SPECIAL COVERAGE
CHANDIGARH

LUDHIANA

DELHI


THE TRIBUNE SPECIALS
50 YEARS OF INDEPENDENCE

TERCENTENARY CELEBRATIONS
B U S I N E S S

DoT, MoD may sign spectrum pact
New Delhi, September 2
The Ministry of Defence (MoD) is understood to have indicated releasing about 50 MHz spectrum by December this year for use in mobile telecom services and has asked for a list of important locations needing frequency immediately.

Ethanol-blended petrol from October
New Delhi, September 2
Come October, your car may run on petrol mixed with 5 per cent ethanol as the government is likely to make blending mandatory. A group of ministers on sugar has recommended to make 5 per cent blending of ethanol in petrol mandatory from next sugar season, starting October 2007.

Jet Airways hires expatriates to spruce up international operations.
(56k)

Indian bourses outpace many
BSE, NSE record massive growth in market value
New Delhi, September 2
Indian bourses have outpaced those in developed countries in terms of growth in market value in the year ended July 2007, but still lags behind equity markets in the world’s fastest growing economy - China.


EARLIER STORIES

 
A Singapore Airlines (left) and a China Eastern Airlines cabin crew pose at a signing ceremony in Shanghai
A Singapore Airlines (left) and a China Eastern Airlines cabin crew pose at a signing ceremony in Shanghai on Sunday. Singapore Airlines and Temasek Holdings are to buy a combined 24 per cent stake in China Eastern Airlines, injecting a combined HK $7.2 billion into the struggling Chinese airlines to buy nearly 1.9 million new shares in the firm, amid a boom in China’s travel sector.
— AFP

Quipo to invest Rs 6,750 cr
New Delhi, September 2
Betting big on the buoyant telecom sector in India, Quipo Infrastructure Equipment Ltd will invest Rs 6,750 crore over the next two to three years to set up nearly 25,000 telecom towers across the country.

Market Scan
Don’t walk into buy-back traps
ESAB India has made an open offer to its shareholders to buy-back its Rs 10 face value equity shares at Rs 505 per share. The company’s foreign parent holds 37.3 per cent of the total equity capital. The offer price is higher than the latest market price of its equity share. Another company SESA Goa will also be making an offer to its shareholders for buy-back for the 20 per cent of its equity shares as required under SEBI regulations.

Tax Advice
Medical reimbursement not a perquisite
Q. My employer has been deducting income tax from the amount of medical reimbursement exceeding Rs 15,000 per annum.





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DoT, MoD may sign spectrum pact

New Delhi, September 2
The Ministry of Defence (MoD) is understood to have indicated releasing about 50 MHz spectrum by December this year for use in mobile telecom services and has asked for a list of important locations needing frequency immediately.

The development comes as a ray of hope for prospective entrants in mobile telephony who have applied for licences as well as the existing players requiring additional spectrum.

Meanwhile, the Group of Ministers examining vacation of spectrum from the armed forces is likely to meet on September 7 for the first time to discuss the issue.

Official sources said at a meeting with telecom secretary last week, the defence secretary suggested that an memorandum of understanding (MoU) could be signed between the two ministries so that an appropriate communication network for the defence services could be set up at the earliest.

"Both (MoD and DoT) have agreed in-principle to sign an MoU, if this can lead to quick vacation of the required spectrum for mobile telephone services," sources said.

Additional spectrum is required both by existing players like Bharti and Vodafone-Essar to expand their network in view of increase in number of subscribers and also by Parsavnath Developers and HFCL who have applied for pan-India licence.

Besides, Vodafone's joint venture partner Essar has also separately applied for new licences. Reliance Communication is also in queue seeking spectrum to start GSM services along with its CDMA-based operations.

DoT feels that requirement for additional spectrum was not uniform throughout the country - about 35 MHz in metros and metro-like cities (total about 50), while requirement for rural areas would be about 15 MHz. The defence forces could vacate this spectrum by December this year.

It was decided in the meeting that DoT would provide a list of important locations (links) to be vacated on priority, immediately on provision of alternate media for these links.

The remaining links would be vacated in a phased manner during the next one year as soon as the alternate media is ready for those links, the source said. Further, with the defence ministry agreeing, the DoT should be in a position to provide spectrum to mobile players and announce the 3G spectrum policy by the end of this year.

Meanwhile, mobile phone production in India is expected to grow from 31 million units in 2006 at a compound annual growth rate (CAGR) of 28.3 per cent to reach 107 million units in 2011, according to global technology research firm, Gartner. — PTI, TNS

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Ethanol-blended petrol from October

New Delhi, September 2
Come October, your car may run on petrol mixed with 5 per cent ethanol as the government is likely to make blending mandatory.

A group of ministers (GoM) on sugar has recommended to make 5 per cent blending of ethanol in petrol mandatory from next sugar season, starting October 2007.

“The GoM has recommended compulsory blending of petrol with 5 per cent ethanol, while 10 per cent will be optional, from the next month,” a senior government official said.

The move would enable the use of more sugarcane for the manufacturing of ethanol, while also helping sugar industry, that is presently crippled with over production.

The recommendations are for the entire country except Jammu and Kashmir, the north-east states and island territories, the official added.

He also said the matter would be placed before the Cabinet shortly. Currently, the government allows 5 per cent optional blending of ethanol in petrol. At 5 per cent, 600 million litre ethanol is required for blending.

The GoM has also recommended a uniform purchase price of Rs 21.5 per litre for ethanol, the official said.

Meanwhile, the finance ministry is keen about a hike in petrol and diesel prices to offset losses of oil firms, although it has agreed to issue oil bonds to insulate them from skyrocketing global crude prices.

“We like (domestic fuel) prices to go up before oil bonds could be issued. But it is not a precondition for issuing the bonds,” a key finance ministry official said.

In fact, the government-owned oil firms had sought an immediate hike in petrol, diesel, LPG and kerosene prices as they are losing over Rs 185 crore a day on sale of these products.

The government is exploring different options since the entire burden cannot be passed on to the consumer.

The recent decision of the cabinet to offer five per cent government equity in Oil India Limited to IndianOil and 2.5 per cent each to HPCL and BPCL was also aimed at arming these companies with an option to sell these shares at a later date so that they are compensated for their under-recoveries.

Pointing out the difference of opinion between the finance ministry and oil marketing companies, the source said the companies wanted the ministry to compensate them for their losses as of yesterday, but the ministry wants it to be tomorrow.

“Till when can we withhold the pressure? Ultimately, the government will have to take a decision. Informal discussions are on at the government level (over oil bonds),” the source said. While one estimate puts PSU oil firms’ losses on the sale of petrol diesel, LPG and kerosene at Rs 52,162 crore, the finance ministry is yet to work out the losses. Depending on that, the size of the oil bonds would be worked out. — PTI

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Indian bourses outpace many
BSE, NSE record massive growth in market value

New Delhi, September 2
Indian bourses have outpaced those in developed countries in terms of growth in market value in the year ended July 2007, but still lags behind equity markets in the world’s fastest growing economy - China.

The credit for this goes to sharp rise in share prices and market capitalisation of companies listed on the country’s two stock exchanges — the national stock exchange (NSE) and Bombay stock exchange (BSE), which have emerged as the world’s seventh and eighth fastest growing bourses over the period.

According to the data compiled by the world federation of exchanges, the list of fastest growing exchanges in the world is topped by the two bourses in China - Shanghai stock exchange and Shenzen stock exchange.

The NSE recorded a one-year growth of about 98 per cent in the total market cap of all companies listed on it, while moving up two positions from its ninth rank in June. The BSE also moved up three places from 11th rank in the previous month with a rise of 93 per cent in the total market cap.

China’s Shanghai and Shenzen stock exchanges have retained their first and second positions with their market capitalisations surging by 359 per cent and 293 per cent respectively in one year ended July.

The Chinese bourses are followed by Cyprus, Ljublijana, Lima and Mauritius stock exchanges.

Meanwhile, the NSE has emerged as the world’s second-fastest growing bourse in terms of the number of companies listed on it, moving two slots up from the third-fastest at the end of June. The BSE has retained its position as the biggest bourse with as much as 4,853 listed companies.

At the end of July, the BSE had a listed market cap of $1,117.9 billion, while total market cap of all the companies listed at the NSE stood at $1,065.5 billion.

China’s Shanghai stock exchange had a market cap of $2,033 billion, while that of Shenzhen exchange stood at $600 billion. — PTI

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Quipo to invest Rs 6,750 cr

New Delhi, September 2
Betting big on the buoyant telecom sector in India, Quipo Infrastructure Equipment Ltd will invest Rs 6,750 crore over the next two to three years to set up nearly 25,000 telecom towers across the country.

The company, promoted by infrastructure leasing firm SREI, would make the investment through its telecom subsidiary - Quipo Telecom Infrastructure Ltd.

“We will set up 25,000 towers across the country.” Quipo Infrastructure vice-chairman and managing director Sunil Kanoria said. — PTI

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Market Scan
Don’t walk into buy-back traps
by J.C. Anand

ESAB India has made an open offer to its shareholders to buy-back its Rs 10 face value equity shares at Rs 505 per share. The company’s foreign parent holds 37.3 per cent of the total equity capital. The offer price is higher than the latest market price of its equity share. Another company SESA Goa will also be making an offer to its shareholders for buy-back for the 20 per cent of its equity shares as required under SEBI regulations. The price offered will be Rs 2,063.3 per equity share of Rs 10 face value than its prevailing market price of Rs 1,944.

Should the shareholder accept the offer? The first trap is that the sale of these shares will not be through any recognised stock exchange. No transaction tax will be paid. According to the Income Tax laws, the sale will be taxable at the rate of 20 per cent after the use of inflation index to the total cost price of the scrip as a long-term capital gain. The second alternative under the Income Tax laws is that the sale will be taxed at the rate of 10 per cent as a short-term capital gain (without the use of inflation index) even though the shareholder may have been holding the share for more than one year.

Recently, FGI OEN Connectors Ltd bought back its equity shares through a buy-back offer at Rs 700 for its Rs 10 face value equity shares. The offer was quite liberal but a long-term shareholder of this company, who accepted the offer, will have to pay income tax at the rate of 10 per cent as short-term capital gain even though he may have held the shares for the past 20 years. In case the shareholder uses inflation index to add to its cost price, the sale will be taxed as long-term capital gain at the rate of 20 per cent. It would have been better for a long-term holder of the share to sell these shares in the open market even at Rs 670 per share through a recognised stock exchange, in that case the sale would be taxed as a long-term capital gain.

Should an investor accept the buy-back offer and divest himself of his holdings? The shareholders should consider the growth potential of the company and probable market price of its shares, particularly when the company is not likely to delist its share from the stock exchange. Past experience in the case of Sterlite Industries and Ultra Tech Cement indicates that it was unwise to accept buy backs. So, the second trap should also be avoided.

ESAB India’s equity share closed at Rs 495.4 at the BSE and Rs 495.85 at the NSE. So, it will be better to sell it in the open market than to accept the buy-back offer. It may even be wiser to keep oneself invested in SESA Goa as it has strong fundamentals and high growth prospects, as an iron ore company with large iron ore mines. Likewise, it would be wiser to sell ESAB shares in the open market than to accept the buy-back offer. The company has bright future and good fundamentals as a high-profile welding company.

Power Grid Corporation India has announced an IPO and NTPC IPO is also likely to be in the market soon. These may be attractive propositions.

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Tax Advice
Medical reimbursement not a perquisite
by S.C. Vasudeva

Q. My employer has been deducting income tax from the amount of medical reimbursement exceeding Rs 15,000 per annum. Kindly advise as medical reimbursement in Punjab government undertakings is made in the following circumstances:

(i) Indoor treatment in government hospitals

(ii) Indoor treatment in private hospitals subject to the rates of the PGI

(iii) Treatment of chronic diseases as approved by the Punjab government.

— R.K. Gupta, Mohali

A. In accordance with the provisions of the Act, any amount paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family is not treated as a perquisite and is thus not taxable, in case such reimbursement is in respect of the expenditure:

(a) In any hospital maintained by the government or any local authority or any other hospital approved by the government for the purposes of medical treatment of its employees;

(b) In respect of the prescribed diseases or ailments, in any hospital approved by the chief commissioner having regard to the prescribed guidelines.

In case of reimbursement covered at (b) above, the section requires that the employee shall attach, with his return of income, a certificate from the hospital specifying the disease or ailment for which medical treatment was required and the receipt for the amount paid to the hospital. The chronic diseases prescribed for the above purpose, include cancer, tuberculosis and ailment of heart, ailment or disease of eye, nose or throat requiring surgical operations. The list is provided in Rule 3A(2) of the Income-tax Rules, 1962. The conditions for the approval by the chief commissioner are prescribed in Rule 3A (1) of the above. Accordingly, in case the medical reimbursement to you is covered within the above guidelines, the same will not be treated as a perquisite and would not be taxable.

Purchasing house

Q. I am an NRI and considering purchasing a house in Chandigarh. I am aware that there are tax breaks available for Indian residents, but I want to know whether is there any similar scheme available for NRIs (I hold Indian passport)? I will finance part of my purchase through home loan from an Indian bank, what do I need to do in order to qualify for tax breaks, if available?

— Sandeep Atri

A. The following major tax incentives are available in respect of a house property purchased/constructed in India:

1. In computing the total income of an individual, for an assessment year, a deduction of a sum not exceeding Rs 1 lakh is allowable in respect of the repayment of amount borrowed by the assessee from a bank or other specified entity for the purposes of construction/acquisition of a house.

2. The interest paid on amount borrowed for the construction or acquisition of a house property is allowed as a deduction against income from house property. However, such deduction is limited to Rs 30,000 in case of a self-occupied house. A higher deduction of Rs 1,50,000, in case of a self-occupied house, is allowed if the amount is borrowed after April 1, 1999 and such acquisition or construction is completed within three years from the end of the financial year, in which the amount was borrowed.

3. The house tax, paid in respect of the property, is allowed as a deduction from the annual letting value.

4. A statutory deduction of 30 per cent of the annual letting value, arrived at after deduction of house tax paid, is allowed to cover expenses in respect of the maintenance of the house and collection charges.

Form 15H

Q. I am 67 and filing my return every year. For the financial year 2007-08, my total taxable income, without taking into account my savings under Section 80C, is likely to be below Rs 1,85,000. Can I submit Form 15H to a bank from where I would receive interest income of about Rs 50,000 during the year to get TDS exemption?

— Satya Paul, Karnal

A. In accordance with the provisions of the IT Act, 1961, an individual, who is more than 65 years of age, can file declaration in duplicate in Form 15H if his total income of the previous year, in which such income is to be included in computing his total income, will be nil. The Finance Act, 2006 has added a proviso to Section 139 of the Act, which requires a person to file his return of income whose total income, without giving effect to the deduction allowable under Section 80C, exceeds the maximum amount, which is not chargeable to income tax. The issue whether the person, who is entitled to the benefit of deduction under Section 80C, can make the prescribed declaration in Form 15H that tax on his estimated total income for the previous year, in which such income is to be included, would be nil is not free from doubt. However, pending any clarification on this issue you can file Form 15H to avoid deduction of tax at source.

Tax liability

Q. I purchased 7,823.961 units of U200GR UTI leadership equity fund - growth plan of Rs 80,000 on January 30, 2006 and sold these on January 29, 2007 at the rate of Rs 12.63 amounting to Rs 98,816.63 (redemption UT leadership).

I purchased U.T.I. Master Share Unit Scheme Growth’s 1,762.8 units at the rate of Rs 29.72 of Rs 52,391,900 (by switching in from U.T.I. Pension Plan) on August 23, 2006 and sold these for Rs 62,017.06 [Rs 155 was deducted (on January 29, 2007)] as securities transaction tax at the rate of 0.25 per cent.

What would be my tax liability on these transactions? My income from pension and interests, during the assessment year 2007-08, would be about Rs 2,40,000.

— F.C. Garg, Haryana

A. On the basis of the facts given by you, the gain on the sale of units would be a short-term capital gain as these units were held by you for a period of less than one year. The tax on short-term capital gain shall be chargeable at the rate of 10 per cent plus education cess of 2 per cent thereon. In coming to conclusion of chargeability of 10 per cent of tax, I have presumed that the sale of units of UTI leadership equity fund was subjected to securities transaction tax. The pension and interest income of Rs 2,40,000 would be taxable on the basis of your status i.e. whether you are a senior citizen or not. In case you are not a senior citizen, the tax payable on Rs 2,40,000 would be Rs 23,000 plus Rs 460, being the amount of education cess at the rate of 2 per cent. However, in case you are a senior citizen, the tax payable would be Rs 11,000 plus Rs 220, being the amount of education cess at the rate of 2 per cent.

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