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IPCL merger gets Reliance Ind nod
Mumbai, March 10
The Board of Mukesh Ambani group’s Reliance Industries today approved the merger of subsidiary IPCL with itself — a move that will help push the corporate giant’s turnover to about Rs 1,00,000 crore and give it a competitive edge.

Continue with STPI scheme, says expert
Chandigarh, March 10
Furthering growth in the information technology (IT) sector in India would not be possible without the extension of the Software Technology Park of India (STPI) scheme. If India wants to retain its status as the prime destination for IT and market share in the outsourcing business, continuation of the scheme is a must.


A woman adjusts her hair in front of one of the Barista's outlet in Chandigarh on Saturday. Italy's largest coffee company, Lavazza Group, said it would acquire 100 per cent stake in Barista Coffee Company Ltd (BCCL) and Fresh and Honest Caf Ltd (FHCL). According to unconfirmed reports, the deal is valued at around $125 million but the companies involved declined to confirm the amount. The transaction is expected to be completed over the next four weeks. Tribune photo by Vinay Malik



Bollywood actress Esha Deol poses at a press conference in New Delhi on Saturday. Esha signed in as the new brand ambassador of Kent RO Systems.
Bollywood actress Esha Deol poses at a press conference in New Delhi on Saturday. Esha signed in as the new brand ambassador of Kent RO Systems. Tribune photo by Mukesh Aggarwal

EARLIER STORIES
 

EPF Board defers decision
New Delhi, March 10
The EPF Board, which met here today to decide on interest rate, once again deferred its decision on the contentious issue.

Aviation Notes
AP plans aviation varsity
by K.R. Wadhwaney
A
majority of 25 airports, including existing international ones, will soon handle additional quantum of national and international flights in southern parts of this country. Upgradation, renovation and extension of runways are nearing completion and more than half-a-dozen foreign carriers have expressed keenness to operate flights from this region. This development augurs well for the growth of civil aviation in the country.

Investor Guidance
FBT to be paid by employer
by A.N. Shanbhag

Q: Employee stock option schemes (ESOPs) have been brought under fringe benefit tax (FBT) in the Budget. What does this mean for the employee and will he or she be subject to tax when ESOPs are granted?

 

 

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IPCL merger gets Reliance Ind nod

Mumbai, March 10
The Board of Mukesh Ambani group’s Reliance Industries today approved the merger of subsidiary IPCL with itself — a move that will help push the corporate giant’s turnover to about Rs 1,00,000 crore and give it a competitive edge.

The Boards of the two companies have approved a swap ratio of 1:5, which means IPCL shareholders would receive one share of RIL for every five shares held by them.

Through the merger, RIL would issue six crore shares to IPCL shareholders, which would expand its equity shares share capital to Rs 145.3 crore resulting in an equity dilution of 4.12 per cent, a company statement said.

Analysts believe that the merger could dilute the stake of RIL’s promoters by 1.7 per cent from 43.1 per cent to 41.4 per cent post merger.

RIL’s turnover stood at Rs 83,487 crore for the nine months ended December 30, 2006, while IPCL had posted a Rs 10,307 crore turnover in the same period.

Analysts expect the merger to bring additional benefits like reduced management costs for the group, besides marketing synergies already being reaped by the company ever since 
RIL acquired control of IPCL in 2002.

“We believe that the merger brings benefits like reduced management costs and increased management bandwidth, other benefits like product grade optimisation (and) marketing synergies, had been incorporated earlier after RIL took over the management control in 2002,” analysts at domestic brokerage firm Edelweiss Capital said in a report.

Operationally, both companies are already integrated and there are better synergies for both companies in terms of cost savings.

“The merger will be earnings accretive for shareholders of RIL and shall provide shareholders of IPCL an opportunity to participate in RIL’s diversified business portfolio,” RIL Chairman and Managing Director Mukesh Ambani said in a statement.

RIL’s board also approved an interim dividend of Rs 11 per share, while IPCL board approved interim dividend of Rs 6 per share for the shareholders.

The appointed date of merger of IPCL with RIL is April 1, 2006.

The merger would also enhance RIL’s profits as it derives 35 per cent of profit after tax from petrochemicals. Net profits of RIL stood at Rs 8,055 crore for the nine months ended December 31, 2006 whereas IPCL had reported a net profit of Rs 1,014 crore in the same period.

The proposed merger is expected to facilitate the integration of management resources with economic interest, while providing for free flow of products and intellectual capital between the two companies.

At present, promoters’ stake in IPCL stands at about 47 per cent, FIIs hold 12.5 per cent, insurance companies hold close to 9 per cent and the government has a marginal stake.

In June 2002, the Centre as part of its disinvestment programme divested 26 per cent of its equity shares in favour of Reliance Petro Investments Limited (RPIL), a Reliance group company. Subsequently, RIL increased its holding to 46 per cent through an open offer. — PTI 
Board approves share swapratio of 1:5l RIL to give interim dividend of Rs 11 per sharel IPCL okays interim dividend of Rs 6 per share 

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Continue with STPI scheme, says expert
Ruchika M. Khanna
Tribune News Service

Chandigarh, March 10
Furthering growth in the information technology (IT) sector in India would not be possible without the extension of the Software Technology Park of India (STPI) scheme. If India wants to retain its status as the prime destination for IT and market share in the outsourcing business, continuation of the scheme is a must.

Since a majority of IT companies fall under small and medium enterprises (with exports less than Rs 100 million), discontinuation of STPI scheme, after the taxation structure is due to expire in 2009, would adversely affect IT growth in India.

These views were expressed by Dr Saurabh Srivastava, co-founder of Nasscom, on the sidelines of an interactive session organised by The Indus Entrepreneurs (TiE) and Band of Angels (group of CEOs who invest in start-ups.

Talking to TNS here today, Dr Srivastava said that Nasscom had already requested the government to extend the scheme for another 10 years. “Not extending the scheme beyond 2009 would be discriminatory against the SMEs in the IT sector. The larger companies would be able to avail the tax benefits by shifting to the SEZ, but the SMEs would not be able to do so because its needs will not met by the SEZ scheme, where large capital will have to be put aside for getting land allocation in an SEZ,” he said. 

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EPF Board defers decision
Tribune News Service

New Delhi, March 10
The EPF Board, which met here today to decide on interest rate, once again deferred its decision on the contentious issue.

The decision has been deferred till the next meeting to facilitate more consultations between the labour and finance ministries.

The meeting was told by Labour Minister Oscar Fernandes, who is the chairman of the EPF Board of Trustees, that some more time was needed to fix the rate for the current fiscal.

According to sources, the trade unions participating in the meeting rejected a suggestion for 8 per cent interest rate for 2006-07 and 8.25 per cent for 2007-08. The rate of interest for 2005-06 was 8.5 per cent.

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Aviation Notes
AP plans aviation varsity
by K.R. Wadhwaney

A majority of 25 airports, including existing international ones, will soon handle additional quantum of national and international flights in southern parts of this country. Upgradation, renovation and extension of runways are nearing completion and more than half-a-dozen foreign carriers have expressed keenness to operate flights from this region. This development augurs well for the growth of civil aviation in the country.

The team of Members of Parliament (MPs) of the Consultative Committee, attached to the Civil Aviation Ministry, were provided on February 19, 2007, intimate details of progress achieved on these airports.

Apart from these 25 airports, some brand new airports of international dimensions are being raised at some important cities to provide refreshing look to the civil aviation. Aviation analysts are of firm belief that the Greenfield airport at Shamshabad, 30 km south west of the existing airport at Hyderabad, planned on a public private partnership, will outclass and outwit most of the airports, including ones at Delhi and Mumbai. It has facilities for passengers, visitors and users that will outdo world’s leading airports. Cleared on December 20, 2004, it is expected to be commissioned by April 2008. The work is progressing at war-footing and the runway is long enough to handle super jumbo aircraft. It will be the first airport to handle mammoth jumbo which needs extra space for landing and taking-off.

As operations shift to new airport, the authorities are planning to set up the integrated aviation training academy to give new thrust to pilot development aspect. The Andhra government is also planning to help set up Aviation University. The Airports Authority of India officials are examining the proposal.

What has baffled aviation analysts is that when new international airports at Hyderabad, Bangalore and Trivandrum are coming up in double quick time, what is the need of spending crores of rupees on existing ones which will become virtual redundant. But then the functioning of the AAI has always caused bewilderment to many who are connected with aviation.

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Investor Guidance
FBT to be paid by employer
by A.N. Shanbhag

Q: Employee stock option schemes (ESOPs) have been brought under fringe benefit tax (FBT) in the Budget. What does this mean for the employee and will he or she be subject to tax when ESOPs are granted?

— R M Daga

A: Stock options granted to employees have been brought under the purview of FBT, which is a tax payable by the employer and not the employee. Also such tax is payable not on the grant of the option but only at the time of exercise of the option — when the employee actually converts the options into shares. The valuation of such shares will be the fair market value (FMV) on the date of exercise of the option and such FMV will be decided as per a method prescribed by the Board. FBT will be levied at 33.99 per cent on the difference between the FMV and the price on the date of exercise of the option. Simultaneously, the cost of acquisition of the shares for the employee concerned for the purpose of computation of capital gains would be the fringe benefit value as arrived at above.

Mutual funds

Q: I read your column in the last Sunday Tribune, you had clarified about short-term capital gain (STCG) and long-term capital gain (LTCG) applicable for NRIs. The NRI asking the question is based in USA.

I have been informed that NRIs based in USA are not allowed to participate in mutual funds issued by Indian AMC operating from India? Please clarify if there is any Indian government directive on this?

— Sarweshwar Dayal

A: There is no directive issued by the Government of India or any of the regulatory bodies in India. Yes, it does appear that the SEC in the USA has issued some such guidelines to residents in the USA. In spite of this, if the NRI decides to invest in Indian MFs, some of the MFs accept the investments. Some others, especially some of those with foreign collaborators, reject.

We are given to understand that a few investors in the USA bypass the problem by giving a non-USA foreign address.

TDS on bonds

Q: I have invested some amount in 8 per cent savings bonds. I believe the interest is subject to TDS as per the provisions of Budget 2007. From what date is this interest subject to TDS? Is it immediately or from the April 1, 2007?

— Raj Vats

A: Interest on the immensely popular RBI 8 per cent Savings Bonds was taxable but free from TDS. Effective from 1.7.2007, any interest over Rs. 10,000 from such bonds would be subject to a TDS of 10 per cent. Similarly, professional fees were subject to a TDS of 5 per cent which has now been increased to 10 per cent.

Dividend distribution tax

Q: What have been the changes in debt funds post Budget 2007? There is an extra tax payable as per media reports. Please elaborate?

— Rajender Adarkar

A: The provisions of the extra dividend distribution tax (DDT) are not applicable to all income schemes. Only in the case of a money market mutual fund or a liquid fund, DDT on all categories of taxpayers would suffer a dividend distribution tax of 25 per cent as against the earlier 12.5 per cent. Again, the effective tax rate is actually 28.325 per cent.

Here, it has to be made clear that this rate is only applicable to liquid funds (and not to FMPs or MIPs etc). Other non-equity funds would continue at the earlier rate of DDT of 14.025 per cent (actually 14.16 per cent, now on account of the extra cess). Also, it is pertinent to mention here that this 14.16 per cent rate is applicable only for dividends distributed to individuals and HUFs. For corporates and firms the rate will be 22.66 per cent.

These amendments will take effect from April 1, 2007.

NRI status

Q: I had come to Singapore in April 06 for working for a company here. I returned to India in January this year permanently. I am keen on transferring my savings in salary from Singapore to India. Am I an NRI for FY 06-07?

— S. Mathur

A: Hereunder is the exact definition of a non-resident Indian:

An individual is said to be resident in India in any previous year, if he —

(a) is in India in that year for a period or periods amounting in all to 182 days or more; or

(b) having within the four years preceding that year been in India for a period or periods amounting in all to 365 days or more, is in India for a period or periods amounting in all to 60 days or more in that year.

Explanation: In the case of an individual:

(a) being a citizen of India, who leaves India in any previous year … for the purposes of employment outside India, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “one hundred and eighty-two days” had been substituted

(b) being a citizen of India, or a person of Indian origin … who, being outside India, comes on a visit to India in any previous year, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “one hundred and eighty-two days” had been substituted.

A person who is not a resident is an NRI.

Obviously, for those returning permanently to India, this replacement of 60 days with 182 days is not available. Consequently, those returning within four years become residents immediately on return, unless they return in February or March, thanks to the “365 days” stipulation.

Yours is a peculiar case. You were definitely in India for more than 365 days within the four years preceding both FY 05-06 and FY 06-07.

Now, you have left India and returned to India permanently during the same year. When you left for Singapore the 60 days in clause b was replaced with 182 days. When you returned permanently, during the same FY, the 182 days does not get replaced by 60 days. It remains 182 days. Therefore, you are an NRI for FY 06-07.

Now, a small change. Suppose you had left India in January 2006 and not in April 2006. You had left India in FY 05-06. The 60 days got replaced by 182 days. When the year changed from FY 05-06 to FY 06-07, the 182 days got replaced by 60 days and since you returned to India permanently, the 60 days did not get replaced by 182 days. You would have been a resident for FY 06-07.

The authors may be contacted at wonderlandconsultants@yahoo.com

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