The Tribune, Chandigarh, India

RNRL, RPower boards mull merger today

Mumbai, July 3
With Reliance Natural Resources Ltd losing much of the relevance it was originally created for -- sourcing and supply of fuels, its board will tomorrow consider merging itself with the sister concern Reliance Power.

The boards of both RNRL as well as Reliance Power will meet tomorrow to consider the merger, which will create a new entity with a combined market worth of Rs 50,000 crore.

The merger could possibly be through a share swap deal.

Spokespersons of the group firms remained tightlipped about the rationale and modalities of the merger, which would create an entity whose market cap would still be less than half of the initial market value of Reliance Power alone.

On its first day on bourses, post the country's biggest ever IPO of Rs 11,500 crore that is still the only IPO that Anil Ambani's group came out with ever since he split from elder brother Mukesh in June 2005, R-Power figured among the top 10 valued firms, but currently ranks 30th.

RNRL was born out of the demerger of Dhirubhai Ambani's Reliance empire five year ago. The purpose of creation of RNRL was for sourcing, supply and transporation of fuels, primarily natural gas.

As per the demerger scheme, RNRL was to source natural gas from Reliance Industries and trade it to ADAG power plants, including the proposed mega 7,800-MW Dadri unit near here being set up by R-Power.

However, with the Supreme Court on May 7 upholding the government policy on pricing and utilisation of natural gas, RNRL almost had no role left in supply of gas to R-Power.

According to the government's Gas Utilisation Policy, trading or profiteering from natural gas sales is not allowed — no company can buy the fuel from a producer and sell it to an end consumer like a power firm for a margin. — PTI

Aviation Notes
Need to abolish airport tax
by KR Wadhwaney

Civil aviation bigwigs are not favourably inclined for a tunnel between 7 Race Course Road and the Safdarjung airport. They are of the firm view that the civil aviation in the country has been in crises. It needs to be strengthened by re-utilising the Safdarjung airport for upgrading flying and training of pilots. They feel that it will be beneficial to all if the residence of the Prime Minister is moved from the current location to a safer place instead of constructing a tunnel, which will require an additional quantum of security personnel to ensure hassle-free movement between residence and airport and back.

The Safdarjung airport is ideally situated for training of pilots since the Indira Gandhi Uran Academy at Rae Bareli is passing through a lean phase. Home-trained commanders are the need of the hour. Their induction in commercial outfits will reduce accidents. The Mangalore accident occurred as the command was with the foreign pilot. The actual reasons for the mishap will be known only if there is a judicial probe. Any laxity in this regard means compromising safety norms..

The more travelling public protest, the more taxes are levied. Now, there is a heavy quantum of service tax in addition to several other taxes. The total valuation of air ticket shows that there are taxes and fees than basic fare. Since service tax is being levied, why not do away airport development tax, which goes in the pockets of the private builders.?

Such taxes are anti-tourism and India lags behind small countries like Sri Lanka and Thailand in tourism.

British Airways has shown exemplary vision to woo students seeking admissions in the UK and the US. The statistics show that more than 15000 students secure admissions abroad. Why cannot NACIL initiate such a plan to woo passengers? The pity is that the national carrier continues to withdraw operations from lucrative routes and allow private airlines to fly to these destinations.

The Airport Operations Control Centre (AOCC) has started operating at the massive new Terminal -3, which was inaugurated amidst a lot of pomp and show on July 3. The operations, both international and domestic, will, however, begin from the second week of the month. All airlines have started shifting. There are complaints from foreign airlines but the officials say that everything will fall in groove with the passage of time. The ultra-modern device will monitor movement of every passenger. It is a nerve-centre for all operations that take place on and around Terminal -3.

Will installation of AOCC reduce instances of pilferages and thefts? The officials feel that the operations will help improve safety and security.

Investor Guidance
Pension applicable to NRIs
by AN Shanbhag

Q: Does Indian pension continue to be paid if pensioner acquires foreign citizenship? What is position of Indian taxes payable in a situation where the pensioner is NRI and in the process of acquiring foreign citizenship. The pension is only source of income and pensioner is a lady and the pension amount is below annual threshold of Rs 190,000. — Meena Raj

A: Yes, pension will continue to be paid irrespective of change in citizenship. Take care that the pensioner redesignates her resident savings account to NRO. Once this is done, the pension may be credited to the NRO account. Indian tax is payable only if the total taxable income is above the basic exemption limit of Rs. 1,60,000 in the case of general taxpayers, 1,90,000 in the case of ladies and Rs. 2,40,000 in the case of senior citizens. However, the enhanced limits are only applicable to Indian residents and not to NRIs. If the lady drawing the pension is NRI, then the general limit of Rs. 160,000 will be applicable to her and hence the extra amount of Rs. 30,000 will be subjected to tax. Also a tax return needs to be filed.

Capital gains on IT slab

Q: My question is whether income tax slabs are also applicable for capital gains? For example, say a person having annual total income of Rs 1 lakh is also having a short-term capital gain by selling some shares. The capital gain amounts to just Rs 5,000 and hence the total income is Rs 1,05,000. Whether he has to pay tax on the Rs. 5,000? — Nagaraj

A: Though short-term capital gain on shares is taxed separately @15 per cent, if the total income of the taxpayer inclusive of the short-term capital gain is below the tax exemption limit, then no tax is payable on the short-term gain. In the example cited by you, since the total income including the short-term capital gain is Rs. 1,05,000, since it is below the tax exemption limit of Rs. 1,60,000, no tax is payable. However, note that the above concession is not available in the case of NRIs.

Plot as gift

Q: I got a plot as gift in February 2010 and paid the stamp duty for the same making the total cost 10,50,000. I also had a salary income of Rs 1,05,000, and invested Rs. 25,000 in tax saving mutual fund for FY 09-10. Now I am selling the plot in June 2010, with an estimated capital gain of Rs. 5,50,000. I don’t have salary or any other income for FY 10-11.

What will be my tax liability and is there any exemption that I can claim - if not how can I save some tax? — Harshal Karwa

A: Assuming that the person who gifted the property to you was holding it for over 3 years, you will have incurred long-term capital gains. We are not sure about how you have computed the estimated capital gains. Here is how it is to be done.

For computing long-term capital gains arising out of the subsequent sale by the donee or the legatee, the cost of the property is the cost incurred by the donor when he originally acquired it, or if the property was acquired by the donor prior to 1.4.81, the Fair Market Value as on 1.4.81 as assessed by an official chartered valuer, whichever is higher. Explanation ‘iii’ to Sec. 48, defines ‘indexed cost of acquisition to mean an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the financial year (FY) in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 1981, whichever is later’.

This means that in the case of an inherited or gifted property, the cost of acquisition is the cost to the original holder (or FMV as on 1.4.81) but the date of acquisition for indexing should be taken as the date of the inheritance or the gift. However, the character of long or short-term depends upon the date of acquisition of the original holder. In case this original holder has also acquired the property by way of gift or inheritance then it will be the date of very first holder who purchased or constructed the property.

This may end up in some strange results as in your case. When you sell the property, it will be treated as sale of a long-term capital asset, irrespective of your holding period but the ratio for computation of indexed cost will be the CII of FY in which you have sold the property and the FY in which you became its owner.

You will be liable to pay tax @ 20% on the LTCG less the tax-threshold applicable to you (we assume your status is Resident Indian). You can save this tax by investing the taxable capital gains in Capital gains Bonds of REC or NHAI within 6 months from the date of sale.

PPF A/c

Q: I have a brief query. I am utilising the full limit of my PPF A/c. viz. Rs.70,000. This year for seeking full relief u/s 80C of Rs 1 lakh, I intend to contribute to the PPF accounts of my major son /daughter by depositing another Rs.30,000 by cheque (s) drawn on my own bank a/c (s). Will it be in order for me to achieve the desired objective? — GS Khurana

A: Contributions by the assessee to the PPF accounts of the spouse and children major or minor, married or otherwise, male or female, dependent or not, children are eligible for the rebate. As a matter of fact, a parent may contribute even in the name of a married daughter and still claim rebate. Such contributions are construed as a gift.

At its maturity, if the account is closed and the funds are reinvested, clubbing provisions becomes applicable in the case of spouse and minor children. If the child is major at that stage, there is no clubbing.

However, as per Notification GSR 908(E) dt 6.12.00 the ceiling on the aggregate contributions to accounts of self and all the minor children of whom the individual is a guardian is Rs. 70,000. This means that if an individual contributes Rs. 1 lakh to the accounts of himself and his major children (or the spouse) he can claim the full deduction of Rs. 1 lakh u/s 80C.

The author may be contacted at wonderlandconsultants@yahoo.com