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B U S I N E S S

BSNL drags TRAI to court
New Delhi, March 31
The BSNL today approached telecom tribunal, TDSAT for challenging sector regulator TRAI’s decision to cut a levy paid by the private operators to it for fostering telecom services in the rural areas.

Tata Power buys 30 pc inIndonesian mines
Mumbai, March 31
In line with Tata group's overseas acquisition strategy, Tata Power today announced buying 30 per cent stake in two Indonesian coal mines for $1.1 billion to secure fuel supplies for its power plants in India.

GSPL to supply gas to RIL
Ahmedabad, March 31
The Gujarat State Petronet Ltd (GSPL) today said it would supply natural gas to the Reliance Industries Ltd’s (RIL) refinery and petrochemical complex in Jamnagar for which the two companies have signed an agreement.

 

EARLIER STORIES

 
Models display creations by Agnimitra Paul on the fifth and final day of the Lakme Fashion Week in Mumbai on Saturday.
Models display creations by Agnimitra Paul on the fifth and final day of the Lakme Fashion Week in Mumbai on Saturday. — AFP

ICICI Bank ups lending rates
Mumbai, March 31
ICICI bank today hiked its floating reference rate (FRR) by 1 per cent for consumer loans, including home loans, with effect from today.

CST phase-out begins from today
New Delhi, March 31
The phase-out of central sales tax (CST), which is a major distortion in the way of smooth functioning of VAT system, will begin from tomorrow, albeit a year after and in diluted form than envisaged originally.

investor Guidance
Deduction of service tax from rental income not allowed
Q: Budget 2007 proposes to impose service tax on rent from commercial property. Can this service tax be deducted from rental income? Secondly is the Rs 8 lakh exemption available for only the service tax on property or in the aggregate for all services provided by the service provider?

Japfa Comfeed set to enter Punjab
Chandigarh, March 31
Multinational poultry major, Japfa Comfeed, is all set to launch its operations in Punjab. The company proposes to set up an integrated poultry project in the state with breeding farms, chicken-processing farm, feed mill and model poultry farms.

Aviation Notes
Continental Airline to fly Mumbai-New York route
While a few Indian carriers have been contemplating for long to initiate flights to the US, world’s fifth-largest American Continental Airline has announced its non-stop flights from Mumbai to New York (Newark from October 31, 2007).

 

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BSNL drags TRAI to court

New Delhi, March 31
The BSNL today approached telecom tribunal, TDSAT for challenging sector regulator TRAI’s decision to cut a levy paid by the private operators to it for fostering telecom services in the rural areas.

Taking up the petition, TDSAT chairman Justice Arun Kumar issued a notice to TRAI and directed them to file the reply.

On a plea from AUSPI and COAI, the mobile operators associations, to be impleaded in the case, the tribunal asked them to file an application and also submit a list of their members who wanted to be a party to it.

Since 2003, the private telecom operators have been paying BSNL a fee called access deficit charge (ADC) to offset the cost incurred by the public sector firm in operations in rural areas. The TRAI had, on March 21 this year, announced a 37 per cent reduction in ADC for 2007-08 to Rs 2,000 crore from Rs 3,200 crore earlier. The new rates would to be effective from April 1. As per TRAI’s roadmap, ADC would be completely abolished in 2008-09.

In its petition, BSNL has contended that TRAI has framed the new interconnect usage charges regulation without considering “relevant circumstances and taking into account of irrelevant factors”.

The PSU giant also said the actual access deficit incurred by it is Rs 14,301 crore per annum in rural areas and that TRAI has removed it in a “completely impermissible manner”.

BSNL also asked the TDSAT to issue direction to TRAI ‘to consider and provide reimbursement to BSNL of the requisite amount of ADC remained unpaid for the period of March 1, 2006 to March 31, 2007’ and onwards. — PTI

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Tata Power buys 30 pc in Indonesian mines

Mumbai, March 31
In line with Tata group's overseas acquisition strategy, Tata Power today announced buying 30 per cent stake in two Indonesian coal mines for $1.1 billion to secure fuel supplies for its power plants in India.

Tata Power outbid Japan's Mitsubishi and Korea Electric Power to acquire the stake in two coal-producing firms and a trading firm owned by PT Bumi Resources Tbk, giving it access to one of the largest exporting coal mines in the world.

TPC has signed definitive agreements to purchase 30 per cent stake each in PT Kaltim Prima Coal (KPC), PT Arutmin Indonesia (Arutmin) and trading firm Indocoal Resources owned by Bumi, Tata Power managing director Prasad R Menon said.

"TPC will pay $1.1 billion (Rs 4,840 crore) for the stake. The deal will be made through a special purpose vehicle and is likely to be completed by May-end," he said.

The latest deal takes forward the Tata group's overseas acquisition spree started some three years ago. India's largest corporate house, which comprise of 96 companies, has acquired more than 12 companies in the past three years, with the largest being the near $12 billion takeover of Anglo-Dutch steelmaker Corus Group Plc early this year.

In south-east Asia, Tata group acquired Singapore's Natsteel for over Rs 1,300 crore and Thailand's Millennium Steel for Rs 1,800 crore in 2004 and 2005, respectively.

The deal with the two coal mines, which produced a total of 53.5 million tonnes in 2006 and exported 95 per cent of that amount, will help TPC meet fuel requirements at the recently-won 4,000 MW Mundra ultra mega power project (UMPP) in Gujarat as also other projects in Maharashtra.

"The deal addresses fuel requirements for Mundra, Trombay and a coastal project in Maharashtra," he said.

Amid concerns that Indian companies in recent times have been overpaying for buying firms abroad, Menon asserted the acquisition was at a "fair value" and the deal was not costly.

"The firm had an EBITDA (earnings before depreciation, tax) of $86 million in 2003, but with rise in commodity prices worldwide, it rose to $417 million," he said.

Asked about the funding, Menon said Tatas would fund the transaction through a mix of debt in the SPV and internal accruals and borrowings from Tata Power.

"We will be finalising the exact mix within the next two months," he said, but added the company was unlikely to tap the market to raise funds.

As per the pact, Tata Power will be able to buy about 10 million tonnes of coal an year from KPC. This would support the company's upcoming projects in Gujarat and Maharashtra and enable it to generate 7,000 MW over the next five years.

These projects would require around 21 million tonnes of imported coal, he said, adding Tata Power plans to secure this fuel through a combination of purchasing equity stakes in coal mines as well as entering offtake contracts.

Tata Power, which has about 2,300 MW of generating capacity, plans to spend around Rs 16,000 crore for the 4,000 MW Mundra project by 2011-12. The company had bagged the project with the lowest tariff bid of Rs 2.26 a unit.

It also plans to set up projects in Maharashtra, Orissa and Jharkhand and is scouting for opportunities in the other countries such as Bangladesh and South Africa. The company had said in May last year it planned to spend Rs 18,000 crore to set up four-five projects with a total capacity of 4,500 MW. — PTI

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GSPL to supply gas to RIL

Ahmedabad, March 31
The Gujarat State Petronet Ltd (GSPL) today said it would supply natural gas to the Reliance Industries Ltd’s (RIL) refinery and petrochemical complex in Jamnagar for which the two companies have signed an agreement.

As per the 15-year deal, GSPL would transport 11 million standard cubic meters per day (MSCMD) of natural gas from Bhadbhut in Bharuch to RIL’s complexes in Jamnagar, the company said. RIL has an option to increase the volumes of gas up to 14 MSCMD. The transportation of gas is expected to begin in the second quarter of 2008. — PTI 

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ICICI Bank ups lending rates

Mumbai, March 31
ICICI bank today hiked its floating reference rate (FRR) by 1 per cent for consumer loans, including home loans, with effect from today.

It also announced an increase of 1 per cent in its benchmark advance rate. The revised FRR will be 12.75 per cent per annum as against 11.75 per cent at present and the revised I-BAR will be 15.75 per cent per annum payable monthly as against 14.75 per cent at present. For existing floating rate customers, the increase in FRR by 1 per cent will be effective from April 1, 2007. — PTI 

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CST phase-out begins from today

New Delhi, March 31
The phase-out of central sales tax (CST), which is a major distortion in the way of smooth functioning of VAT system, will begin from tomorrow, albeit a year after and in diluted form than envisaged originally.

CST, which is imposed on inter-state trade of goods, would be cut from 4 per cent to 3 per cent as part of its eventual elimination by 2010-11.

The government has already issued a notification to cut CST to 3 per cent, following passage of the Bill in this respect by Parliament early this month.

"The new rate of CST will pave way for cut in taxes on various commodities bought through inter-state trade, apart from crossing another milestone toward national tax system," said a senior official of the Finance Ministry.

The notification to amend the CST Act has also empowered states to levy VAT at the rate of 12.5 per cent on tobacco products such as cigarettes, bidis and pan masala with tobacco — currently in the list of additional excise duty.— PTI 

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Investor Guidance
Deduction of service tax from rental income not allowed
by A.N. Shanbhag

Q: Budget 2007 proposes to impose service tax on rent from commercial property. Can this service tax be deducted from rental income? Secondly is the Rs 8 lakh exemption available for only the service tax on property or in the aggregate for all services provided by the service provider?

— H. Parikh

A: Service tax is not allowed as a deduction for income from house property. The landlord would in most cases, pass it on by recovering the same from the person taking the property on rent.

The Rs 8 lakh exemption is not available separately but in the aggregate for all services provided by the same service provider.

Nabard bonds

Q: Regarding the recently issued zero coupon Nabard bonds. Could you clarify on the points below please:

1) Is the tax on the differential gain (maturity value less issue price) to be paid at the time of maturity OR is it payable every year.

2 Since this is not an interest income per se, will this get added every year to the taxable income of the individual OR is this treated in a separate way.

3) Is this a good avenue for retail risk adverse investors satisfied with moderate tax efficient returns?

— Mahesh

A: The tax on the gain has to be paid at maturity. Nothing gets added every year to your income. You will have to pay capital gains tax only in the year of sale. Yes, it is a good avenue.

Interest on PPF a/c

Q: I have a PPF account. At present I am not reflecting the annual interest earned on this account in my income tax return because it is exempt. Please advise if I need to mention the interest in my tax return under the column “exempt income”. Or can I afford to ignore it.

— Verma

A: As PPF interest is exempt, the same should be mentioned under the column “Exempt Income” column in the tax return. Also, it should be included in your list of investments as an additional disclosure by way of an annexure to your tax return.

Ceiling of PPF a/c

Q: In one of your articles you have stated that one could invest Rs 70,000 in one’s own account and the balance Rs 30,000 in say the spouse’s or major child’s account.

2. I enquired at the Directorate of Small Savings, Govt. of Maharashtra, whether an individual is permitted to deposit Rs 70,000 each in his own PPF a/c and in the accounts standing in the names of the spouse and children. I was categorically told that an individual is not permitted to deposit more than Rs 70,000 in his a/c and his dependent’s (spouse/children).

3. Please advise whether any clarification is notified by the competent authorities.

— Kothari

A: Ask them to give it in writing. PPF rules state otherwise.

Remittances by NRI

Q: I have a question on my home loan. If I sell the existing property, can I use the proceeds of the sale to pay off bank’s home loan. And if so, how can I repatriate the remaining proceeds from the sale back to my US account? What are the formalities and what taxes am I subject to from the sale of my property.

— Mathur

A: FEMR (Acquisition and transfer of immovable property in India) states,

“In the event of sale of immovable property other than agricultural land/farm house/plantation property in India by a person resident outside India who is a citizen of India or a person of Indian origin, the AD may allow repatriation of the sale proceeds outside India, provided —

i) the immovable property was acquired by the seller in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of these regulations;

ii) the amount to be repatriated does not exceed (a) the amount paid for acquisition of the immovable property in foreign exchange received through normal banking channels or out of funds held in Foreign Currency Non-Resident Account, or (b) the foreign currency equivalent, as on the date of payment, of the amount paid where such payment was made from the funds held is Non-Resident External account for acquisition of the property; and

iii) in the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.”

The Indian assets are non-repatriable but the current income therefrom like interest, dividend, rent, capital gains, pension, etc., can be.

Before effecting repatriation of income of the account holder, the ADs are required to ensure that he has paid or made provisions to pay income tax thereon, if any. ADMA Circular 28 dt. 26.7.97 required NRIs to obtain a ‘no-objection or tax-clearance certificate’ from the department and submit it to his AD to enable it allow repatriation. Until the receipt of the same, the AD was required to hold the related amount either in a suspense account or in the NRO accounts of the NRI. This was inconvenient to all concerned and also time consuming.

As per AP (DIR) Circular 27 dt. 28.9.02 ADs may also allow remittance abroad of the income by accepting an undertaking (in duplicate) addressed to the Assessing Officer and signed by the person making the remittance. This should be accompanied by a certificate of a Chartered Account who is not in employment of the NRI, stating that tax has been deducted at the rates in force, or is provided for or is not payable.

You might find difficulty in using this provision since it appears that the house was not purchased through remittance of forex from abroad or through your NRE account. Moreover, the installment of repayment of loan made so far were not through forex. In that case, only the forex used by you for the purchase and the repayment would be repatriable.

If that be the case, note that —

Circular 67/2003-RB dt 13.1.03 makes it possible for an NRI or a PIO to remit as much as $ 1 million per calendar year for bona fide purposes out of the sale proceeds of assets held in NRO accounts. He should have acquired the assets in question, out of rupee resources when he was in India or by way of legacy/inheritance from a person who was a resident in India.

The following funds/ assets are eligible for remittance:

a) Sale proceeds of immovable property.

b) Assets acquired by way of Inheritance/legacy.

c) Deposit with a bank or a firm or a company.

d) Provident fund balance or superannuation benefits.

e) Amount of claim or maturity proceeds of insurance policy.

f) Sale proceeds of shares and securities.

g) Any other asset held in India, in accordance with the FEMA.

An NRI could also remit sale proceeds of immovable property purchased by him as a Resident funds provided such a property was held by him for not less than 10 years. If the period was less, remittance could be made if the sale proceeds were held for the balance period in NRO accounts or in any other eligible investment to the satisfaction of the AD. Circular AP (DIR) 12 dt 16.11.06 has removed this lock-in of 10 years.

The remittance can be effected only when it is sought for all bona fide purposes to the satisfaction of the AD. An undertaking by the remitter and certificate by a Chartered Accountant in the format prescribed by CBDT vide their Circular 10/2002 dt 9.10.02 has to be produced.

It is necessary to file Form-A2, FEMA declaration, certificate from an accountant, and undertaking for payment of income tax, in the specified format. A no-objection-certificate from the income tax department will be useful, but not necessary.

The authors may be contacted at wonderlandconsultants@yahoo.com

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Japfa Comfeed set to enter Punjab
Ruchika M. Khanna
Tribune News Service

Chandigarh, March 31
Multinational poultry major, Japfa Comfeed, is all set to launch its operations in Punjab. The company proposes to set up an integrated poultry project in the state with breeding farms, chicken-processing farm, feed mill and model poultry farms.

The project, to be set up at an estimated cost of Rs 74 crore, was recently cleared by the empowered committee on mega projects. The project would work on a contract farming model, where the company would contract broiler-growing operations to small poultry farmers across the state, and pay them rearing charges.

Talking to TNS here today, Ashwani Chaloo, chief operating officer (COO) of the company’s Indian subsidiary, Japfa Comfeed India, said their project would provide direct employment to 750-1,000 farmers and indirect employment to 10,000 persons in the state. The project would work with backward and forward integration. “We will be creating model poultry farmers in all districts of the state. Any poultry farmer with a space of 2500 sq. ft will be given 2,500 chicks to rear. The medicines, feed and technical guidance will be provided by us, while the finance (capital expenditure for running the farm) will be provided by the State Bank of India. We will be paying the farmers fixed rearing charges at the rate of Rs 3 per kg. With almost no investment, these poultry farmers will be able to earn Rs 15,000 — Rs 20,000 per month,” he said, while adding that the first model poultry farm has now been set up at Rajpura.

The COO said a chicken feed mill would be set up near Rajpura at an estimated cost of Rs 15-17 crore. This will have a capacity to produce 10 tonnes of feed per hour. He said even the chicken-processing plant would be set up in Patiala district at a cost of Rs 10 crore. 

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Aviation Notes
Continental Airline to fly Mumbai-New York route
by K.R. Wadhwaney

While a few Indian carriers have been contemplating for long to initiate flights to the US, world’s fifth-largest American Continental Airline has announced its non-stop flights from Mumbai to New York (Newark from October 31, 2007).

Mumbai would be second point from where the airline would start operations ex-India. The first is Delhi to New York. According to analysts, the operations have been gaining in popularity since 2005.

“We are excited about starting operations from India’s commercial and entertainment capital and offering Indian travellers better scope for connectivity to another 230 cities in North, Central and South America, the Caribbean and beyond”, said airline officials stationed in Delhi.

The Boeing 777-200 aircraft, with 283 seats (economy 235 and business-first 48), would be flying every day. Mumbai would be airline’s 30th city on trans-Atlantic network.

Dissatisfied with government rules for minimum five years operations before receiving permission to operate on international routes, Kingfisher is seriously thinking of setting up an airline in the US. “We are forced to take this route since the government is unwilling to cooperate with us,” said an official of the airline. “If the government allows foreign carriers to operate flights in India without any rules, why should Indian carriers be subjected to needless hardships,” added the official.

Unlike some private airlines which have dropped congestion surcharge, two airlines have refused to comply with the Directorate-General of Civil Aviation (DGCA) request for withdrawal. “We are not exactly happy in charging a congestion surcharge but we are helpless because we have to survive in the world of stiff competition,” said one senior official.

Many private airlines are of the firm belief that bottlenecks and problems existing in the Indian civil aviation are on account of injudicious functioning of the Airports Authority of India and private constructing undertaking. According to these airlines, the two controlling august bodies have been unable to bring discipline in the working of the air traffic controllers. The analysts say that congestion in skies is man-made. Most of the flights have to circle round between 30 and 60 minutes around Delhi and Mumbai airports. “We have to spend a huge amount of fuel on this futile exercise,” said airline officials.

Modernisation plan continues to face setbacks in Mumbai and Bangalore. Apart from political interference, there is a serious problem in securing land. The Chennai airport’s modernisation plans have been grounded as the government finds it difficult to relocate at least 50,000 people.

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