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THE TRIBUNE SPECIALS
50 YEARS OF INDEPENDENCE

TERCENTENARY CELEBRATIONS
B U S I N E S S

Vestigial airstrips under consideration
Ministry plans to develop 150 such airports
New Delhi, August 26
The government wants private and state players to invest in over 150 airstrips that are lying unused since World War II for meeting the growing demand of air travel in the country. Though no policy has yet been formulated on the matter, the Civil Aviation Ministry is carrying out consultations with other ministries to prepare guidelines, including conditions for licensing of airports, primarily in the hinterland.

SEBI for trading through recognised bodies
New Delhi, August 26
Market regulator SEBI has decided that all trades on stock exchanges must be settled through recognised clearing corporations, which will have a minimum net worth of Rs 100 crore and provide counter-party guarantee for settlement of trades.

Tatas plan airport in Jamshedpur
Kolkata, August 26
Air Deccan today connected the steel city of Jamshedpur with the rest of the country through Kolkata on the occasion of the centenary celebration of Tata Steel, the world’s sixth largest maker of the alloy.


EARLIER STORIES

 
A Chinese worker produces badminton shuttlecocks at a factory in Wuhu, central China
A Chinese worker produces badminton shuttlecocks at a factory in Wuhu, central China. China on Sunday said it was drafting a law on ‘recycling economy’ to ensure sustainable development through energy saving and reduction of pollutant discharge. The draft law stipulates governments at all levels to make plans on the development of circular economy, establish systems to control energy use and pollutant emission, strengthen management of companies with high energy and water consumption, and make policies to divert capitals into environment friendly industries. — AFP

DoT mulls disaster management clause
New Delhi, August 26
Telecom operators may soon be penalised if they fail to maintain communication links during floods, earthquakes and other natural calamities as the government is considering making the companies’ disaster management plans a part of licensing conditions. The Department of Telecom has proposed to make this as a licensing provision for operators to set up micro-level structural units at the circle and district levels.

Market Update
Market may stay volatile
Volatility was the order of the week with markets witnessing curt crashes and swift recoveries as the focus shifted towards domestic factors and in particular, to the fate of the UPA government in its confrontation with the Left over the Indo-US civil nuclear agreement.

Tax Advice
Filing tax by post possible but not advisable
Q. I want to apply for new issue in the name of my major son/daughter from my bank account (the money belongs to me). Kindly let me know whom do we credit the income/loss arising from the sale of allotment.





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Vestigial airstrips under consideration
Ministry plans to develop 150 such airports

New Delhi, August 26
The government wants private and state players to invest in over 150 airstrips that are lying unused since World War II for meeting the growing demand of air travel in the country.

Though no policy has yet been formulated on the matter, the Civil Aviation Ministry is carrying out consultations with other ministries to prepare guidelines, including conditions for licensing of airports, primarily in the hinterland.

The concept of 'merchant' or private greenfield airports is also being evolved by the ministry in consultation with various other agencies like the Defence Ministry, Airports Authority of India and Directorate General of Civil Aviation, official sources said.

Broadly, a merchant airport will mean that a private investor acquires land on his own and constructs an airport, subject to technical clearances and licensing.

Development of these unutilised airstrips could be carried out on the basis of merchant airport concept, but the government is yet to take a decision, the sources said, adding that some state governments also own such airstrips and they could also be involved in the process.

Airstrips that are on government's priority are those located at Pantnagar, Kamalpur, Kailashahar, Passighat, Tezu, Along, Daparizo, Tura and Zero, they said.

While the Civil Aviation Ministry recently held meetings with various stakeholders on the matter, an inter-ministerial group is already preparing guidelines and conditions for licensing private greenfield airports, the sources said.

Of the unutilised airstrips spread across the country, Bihar accounts for the maximum number of 22, followed by Rajasthan and Orissa at 18 each, West Bengal (16), Gujarat (11) and Madhya Pradesh (11). The remaining states which have such airstrips are Jammu and Kashmir (8), Maharashtra and Assam (7 each), Andhra Pradesh (6), Punjab and Karnataka (5 each), Uttar Pradesh (4), Jharkhand (3), Chhattisgarh, Tamil Nadu and Manipur (2 each), Arunachal Pradesh, Mizoram, Meghalaya, Haryana, Tripura and Nagaland (1 each).

A major thrust is being given to the development of airports in the north-east, with the government already having approved the construction of a greenfield airport at Pekyong in Sikkim at an estimated cost of Rs 320 crore. This will be the first airport in the far-flung state.

The Civil Aviation Ministry has also received as many as 25 proposals from various states for development of new airports.

These include those at Visakhapatnam (Andhra Pradesh), Shimoga, Gulbarga, Hassan, Karwar, Kannur (Karnataka), Itanagar, Tawang (Arunachal Pradesh), Chiethu (Nagaland), Greater Noida (UP), Kota (Rajasthan), Kokrajhar (Assam), Surankote, Kishtwar (J&K), Chakan, Shirdi and Sindhudurg (Maharashtra), and Durgapur (West Bengal). — PTI

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SEBI for trading through recognised bodies

New Delhi, August 26
Market regulator SEBI has decided that all trades on stock exchanges must be settled through recognised clearing corporations, which will have a minimum net worth of Rs 100 crore and provide counter-party guarantee for settlement of trades.

"The clearing corporations will have to become legal counter party by providing guarantee for settlement of all trades. The decision was taken by the SEBI Board at its meeting in Mumbai last week," a government source said.

At present, Bombay Stock Exchange has a clearing house, which provides guarantee for settlement but does not have institutional mechanisms for this. The National Stock Exchange, on the other hand, has a clearing corporation but it is not recognised by SEBI.

The source said to implement the decision, the Centre would soon finalise certain rules for clearing corporations, while SEBI would come out with other required norms.

The rules proposed by the Centre include that SEBI would not grant recognition to any company to operate as a clearing corporation unless it is satisfied that it has a minimum net worth of Rs 100 crore. Besides, clearing members and trading members of its constituent exchanges together would not hold more than 49 per cent of equity capital of such entities.

The clearing corporation will maintain a settlement guarantee fund to provide a cushion for any residual risk in the settlement process, as per the proposed provisions.

The Centre would also ask SEBI to grant recognition to clearing corporation only if it has secured network for continuous electronic communication among exchanges, clearing members, depositories and clearing banks.

Other rules proposed by the Centre include that a clearing corporation (CC) would not ordinarily undertake any other activity which can have contagion effect on the adequacy of its resources since it needs to have dedicated resources to meet the exigencies of settlement. However, it may be allowed to take up other activities not related to securities settlement with prior approval of SEBI.

According to rules proposed to be framed by SEBI, while exchanges will have only trading members, CCs should only have clearing members. Further, only corporate entities would be allowed to become clearing members.

Besides, the existing non-corporate brokers of exchanges should be allowed to become clearing members initially subject to the condition that they would become corporate entities within one year of a CC beginning operations. Earlier in India, stock brokers acted as trading-cum-clearing members. They knew each other and traded and settled trades among themselves.

With the advent of the anonymous screen-based trading system, which does not allow participants to assess the counter party risk of others, and in the interest of better risk management through counter party guarantee, the modern markets started using the services of a clearing corporation for clearing and settlement.

The Securities Laws (Amendment) Act, 2004, also provided that an exchange may transfer the duties and functions of a clearing house to a recognised CC for settlement and clearing of trades after getting approval from SEBI. — PTI

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Tatas plan airport in Jamshedpur
Tribune News Service and PTI

Kolkata, August 26
Air Deccan today connected the steel city of Jamshedpur with the rest of the country through Kolkata on the occasion of the centenary celebration of Tata Steel, the world’s sixth largest maker of the alloy.

The tiny airport built by JRD Tata, which had been so long virtually remaining unused following the withdrawal of the Tata Air Service about three decades ago, was suddenly abuzz with activity.

A large number of Tata Steel and other corporate bosses and airport officials were present today as the 48-seater ATR-42 500 aircraft touched the tarmac in the morning.

Tata Steel Managing Director B. Muthuraman declared that Tata Steel would invest a large amount of funds for facilitating the operation of Boeings and Airbus in the steel city.

Tata Steel plans to build an airport to improve air connectivity from the city to other parts of the country, the MD said.

The steel major has already located land at Adityapur in adjoining Saraikela-Kharswan district for the airport, which will have a 7,000-ft long runway. “However, everything is not in our hands,” Muthuraman said.

Asked why Tata Steel was not interested in upgrading the existing aerodrome, Muthuraman said there were restrictions in doing that. “That is why we are planning to have a new airport.”

The proposed airport would help the steel city to bring business here and help it to grow faster, he said.

To make Air Deccan’s operations viable, Tata Steel will underwrite certain percentage of seats in each flight, Muthuraman said.

Meanwhile, Tatas and Essar have received Centre's nod to prospect more than 250 million tonnes of iron ore in Bailadila mines in Chhattisgarh for their proposed steel projects with a total capacity of eight million tonnes.

“The Centre has accorded its approval to allow us to prospect Bailadila-III deposit in Chhattisgarh. We are awaiting forest clearance from the government and will commence work only after receiving it,” Essar Steel Holdings CEO J Mehra said.

Similarly, Tata Steel, which has also received the government's nod for prospecting the Bailadila-I deposit that has an estimated reserve of up to 150 million tones, also confirmed the development. A spokesperson said prospecting would begin in due course of time.

Tata Steel plans to build a 5 million tonne steel plant at Bastar in Chhattisgarh at an estimated investment of about Rs 10,000 crore.

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DoT mulls disaster management clause

New Delhi, August 26
Telecom operators may soon be penalised if they fail to maintain communication links during floods, earthquakes and other natural calamities as the government is considering making the companies’ disaster management plans a part of licensing conditions.

The Department of Telecom has proposed to make this as a licensing provision for operators to set up micro-level structural units at the circle and district levels. This is aimed at ensuring services are not disrupted during such unforeseen events.

The licensing terms should have mandatory provisions for having such set up as given above within a specified period (2-3 years) of launching services in a circle, failing which suitable action should be prescribed, according to the DoT’s draft guidelines for Telecom Disaster Management. With telecom coming under the essential service category, DoT wants operators to get their disaster management plan in place. — PTI

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Market Update
Market may stay volatile
by Lalit Batra

Volatility was the order of the week with markets witnessing curt crashes and swift recoveries as the focus shifted towards domestic factors and in particular, to the fate of the UPA government in its confrontation with the Left over the Indo-US civil nuclear agreement. The bulls, however, had the last say with markets ending the week with a gain of 2 per cent. But the domestic bourses underperformed its Asian peers due to fluid political situation in New Delhi, with prospects of mid-term polls looming large.

Global markets nudged higher last week, on speculation that the US Federal Reserve will cut benchmark rates sooner rather than later. Also the Bank of Japan (BoJ) decision to keep interest rates unchanged at 0.50 per cent boosted the market further.

This week, the market may stay volatile due to the expiry of derivative contracts on August 30, the last Thursday of the month. While the markets did end in the positive, the gains were far from convincing. This also proves the fact that even at current levels, most of the stocks look adequately valued from a medium-term perspective. Thus, with the liquidity tap also being turned off to a greater extent, courtesy the recent subprime meltdown, more sanity is likely to prevail. Investors may stay invested for long-term and in good quality stocks as India story remains very much intact.

GIPCL

Gujarat is economically one of the most prosperous and industrialised states of India. Despite the progress, the state continues to have a deficit in terms of power supply on the back of a sustained rise in demand, especially from expanding industries. Against an estimated installed capacity of 9,824 MW at the end of 2007, the deficit shall stand at 2,652 MW, or around 20 per cent of requirement. This presents an opportunity for existing power producers to cater to the deficit by way of adding new capacities and improving efficiencies at the existing plants. The state already has rich reserves of natural gas and lignite, which shall aid capacity expansion using these fuels. Considering that GIPCL (Gujarat Industries Power Co. Ltd.) is one of the major players in the sector, it is estimated to benefit from the increased investments in industrial expansion in the state in the long-term.

GIPCL is in the process of doubling the capacity (currently at 250 MW) of its Surat Lignite Power Plant (SLPP) to 500 MW by the end of 2009. For the 250 MW expansion at SLPP, GIPCL is also developing captive mines to secure supply of lignite. These are captive mines, the company enjoys benefits of low cost transportation of lignite and has the benefit of predictable fuel for SLPP.

GIPCL is one of the ‘panchratnas’ (five jewels) in Gujarat and hence receives tremendous support from the government of Gujarat.

Given the above facts, investors may buy GIPCL with a medium term perspective at the current market price of Rs 61.

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Tax Advice
Filing tax by post possible but not advisable
by S.C. Vasudeva

Q. I want to apply for new issue in the name of my major son/daughter from my bank account (the money belongs to me). Kindly let me know whom do we credit the income/loss arising from the sale of allotment. Is it my children or me? Can I deposit my tax return by registered post also?

— Neena Gupta, Rohtak

A. The answers to your queries are as under:

1. It seems you intend carrying on the activity of purchase of sale and new issue of shares, which are purchased in the name of your major son/daughter. If you are using your own funds for acquiring such shares in the name of your son or daughter, this can be treated as benami transaction. This can lead to many complications. I would suggest that you gift the amounts to your major son/daughter. The gifted amounts should be deposited in their bank accounts. These funds can be utilised for the purpose by them. There is no tax liability in respect of the amount gifted by you to the major children. The short-term capital gain/loss arising on the sale of such shares arising in their hands would be netted off. The net amount of gain would be taxable @10 per cent plus applicable surcharge and education cess. The net loss, if any will be carried forward for eight assessment years for adjustment against short-term capital gain, if any arising in such eight years.

2. You can file tax return by registered post but it would not be advisable to do so in view of the requirement of obtaining the acknowledgement for such filing. The department has started with the system of e-filing of returns and it will be easier for you to file the same through the medium of computers which may obviate the necessity of filing paper return in due course.

Income from joint FDs

Q. My estimated income from April 1, 2006, to March 31, 2007, is as follows: Interest from banks on FDRs = Rs 2,09,000 approx, pension Rs 84,825, including DA and Medical. Additionally during this period, I have recovered rent from property (Rs 8,500) out of which I am paying house tax (Rs 1,400). This income is not regular because at times, certain portion remains vacant. What is the last date of filing IT return and which is the last date of depositing IT?

Since I am an old man of 84, can I incur expenditure by employing someone to assist me for (a) collection of rent (b) to tackle banks from where I am getting income of interest and maintaining paper accounts and relevant documents? Will I be entitled to limit of Rs 1,85,000 or Rs 1,95,000 for income from April 1, 2006, to March 31, 2007?

Though in all FDRs, names of my children also exists, but mine is the first name. Can I avail benefit of joint income?

In pension account/income as explained above, D.A. + medical grant is added. Kindly guide whether I will have to account for total pension including DA + medical or can both these be excluded from income.

— M.S. Dewan, Ambala

A. The answers to your queries are as under:

1. The last date for furnishing the return of income in your case would be July 31 of the year in which the income for 12 months ending April to March is to be reflected. For example, the income for April 2005 to March 2006 will be reflected in your return for the year ending March 2006. The last date of filing the return of such a year would be July 31, 2006. Accordingly, in case the return is to be filed for the year ended March 2007, the last date would be July 31, 2007. The tax on the basis of the estimated total income has to be paid within the financial year as advance tax on September 15, December 15 and March 15. Any shortfall has to be paid before the date of filing the return. The details of such payments have to be indicated in the return of income.

2. You can incur any amount for employing someone to help you in collecting rent or interest or maintaining your accounts but no deduction thereof is allowable in computing your total income. However, while computing the income from house property, a statutory deduction of 30 per cent of the annual value is allowed to cover the collection charges and such expenses.

3. The taxable limit applicable for senior citizen for year ended March 2007 (i.e. assessment year 2007-08) is Rs 1,85,000. The higher limit of Rs 1,95,000 would be applicable for the year ended March 2008 (i.e. assessment year 2008-09).

4. The fixed deposits must have been made from your sources of income. The income arising from such fixed deposits would be taxable in your hands. For the purpose of taxability such income cannot be divided between the joint holders of the fixed deposits.5. The gross amount of pension received by you is taxable.

Gift to wife

Q. You have clarified that income from gift to the wife, who has no source of income, will be clubbed with husband’s income. But if once the husband pays the tax on the income from that gift from his own funds it becomes wife’s own asset. Any income earned on this asset is not required to be clubbed in the hands of the husband since income on income is not clubbable. Now my question is whether gift amount and interest thereon both will become her asset or simply income on gift will be hers. My investment of Rs 1,20,000 in UTI Bond fund in May 2001, fetches me Rs 1,88,000 in April, 2007. UTI Bond fund is a fully debt-based scheme. It is understood that TDS should have been applied on it. Whereas in my case it hasn’t been done so. Now my question is:

What is my tax liability? Is my above income of Rs 68,000 to be commuted with my income from other sources and assessed accordingly or simple payment of tax on LTCG will do. If so please calculate my tax liability.

— Kundan Lal Gupta, Chamba

A. According to the provisions of Section 64 of the Income-tax Act, 1961, (the Act) in computing the total income of an assessee, there shall be included all such income as arises directly or indirectly to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart. These provisions being of deeming nature, the income on income is not required to be clubbed for the purpose of computing the income of the individual who has transferred such sum for an inadequate consideration. A similar provision exists in Section 4 of the Wealth-tax Act, 1957. It provides for the inclusion of the value of such asset in the wealth of the individual who has transferred to the spouse any asset otherwise than for adequate consideration or in connection with an agreement to live apart. As stated above the section is a deeming section and the inclusion is for the purposes of two enactments i.e. Income-tax Act and the Wealth-tax Act. The amounts gifted to wife is definitely her asset and will have to be treated as such for any other purpose. The amount of Rs 60,000 earned by you on redemption of bonds would be treated as a long-term capital gain and taxed as such. It is not possible to compute your tax liability without having the particulars of your other income.

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