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Thursday, March 29, 2012

S. 80-IB(10): Multiple Housing Projects On 1 Acre Plot Permissible

CIT vs. M/s.Vandana Properties (Bombay High Court)

 The High Court had to consider the following questions on interpretation of s. 80-IB(10): (i) what is a “housing project” u/s 80-IB(10)?, (ii) whether if approval for construction of ‘E’ building was granted by the local authority subject to the conditions set out in the first approval granted on 12.5.1993 for construction of A and B building, construction of ‘E’ building is an “extension” of the earlier housing project for which approval was granted prior to 1.10.1998 and, therefore, benefit of s. 80IB (10) cannot be granted?, (iii) whether the housing project must be on a vacant plot of land which has minimum area of one acre and if there are multiple buildings and the proportionate area for each building is less than one acre, s. 80-IB(10) can be denied?, whether the merger of two flats into one so as to exceed the maximum size of 1000 sq feet violates the condition set out in s. 80IB (10)? HELD by the High Court:

Facebook plans IPO for May.

 Facebook (FB) intends to hold its IPO in May, The Wall Street Journal reports, with the company planning to release another amended S-1 filing prior to its offering after filing one on Tuesday. The speculation adds to reports that Facebook has halted the trading of its shares on secondary exchanges.

Monday, March 26, 2012

Import Duty on Gold doubled .

Citing heavy gold imports as a major reason for the high current account deficit, the Finance Minister decided to double the import duty on gold from 2% to 4%. Increase in levy is likely to discourage imports and impact the jewellery demand in domestic markets. It may be noted that recently government had changed the duty structure on gold imports.  The levy was now linked to the value rather than the quantum of bullion that was being imported. This had already led to an implicit rise in the duty on gold imports. And within a span of one month, the government has further proposed to increase the duty to 4%. Considering that India is the biggest importer of gold this would significantly impact the demand and may also give rise to illegal trafficking.         
Last year, Finance Minister Pranab Mukherjee had set an optimistic fiscal deficit target of 4.6% of GDP (Gross Domestic Product). That target just remained on paper. As reality caught up, the country's fiscal deficit zoomed to 5.9% of GDP. But people seldom learn from history. For the financial year 2012-13 (FY13), the deficit target has been pegged at 5.1% of GDP. Now, there are two key ways to the achieve that. One is, of course, by increasing revenues. The other one is by cutting expenditure. Given that subsidies form a significant part of the government's expenditure, it is almost impossible to lower the fiscal deficit without reducing subsidies. For FY13, the FM has set a subsidy target of less than 1.75% of GDP.  That is significantly lower than FY12 numbers which stood 2.5%. It must be noted that for FY12, the government's subsidy bill overshot by a whopping Rs 730 bn.
Subsidy on petroleum products was the biggest culprit for the massive jump in subsidy. In the last year's Budget, the government had assumed an average crude price of US$ 90 per barrel. In actuality, the price averaged much higher at around US$ 115. The recent Budget seems to be assuming a price of US$ 100, whereas crude prices are already hovering around US$ 125 per barrel. With tensions escalating in the Middle East, it is highly unlikely that crude prices would match with government's assumptions. And that's not all. The Food Security Act will also lead to a high subsidy burden. Any fifth grader who knows simple arithmetic would point out that the subsidy target is highly ambitious. So either the government is plain stupid, or trying to fool all of us.

Vodafone Retro Law Change Is A Failure Of National Governance: Dinesh Vyas

Eminent Senior Advocate Shri. Dinesh Vyas expresses anguish at the covert manner in which the retrospective amendments to nullify the judgement of the Supreme Court in Vodafone International vs. UOI was introduced in the Finance Bill 2012 without any reference being made to it in the Finance Minister’s Budget speech. Given the size & significance of the issue, the lapse of the Finance Minister is deliberate and a failure of national governance standards, he says, and adds that the Government’s clumsy attempt to change the law has caused, amongst big-ticket foreign investors, a loss of faith & confidence in India as a reliable investment destination.

The world stock markets ended the week on a sour note

 The US stock markets were down 1.1% during the week due to disappointing housing data. New home sales fell for the second straight month in February by 1.6% to 313,000. Fall in volumes suggested that the recovery in the US housing market may take longer than expected. Further, the factory data from Europe and China was also disappointing leading to a broader fall in global markets.The Indian stock markets were down 0.6% during the week. The post-budget trading session was filled with high volatility as markets see-sawed during the week. This was the fifth consecutive weekly loss for the markets as uncertainties still linger as to when the central bank would cut interest rates. Higher borrowing plans for the next fiscal have also worried markets.
Amongst the other world markets, Singapore was down by 0.7% while Japan was down 1.2% during the week. France was the biggest loser registering losses of 3.3% during the week.

Euro troubles not over.

There seems to be no end to the woes for the Eurozone economies. This is particularly true for the PIIGS countries (Portugal, Italy, Ireland, Greece and Spain). Greece is still not out of the woods despite several rescue attempts made by European Central Bank. But what is more disturbing is the health of the Spanish economy. Earlier, most economists were predicting that Italy may be the next Greece. However, the recent rise in Spain's 10-year government bond yield suggests an altogether different story. It has surged to 5.4% at the end of February 2012, 0.4% higher than its Italian counterpart. The main reason for the same is widening fiscal deficit in the Spanish economy. First, Spain missed its 2011 budget deficit target. Then, it tried to revise its 2012 budget deficit estimate from 4.4% of GDP to 5.8%. This was enough for investors to start losing confidence in the Spanish economy.
Not only investors but other European economies, especially Italy are also concerned. Italy has been trying hard to come out of its bad economic phase. Any fallout from Spain would push back the whole region to the crisis situation. And it would hurt the corrective measures taken by the Italian government as well. But will Spain go Greece way?

Recession concerns could trigger sell-off

  German IFO survey due out today will give an indication  on Euro zone growth prospects. The Yen meanwhile is  lower against  the Dollar and Euro
Earlier today the Dollar was up against the Euro and the  Japanese Yen. The greenback was supported by a rise in  U.S. bond yields. Any further signs of weaker Euro  zone economic activity should assist the Dollar in  sustaining gains against the single currency.

Sunday, March 25, 2012

Euro On The Rise, Yen Selling Continues

The Euro rose against the Japanese Yen on Wednesday but the Bullish trend may turn out to be short-lived, as many analysts believe it is being driven by short- term positioning.
Meanwhile, the Japanese Yen appeared weaker with traders favoring a Bearish outlook, prompting more selling of the Japanese currency

Monday, March 19, 2012

Speculators heavily short on Yen

Earlier today, the Yen still found itself on the defensive. The Euro reached a new 5 month high against the Japanese currency and the Dollar was still nursing losses, however was steady, after rally pauses late last week.
The Dollar retreated from an 11 month high of 84.187 Yen hit on Thursday and earlier today stood at 83.42 Yen.
Much depends on the BOJ's monetary policy when determining whether the greenback may rise further against the Yen in the coming months. Should the BOJ continue to push with new monetary easing measures and not do enough to convince the domestic market in Japan, that it is serious about raising the inflation rate to about 1%, then the Dollar/Yen could probably continue to rise.
Overall, the Dollar remained little changed against a basket of currencies at 79.791, having succumbed to profit-taking last week.
The Euro had dipped 0.1 percent to $1.3167.
It's worth noting that, not since 1999 have currency traders been bullish on the Dollar for so long as they have been recently. This seems a clear indication, that the market sees the U.S. resuming its role as the engine of global economic growth.

Yen Recovers After 5-Month Low Against Euro

The Japanese Yen retreated in early trading in Asia on Monday in a move which saw the Euro reach a fresh 5-month High.
However, the Euro found resistance and has since slipped off the recent High setting the Japanese Yen on the offensive.

Friday, March 16, 2012

After last week's cut in cash reserve ratio (CRR) for scheduled banks, the Reserve Bank of India (RBI) kept both CRR and repo rates unchanged in today's mid-quarter monetary policy review meet. In reaction to this, the Indian stock markets have fallen further into the negative territory after opening trade on a weak note. At the time of writing, BSE Sensex was down by 217 points (1.2%). Red marks were seen across all sectoral indices.  Asian stock markets presented a mixed picture with Japan (up by 0.7%) being the top gainer, while China (down by 0.7) faced selling pressure.

Wednesday, March 14, 2012

Greenback growth continues

Today, the Dollar strengthened across the board, hitting an 11 month high to the Yen
On Wednesday, the Dollar reached an 11-month high to the Yen and a 1-month high on the Euro.
The Federal Reserve's economic forecasts resulted in traders downplaying expectations of further monetary easing.

The greenback had hit a session high at 83.32 Yen, which was its highest level since mid-April.
A few other factors contributed to this. The U.S. 2-year Treasury yields have, for example, touched a 7 and a half month high after solid retail sales data, which made the Dollar less attractive as a funding currency for carry trades. It seems that Tokyo exporters were also reluctant to sell it as they expect more strength in the short term.

The recent easing steps by the Bank of Japan, the country's trading deficit and strong demand for fossil fuels after the recent nuclear crisis, have also contributed to the Dollar rising nearly 10% on the Yen from early February.
The greenback has also gained against other currencies, with its index hitting a 7 and a half week high of 80.42.

Meanwhile, in Europe, Germany's ZEW survey data leaped to its highest level since June 2010, a move which is prompting many economists to believe that Europe's largest economy has recovered from a weak patch

Tuesday, March 13, 2012

Yen Rebounds, Euro Still Hampered By Debt Doubts

The Japanese Yen bounced back after the BOJ policy meeting revealed no surprise policy easing for the single currency.
The Euro continues to be hampered by doubts that the debt crisis is over. As a result, the currency's outlook remains unstable seeing that the Euro Zone economy is slowly slipping into recession

Greenback gain holds - investors await news from Fed
A brighter US economic outlook has helped the Dollar.Earlier today, the greenback was testing a seven-week high against a basket of currencies. It was assisted by expectations that encouraging economic news would persuade the U.S. Federal Reserve, at least for the moment, not to apply any fresh stimulus.

The Dollar's overall strength was in contrast to the Euro's weakening, which saw it touch a one-month low on Monday. The common currency is still feeling the effects of fears that the European debt crisis could worsen again, even after Greece's success in concluding an historic debt-cutting swap deal.
Many market players remain uncertain about whether other southern European countries, like Portugal and Spain, can escape a similar fate.
The Euro stood at $1.3157 earlier today, having recovered from hitting a one-month low of $1.3079 on Monday.

Transaction within four corners of law can be treated as “sham” & “colourable device” by looking at “human probabilities”

Killick Nixon Ltd vs. DCIT (Bombay High Court)

In AY 2000-01 the assessee borrowed Rs. 48 crores from the G. K. Rathi group and used that to buy shares in three 100% subsidiary companies. Though the fair value of the shares was Rs. 24, the assessee paid Rs. 150 for each share. The amount received by the said subsidiary companies was transferred back to another company of the G.K. Rathi group. In AY 2001-02, the said shares were sold for Rs. 5 each and a short-term capital loss was claimed and this was set-off against other long-term capital gains. The AO, CIT (A) & Tribunal (order attached) rejected the transaction of investment into, and sale of, shares as a sham. On appeal by the assessee, HELD dismissing the appeal:

 Whenever there are reasons to believe that the apparent is not real; then the taxing authorities are entitled to look into surrounding circumstances to find out the reality and apply the test of human probabilities. The judgement of the Supreme Court in Vodafone International vs. UOI makes it clear that a colourable device cannot be a part of tax planning. Where a transaction is sham and not genuine, it cannot be considered to be a part of tax planning or legitimate avoidance of tax liability. It was clarified that there is no conflict between McDowell 154 ITR 148 (SC), Azadi Bachao Andolan 263 ITR 706 (SC) & Mathuram Agarwal. On facts, as the purchase and sale of shares was found to be a sham, the loss cannot be allowed (Sumati Dayal 214 ITR 801 (SC) followed)

Contrast with Azadi Bachao 263 ITR 706 (SC) where it was held that the “motive” of the transaction could not be examined & Wallfort Shares where “dividend stripping loss” was upheld.

Monday, March 12, 2012

Euro Slides After Greek Debt Swap

  The Euro slipped lower on Friday after Greece  announced that 85.8% of private creditors accepted  its bond swap offer.
  As a result, the Mediterranean nation moves closer  to securing funds needed to avoid debt default, but  there is still a lot of confusion in the market  regarding the implications for currencies.

Thursday, March 8, 2012

For s. 50B “Slump Sale”, liabilities reflected in “negative net worth” cannot be treated as “consideration” but the resultant “negative net worth” has to be added to the “consideration”

DCIT vs. Summit Securities Ltd (ITAT Mumbai Special Bench)

Pursuant to a scheme of arrangement u/s 391 & 394 of the Companies Act, the assessee transferred its “Power Transmission Business” to KEC International Ltd for a total consideration of Rs. 143 crores. The assessee claimed this transaction to be a “slump sale” u/s 50B. The “net worth of the undertaking” was computed at a negative figure of Rs.157.19 crores, being the excess of liabilities over assets. The assessee treated the net worth as Nil and offered the entire sale consideration of Rs. 143 crore as LTCG. The AO held that as the purchaser had taken over liabilities of Rs. 157.19 crores, the same had to be added to the consideration of Rs. 143 crores to arrive at the “full value of consideration” of Rs. 300 crores. The CIT (A), relying on Zuari Industries 105 ITD 569 (Mum) & Paper Base Co 19 SOT 163 (Del), held that the “net worth’ in s. 50B could not be a negative figure and if it was so because of the liabilities exceeding the assets, the net worth had to taken at Nil. The Special Bench had to consider two issues (i) whether the excess of liabilities over assets could be treated as “consideration” in the hands of the assessee & (ii) whether the resultant “negative net worth” could be treated as Nil or had to be added to the “consideration”? HELD by the Special Bench:

S. 54F does not require construction to be complete within specified period

CIT vs. Sambandam Udaykumar (Karnataka High Court)

The assessee sold shares for Rs. 4.18 crores and, within12months,invested Rs. 2.16 crores  thereof to construct a house property and claimed exemption u/s 54F. However, as even after the expiry of 3 years of the date of transfer, the construction of the house was not complete and sale deed not executed, the AO & CIT (A) denied relief u/s 54F though the Tribunal granted it. On appeal by the department to the High Court, HELD dismissing the appeal:

S. 54F is a beneficial provision for promoting the construction of residential house & requires to be construed liberally for achieving that purpose. The intention of the Legislature was to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of law. The words used in the section are ‘purchased’ or ‘constructed’. The condition precedent for claiming benefit u/s 54F is that the capital gain should be parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. Merely because the sale deed had not been executed or that construction is not complete and it is not in a fit condition to be occupied does not disentitle the assessee to claim s. 54F relief (Sardarmal Kothari 302 ITR 286 (Mad) followed)

Japan reports big deficits

 Japan has posted one of its largest ever trade deficits, with the January figure widening 246% on year to ¥1.382T ($17.0B). The country's current account deficit totaled ¥437.3B for the same month - larger than the ¥322.4B expected by economists - as nuclear-plant shutdowns drove up energy imports.

Yen Dips, Uncertainty Remains Over Greek Debt Swap

In an apparent knee-jerk reaction to data which showed Japan's current account swung to a record deficit in January, the Yen dropped against the Dollar earlier today. Risk currencies gained though, on hopes that Greece may finally secure a bond swap deal.
The Japanese Yen dipped against the US Dollar and the Euro after Japan posted its first current account deficit in three years.
The Euro edged upwards but most analysts believe it will struggle to hold on to these gains ahead of the Greek debt swap.
It would be best not to take any long term positions close to the outcome of Greek debt deal and Friday's U.S. jobs data.

Thursday, March 1, 2012

Tata could rival Vodafone for C&W.

 Tata Communications (TCL) is reportedly considering a bid for Cable & Wireless Worldwide (CBWWY.PK), the same fiber-network operator that Vodafone (VOD) said it may try to acquire.

Could Greece's second bailout agony be finally over?

 EU leaders are meeting today and tomorrow to finalize Greece's second bailout package and discuss ways to boost long-term growth. The bloc has already reportedly approved a €5.8B aid payment for Ireland, and while officials said there will be no decision on increasing the size of the eurozone's rescue fund, Italian PM Mario Monti tells Bloomberg that he's confident it will be expanded by the end of the month

Eurozone hit by triple data blow

 Data released today shows how the eurozone economy continues to weaken, with unemployment hitting a euro-era record of 10.7% in January and highlighting the sharp divergence between north and south. February PMI improved to 49.0 in February from 48.8 in January, but the sector is still contracting, while inflation rose to +2.7% from +2.6%.