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B U S I N E S S

Ambani brothers’ spat resurfaces
Gas pact brews discontent as Anil camp alleges significant deviations

New Delhi, February 4
The Ambani brothers were back to sparring today with younger sibling Anil’s side accusing Mukesh group of “significant deviations” from an agreement to the detriment of millions of shareholders.

LIC to tap rural areas
New Delhi, February 4
The LIC today announced to take on the private players while declaring to take an initiative in the rural India to bridge the ‘insurance divide’ in the country.

Plans training arm
Mumbai: The LIC today said it is planning to have a training subsidiary to train human resource in the insurance sector.

Jet Airways to raise $800 million
Mumbai, February 4
Jet Airways said here today that it would raise $800 million through issue of international or domestic offerings.

Electrification national priority, says PM
Neyveli (TN), February 4
Terming scaling up power generation and improving transmission and distribution as a “national priority,” Prime Minister Manmohan Singh today said providing quality power at affordable cost to rural consumers was key to socio-economic development and making industries competitive.

Aviation Notes
Build new airports instead of revamping existing ones
All senior players — politicians, bureaucrats and top brass of the Airport Authority of India (AAI) — have literally transformed country’s civil aviation into uncivil aviation. In search of their pound of flesh, they have succeeded in causing insurmountable inconvenience and harassment to commuters and bring disrepute to the country worldwide.

Investor guidance
Gift to parents is tax free

Q: My father was employed in a company, which was closed some six years ago. Formally he will retire in July 2006, but there is no salary income to him for past six years. He receives around Rs 72,000 per year from the portion of his house, which is rented out.





Lindsay Lohan poses in a Calvin Klein dress at the Heart Truth Red Dress fashion show at New York Fashion Week on Friday. The annual charity show features celebrity models and guest designers to raise awareness about women’s heart disease.
Lindsay Lohan poses in a Calvin Klein dress at the Heart Truth Red Dress fashion show at New York Fashion Week on Friday. The annual charity show features celebrity models and guest designers to raise awareness about women’s heart disease. — Reuters

EARLIER STORIES

 
  • STCG and 80C
  • Housing loan
  • Inherited money


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Ambani brothers’ spat resurfaces
Gas pact brews discontent as Anil camp alleges
significant deviations

New Delhi, February 4
The Ambani brothers were back to sparring today with younger sibling Anil’s side accusing Mukesh group of “significant deviations” from an agreement to the detriment of millions of shareholders.

The source of the discord pertains to an agreement reached between the two sides for the supply of gas from Mukesh Ambani-controlled RIL’s current and future gasfields to various projects of Anil Dhirubhai Ambani Group (ADAG).

Mr J.P. Chalasani, a confidante and nominee of Anil on the Board of Reliance Natural Resources Ltd, a new company carved out from RIL for transfer to ADAG, said in a statement: “On January 12, 2006, a Gas Supply Agreement has been executed between RIL and RNRL (which was on that date under RIL’s control), with the approval of only RIL’s nominees on Board of RNRL.

“The said agreement contains significant deviations such as terms of agreement, scope of gas blocks etc, from the agreed position (when the settlement between the two brothers was reached). These deviations would substantially and adversely impact value for 23 lakh RNRL shareholders.”

Mr Chalasani asserted that steps would be taken to suitably amend the agreement executed in RNRL after ADAG got control and management of the company.

The statement follows news reports that RIL had signed the agreement to sell 28 million metric standard cubic meters per day at the rate of $3.18 per million British thermal unit.

Recalling the agreement reached between Mukesh and Anil with the approval of their mother Kokilaben on overall business reorganisation of Reliance group, Mr Chalasani said he was issuing the statement in the interest of shareholders of RNRL and “in the interests of transparency and full disclosure in view of the incomplete, incorrect and misleading reports that have appeared in the media today.”

Under the terms of the scheme of arrangement, RIL was to hand over the management and control of RNRL besides other companies to Anil Ambani after the record date of January 25, 2006, but the above transfer of control and management has not been implemented till date, he said, adding RNRL Board now consists of two RIL nominees and one of Reliance ADAG.

Giving details of the original agreement, Mr Chalasani said Reliance ADAG would get a firm supply of 28 mmscmd of gas (the base volume) from RIL after the entitlement of 12 mmscmd gas to public sector firm NTPC Ltd.

Significantly, NTPC had in December 2005 challenged RIL in Bombay High Court for not signing a firm gas supply deal and seeking significant changes in the agreement, which would adversely affect the power major.

Mr Chalasani said as per the agreement reached between the two brothers, Reliance-ADA Group would get NTPC’s share of gas in case the NTPC contract did not materialise or was cancelled.

This would take the total gas supply or aggregate base volume to 40 mmscmd, he said.

The price and commercial terms for the gas supply would not be worse than those applicable to NTPC, Mr Chalasani said, adding the agreement also provided that half of the base volume gas was committed to be supplied by RIL to the Anil Ambani group company in 2008-09 and the balance in 2009-10.

“Thereafter, from the entire future reserves of RIL (including new discoveries of gas from new explorations, and or bids as may be submitted from time to time), Reliance-ADA Group will have the first option to get 40 per cent quantity of gas (option volume gas),” he said.

The supply of option volume gas was to be at market rates, he said, adding the gas can be used for all projects of Reliance-ADAG. The gas would not be used for trading, though swapping would be permitted. Reliance-ADAG could also set up its own pipeline network for base volume of gas, he said.

“Gas supply agreements to be entered into for both the base and option volume would be in accordance with best international practices and will be such as are bankable in international markets,” he added. — PTI

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LIC to tap rural areas
Tribune News Service

New Delhi, February 4
The LIC today announced to take on the private players while declaring to take an initiative in the rural India to bridge the ‘insurance divide’ in the country.

Kicking off the golden jubilee celebrations, Chairman of the LIC, A.K. Shukla, said; “Despite stiff competition from new entrants in the market, LIC’s market share of 75 per cent in new business premium and 87 per cent in new policies in a competitive environment was testimony to the faith reposed by customers in the public sector insurance player.”

It is learnt that the LIC is contemplating to enter into separate tie-ups with National Insurance Company, Oriental Insurance, United India Insurance and New India Assurance for selling composite micro-insurance policies to the rural masses.

Unlike private insurance companies which are concentrating on urban centres, the LIC has decided to spread its wings in the rural areas.

It is planning to use the network of rural players like ITC e-choupal in remote villages in states like UP, MP, Karnataka and AP to sell its products besides focusing on high income northern India villages.

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Plans training arm

Mumbai: The LIC today said it is planning to have a training subsidiary to train human resource in the insurance sector.

“It will be a multi-partner institute for which General Insurance Corporation (GIC) and Insurance Institute of India have already shown keen interest,” Mr Shukla told reporters here on the sidelines of an exposition to mark the golden jubilee.

Mr Shukla said the corporation was also in talks with IGNOU for the training programme. — PTI

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Jet Airways to raise $800 million
Tribune News Service

Mumbai, February 4
Jet Airways said here today that it would raise $800 million through issue of international or domestic offerings.

In a notice to the Bombay Stock Exchange, Jet Airways said it would hold an EGM of shareholders on February 28 to approve the offer and issue of equity shares, global depository receipts (GDRs), American depository receipts (ADRs), foreign currency convertible bonds (FCCBs) or any other permitted securities or instruments, convertible into equity shares in one or more foreign markets or in domestic markets up to $800 million.

The EGM will also consider the enhancement of the investment limits of foreign institutional investors (FIIs), including their sub-accounts in the company up to an aggregate limit of 49 per cent from 24 per cent of the paid-up share capital of the company, subject to necessary approvals and provisions, it said.

The shareholders will also authorise the board to borrow, as and when needed, up to and not exceeding Rs 15,000 crore for funding the business.

The airline has committed itself to a $3 billion fleet expansion plan.

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Electrification national priority, says PM

Neyveli (TN), February 4
Terming scaling up power generation and improving transmission and distribution as a “national priority,” Prime Minister Manmohan Singh today said providing quality power at affordable cost to rural consumers was key to socio-economic development and making industries competitive.

“Our government is making all out efforts to improve generation, transmission and distribution of electricity so that each and every household in the country will have access to it. This is a national priority,” he said, inaugurating Neyveli Lignite Corporation’s (NLC) Rs 4,200 crore mine expansion programme here.

The PM said that power was a crucial infrastructure for socio-economic development and supply of quality power at reasonable rates would make it affordable to rural population and make Indian industries competitive. — PTI

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Aviation Notes
Build new airports instead of revamping existing ones
by K.R. Wadhwaney

All senior players — politicians, bureaucrats and top brass of the Airport Authority of India (AAI) — have literally transformed country’s civil aviation into uncivil aviation. In search of their pound of flesh, they have succeeded in causing insurmountable inconvenience and harassment to commuters and bring disrepute to the country worldwide.

The talk of building world-class airports at Delhi and Mumbai would remain a far cry for awhile as much delayed plans have hit another turbulent under-current with politicians of varying affiliations staying on different wavelengths.

The need of the world-class airports cannot be overemphasised at this juncture. But their modernisation has been systematically delayed for years. Dirty players in this sordid affair will go scot free while a few non-entities would be picked up and punished.

With litigation on justifiable grounds taking place, the modernisation plans would be further delayed and civil aviation and tourism would receive another setback. If and when the work eventually begins, it will be, as is India’s wont, undertaken in a haste to meet the deadlines leaving innumerable deficiencies, as was the case with the Indira Gandhi International Airport (IGIA), which was commissioned before it was inaugurated.

The clear skies have hardly emerged from the seasonable foggy turmoil when the man-made fog has been unleashed at Delhi and Mumbai airports. If Delhi continues to be a hub for intense political manoeuvrability, the Mumbai international airport is surrounded by slums, which spread filth and slush instead of fragrance for the arriving and departing passengers.

The agitation disturbed the rhythm of all civil aviation activities throughout the country. Kolkata was the most affected, followed by Mumbai and Delhi. If in Mumbai, there was violence, in Delhi there were road blockages and disabled and senior citizens were caused hardships. As a result, many flights were delayed inordinately. When peace descends between warring political factions, much damage to the modernisation plans, properties and reputation would have already occurred.

According to analysts, small workers on strike are less to blame than politicians and bureaucrats. A sense of discipline has to be inculcated into them before punishing junior striking staff.

Whatever may be the fate of the Delhi and Mumbai airports, the fact is that the AAI has outlived its utility because it is being governed and administered more by politicians than by workers. It indeed needs overhauling, although it has quite a few competent and knowledgeable technical officials of international reputation. If they are allowed to function freely, they are capable of developing world-class airports.

Analysts are of firm belief that many problems would be sorted out if the government concentrates on developing other airports instead of merely bothering about Delhi and Mumbai airports. Indeed, these two airports are major players and revenue earners. But they are plagued by several unforeseen problems.

Recently, Prime Minister Manmohan Singh hinted at establishing another international airport at Greater Noida. Why can’t ministry pay heed to building new international airports at Chandigarh, Agra, Lucknow and Jaipur instead of providing cosmetic touches to Mumbai/Delhi. The development of Mumbai airport is difficult because slum-dwellers staying around the periphery of the airport have direct links with the powers that-be.

India’s salvation in economy-boosting aviation and tourism would be possible only when these segments are allowed to function without undue and uncalled for interference by politicians in their day-to-day functioning.

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Investor guidance
Gift to parents is tax free
by A.N. Shanbhag

Q: My father was employed in a company, which was closed some six years ago. Formally he will retire in July 2006, but there is no salary income to him for past six years. He receives around Rs 72,000 per year from the portion of his house, which is rented out. Apart from this, he runs a kirana shop, which hardly fetches around Rs 24,000 per year. I use to send around Rs 3,500 per month (Rs 42,000 per year) to them for their needs. My income falls in 30 per cent tax slab. I invest my money in bank fixed deposits, and any income I receive from the deposits is taxed @ 30.6 per cent. Is it possible that instead of investing in my name, I invest in the name of my parents, so that interest received may not be taxed and I could use this interest to fund the part of Rs 3,500 I send them monthly?

— Pandy

A: It is a good idea to give a gift to your parents of the required amount of corpus to generate this income. Such a gift is tax free and the interest that they will get would be tax free provided their total income including the interest is below the tax threshold applicable to them.

STCG and 80C

Q. 1. My HUF account has income of Rs 2,30,000 this year, all of which is from short-term capital gains (STCG) in share trading. If I buy equity-linked savings scheme worth Rs 1 lakh, what will be my tax liability?

2. My mother, a senior citizen, will have income of Rs 1,45,000 from pension and about Rs 2,50,000 in share trading STCG. How will her income tax be calculated? Will she get any benefit if I invest Rs 1 lakh in ELSS.

— Niranjan Singh

A: 1. Deduction u/s 80C is not available for STCG but the threshold of Rs 1 lakh is available. Therefore, the tax liability would be 10 per cent of Rs 1,30,000.

2. Your mother’s normal income will come down to Rs 45,000 because of the deduction of Rs 1 lakh u/s 80C. She being a senior citizen has a threshold of Rs 1,85,000 and therefore, has a gap of Rs 1,40,000 available for deduction from STCG. The tax payable would be 10 per cent of Rs 1,10,000.

Housing loan

Q: I have taken a home loan for which EMI started from October, 2005, and am likely to get the possession of the house by March 2006. This premises is located in Indirapuram, Ghaziabad.

I am currently staying in a rented accommodation in Noida against a rent agreement valid till March 3, 2006. Can I claim both HRA exemption and housing loan rebates for AY 2006-07?

— Vikram Baranwal

A: Yes, you can, but you will have to wait until the house is ready for occupation.

Both concessions, deduction for repayment of capital and deduction of interest are allowed only when the income from house property becomes chargeable to tax. In other words, the construction should be complete, the flat should be ready for occupation and the municipal annual value be known. The interest for the years prior to the year in which the property was completed, shall be deducted in equal instalments for the year during which it was completed and each of the four immediately succeeding years.

If the construction or acquisition is completed anytime in a FY, the interest paid during the entire FY is deemed to be the normal interest though a part of the FY is pre-construction period.

You can also claim HRA exemption against rent paid for your accommodation in Noida near your place of work. The exemption is related to your rent paid and the owning of a house in Ghaziabad.

Inherited money

Q: I am an NRI and have inherited Rs 20 lakh in property. I already had a house loan pending of 12 lakh. If I use this inherited money to pay my home loan — will I be exempt from tax or still I will have to pay tax? Also, for my information, I want to know how can I use this inherited money to avoid tax on it. What other are means there to save tax on this money?

— Younus

A: If you have received the sum of Rs 20 lakh as inheritance, the same is not taxable in your hands. However, if you have received this Rs 20 lakh by selling property that you inherited, it would be necessary to pay tax on the capital gains earned through the sale. This tax can be saved by other means but not by settling the housing loan.

The tax on all long-term capital gains which are chargeable to tax, can be saved by investing within six months the amount of capital gains in infrastructure-related bonds of Nabard, NHAI, NHB, REC or Sidbi u/s 54 EC. The lock-in period is three years. The current interest rate is around 5.5 per cent and this is fully taxable.

The assessee may also claim similar benefit u/s 54 or 54F by purchasing a residential house within one year before or two years after the date of sale of the old house. Alternatively, he may construct a residential house within three years after the date. Sec. 54 is applicable to capital gains arising from transfer of a residential house and requires the amount of capital gains to be reinvested whereas Sec. 54F is applicable for other assets and requires the net sale proceeds (after the related expenses) to be reinvested. In the case of exemption u/s 54F, the assessee should not own more than one house on the date of earning the capital gains. The new house has a lock-in of three years.

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