Yuan poised for reserve status

The International Monetary Fund is expected to grant China's yuan reserve currency status at an executive board meeting today, in a decision that will elevate the renminbi and China's influence in the global economy. The group's benchmark currency basket, also known as special drawing rights, so far only contains the dollar, euro, pound and yen. While the decision is likely to be announced later today, the yuan will not officially become a reserve currency until September 2016.

S. 32/ 43(6): Even assets installed in a discontinued business are eligible for depreciation as part of 'block of assets'

CIT vs. Sonic Biochem Extractions Pvt. Ltd (Bombay High Court)

Once the concept of block of assets was brought into effect from assessment year 1989-90 onwards then the aggregate of written down value of all the assets in the block at the beginning of the previous year along with additions made to the assets in the subject Assessment Year depreciation is allowable. The individual asset loses its identity for purposes of depreciation and the user test is to be satisfied at the time the purchased Machinery becomes a part of the block of assets for the first time

Bond yields across global markets rose to fresh high

Bond yields across global markets continued their sell-off into Thursday as a six-week-long bond rout rumbled on. Yesterday, ECB President Mario Draghi said asset prices tend to be more volatile in a low interest rate environment and policymakers were prepared to look through the sharp rise in yields. With the ECB seeing no reason to adjust its stance on monetary policy, German 10-year Bund yields rose to fresh 2015 highs today at 0.95% (up from near zero in mid-April). U.S. 10-year yield +3 bps to 2.4%.

How will the monsoons pan out?

Indian Meteorological Department (IMD) has revised its projection for the monsoons this year for the worse, stating that the probability of weak monsoons has risen to 93% from 68% earlier. The chart below indicates the prior year projections versus the actual rainfall and the projections made for the current year by the two institutions - IMD and private weather forecaster Skymet. As you can see, the jury is mixed on how the monsoons are likely to pan out this year between the two forecasters.

Data source: Business Standard, Department of Agriculture, IMD and Skymet; LPA - long period average

It, however, does seem that the markets are going with the more pessimistic view (that of IMD) considering how they have fallen over the past few days. There is no doubt that monsoons play an integral part in the Indian economy. However, basing investment decisions on such unpredictable outlooks would only lead to more errors in the process. Long term investors would do well to take advantage of market follies in such instances is what we believe.

Reserve Bank Of India (RBI) reduced repo rate by 25bps

The Reserve Bank of India cut interest rates for the third time this year, lowering its key repo rate by 25 bps to 7.25%, in a move that appears at odds with recent data showing the country's economy has become one of the fastest-growing in the world. Data on Friday showed India’s output expansion accelerated to 7.5% last quarter, outpacing China in terms of growth. Meanwhile, the Reserve Bank of Australia kept rates unchanged at a record low of 2.0% today, in line with analysts' expectations.

Transfer Pricing: The transaction of allowing credit period to the AE on realisation of sale proceeds is not an independent transaction and has to be considered along with the main international transaction of sale of goods

ACIT vs. Information Systems Resource Centre Pvt. Ltd (ITAT Mumbai)

The transaction of allowing the credit period to AE on realization of sale proceeds is not an independent international transaction but it is a closely linked or continuous transaction along with sale transaction to the AE. The credit period allowed to the party depends upon various factors which also includes the price charged by the assessee from purchaser. Therefore, the credit period extended by the assessee to the AE cannot be examined independently but has to be considered along with the main international transaction being sale to the AE

 

S. 43(5)(d): Loss from trading in derivatives is not a speculation loss and can be set-off against normal business profits

ITO vs. Emperor International Ltd (ITAT Delhi)

Now question arises as to whether the loss suffered by the assessee on derivative was to be treated as a speculative loss or to be set off against the regular business profit. Explanation to clause (d) of Sub-section (5) to Section 43 of the Act provides that eligible transaction in respect of trading in derivatives would not be deemed to be speculative transaction. In the present case, it is an admitted fact that the assessee was engaged in the business of dealing in shares & securities and has incurred loss from dealing in derivatives (shares futures)