A-I needs to learn from mistakes
Some learn from the mistakes of others; a few learn from their own mistakes. But Air-India (A-I) continues to be a difficult learner in every aspect of airline functioning.

INVESTOR GUIDANCE

Employer legally bound to provide Form 16
Q: I worked for a company for four months (Sarnoff Innovative Technologies). I am asking them to send my Form 16, but they are delaying, sometimes the concerned person says, we will send soon, sometimes something else. I have also been facing similar harassment in getting my PF cleared from them.

 

New Delhi, March 19
The two-day G-20 ministerial meeting, which concluded here today, set a five-year deadline for substantial reductions in trade distorting domestic support by developed countries and elimination of all export subsidies in the field of agriculture with front-loading of commitments.

The five-page declaration circulated after the meeting here today, stated that an early agreement on elimination of export subsidies within five years would inject a new momentum to the agricultural negotiations in the WTO and on other fronts.

The declaration states that: “in order to fulfill the mandate of ‘substantial reductions in trade-distorting domestic support’ negotiations should determine base periods and initial and final numbers for the overall trade-distorting domestic support in a technically consistent and politically credible manner….. Moreover, such reductions should be necessarily complemented by further disciplines in the Blue Box and the Green Box in order to avoid mere box shifting.”

Commerce and Industry Minister Kamal Nath, who chaired the meeting, said the G-20 would press on the “Gateway Issue” of converting tariff reduction from specific to ad valorem rates.

Effectively this means the G-20 has demanded that developed countries should shift their tariff valuations from specific ad valorem rates. “About half of the EU nationals and about 30 per cent of the US tariff lines are specific. On the other hand, India has this duty structure for only one item — almonds,” Mr Nath said.

“The Group’s identity is deeply linked to the development dimension of the Doha Round. Agriculture is vital for all developing countries and is central to the Doha Development Agenda. Our common goal is to put an end to trade-distorting policies in agriculture maintained by developed countries thus, contributing to growth and development of developing countries and their positive integration into the world trading system. This would be a major contribution to the development objectives of the round,” the declaration said.

The declaration articulates the common strategy and position evolved by member countries during the two-day meet, saying that the ministers reaffirmed the commitment to progress in the Doha Round of WTO trade negotiations in 2005 with a view to arriving at an agreement on the modalities for negotiations during the Sixth Ministerial Conference of the WTO scheduled to be held in Hong Kong in December 2005. “This is a necessary step in order to complete the (Doha Round of) negotiations by 2006,” it says.

Calling for the rules to “equitable, fair and just” to all countries, Mr Nath said a new world trade order can be institutionalised only through consensus. “We can’t have one country or small group of countries dictating the rules to all members.”

On the crucial issue of market access, the ministers reaffirmed the long held view of the G-20 that the tariff reduction formula is the main component of the market access pillar and should be negotiated before addressing the issue of flexibilities. In this regard, they underline that the tariff reduction formula must contain: (1) progressivity — deeper cuts to higher bound tariffs (ii) proportionality — developing countries making lesser reduction commitments than developed countries and neutrality in respect of tariff structures; and (iii) flexibility — to take account of the sensitive nature of some products without undermining the overall objectives of the reduction formula and ensuring substantial improvement in market access for all products.”

The ministers strongly stressed that special and differential treatment for developing countries must constitute an integral part of all elements with a view to preserving food security, rural development and livelihood concerns of millions of people that depend on the agriculture sector. The declaration emphasises that the concepts of Special Products and Special Safeguard Mechanism are integral elements of special and differential treatment for developing countries.

They also stressed that the elimination of tariff escalation is important for developing countries, as it would allow them to diversify and increase their export revenues by adding value to their agricultural production.

In this context, the G-20 has noted with concern the increasing use of non-tariff barriers by developed countries, which are acting as impediments to exports to products of interest to developing countries.

New Delhi, March 19
Terming the reform agenda of the 2005-06 Budget as "very positive", the International Monetary Fund today pegged India's economic growth at 6.7 per cent next fiscal and praised the country's monetary management to absorb the oil shocks to keep prices low.

"We think that the actual rate of growth looks like 7.5-8 per cent in the medium term. That's a healthy objective," IMF Managing Director Rodrigo de Rato said, adding the growth is likely to be 6.7 per cent next fiscal.

Appreciative of the Budget for allocating more resources to social and infrastructure sectors, he said the "pause" in reducing Revenue Deficit will not significantly impact the fiscal reforms started last year.

However, he said India needs to accelerate and broaden reforms, especially trade reforms. Rato had meetings with Congress chief Sonia Gandhi, Prime Minister Manmohan Singh, Planning Commission Deputy Chairman Montek Singh Ahluwalia, Finance Minister P Chidambaram, Commerce Minister Kamal Nath and RBI Governor Y V Reddy during his three-day visit to India. — PTI

New Delhi, March 19
Finance Minister P. Chidambaram yesterday said the government will “monetise” a portion of its equity in public sector undertakings (PSUs) even as he maintained that equity would not be sold “just for the sake of disinvestments.”

“We are not going to sell public sector companies just for the sake of disinvestments. The government will monetise a part of its capital when PSUs approach the market for raising more funds,” Finance Minister P. Chidambaram said here yesterday while replying to the debate on General Budget 2005-06.

At the same time, he said, chronically loss-making PSUs will have to be sold and proceeds from disinvestment would be parked in the National Investment Fund.

He also indicated that profit making public sector companies would be given more autonomy and capital, in line that commitment made under the National Common Minimum Programme (NCMP) of the UPA government.

The proceeds of disinvestment would be utilised in providing equity to other PSUs and also in funding social sector projects, he said.

AVIATION NOTES

by K.R. Wadhwaney

A-I needs to learn from mistakes

Some learn from the mistakes of others; a few learn from their own mistakes. But Air-India (A-I) continues to be a difficult learner in every aspect of airline functioning.

For decades, consolidators/GSAs (general sales agents) have made heavy dents in the earnings of Air-India worldwide. Several scams have surfaced at important stations, like New York, United Kingdom and Dubai. While Air-India has sustained enormous losses, these consolidators have gone scot-free by declaring bankruptcy.

Airlines are forbidden from offering discount/ commission while selling tickets directly. If and when such a situation arises, the airlines bring into play agents who offer discount to the passenger and the remaining commission is split between the agent and the airline official concerned.

As carriers are barred from giving discount, the agent has become a ‘necessary evil’ in airlines trade. The IATA-approved agents now get 7 per cent commission and consolidators get 9-10 per cent commission (until recently agents used to get 9 per cent and consolidators 12 per cent). Often, agents transfer their business to the consolidator and thereby offer all 7 per cent commission to the passenger and the remaining 2-3 per cent is split between the agent and the consolidator.

According to unwritten rules, the consolidators are appointed at only such stations where airline has skeletal staff. This being the case, it is difficult to understand why Air-India continues to have a consolidator in Delhi where it has an ‘army’ of sales officers. Most of the times they are busy entertaining a few favourites from bureaucracy or corporate world.

Instead of reducing or doing away consolidators, Air-India is seriously contemplating reducing agents’ commission from seven to five per cent. The agents, a powerful unit, feel that this reduction is uncalled for. They have declared a war on Air-India and if they translate their threats into reality by refusing to sell Air-India tickets, the loss will be of the nation carrier. Any decision taken in haste is always counter-productive. Reducing commission is not the answer to reduce operating losses. (Air-India is the only airline which has reported operating losses for the year ending March 31, 2004).

Airline trade is complex; travel agents’ trade is tricky. Barring a few agents, who care for their reputation and display professionalism in their dealings and functions, many others are unscrupulous. They are guilty of human trafficking and indulge in several unethical practices. They are the ones who have destroyed the very fibre of the travel agents trade in this country.

Worldwide, there is rethinking among affluent airlines. Quite a few renowned carriers are gunning for reducing agents’ commission. They may have justifiable reasons for reduction. But they will succeed only when they are united. 

INVESTOR GUIDANCE

Q: I worked for a company for four months (Sarnoff Innovative Technologies). I am asking them to send my Form 16, but they are delaying, sometimes the concerned person says, we will send soon, sometimes something else. I have also been facing similar harassment in getting my PF cleared from them.

Now I got a mail saying that they will send me Form 16 only when they send to their other employees. I resigned about 5 months ago and have been requesting for Form 16 for the last three months.

Can I get my Form 16 from the previous employer after resignation or do I have to wait? Is there a specific time when Form 16 will be compulsorily issued by the company? Can I get it sooner as I want to get rid of the harassment I have been facing in other PF clearance also? So I want to get my Form 16 fast and close all my relations with this company.

— Ashok Srivastava

A: The employer is supposed to issue the certificate within one month from the end of the relevant financial year.

When employees change jobs, most often they find that their ex-employer does not issue the Form 16, which indicates the salary earned from him and the TDS thereon, though it is mandatory to do so. To cater for such situations, Section 192(2) has provided for Form-12B as prescribed by Rule 26-A. This is required to be filled and verified by the employee and submitted to his new employer. The ex-employer does not have to come in the picture. You may use the salary slips of the ex-employer for the purpose of picking up the necessary information.

Incidentally, it is mandatory for the ex-employer to give the requisite certificate and there are stringent penalties. You may report to your ITO this fact and pray for protection u/s 205 which provide as under :

"Where tax is deductible at the source under (section 192 to 194..., the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income."

Once tax has been deducted u/s 192, the tax deductor is bound by Sec. 203 to issue the certificate of tax deducted in Form-16. The Gauhati High Court has in the case of CIT v Om Praksash Gattani 242ITR638 held that the payer i.e. the person responsible for deducting the TDS would be deemed to be an assessee in default in case he deducts the amount and fails to deposit it in the Government Treasury. The payee has no control over discharge of tax liability by the deductor.

In view of the above you must file the return of income claiming TDS even if the same is not remitted to the government by employer. The department is bound to give credit for the same. Since employer has not issued Form 16, you can file the return along with proof of request for issue of Form 16 and monthly salary slips received.

Ultra Tech shares

Q: Please refer to your answer in reply to question by Shri. K. V. Vishwanathan which appeared on October 17, 2004 under the caption "Confusion prevails over Ultra Tech Cemco shares." In the last para of your answer you had asked if readers have any other opinion regarding the tax treatment. I am broadly in agreement with your reply in the first para.

Pursuant to the scheme of Arrangement sanctioned by the Hon’ble High Court of Bombay on April 22, 2004, and declared effective on May 14, 2004, the cement business of L&T Ltd. (demerged company) was demerged into Ultra Tech Cemco Ltd. with effect from April 1, 2003. The shareholders of L &T Ltd., as on March 31, 2003 were shareholders in the cement business and the balance business of the demerged company. On April 1, 2003, they, de juro, became shareholders in Ultra Tech Cemco Ltd. The erstwhile shareholders of L&T Ltd., who continued to be shareholders of L&T Ltd (demerged company) were allotted shares of Ultra Tech Cemco Ltd. on May 31, 2004. As per the specified and sanctioned arrangement such shareholders became de facto shareholders of Ultra Tech Cemco Ltd. w.e.f April 1, 2003.

The sale of shares of Ultra Tech Comco Ltd against open offer by Grasim will be subject to LTCG/LTCL depending upon the cost of purchase of original L&T shares.

Please examine if there is any flaw in my views.

— J. S. Singhota, SAS Nagar

A: At the outset, thanks a million for the guidance provided by you in respect of L&T and Ultra Tech Cemco shares. I fully agree with your view that the sale of shares of Ultra Tech as well as the new shares of L&T would be subject to the provisions of capital gains tax and this tax will depend upon the cost of acquisition of the old shares. My only problem arises from the fact that I do not know what is the bifurcation of my cost of acquisition of the original L&T share between L&T and Ultra Tech post merger.

Suppose an individual had purchased the original L&T for Rs 500 per share. The original L&T share of Rs 10 face value is bifurcated as 0.5 shares of Rs 2 face value of L&T and 0.4 shares of Rs. 10 of Ultratech Cemco totaling Rs 5. Can the cost of acquisition of L&T post-merger share be taken as Rs. 100 (= 500*1/5) and Ultra Tech as Rs. 400 (= 500*4/5)? Though this appears to be a logical solution, I am not comfortable with it. The court (or L&T) should have indicated the ratio of the value of assets transferred to Ultra Tech and the value of the balance assets remaining with L&T.

Unfortunately, without knowing this ratio, different experts, particularly ITOs, will have different views and may result in many litigations.

Stamp duty

Q: The Finance Act, 2002, has introduced a new Section 50-C w.e.f. A.Y. 2003-04 according to which where the consideration received on transfer of a capital asset effected after March 31, 2002, in respect of land or building is found to be less than the value adopted by the Stamp Authority for the purpose of levy of stamp duty, then the value adopted by the stamp authorities will be deemed to be the full value of the consideration for the purpose of computing capital gains u/s 48 of the Income Tax Act.

An individual sells land today (say long term):

Actual full one time final cash sale consideration received: Rs. 2 lakh

Indexed cost of acquisition as of today: Rs 1 lakh

Value adopted by stamp authority: Rs 6 lakh

Implications: Long-term capitals gain as per existing provision of Section 50C: Rs 5,00,000.

Now, the question is say this individual wants to take benefit of Section 54F by investing in residential house property.

What amount should he invest presuming other conditions are satisfied — Rs 6 lakh or Rs 2 lakh to get full capital gains exemption? In case the answer is he should invest Rs 6 lakh but he has cash of only Rs 2 lakh.

— Taxpayer

A: Your problem is indeed justified and many investors like you face this problem. In this context, the authorities seem to be taking the view that where the stamp duty valuation varies so much with the actual sale proceeds, the transaction is not being reported honestly and some unaccounted for funds are changing hands. Under this sweeping assumption, some genuine cases also suffer.

The law provides for the exemption on calculated capital gains. This may give rise to a practical difficulty in terms of availability of funds. However, unfortunately, there is no provision in the Act for the same.

The author may be contacted at wonderlandconsultants@yahoo.com