B U S I N E S S

Jet Airways entry in US faces turbulence
Washington, June 4
Jet Airways finds itself at the centre of another controversy with an American aviation company trying to scuttle their plans to start services to the US from June 23 by accusing it of having terrorist links which the US Transportation Department is looking into.

Petroleum Minister Mani Shankar Aiyar and his sister at the Wagah joint checkpost after crossing over to Pakistan on Saturday. The minister today began his historic visit to Pakistan amidst US pressure on New Delhi and Islamabad to shelve plans to import natural gas from Iran through a $ 4.16 billion pipeline. — Tribune Photo by Rajiv Sharma

Trade union opposes Nalco disinvestment
New Delhi, June 4
The CPM-backed Centre for Indian Trade Unions (CITU) today expressed its opposition to the government move to disinvest 20 per cent stake in the profit making public sector undertaking Nalco.

A model presents a creation ‘East’ by Belarus designer Evgeny Zaraiski in Minsk, Belarus, late on Friday evening. The collection was shown as part of the International Festival of Vanguard Art, Mammoth. — AP/PTI

Today is World Environment Day
Ecology and business should go hand in hand
J UST as management of quality, health and safety is established as essential to effective business practice, so, too, is the management of environmental issues.

AVIATION NOTES

Many operators may call it quits
A S the new millennium struck, there was turmoil in the aviation Sector worldwide. There were apprehensions that small players would drown in vicious whirl pools. For a year or so, the situation was fluid.

Investor guidance

Is LTA a fringe benefit?
Q: Just wanted to know about LTA for the employees, which comes under the preview of Fringe Benefit Tax, but still employees get the benefit of two exemptions in a block of four years. Can you let us know how effectively could we make use of this route to benefit corporate employees?

Jet Airways entry in US faces turbulence
T V Parasuram

Trade union opposes Nalco disinvestment
Tribune News Service

New Delhi, June 4
The CPM-backed Centre for Indian Trade Unions (CITU) today expressed its opposition to the government move to disinvest 20 per cent stake in the profit making public sector undertaking Nalco.

“Shocked to note that even before the protest against 10 per cent disinvestment of BHEL has dies down, the government is proposing 20 per cent disinvestment of Nalco,” the trade union said in a statement.

The statement of Ministry of Mines and Nalco management clearly shows that without any consultation, Finance Ministry is taking overenthusiastically proactive interest in disinvestment of profit-making PSUs, which is not at all an agenda in NCMP, it said.

“Paradoxically the revival of sick PSU, which is one of UPA government’s task in CMP, is being ignored because of lack of initiative and negative approach by the Finance Ministry,” CITU said.

The trade union said disinvestment has been officially delinked from the budgetary exercise. Finance Ministry should recluse itself from such exercises, which comes under the domain of the concerned Ministry and the PSU.

CITU urged on the Ministry of Mines to adhere to its stand on non-disinvestment of Nalco. The 26-member executive, which began deliberations yesterday, would conclude its session tomorrow.

“The government has no right to go for disinvestment of the profit-making PSUs and the Navratnas,” CPI general secretary A B Bardhan said.

Meanwhile, the CPI today dubbed the UPA government’s imminent move to hike the oil prices as “politically incorrect and economically unwarranted.” The party threatened to launch nationwide agitation if the government goes ahead with its move.

JCT moves from red into black
Tribune News Service

Today is World Environment Day
Ecology and business should go hand in hand
Avtar Singh

JUST as management of quality, health and safety is established as essential to effective business practice, so, too, is the management of environmental issues. Keeping pace with the growing consciousness of a greener environment, the Bureau of Indian Standards (BIS) has been conscious of the problem right from the early sixties when it initiated programmes to develop standards for pollution control programmes.

The then Indian Standards Institution (the predecessor body of the BIS) took the initiative to set in motion a process of developing and providing standards on different preventive and curative aspects of the problem of maintaining the environment. The first priority naturally went to water, which is an important requisite for various requirements of domestic, agriculture and industrial use. Work related to air-pollution was taken up in the early seventies and for solid waste management and noise pollution problems in the late ’70s.

Till date, nearly 500 standards are available on environmental issues. In addition standards are also available on a number of allied aspects.

To derive full advantage from the available standards it is imperative that they are adopted in actual practice both by the regulatory authorities and the manufacturing units discharging effluents into the environment.

It may be mentioned that pollution aspects and the need for compliance to prescribed standards should be taken into account right at the stage of planning of an industry. Proper management of environmental aspects at this stage saves installation cost, processing costs and also costs associated with potential future liabilities including expensive, clean-ups. Making provisions for suitable safety measures at the stage of planning and construction of a plant works out considerably cheaper compared to capital outlays on retrofits.

Business is inherently pragmatic. All business people need to understand that environmental tide has not been turned and that far higher environmental seas are on the horizons. With population and industrial growth both rising we are only at the beginning of an era where environmental concern will become an ever-increasing aspect of our existence. Thus the need of the hour is that the business community applies the wisdom to dovetail and integrate key environmental issued with business strategy to achieve both economic and ecological growth, thereby moving towards ‘sustainable development’ and ‘beyond greeting’ in the next millennium.

With the growing concern for environment friendly industrial activity, the BIS launched Environment Management System (EMS) Certification. The BIS has so far granted 100 licences. In this certification, the companies are not only required to comply the national regulations related to environment protection but also its commitment to environment management in totality.

The writer is Deputy Director-General of the Bureau of Indian Standards.

AVIATION NOTES

by K.R. Wadhwaney

Many operators may call it quits

AS the new millennium struck, there was turmoil in the aviation Sector worldwide. There were apprehensions that small players would drown in vicious whirl pools. For a year or so, the situation was fluid.

The Indian civil aviation, always in trouble, was also mired with several ‘ifs and buts’. But instead of plunging into darkness, Indian Airlines in particular and some private operators in general, translated difficult scenario into successful turnaround, to the surprise of all.

The in-depth and threadbare study during the last four-and-a-half years shows Indian Airlines has achieved more ups than downs. It has spread its wings internationally to important places, like Singapore, Kuala Lumpur, Bangkok and Dubai. It is all set to make a start to the Europe and the US. It is also flying smoothly on domestic sectors after fulfilling ‘social responsibilities’ of operating flights to non-profitable routes. It has played a pioneering role in introducing ‘flexifare system’.

“Change is the essence of life,” it is said. But in the existing scenario, the continuity is the key to success, according to aviation analysts. They feel that changes at this crucial moment may not be very timely or rewarding.

Indian Airlines financial health has shown marked improvement because overhead expenses have been kept under check. No needless recruitment has been made. There is an urgent need to remove ‘deadwood’ from its corridors. But it can only be done in phases, says a senior official. “We are on the road to stabilisation,” added the official. The aircraft deployment is maximum without compromising maintenance and safety norms.

Indian Airlines LA management is aware that there is a talk for reducing fares further. The discounted fares have come to stay but fare structure is directly linked with air turbine fuel. The ATF prices, according to three veteran analysts, are like English weather. They are down one day and up the next. Airline officials are certain that fares will not reduce much in the long run. Analysts are also of the view that quite a few operators will fold up sooner than later because airline trade is directly linked with quality service and fuel prices.

According to foreign airline officials, there is an urgent need to upgrade airports. They are of the view that our international airports are also pygmies lacking in facilities. They are of the firm belief that tourist traffic will increase if both international and national airports have been equipped with proper amenities. Pointing out severa-shortcomings, they all were unanimous in saying why should there be paucity of ‘paper’ in the toilets?

Over all view is the both national carriers, IA and Air-India, here weathered the storm bravely and boldly. Both seem to be on road to returning to ‘happy days’. The hurdles for fleet expansions are about to end and soon they will have brand new aircraft to handle.

Investor guidance

by A.N. Shanbhag

Is LTA a fringe benefit?

Q: Just wanted to know about LTA for the employees, which comes under the preview of Fringe Benefit Tax, but still employees get the benefit of two exemptions in a block of four years. Can you let us know how effectively could we make use of this route to benefit corporate employees?

— Raghuveer

A: I must point out here that the LTA coming under Fringe Benefit Tax (FBT) is the propagation of media and other commentators assuming that this would be under the nomenclature of “Employee Welfare” in the FBT section. The same goes for HRA, conveyance allowance, medical reimbursement etc. However, there is also a school of thought, which says that these are exemptions specifically granted by the Income Tax Act to the employee. The CBDT always had the right to tax these. However, the law intended the employees to get some exemptions and that is how the rules were laid out. In other words, these are not fringe benefits from the employer like those envisaged by Section 115WB. I expect some clarifications on the issue shortly from the government.

In any case, assuming that the LTA is indeed under the purview of FBT, the employer has the option of either bear it or pass on the tax component of the same to the employee by way of a lower allowance. Note that the effective tax rate would be 6.73 per cent.

NRI investment

Q: What are the taxes applicable to a NRI mutual fund investor? What taxes or charges the mutual fund company will charge at the time of redemption of funds.

— Viren

A: This is a vast subject. We shall try to answer it as briefly as is possible. If you are not satisfied with the answer, please revert with specific query related with you.

An NRI can invest in MFs through his non-repatriable funds in India or through his forex earnings. In the former case, the tax laws applicable are identical with those of the Residents. If he applies his forex or contributes through his NRE, the amount originally invested is repatriable but there is no change in the taxation aspect.

Equity-based MF schemes are governed differently from the debt-based schemes. In both the cases, dividend is tax-free in the hands of the investor. However, there is a dividend distribution tax @14.025 per cent payable by the MF directly to the exchequer in the case of debt-based whereas the equity-based are exempt from this tax.

Equity-based schemes are also exempt from long-term capital gains tax. The short-term capital gains are taxed @10 per cent only.

In the case of debt-based schemes, short-term gains are treated as normal income of the assessee and taxed at the rates applicable to the assessee. The long-term gains will attract tax @10 per cent without indexation or @ 20 per cent with indexation, whichever is more beneficial to the assessee.

Equity-based MF schemes are unique in enjoying the following four tax concessions which no other avenue is blessed with —

1. Dividend is tax-free.

2. There is no dividend distribution tax.

3. The long-term capital gain is exempt.

4. The short-term capital gain enjoys the concessional flat rate of tax @10 per cent.

House possession

Q: I had booked a villa in Goa in 1995 for Rs 38 lakh. I paid the 1st instalment of Rs. 5 lakh in 1995 and signed the agreement. Subsequently, I have paid in five yearly instalments spread between 1995 and 2000 to complete the amount, at approx. 6 lakh per instalment and took possession in 2000 after paying the last instalment. I sold it in March 2005 at Rs. 60 lakh. My query is as follows:

a) Can I index each amount paid from the time of payment till the sale date of the villa?

b) Or do I have to index the whole amount of Rs 38 lakh from 2000 (when I took possession) to 2005.

In the first case I will be getting indexation benefit for 10 years for the initial payment, 9 years for the second payment and so on. In the second case I will only get five years for the whole amount. Which is the correct method for income-tax purposes. The first method is obviously more beneficial to me.

I will be grateful for your expert comments and advice.

— Rajinder Mody

A: The Act is silent on this aspect. However, it is my considered opinion that — you had earned a right to own a villa in 1995. The cost of acquisition of this right is Rs 38 lakh. The fact that you did not pay the entire sum in a lump sum is immaterial and inconsequential. Had you sold the right to the villa before the villa was ready for possession, you would have earned capital gains, long-term or short-term depending upon whether you sold the right to the property after or before three years from the payment of your first instalment.

After the house is ready and you have taken possession, it becomes a different story. The clock for long-term or short-term starts once again from the date of your taking possession but the cost of acquisition remains Rs 38 lakh. You have to index the whole amount of Rs 38 lakh from 2000.

Redemption value

Q: If we choose dividend reinvestment option for investing in mutual funds then at the time of redemption of accumulated units, shall we get tax benefit on the redemption value? Is it exempted from tax?

— Debashish Khare

A: This redemption value would be subject to the provisions of capital gains. If the units are of an equity-based scheme of MF, the Long Term Capital Gains (LTCG) portion would be exempt and the Short Term Capital Gains (STCG) will be taxable @ 10 per cent. The LTCG from other units of MF will be taxable @ 20 per cent on indexed or @ 10 per cent on without indexation, whichever is lower. The corresponding STCG will be added to income and taxed accordingly.

But the basic answer to your question is that where the LTCG is tax-free there is no fiscal advantage between the options. However, where there is tax incidence, dividend reinvestment will work out to be fiscally more advantageous than growth.

The author may be contacted at wonderlandconsultants@yahoo.com 

BRIEFLY

Emecure pact
Mumbai, June 4
Emecure Pharmaceuticals Ltd has signed a Memorandum of Understanding (MoU) with Actavis Pharma of Iceland for the supply of drugs to Russia and other CIS countries. Emecure in a statement here today said the MoU was in addition to the existing collaboration between the two companies for the supply of generic drugs to the regulated markets. — UNI

Bokaro Steel
Bokaro, June 4
Bokaro Steel Plant of SAIL has decided to forge 50:50 joint ventures for setting up cement and power plants here at a total investment of Rs 2,800 crore. The company, the first among SAIL plants to foray into the cement sector, would soon invite expression of interest from cement majors for setting up a plant at a cost of around Rs 350 crore. — PTI

Leelaventure
Mumbai, June 4
The Board of directors (BoD) of Hotel Leelaventure, in a meeting held on June 3 have decided to raise around $ 90 million or its equivalent in any other foreign currency through issue of securities to fund new hotel projects and will also acquire a hotel in Kerala, as per a BSE release. The board has also approved the acquisition of an existing operating hotel located at Kovalam beach in Kerala. — UNI