In order to overcome a funding crisis arising from widening current account deficit (CAD) the BRICS have thought of a novel idea. These nations are proposing setting up a US$ 100 bn fund which will provide financial help its member countries facing CAD crisis. All member countries will contribute to this fund and financial support will be extended to any country which faces a liquidity issue. Creation of such a fund would reduce reliance on IMF and other funding institutions. Apart from setting up of this crisis fund, BRICS nations are also toying with the idea of establishing a common development bank. This bank would meet the funding needs of the member nations.

We believe that steps such as these would enable BRICS to better cushion themselves against any external crisis. In the past, BRICS had been subject to huge currency volatility and funding crisis whenever the external environment changed. Take the case when the US decided to curb its bond buying program for instance. This led to a sharp outflow of money resulting in currency depreciation. Having a support mechanism like a pool fund as the one being proposed can go a long way in reducing excessive currency and CAD volatility amongst BRICS.

Euro area CPI increased by 0.5% y-o-y for the month of june

Consumer price inflation for the 18-country Euro zone increased by 0.5% y-o-y, for the month of June, remaining unchanged over the previous month. Sustained low inflation outlines fresh challenge for the European Central Bank facing persistent calls for a more elaborate avatar of monetary easing.    

India's external debt increase at 7% over the previous fiscal

India's external debt for FY 2013-14 came in at $440.6 bn, a 7% increase over the previous fiscal. This $32 bn increase was led mainly by the FCNR(B) swaps introduced by the RBI and increased external commercial borrowings by the banks. Short term debt stood at $89.2 bn.   

The Fed confirmed yesterday that it will not raise interest rates, in order to keep a safeguard on avoiding future financial crises. Fed chairwoman Janet Yellen issued the forceful comments at an IMF meeting in Washington, and also stated she first favors regulation and supervision to make the financial system more resistant against potential disturbances.

S. 47(xiiib)/ 47A(4): Giving of interest-free loans to partners of the LLP does not contravene Proviso (c), though it contravenes Proviso (f), to s. 47(xiiib). Capital gains have to be computed on the book value of assets transferred & not on market value

Aravali Polymers LLP vs. JCIT (ITAT Kolkata)

A private limited company namely Aravali Polymers Pvt. Ltd was converted into a Limited Liability Partnership (LLP) u/s 56 of the Companies Act and the assessee, Aravali Polymers LLP, came into existence. As per s. 58(4) of the Companies Act, the whole of the undertaking of the company stood transferred to and vested in the LLP and the company was deemed to be dissolved. One of the main assets in the company was shares of East India Hotels Ltd. The assessee also received Reserves and Surplus of Rs.3 crore of the company. The assessee gave an amount of Rs.50 crores as interest- free loan to the partners of the LLP in the same proportion as their shareholding in the company on the date of conversion. After the conversion of the company into the LLP, the said shares were sold. The resultant capital gains were offered to tax as long-term capital gains. The assessee claimed that the transfer of the assets by the company to the LLP was exempt u/s 47(xiiib). The AO held that by giving interest-free loans to the partners in the same proportion as their shareholding in the company on the date of conversion, the assessee had contravened proviso (c)& (f) to s. 47(xiiib) and that the exemption granted by s. 47(xiiib) was not available. He held that u/s 47A(4), the transfer of the said shares of EIH by the company to the LLP on conversion was assessable to tax on the basis of the market value of the shares on the date of conversion into the LLP. This was upheld by the CIT(A). On appeal by the assessee to the Tribunal HELD.

 

(i) Proviso (c) to s. 47 (xiiib) bars the shareholders of the company from receiving any consideration or benefit in any form or manner other than by way of a share in the profit and capital contribution in the LLP. This means that both the company and the LLP must exist for the shareholders of the company to receive any consideration. As, in the present case, the company does not exist after conversion, the question of a violation of Proviso (c) to s. 47(xiiib) does not arise;

 

(ii) As regards proviso (f) to s. 47(xiiib), it bars payment either directly or indirectly to any partner out of the accumulated profit standing in the accounts of the company on the date of conversion for a period of three years from the date of conversion. Here, the loans given by the assessee to its partners has been paid out of the Reserves and Surplus of the erstwhile Company. This is a clear violation of proviso (f) to s. 47(xiiib). The result is that exemption in s. 47(xiiib) is not available;

 

(iii) However, the AO’s action of invoking s. 47A(4) and of computing capital gains by adopting the market value of the shares on the date of conversion is not correct. S. 47A(4) applies to a case where the exemption u/s 47(xiiib) is available and the conditions laid down in the proviso are not complied with. However, as in the present case, the AY under appeal is the year on which the conversion took place and in that year itself, the conditions prescribed for the benefit of s. 47(xiiib) were not complied with and consequently the provisions of s. 47(xiiib) were not available to the assessee, s. 47A(4) is not attracted. Under s. 45, the market value of the asset transferred cannot be deemed to be the ‘consideration’. As the shares were transferred at the book value, the capital gains have to be computed on the basis that the book value is the consideration received for the transfer by way of conversion.

Portugal will offer a new 10-year U.S. dollar-denominated government bond, which already has a pre-sale demand above $2B. The issuance will be launched in October, and displays Portugal's new financial standing after an exit from its three-year bailout program in May. The initial price guidance for the bond is attractive to investors looking for higher yield, and will be priced 265 basis points above Treasurys, at a yield of around 5.20%.

Standard & Poor's has placed Argentina's CCC-/C long and short term currency ratings on watch.

Standard & Poor's has placed Argentina's CCC-/C long and short-term foreign currency ratings on watch, due to the likelihood of a default. "The CreditWatch placement reflects our view of at least a one-in-two probability that Argentina will not pay the outstanding $539M interest payment on the discount bonds within the 30-day grace period," says S&P. The agency has also maintained its negative outlook on the country's long-term local currency rating.