Tuesday 11 October 2016

Mysteries of FCRA 2010

‘Foreign company’ & ‘Multi National Company’ continue to be treated as 'foreign source'

In the previous issue of our newsmagazine we had in our article titled: “Who is “Foreign & Who Is Not? Mysteries of FCRA 2010” made it clear that the recent amendment under Finance Act 2016 is specific only to sub-clause (vi) of Section 2(1) (j) and therefore companies within the meaning of the Indian Companies Act where more than one-half of the nominal value of its share capital is held, either singly or in the aggregate, by FIIs or FDIs will no longer be treated as ‘foreign source’. However a ‘Foreign company’ or ‘Multi National Company’ (MNC) will continue to be treated as 'foreign source'.

 However, some professionals continue to hold the view that since the intent of the Parliament was to take all foreign companies out of the purview of FCRA 2010, contributions from MNCs and foreign companies are no longer deemed foreign contribution.
We are of the view that unless Parliament specifically amends sub-clause (iii) (foreign company) and sub-clause (v) (multinational corporation) of Section 2(1)(j), both foreign companies and MNCs should be treated as ‘foreign source’ under FCRA 2010.

The Finance Minister’s speech only highlights the more important proposals of the budget. Those are not the enactments by the Parliament. The law, as enacted, is what is contained in the Finance Act. Only after it is legislated upon by the Parliament, that a proposal constitutes the authoritative expression of the legislative will of Parliament!

Even recently, the Supreme Court of India in the case of Amin Merchant vs. Chairman, Central Board of Excise & Revenue (Civil Appeal Nos. 4676 - 4677 of 2013) has observed: “The speech of the Finance Minister and the financial/budget proposals duly passed by Parliament are two separate and distinct documents; the law as enacted is what is contained in the Finance Act after it is legislated upon by the Parliament. Budgetary proposals constitute legislative material antecedent to the enactment of law. The Finance Minister’s speech only highlights the more important proposals of the budget. Those are not the enactments by the Parliament. The law as enacted is what is contained in the Finance Act.”

Where Finance Act 2016 is concerned, Parliament has amended only sub-clause (vi) of Section 2(1) (j) and NOT specifically amended sub-clause (iii) (foreign company) and sub-clause (v) (multinational corporation) of Section 2(1) (j) and therefore we request organisations registered under FCRA 2010 to exercise care and caution.

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