 to issue a certificate of TDS in form 16 to the pensioners.

Refund of TDS in case of Non-Residents where TDS is borne by Employer:

Salary payment to non-residents for services rendered in India is regarded as income earned in India and is accordingly taxable in India. In cases where the non-resident is tax equalised and Indian taxes are borne by the employer, if any refund becomes due to the employee after he has already left India, by way of any order and the employee has no bank account in India, then the refund can be issued to the employer as the tax has been borne by it (Circular No 707 dated 11-07-1995).

On a separate note, in the case of non-residents, the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment, is to be regarded as income earned in India.

Computation of Income under the head “Salaries”:

Whereas the first half of the Circular deals with clarifications regarding tax calculation, procedural requirements and penal consequences, the latter part explains the computation mechanism provided under the provisions of the Act. The Circular reiterates the definition of Salary, Perquisite and Profit in Lieu of Salary. It also explains the computation methodology for determining the value of perquisite and to tax the same.

Perquisite on Motor car provided by Employer:

The perquisite valuation in case of motor car provided by employee is tabulated below:

The Circular has reproduced the valuation mechanism for various other perquisites apart from the few mentioned above. The details of the same along with the relevant para reference is tabulated below for easy reference:

Incomes not included under the head salaries:

Para 5.3 of the Circular lists down the incomes which are exempted or is not included under the head “Salaries”. The list of such income is tabulated below for ready reference.

Para 5.3.16 of the Circular states that in the case of assessee opting for concessional tax regime under section 115BAC the assessee shall be entitled to exemption only in respect of the following allowances:

  • Transport allowance granted to an employee who is blind or deaf or dumb or orthopaedically handicapped;
  • Allowance granted to meet the cost of travel on tour or on transfer;
  • Allowance granted on tour or period of a journey to meet ordinary daily wages incurred by an employee on account of absence from his normal place of duty;
  • Conveyance allowance in the performance of duties.

Proof of Deduction and Proof of Claim for LTA Exemption:

The Circular re-emphasizes that any deduction shall be allowed only after obtaining the necessary proof or evidence of investment and expenditure as claimed by the employee in Form 12BB.

The Circular also reiterates the position that the employer shall be obliged to obtain evidence in respect of the claim of exemption for leave travel concession (LTC) before allowing the said exemption. All the relevant details along with proof shall be obtained in Form 12BB.

Due to the ongoing pandemic and nationwide lockdown resulting in disruption in transport services, employees have been unable to avail LTC. In view of this and with an intent to boost consumer demand the Government has, vide Press Release dated 29th October 2020 announced a relief package both for Government and private sector employees to avail LTC exemption. The said relief expands the scope of LTC exemption to include the purchase of specified goods/services (during the period 12th October 2020 to 31st March 2021) worth three times the fare for availing the one time leave.

HRA Exemption and Rent Payment:

The employer shall ensure to collect the PAN / Aadhar of the Landlord before allowing the claim for HRA exemption in cases where the rent exceeds Rs. 1,00,000 during the year.

In the case of an 80GG deduction claimed by the employee, the employer must obtain relevant information as required in Form 10BA, irrespective of the aggregate, before allowing the deduction.

Deduction U/CH VIA:

The Circular has reproduced all the exemptions and deduction under CH-VIA which are available to an employee and that needs to be considered while calculating TDS under the head “Salaries”.

With respect to deduction u/s. 80TTA and 80TTB, the same would be allowed only to the extent of income reported by the employer in Form 12BB, subject to the prescribed limit specified in the relevant section.

We have tried to provide a summary of the key provisions in the Circular. For detailed reading, Click here: Circular No 20/2020 dated 03-12-2020.

Section 115BAC is an optional provision applicable to Individual and HUF, providing a concessional rate of tax, subject to the condition that the total income of the assessee shall be computed without specified exemptions or deductions, set off a loss or additional depreciation.

References

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Contrasting Orders on Statutory Licensing for Broadcasting of Sound Recordings and Underlying Works

The Hon’ble Intellectual Property Appellate Board (“IPAB”), on the 31st of December, 2020, passed a landmark ruling (“IPAB Order”) in a proceeding under section 31D of the Copyright Act, 1957 (“Act”) wherein it fixed separate statutory royalty rates to be payable to owners of sound recordings and underlying works for the radio broadcast of musical works and sound recordings, and underlying works.

However, in less than a week since the IPAB order, the Hon’ble Delhi High Court acted in stark contrast to the above IPAB order, when it disposed-off two long-pending disputes of statutory licensing of sound recording and underlying work i.e., The Indian Performing Right Society Ltd (“IPRS”) vs. Entertainment Network (India) Ltd (“Radio Mirchi”) [CS(OS) 666/2006] AND Phonographic Performance Ltd (“PPL”) & IPRS vs. Cri Events (P) Ltd & Ors [CS(OS) 1996/2009].

The said order ruled that the Act recognizes separate copyright in a sound recording besides the copyright in the literary (lyrics) and musical works (“music notes”) (collectively referred to as the “underlying works”), and when sound recordings are broadcasted, the underlying works are not considered to be utilized independent of the sound recording, therefore, a separate license for communicating the underlying works is not required.

Brief Facts of the Case

IPRS vs Radio Mirchi

Radio Mirchi acquired a license from IPRS to broadcast sound recordings in seven cities, however, apart from the seven cities for which Defendant had acquired a license, it also started broadcasting in three new cities. It was the case of the IPRS that Radio Mirchi infringed the public performance rights of IPRS by broadcasting in three new cities without obtaining a license to do so.

IPRS & PPL vs Cri Events

This was a rather straightforward case, where IPRS and PPL jointly sued Cri Events, an event management company for playing music without obtaining a license from the Plaintiffs.

The contention of the Plaintiff(s)

The primary contention of the IPRS was that it is a registered society for authors, composers, and publishers of Indian literary and musical works, whereas, PPL is a registered society for music companies. Since, both the societies are registered for different categories, and exploitation of the sound recordings also implies exploitation of literary and/or musical works forming part thereof, license for both the work i.e., sound recording as well as the underlying work needs to be acquired.

The Plaintiff also contended that copyright in the underlying work runs parallel to the copyright in a sound recording and hence the exploitation of such sound recording would necessarily invoke the right in the underlying works as well.

Plaintiff also contended that the 2012 Amendment to the Act which granted the right of continuous royalties to the author of underlying works irrespective of the assignment of the sound recording, is retrospective in nature.

Observation of the Court

Underlying works are part and parcel of Sound Recording – Not exploited separately

With respect to the claim that the copyright subsists in the underlying work independent of the sound recording, the Hon’ble Court ruled that the sound recording is not merely a sub-total of lyrics and musical notes alone, and it includes a voice, lyrics, musical notes, arrangement of all three elements in a certain way to sound appealing to the human ear, making the Sound Recording in an entirely new set of works that incorporates many works, including lyrics and musical notes. The Court further held that even the statute under Section 2(z) of the Act recognizes sound recording as the work of joint authorship of multiple authors and the Act recognizes separate copyright in a sound recording besides the copyright in the underlying works.

2012 Amendment to the Copyright Act is merely clarificatory in nature – Section 19 (10) does not change the interpretation and application of the law

The provision of law as existed before the amendment was that once the authors of the underlying work consented to the incorporation of their works in the sound recording and agree to vest separate copyright in a sound recording, no infringement of the underlying work can be claimed for communication of the sound recording to the public. In the view of the Court, this provision remained unchanged even after the amendment of 2012 since the transfer of ownership and economical rights were the very basis of assignment.

At this point, it is necessary to refer to section 19 (10) of the Act which provides that assignment of copyright in any work to make a sound recording that does not form part of any cinematograph film shall not affect the right of the author of the work to claim an equal share of royalties and consideration payable for any utilization of such work in any form.

The Court while interpreting “any form” as any form other than sound recording ruled that the provision does not mean that utilization of the work as embodied in the sound recording also entitles the owner of the copyright in underlying work to demand an equal share of royalties and consideration payable for the sound recording. The Court opined that to interpret the provision otherwise would make other provisions of the Act redundant which authorizes the owner of sound recordings to communicate it with the public without any license and/or permission from the authors of underlying marks. Hence, section 19 (10) of the Act to be read as to mean right to receive royalties for the exploitation of underlying work in any form other than sound recording.

What came to the aid of the Court’s interpretation was that Section 19 (10) of the Act only covers sound recording not being part of a cinematographic film, whereas, the Plaintiff has explicitly submitted that the sound recordings form a major part of the Indian film industry. However, the reasoning doesn’t hold good since similar provision has been added under Section 19 (9) of the Act in relation to cinematographic films.

This interpretation, effectively meant that, in the case of a live performance of songs incorporating the literary and musical works of members of IPRS, even if such songs also have a sound recording, for such live performance, a licence from IPRS will be necessary. Hence, in the case of CS (OS) 1996/2006, Defendant’s act of communicating the underlying work through live performance in the event amounted to infringement of the Plaintiff’s copyright.

Final Order: Right to Receive Royalties made Redundant?

In light of the above reasoning, the Court dismissed the first case in favour of the Defendant and the second case in favour of the Plaintiff by holding that:

  • In case the sound recordings are to be communicated to the public, i.e., play them, or broadcast them, a license from PPL is essential;
  • In case the underlying works are to be communicated to or performed in the public, independently, through an artist, the license of IPRS is essential; and
  • in case there is an event involving performances or communication of works of both kinds to the public, the license or authorization of both, PPL and IPRS is essential;

The Delhi High Court’s Interpretation of Section 19 (10) defeats the purpose of the Amendment

The Hon’ble High Court Order neglect the very basis for which the 2012 Amendments were introduced, which is evident from the ‘Statement of objects and reasons’ appended to the Copyright Act (Amendment) Bill 2010 to be read as:

  1. Clarify that the authors would have rights to receive royalties and the benefits enjoyed through the copyright societies;
  2. Ensure that the authors of the works, in particular, author of the songs included in the cinematograph films or sound recordings, receive royalty for the commercial exploitation of such works; and
  3. introduce a system of statutory licensing to broadcasting organisations to access to literary and musical works and sound recordings without subjecting the owners of copyright works to any disadvantages.

Hence it is within the legislative intent to treat the underlying works and the sound recording independent from one another, and interpreting otherwise will only defeat the purpose of the Amendment.

The Delhi High Court’s Interpretation of Section 19 (10) makes Section 31D Redundant

The provisions of Section 13(4) read with Section 14(a)(iii), 4th proviso to Section 18, Section 19(10) of the Act along with Section 31D clearly mandate the author’s right to receive royalties for the exploitation of underlying work by third parties, irrespective of any assignment. The reading of section 31D (2) of the Act is clear, i.e., The broadcasting organisation… shall pay to the owner of rights in “each work” royalties in the manner and at the rate fixed by the Appellate Board. Even on a plain reading of the heading of Section 31D and the provision of Section 31D (2), we can understand that the sound recording, and the underlying works are treated separately for the purpose of statutory licensing. Hence, again, it is the interpretation of the Hon’ble Delhi High Court, which makes the 2012 Amendment, redundant.

Appropriate to say single License to exploit but separate Royalties payable.

The IPAB in its analysis of Section 19 (10) of the Act held that the amendment resulted in the bifurcation of the underlying works embodied in the sound recording into independent and distinct rights, allowing in rights in sound recording and rights of the authors of the underlying works to operate independently in their own field as per the operation of amended provisions. It follows that while only the Producer can exploit the distinct rights existing in the sound recording, the authors can exploit the underlying work as a shared right.

Conclusion: The Puzzle Ahead

The contrasting orders of the Hon’ble Delhi High Court and the IPAB in less than 5 days have unevenly painted the author’s statutory right to receive royalties under section 31 D of the Act. Going forward, the orders will only cause hurdles for Music Companies, Authors, Artists, Copyright Societies, and any other interested parties to such music agreements.

It was ruled in M/s. Shreedhar Milk Foods Pvt. Ltd. vs. Mr. Vikas Tyagi and The Registrar of Trade Marks, 2013 (55) PTC 247 (IPAB) that the IPAB’s powers in relation to its original and appellate jurisdiction are parallel to that of High Court as enshrined by Article 227 of the Constitution of India, 1950. Hence, in principle, neither of the order can prevail over the other, and since the orders are passed by a Single Judge Bench, we await to see if the interpretation of either the order is challenged before a larger bench of the Hon’ble Delhi High Court or even before the Supreme Court in the coming days.

Apart from this, another viable solution shall be a further amendment to the language of Section 19 (10) of the Act either ratifying the interpretation of the Hon’ble Delhi High Court, or confirming its initial intent that the author’s right to receive royalties for the exploitation of underlying works, in any form, including “sound recording” remains unaffected by any assignments.

The contrasting orders of the Hon’ble Delhi High Court and the IPAB in less than 5 days have unevenly painted the author’s statutory right to receive royalties under section 31 D of the Act. Going forward, the orders will only cause hurdles for Music Companies, Authors, Artists, Copyright Societies, and any other interested parties to such music agreements.

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A Look Back at the Developments in Copyright Laws In the year 2020

While the world grappled with the Covid-19 pandemic and its effect, the Indian judicial setup kept steady with courts functioning virtually and providing relief in urgent matters, although a few matters were adjourned and filing dates were postponed. This year, therefore, continued to witness fascinating cases in the field of Intellectual Property, especially with respect to Copyright and disputes related to cinematographic films released on OTT platforms. We bring to you the key Copyright related updates in India for one of the most overwhelming year of the decade.

1. Legislative Developments

Notification by the Copyright Office Seeking Inputs: Amendments to Copyright Act, 1957

The National Association of Software and Service Companies (NASSCOM) had issued a notification informing the industry stakeholders that the Copyright Office was seeking comments on any suitable amendment that needed to be carried out to the Copyright Act, 1957, keeping in view the technological advancement and increased use of internet and digitalization.

IPAB’s Notice on Fixing Royalty for Radio Statutory License

The IPAB, on an application made by Music Broadcast Ltd. and other “radio” broadcasters, had issued a notice communicating its intention to fix royalties for the broadcasting of copyrighted content through radio and had sought suggestions from owners of Copyrights, any broadcasting organization, radio broadcaster or any other interested persons regarding the same.

NDLI Published a Draft of India’s First Copyright Guide for Indian Libraries.

The National Digital Library of India (NDLI), a project under the Ministry of Education that seeks to provide access to educational content available in digital libraries across the globe, issued a draft Copyright Guide for Indian Libraries. The guide has been prepared to ensure access to content by the end-user and protect the rights of the knowledge creators at the same time. The guide lists down the obligations of the librarians that would mitigate their chances of receiving alleged copyright infringement notices and ensure the smooth functioning of the libraries.

Public Notice issued by Copyright Office w.r.t. the lockdown

The Copyright Office also issued a public notice dated 16 March 2020, which stated that all copyright matters which were listed from 17 March 2020 to 31 March 2020 had been adjourned and the same were to be rescheduled at a later date.

2. Case Laws

A quick rewind on the prominent judgments of the year:

Sameer Wadekar & Anr. v. Netflix Entertainment Services Pvt. Ltd. (2020 SCC Online Bom 659)

The plaintiff sought an interim injunction against the release of the web-series “BETAAL” on the ground that he noticed at least 13 similarities between the web-series and the Plaintiff’s script titled “VETAAL”. The Bombay High Court refused to restrain Defendant from releasing the web series on the ground that there existed only similarities in the concept of the two works and not in the theme, plot and storyline. It was reiterated that copyright subsists only in the expression of an idea and not on the idea itself. The Court also noted the fact that while Plaintiff claimed his work was original, he failed to establish that the defendant had access to the Plaintiff’s work, which is paramount to determine claims of plagiarism.

Vinay Vats v. Fox Star Studios India Pvt. Ltd. & Anr.

The Plaintiff approached the Delhi High Court seeking an interim injunction against the release of the movie Lootcase which the Plaintiff claimed to be a copy of his script for the film Tukkaa Fitt. Much like in the case of BETAAL and VETAAL, the Court ruled that copyright does not subsist in the idea itself, but it is confined to the expression of the idea. The Court observed that the plot cannot be the exclusive ownership of the Plaintiff as it can be expressed in a number of ways. Moreover, since the Defendant’s work had considerable dissimilarities from the Plaintiff’s work, the Court refused to grant any relief to the Plaintiff.

Zee Entertainment Enterprises v. Ameya Vinod Khopkar & Ors.

The Plaintiff sought an ad-interim injunction against the release of the film “De Dhakka 2” on the ground that it had been assigned the negative rights in the original film “De Dhakka” by the original creator. The Bombay High Court refused to entertain the plea since the assignment deed pertained only to the original work and the right to adaptation and reproduction in the form of a sequel or prequel had not been assigned to the Plaintiff. The Court also observed that the script, screenplay, concept, were considerably different from the original work, making it an independent and separate work.

Jagran Prakashan Ltd. v. Telegram FZ LLC & Ors

The Plaintiff, a well-known Hindi language daily newspaper offering news content via print and digital circulation, sued Telegram, a Dubai based instant messaging app for the unauthorized circulation of the Plaintiff’s e-paper in PDF form by several unidentified users of the Defendants, thereby infringing upon the trademark and copyright subsisting in the said e-paper.

It was the case of the Plaintiff that several channels and usernames containing the term “Dainik Jagran” were created in the Defendant’s Platform and the users stared circulating pdf copies and e-article from the Plaintiff’s website. Plaintiff further contended that the Defendant, as an intermediary, failed to discharge its duties of due diligence, when it permitted reproduction, adoption, distribution, transmission and dissemination of Plaintiff’s content.

The Delhi High Court, agreeing with the Plaintiff’s submissions ruled that the Defendant had failed to exercise due diligence, which required the Defendant to block the unidentified users within 36 hours of being aware of such infringing acts of the users. Hence, the Court ordered an ad-interim injunction against the Defendant for causing severe financial loss to the Plaintiff and infringement of trademark and copyright held by the Plaintiff due to the illegal circulation of the content of the e-newspaper.

Super Cassettes Industries Private Limited and Ors. Vs. Nandi Chinni Kumar and Ors

Defendant No.1, a soccer player entered into an agreement with the Plaintiffs, a music label and film production company, allowing them to produce a biography on him, for valuable consideration. Following this, the Plaintiff registered the script of the movie along with the title “Slum Soccer” with the Telangana Cinema Writers Association. Soon after the registration of the script with the Writers Association, the Plaintiff came across the story “JHUND” which was the storyline of the Coach (Defendant 2) of Defendant 1.

To restrain the Defendants from proceeding with the production of the infringing movie “Jhund”, the plaintiff filed a suit of injunction on the ground that continuing with directing the film would constitute copyright infringement since he owned the concept, thought, characterization, image, identity and expression of the life story of Defendant 1.

After watching the teaser of the Defendant’s movie “Jhund” the court observed prominent similarity in the plot, depiction and story with the registered script of “Slum Soccer”.Therefore, the Telangana High Court through its order dated October 19, 2020, restrained the telecast of the Amitabh Bachchan starrer ‘Jhund’ across India and abroad. The Defendants, aggrieved by this order, preferred an appeal before the Supreme Court, which agreed with the observation made by the subordinate court and refused to lift the stay ordered by the lower court. The case has brought up a significant issue with respect to whether true life events of a real person who is already in the public domain can be considered ‘property’ and whether the same would be entitled to copyright protection.

Microsoft Corporation and Ors. vs. Satveer Gaur and Ors

Microsoft Corporation, along with Adobe Systems and Quest Software (Plaintiffs) filed a suit of infringement before the Defendants, a company named ‘Chetu’ offering IT Services. It was the case of the Plaintiffs that the Defendant was using the unlicensed software programs of the Plaintiffs on its computers and offered the duplicated copies of the programs for sale, thereby causing incalculable damages to the Plaintiff’s Intellectual Properties and hard-earned goodwill.

The Delhi High Court found this an open-and-shut case since infringing copies of the Plaintiff’s software were confiscated from the Defendants, and the Court passed a decree in favour of the Plaintiff. Even though this may sound like a usual day at work for software giants fighting piracy and copyright infringement, cases like this speaks volume of the need for actions beyond just statutory and judicial remedies to tackle piracy. In the ever-growing technology-driven world, it would take a handful of clicks to illegally appropriate, reproduce, and sell software, making the author’s copyright and human labour employed behind it, fruitless.

Shivani Tibrewala vs. Rajat Mukherjee and Ors.

In yet another case of alleged plagiarism, the Hon’ble Mumbai High Court ruled that copyright does not subsist on the mere idea, but only on the expression of such an idea. The Hon’ble Court refuted the Plaintiff’s claim that the Defendant’s work “Umeed” was a substantial reproduction of her script of the play “The Laboratory” on the ground that, apart from the theme i.e., the malpractice of unethical drug testing on poor and needy individuals by pharmaceutical companies without obtaining informed consent of such individual, there was nothing in the two works which could be termed as similar.

Giant Rocket Media and Entertainment Pvt. Ltd. vs Ms. Priyanka Ghatak And Ors

Whether a true story written in a book by one of the Defendant qualifies to be considered “Original” under the requirement of the Copyright Act?

The above issue was considered a primary issue when the Plaintiff filed an infringement suit against the Defendants seeking an injunction and an ex-parte order against the Defendants. Defendant No.3 was a retired joint commissioner of CBI who was the author of the book “CBI Insider speaks: Birlas to Sheila Dikshit”, from which the Plaintiff wanted to use Chapter 7 i.e., the story of the murder of Syed Modi, and turn it into a web-series and had also sought the permission from Defendant No.3. The Plaintiff claimed that Defendant No.2 had infringed on the same idea with the help of Defendant No.1 and 3.

The court opined that since the story covered in Chapter 7 is a true story that was already a part of the public domain, the same would not have qualified as original work. However, the court was of the view that the Plaintiff cannot claim exclusive rights over the contents since it was merely a narration of the crime and prosecution. The court concluded that neither the Plaintiff has a prima facie case to seek an injunction nor did the Defendants act in a fair manner. The Delhi High Court dismissed the appeal for an interim injunction against the web-series released by Defendant No.2 and vacated the ex-parte ad-interim order.

Conclusion

The year 2020 has been yet another busy year for the music and film industry, with the Courts flooded with claims of plagiarism and copyright infringement. However, courts have been deeply disappointed to find out that a couple of those cases lacked bonafide intention from the litigants since they approached the Courts in the “eleventh hour” to seek an injunction. As we look towards 2021, we expect that copyright, music, and entertainment disputes will continue to yield decisions on such important issues as the “originality” in works based on true life events, a yardstick of difference in expression of the same underlying idea, and the need for a better regime to tackle piracy in the fast-paced digital world.

The year 2020 has been yet another busy year for the music and film industry, with the Courts flooded with claims of plagiarism and copyright infringement. However, courts have been deeply disappointed to find out that a couple of those cases lacked bonafide intention from the litigants since they approached the Courts in the “eleventh hour” to seek an injunction. As we look towards 2021, we expect that copyright, music, and entertainment disputes will continue to yield decisions on such important issues as the “originality” in works based on true life events, a yardstick of difference in expression of the same underlying idea, and the need for a better regime to tackle piracy in the fast-paced digital world.

Image Credits: Photo by Markus Winkler on Unsplash

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