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THE TRIBUNE SPECIALS
50 YEARS OF INDEPENDENCE

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B U S I N E S S

Hutch deal: HC rules against Vodafone
n I-T department’s jurisdiction upheld
n I-T authorities have claimed Rs 12,000 cr as tax
Mumbai, September 8
The Bombay High Court today dismissed Vodafone International's plea challenging the I-T Department Rs 12,000 crore demand in tax and penalty on $11 billion takeover of Hutchison Telecom, a judgement that could impact foreign companies buying assets involving India firms.

Bollywood actress Bipasha Basu poses at the Audi India showroom in Mumbai on Wednesday.
Bollywood actress Bipasha Basu poses at the Audi India showroom in Mumbai on Wednesday. — AFP

Deregulation of interest rates on RBI radar
Mumbai, September 8
The RBI is considering the possibility of freeing the interest rate on savings account deposits in banks, according to its Deputy Governor Usha Thorat.

Sun to buy out Taro’s promoters
Mumbai, September 8
Sun Pharma, which got a favourable ruling from the Israeli Supreme Court in its takeover battle for Taro, today said it has offered to buy out the promoters of the Tel Aviv-based firm for $37 million. The promoters of Taro, the Levitt family, have a 12 per cent stake in Taro.






EARLIER STORIES

A six pack of Fosters beer is displayed at a store in Melbourne on Wednesday.
A six pack of Fosters beer is displayed at a store in Melbourne on Wednesday. Foster's Group Ltd, Australia's largest brewer, said it rejected a private equity offer worth up to $2.5 billion for its wine unit as too cheap and would continue with the split of its beer and wine businesses. — Reuters

Profitability of 3G services under a cloud
New Delhi, September 8
As the major telecom operators in the country prepare to roll out the 3G services, there is a big question mark over the profitability of these services for these operators.

Industry returns to Punjab
Projects worth ` 2,900 cr cleared
Chandigarh, September 8
For a change, Punjab is no longer being touted as an investment destination by the real estate sector alone. After ages, the state is being considered for investment by manufacturing sector.

Floods hit export of perishable items
Rajasansi (Amritsar), September 8
The export of fresh vegetables from the Perishable Cargo Centre at Rajasansi International Airport has drastically come down owing to recent floods in parts of Punjab.

Gold zooms to Rs 19,470
New Delhi, September 8
Gold prices scaled to a new peak of 19,470 per ten grams in the national capital today on brisk buying by jewellers to meet festival and marriage season demand amid a firm global trend.

Cement prices likely to go up
Chandigarh, September 8
The cement prices are likely to go up by 10-15 per cent in the next two months. Over capacity and a long monsoon had a bad impact on cement prices this fiscal, which have remained static for quite sometime.





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Hutch deal: HC rules against Vodafone
n I-T department’s jurisdiction upheld
n I-T authorities have claimed Rs 12,000 cr as tax

Mumbai, September 8
The Bombay High Court today dismissed Vodafone International's plea challenging the I-T Department Rs 12,000 crore demand in tax and penalty on $11 billion takeover of Hutchison Telecom, a judgement that could impact foreign companies buying assets involving India firms.

The court, however, gave liberty to Vodafone to argue before the tax department that no penalty should be imposed as they genuinely believed they had no liability to deduct tax at source.

Incidentally, the verdict came on a day when British firm Cairn Energy Plc said it would pay all taxes due, both in India and the United Kingdom, on the $8.48 billion sale of a majority stake in its Indian arm to London-listed Vedanta Resources.

Vodafone, through its group firm Vodafone International Holdings, in 2007 bought Hutchison Telecommunications India Ltd's (HTIL) stake in Hutchison Essar in 2007 for over $11 billion. Indian conglomerate Essar holds about 33 per cent stake in Vodafone India.

The I-T department held that Vodafone liable for not deducting tax at source from payment made to Hutchison and claimed around Rs 12,000 crore in tax and penalty on the deal.

A division Bench comprising Justice Dhananjay Chandrachud and Justice J P Deodhar held that Income Tax Department had the jurisdiction to tax the transaction.

"The transaction has sufficient nexus with India and the I-T department has the jurisdiction to levy tax on the transaction," the bench noted while delivering the verdict.

The moot question before the court was whether Income Tax (I-T) department can ask a foreign company to pay tax in India if it takes over another foreign entity that owns an Indian subsidiary, and particularly so, if the deal is made outside India? While the I-T contended that the transaction was liable for tax payment in India, Vodafone International Holdings contended that both the seller and buyer were foreign companies and that the deal was made outside India.

Reacting to the verdict analysts said it will make foreign players more "cautious" while making investments in India.

The court refused to stay its order to enable the petitioners file an appeal and allowed the proceedings to continue before the tax department. The judges, however, said that the department would not give its order until eight weeks.

Vodafone submitted that in the past, similar transactions have not been held eligible to taxation in India and that the Indian revenue authority has been stating through the media that the transaction in issue is a "test case". — PTI

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Deregulation of interest rates on RBI radar
Shiv Kumar
Tribune News Service

Mumbai, September 8
The RBI is considering the possibility of freeing the interest rate on savings account deposits in banks, according to its Deputy Governor Usha Thorat.

Addressing a bankers’ conference here today, Thorat said the liberalisation of savings bank deposit rates was part of the apex bank’s strategy to do away with administered interest rates. Once these rates are freed, banks would be allowed to set their own rates on savings account deposits.

"Deregulation of interest rates is an issue which is on the radar of the RBI,” Thorat said. She added that such measures would allow more people to avail of banking services.

Other bankers who attended the meet said measures like these would increase the cost of deposits for banks. SBI chairman O.P. Bhatt said banks which were depending on low-cost current accounts and savings accounts to generate capital would have to pay more for the same.

“It would, however, be good for the consumer,” Bhatt told reporters. Meanwhile, the RBI is tightening lending norms for infrastructure projects. The loan books of banks, Thorat said, already had a high exposure to infrastructure companies. This, she added, resulted in higher concentration risk. At present, banks’ exposure to infrastructure companies have been capped at 20 per cent of their capital.

Thorat, however, noted that non-banking finance companies were stepping into the void created by the reduced exposure of banks to infrastructure. She, however, warned that any sharp rise in lending by NBFCs to infrastructure companies could result in asset bubbles being created.

"Excessive borrowings beyond the need of production and investment can lead to potential asset bubbles and deterioration of credit quality," Thorat said. Many NBFCs are altering their business model to enter the infrastructure lending sector by raising funds from national and international capital markets. These institutions which do not suffer from the restrictions imposed on banks are able to provide loans at a cheaper rate to borrowers, Thorat admitted.

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Sun to buy out Taro’s promoters

Mumbai, September 8
Sun Pharma, which got a favourable ruling from the Israeli Supreme Court in its takeover battle for Taro, today said it has offered to buy out the promoters of the Tel Aviv-based firm for $37 million.

The promoters of Taro, the Levitt family, have a 12 per cent stake in Taro. Sun has been been fighting to take control of the Israeli firm since 2008, when their $454 million merger deal failed to materialise.

Sun, which is the single largest shareholder in Taro with a 36 per cent stake, said the Israeli Supreme Court had ruled in its favour in a case regarding an open offer by its arm, Alkaloida Chemicals, to acquire all the outstanding shares in the firm, paving the way for it to gain control of Taro.

"Sun has offered to buy 4.8 million shares of the Levitt family at a price of $7.75 per share, for a consideration of $37 million," a Sun Pharma spokesperson said.

The company will go for a management change as soon as it is able to complete the share transfer.

"We are ready to finally move forward now to close the offer and enforce our rights under the Option Agreement to purchase the Levitts' controlling shares," Sun Pharma CMD Dilip Shanghvi said.

Sun said the Israeli SC dismissed Taro's appeal and has withdrawn its temporary order that prohibited the closing of the offer before its ruling. — PTI

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Profitability of 3G services under a cloud
Girja Shankar Kaura
Tribune News Service

New Delhi, September 8
As the major telecom operators in the country prepare to roll out the 3G services, there is a big question mark over the profitability of these services for these operators.

Having spent huge amount to get the 3G spectrum in recent auction, the telcos will be looking to break even at the earliest to step onto the stairs for profits.

Nine telcos together spent about Rs 65,000 crore to get spectrum across telecom circles.

However, analysts point out that the lack of a significant user base for high-priced, value-added services (VAS) can prove to be a major impediment for the operators to cross over to the profit margin area.

Bharti Airtel and Reliance Communications (RCom) have said that they would be in a position to roll out the services by the year-end.

Market watchers point out that there are just about 20 per cent high value users of the over 650 million mobile subscribers in the country. Telecom operators will have to play around with this 20 per cent of subscribers only to get their revenue from the 3G services.

According to experts, the breakeven in 3G will be a factor of subscriber base. But there may not be an exodus between telcos till MNP (mobile number portability) is in full force and till such time subscribers would be using multiple SIMs to access 3G services.

They also point out that with every operator trying the same trick to attract subscribers, the fight may well end on the tariff and lower tariffs would again bring down the profits.

Although operators have been saying that 3G services would not be cheap, but with the number of subscribers being limited they may well not have a choice but to keep the services rate low.

A lot will also depend on the way telcos set price points for voice calls, video calls, and data services from circle to circle. Making the basic voice service subscriber shift to VAS would be another mountain to climb.

Incidentally, VAS currently contributes about 9% to the revenues of telcos in India.

Experts say that only when telcos would be able to generate 20 per cent of their revenues from 3G services would that be termed as a successful and sustainable model. A 3G user base of 3-4 million, as is the level of VAS subscribers with telcos, won’t be enough.

The crucial battle will be on how these services are priced and how quickly telcos generate the 3G subscriber base, experts say.

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Industry returns to Punjab
Projects worth ` 2,900 cr cleared
Ruchika M. Khanna
Tribune News Service

Chandigarh, September 8
For a change, Punjab is no longer being touted as an investment destination by the real estate sector alone. After ages, the state is being considered for investment by manufacturing sector.

According to information, in the past two months, the state has received investment proposals worth over Rs 1,800 crore in the manufacturing sector. Of these proposals, the screening committee of the Department of Industries and Commerce, Punjab, has already cleared projects worth Rs 990 crore last month, while projects worth another Rs 900 crore (in manufacturing sector) are in the pipeline. This means that besides adding to the state’s GDP, these projects will also help in generating more jobs. Interestingly, most of these projects are being set up in areas other than the periphery of Chandigarh.

This is perhaps for the first time since the Mega Projects Policy of the state government came into being that it has received so many projects in the manufacturing sector. Though the state government has cleared projects worth several lakhs of crores, majority of projects have been in the real estate sector, housing projects, integrated housing projects, hotels and commercial projects like industrial parks and IT parks.

Of the projects that have been cleared by the screening committee last month, one relates to manufacturing of freight cars/wagons in Fatehgarh Sahib (with an investment of Rs 330 crore), another for manufacturing of power plant ancillary equipment in Patiala (Rs 250 crore), an integrated sugar mill in Gurdaspur (Rs 300 crore) and a steel manufacturing unit in Patiala (Rs 110 crore). Besides these, projects worth Rs 1,010 crore, too, have been cleared. These relate to setting up of IT Park at Mohali, Ludhiana and Amritsar, and hotels at Hoshiarpur, Amritsar and Malout and Muktsar. A hospital and medical tourism hospital project has also been cleared for Ludhiana.

SS Channy, Principal Secretary, Industries, said now that these projects had been cleared by the screening committee, they will now ask the government to accept these proposals after getting their clearance in the Empowered Committee.

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Floods hit export of perishable items
Neeraj Bagga
Tribune News Service

Rajasansi (Amritsar), September 8
The export of fresh vegetables from the Perishable Cargo Centre at Rajasansi International Airport has drastically come down owing to recent floods in parts of Punjab.

The export of perishable cargo in the first quarter of the current financial year was paltry 1.44 lakh kg as compared to 3.28 lakh kg vegetables that were exported during the corresponding period last year.

Major portion of fresh vegetables from the Perishable Cargo is largely exported to Europe with London being the biggest market.

Similarly, 42,516 kg fresh cargo was flown out from this international airport in July last year whereas the amount of export during this July lowered to 28,719 kg.

In August, 27,192 kg of fresh vegetables were exported against 59,919 kg in the corresponding month last year.

The Perishable Cargo Centre, which was started in 2006, is being run by the Council for Value Added Horticulture in Punjab. Its CEO Sanjay Sen Budhiraj informed that flood in the parts of Punjab had hit the export of vegetable crops. Major loss of vegetables was registered in the fields falling along the Sutlej.

He said the main crop during this season was baby corn which is in great demand in London. He said baby corn was grown mainly in sandy soil, which is easily found in the areas adjoining Sutlej.

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Gold zooms to Rs 19,470

New Delhi, September 8
Gold prices scaled to a new peak of 19,470 per ten grams in the national capital today on brisk buying by jewellers to meet festival and marriage season demand amid a firm global trend.

The gold prices surpassed all previous records as they spurted by Rs 145 to Rs 19,470 per ten grams, on increased buying by jewellers and retailers to accommodate the seasonal demand for upcoming festival and marriage season beginning next month. — PTI

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Cement prices likely to go up
Tribune News Service

Chandigarh, September 8
The cement prices are likely to go up by 10-15 per cent in the next two months. Over capacity and a long monsoon had a bad impact on cement prices this fiscal, which have remained static for quite sometime.

The cement prices are likely to go up by Rs 15- 20 per bag, once the monsoon season gets over and demand for cement increases. The present cement prices range between Rs 220 per bag to Rs 250 per bag in north India, and around Rs 200-220 per bag in southern states. These prices are almost Rs 50 per bag less than the price last year.

This was stated by Yedupati Singhania, MD and CEO, JK Cement, during an interaction with mediapersons here today.

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