Eradi panel divided on tax breaks
Plea to forestall limited telecom mobility spiked
Hindalco net profit up 11% at Rs 170 cr
ACC ends losing streak
Adobe to pump more funds into R and D unit
Essar Steel back in the black, plans 4:5 rights issue
Tax axe poised on prize schemes
NIIT net profit up 61% at Rs 30 crore
Mahindra arm to market Lego toys
Foreign Exchange, Bullion, Stock Indices

Mumbai, Jan. 23: 
The V U Eradi committee, which has been deliberating on the tax regime for life insurance companies in order to create a level playing field, has been riven by dissension with four of its 11 members attaching dissent notes to the main report.

It is learnt that the dissenting notes were penned by Y.H. Malegam and U Suresh Rao, both reputed chartered accountants, A N Prasad, joint secretary in the Central Board for Direct Taxes (CBDT), and KVM Pai, chief commissioner of Income tax in Mumbai.

Sources reveal that dissenting notes were made for a variety of reasons. If the main Eradi report is implemented, the insurance companies including the private sector players stand to benefit as they will have to pay lower tax.

The tax authorities levy a tax on actuarial surplus which consists of shareholders’ surplus income and policy holder’s surplus income. If the recommendations made in the main report of the Eradi committee are ratified, the tax burden on the insurers will be reduced from 12 per cent to 7 per cent, experts say.

Moreover, fears expressed by a few members of parliament gain credence as the private insurance companies stand to gain the most as they can plough back surplus funds.

When The Telegraph contacted Eradi in New Delhi, he made a cryptic comment: “When 11 intelligent men meet at one place, there is bound to be different opinions”.

Suresh Rao declined to comment on his note. “I do not know whether it is a dissent note. The report has yet to be finalised.” He, however, confirmed that he had sent a note to the chairman. “It is his discretion to disclose it or not,” Rao added.

Already a few members in the committee say the Eradi committee’s tenure has expired and a new committee needed to be constituted. The CBDT representatives are learnt to have objected to the tax concessions recommended by the panel. Incidentally, the committee was constituted on the CBDT’s recommendation. It is also learnt that CBDT has decided not to wait for the report.

In any case, the finance ministry will send the report to CBDT for ratification and it is highly unlikely that the report will be forwarded for incorporation in the Union budget.

Sources say that in his note, Rao has called for a more comprehensive study of the actuarial surplus for tax purposes.

CBDT representatives are learnt to objected to the tax concessions recommended by the panel. Malegam has taken a different tack from the rest. According to him, policyholder’s surplus should not be taxed at all as life insurance policy holders in the country are generally poorer than other investors.

Critics of the main report say the recommendations are based on material that are not authenticated.

“We will ensure that the committee’s recommendations are examined quickly and incorporated in the budget this year. The new players will thus be assured of a level playing field and uniform application of tax-rates across the insurance sector,” finance minister Yashwant Sinha had said on a recent visit to Mumbai.

It may be recalled that committee was set up to examine the tax exemptions enjoyed by the country’s life insurance major — Life Insurance Corporation — for more than 22 years.

The brief to the committee headed by Eradi was to examine the balance sheet for the last three years and its revenue surplus accounts to examine the country’s only life insurance monopoly’s various sources of income.

The LIC representative on the committee, P.C. Gupta, has since resigned and has become a consultant, which meant that the life insurer was not fully represented at the deliberations.

The committee was also asked to study the practices followed by different countries for quantification of income from the life insurance business for the levy of tax.

The bone of contention between tax authorities and the corporation arose on account of the Rs 5,300 crore income declared by it. The I-T department disputed this by stating that the figure could be far higher. Further, LIC has to pay a tax of a mere 12.5 per cent, while other corporates pay a steep 38.5 per cent which is inclusive of the 10 per cent surcharge.

Incidentally, LIC has been enjoying a concessional rate from 1978-79 onwards. According to the normal practice, LIC’s accounts are certified by an actuary and tax authorities say that it is taken at face value. If the income was determined on commercial accounting principles, the taxable income would be in the region of Rs 21,000 crore, the source said.

LIC’s argument so far has been that policy premia cannot be construed as income as a bulk of it is returned to the policy holder at the time of maturity of the policy. While, a section of the committee agrees on this point, a recent analysis of LIC’s income for the year 1999-2000 reveals that the income from dividend and interest alone accounts for a whopping Rs 13,000 crore. LIC is a leading investor in the stock markets over and above its investments in bonds and debentures.

The 11-member committee includes V U Eradi, A N Prasad, joint secretary of CBDT, P C Gupta, former executive director of LIC, Ajit Sharan, joint secretary (insurance) in the department of economic affairs, Ashwin Parekh, member of Pricewaterhouse, U Suresh Rao, chartered accountant at Brahmayya and Co, K V M Pai, chief commissioner of I-T Mumbai, Deepak Parekh, HDFC chairman , Y.H. Malegam of SB Billimoria, K. Subramanyam, actuary, IRDA, and B D Vishnoi, deputy secretary of CBDT.


New Delhi, Jan. 23: 
The Telecom Disputes Settlement Appellate Tribunal today refused to stop the government from implementing Trai’s proposal allowing limited mobility to basic operators.

A three-member bench of the tribunal, headed by chairman P. C.Sen, did not admit the petition from mobile phone firms which sought a stay on the implementation of the recommendations. The next hearing has been fixed for Monday.

Sen wanted to know why cellular firms had not made a written presentation to the government if they felt their business was under threat.

The judges refused to go into the details, and instead directing mobile firms to first adhere to the principle of natural justice by sending a copy of the petition to the government.

The counsel for cellular operators, Gopal Subramaniam and Manjul Bajpayee, argued that investors’ confidence would be shattered if the government allowed fixed-line firms to offer limited mobile service based on wireless in local loop technology.

When Sen asked them how they could be sure that Trai’s recommendations would be implemented by the government, Subramanium said: “Our belief is that the government will implement it because it was department of telecommunications which asked Trai to examine the scope of wireless in local loop technology.” Sen countered the argument by saying they should wait for the government to issue the order before seeking a legal resolution.

DoT counsel Jaydeep Gupta said the appellate tribunal did not have the power to clamp a stay because the issue is not one of conflict between the licenser and licensee.

Cellular firms’ demand for a stay, he said, amounts to stalling the functioning of government.

In another significant development, Telecom Watchdog, a consumer organisation, said it will file a writ petition in the high court against Mahanagar Telephone Nigam’s (MTNL) cellular tariffs.

“The proposed charges mean internal rates of return (IRR) as high as 150 per cent. This needs to be reconsidered. According to the Bureau of Industrial Costs and Prices (BICP), a 16 per cent rate of return is reasonable for capital-intensive infrastructure projects,” Telecom Watchdog says in a letter to MTNL.

The consumer organisation has put forward three options for the company — a monthly rental of Rs 156 (option-I), Rs. 200 (option-II) and Rs 250 (option-III). There will be no free calls in option one, while the other two will have the facility. It has suggested three air-time (per minute) charges: Rs 180 (option-I), Rs 120 (option-II) and 60 paise (option-III). However, it wants a uniform security deposit of Rs 3,000.


Mumbai, Jan. 23: 
Hindalco Industries Ltd, the A.V. Birla group flagship, has posted an 11 per cent rise in net profit for the third quarter of the current financial year ending December 31. Net profit rose to Rs 170 crore against Rs 152.7 crore in the corresponding period of the previous year.

Net sales during the quarter stood at Rs 561.1 crore compared with Rs 502.1 crore, thus showing a rise of around 12 per cent. Other income stood at Rs 39.3 crore (Rs 34.5 crore).

Sales during the nine-month period were Rs 1677 crore, 12 per cent higher than what the company achieved in the corresponding period of the previous year. Net profit for the period stood at Rs 521 crore against Rs 452 crore in the comparable period of the previous year.

The growth, Hindalco said, was driven by enhanced sales of value added products and facilitated further by better international prices. Exports, it added, rose 26 per cent in value terms to Rs 292 crore against exports of Rs 231 crore in the previous year. Further, the improved profitability resulted from a larger share of value added products, better realisations, consolidation of operating efficiencies and efforts at cost saving.

Commenting on the outlook, Hindalco said despite concerns about economic slowdown, the fundamentals of the aluminium industry remain favourable with reduced availability on account of production cutbacks, low inventory levels and good consumption trends in major consuming areas other than North America.


Mumbai, Jan. 23: 
Leaving its bottomline blues behind, the Associated Cement Companies (ACC) Ltd reported a net profit of Rs 14.64 crore in the third quarter of the current fiscal year, against a loss of Rs 19.79 crore in the previous corresponding quarter.

The good bottomline performance was accompanied by a similar show in net sales which recorded a growth of around 13 per cent. Net sales during the quarter were placed at Rs 748.02 crore as compared with Rs 663.38 crore in the previous year. In fact, the trend of incurring consecutive losses was reversed in the second quarter of the current fiscal.

Commenting on the outlook following the good results, ACC said that it continues to be challenging despite the recent pick up in cement prices.

Cement manufacturers have lately been extending their plant shutdowns apart from cutting dispatches, following which prices have firmed up throughout the country. Analysts expect most companies in this sector to display a better performance in the ensuing quarter.

For the third quarter, total income increased by 11.6 per cent to Rs 760.59 crore as against Rs 681.79 crore in the year-ago period. ACC added the total volume of cement sales (including traded cement) has shown an increase of 3 per cent to 25.19 lakh tonnes against 24.38 lakh tonnes last year.

ACC attributed the strong bottomline growth to sustained efforts in reducing cost and improved sales realisation, following which the operating profit before interest and depreciation for the third quarter increased to Rs 95.42 crore from the previous corresponding figure of Rs 53.05 crore, resulting in an increase in operating margins to 12.5 per cent as against 7.8 per cent in the corresponding period.

It added that overall cost of production per tonne of cement for nine months was lower by 4.3 per cent as compared with the previous year.

On the BSE, the scrip rose from its intra-day low of Rs 159.20 to finish at Rs 162.05. The scrip, which initially opened at Rs 161, hit an intra-day high of Rs 163.45 on a turnover of Rs 48.94 crore.

ACC however reported a net loss of Rs 10.39 crore for the nine-month period. Net sales rose to Rs 2187.90 crore as against Rs 1993.45 crore in the previous corresponding period. Total income was placed at Rs 2234.12 crore (Rs 2044.20 crore).


New Delhi, Jan. 23: 
Adobe Systems Incorporated today announced that it would $ 10 million to expand its research and development (R and D) centre in India.

“In the first phase ending June 2002, the centre would house 300 professionals. In the second phase, the Indian R and D centre would have a capacity to seat 500 engineers,” Bruce Chizen, president and CEO of Adobe, said here today.

The centre will continue to develop new and innovative technologies for Adobe products in the data import/export, mobile device, and image and video compression areas.


Mumbai, Jan. 23: 
Essar Steel Ltd, the flagship company of the Ruias, today returned to the black when it reported a net profit of Rs 15.08 crore for the third quarter of the current financial year against a loss of Rs 116.05 crore in the same period of the previous year.

The company also announced its plan to raise additional capital by way of a rights issue of Rs 267 crore. The rights issue will be issued on par at the ratio of four equity shares for every five shares held. This was part of the overall debt restructuring plan of the company approved by the Industrial Development Bank of India (IDBI).

The rights issue is likely to be launched in the first quarter of the next financial year.

Though Essar Steel recorded a net profit for this period, the topline growth during the three-month period showed a negative trend with sales dipping to Rs 615.49 crore against Rs 783.76 crore in the previous year. With other income at Rs 6.18 crore (Rs 17.38 crore), the total income was at Rs 621.67 crore (Rs 701.14 crore)

For the nine-month period, the company registered a net profit of Rs 20.97 crore against a loss of 395.56 crore for the same period in the previous year. The total income for the nine-month period was at Rs 2016.38 crore against Rs 1691.20 crore in the previous year.

The volume sales for the nine-month period registered a growth of 8 per cent at 12.36 lakh tonnes compared with 11.43 lakh tonnes and the production of hot rolled coils was 3.85 lakh tonnes compared with 3.63 lakh tonnes in the previous year.

Essar Steel had been able to restructure the debt profile in terms of maturity and extend the maturity of the debt from three years to eight years. Industrial Development Bank of India (IDBI) has also approved the extension of the maturity period by eight years.

In the previous financial year, Essar Steel had given three options to its FRN holders to settle their dues. These were a five-year rollover on an unsecured basis, 10-12 years rollover on a secured basis and repurchase option via a fixed price tender offer.


New Delhi, Jan. 23: 
Surf Gold’s glitter seems to have caught more than just the consumers’ eyes. The department of revenue has mooted a budget proposal to impose income tax at source from companies offering such marketing schemes.

The proposal, which seeks to include non-monetary prizes offered on television game shows, says the costly fridges, cars,

gold lockets and flats offered as prizes for buying products like washing detergents, colas and audio systems have to be considered as taxable earnings for the winners.

But as the winners are not getting any cash, the proposal argues that instead of the winners paying tax, corporates offering them should be made to pay up through tax deductions at source.

Earlier, the revenue department had ruled that TV game shows like Kaun Banega Crorepati which offer cash prizes would be treated as lotteries and earnings from them would be taxed, but not at source.

The new proposal merely seeks to extend the same logic to the ad war being triggered by consumer goods giants offering a range of prizes.

The revenue authorities, who consult professionals from the Institute of Chartered Accountants on many of their proposals, say the institute also agrees this could be done by simply bringing in two amendments in two sections of the IT Act.

Central Board of Direct Tax officials said, “The economic slowdown has sharpened the battle in the consumer market and more and more companies are offering various prize schemes. Earlier only the cola giants used to come out with these prize schemes and these too used to cost at the most Rs 10,000-15,000. Now, even sari makers and cooking masala packers offer cars and houses worth several lakhs to consumers.”

Their argument is that this kind of high value prizes cannot be ignored even if the recipient is otherwise a person who is not an income tax payee.

“The reason why we say the company should pay is precisely this. The winner may be a poor man who doesn’t earn enough to pay the tax calculated on the Rs 3.5 lakh car he has won. The company should bear the responsibility,” they said.

If the proposal is finally accepted, corporates who dish out these prizes would have to declare their cost, calculate tax on

them and file returns with the income tax authorities even as they announce the lucky winners.

The glitter may remain in the consumers eyes even if this proposal becomes law and becomes part of the budget. But it remains to be seen whether the companies that were rushing to offer the prizes will continue to be as enthusiastic.


Jan. 23: 
NIIT Limited, the software education major, reported a 61.07 per cent growth in net profit at Rs 29.8 crore for its first quarter ending December 31, 2000. The board of directors of NIIT today approved the unaudited results for the first quarter ending December 31, 2000.

In the quarter, NIIT registered a 35 per cent growth in its Global Learning Business at Rs 132.44 crore, while a 54 per cent growth in Global Software Business led to revenues of Rs 170.57 crore, constituting 44 per cent and 56 per cent of NIIT’s global revenues respectively.

Global revenues of Rs 303 crore represent an increase of 45 per cent over the previous corresponding quarter’s revenues of 1999-2000 which stood at Rs 208.9 crore.

According to NIIT chairman Rajendra S Pawar, “The strong financial performance is a result of NIIT’s sustainable and steady business model.”

NIIT’s operating margin of 23.32 per cent for first quarter of 2000-01, up from the previous corresponding figure of 20.58 per cent, represents an improvement of 274 basis points, a growth of 43.37 per cent year on year basis, said Pawar.

“Our focus on portfolio management as well as the growth in international markets led to an improvement in operating margin by 274 basis points. This quarter saw us de-emphasise some of the low-margin systems integration businesses,” said NIIT chief executive officer Vijay K Thadani.

NPIL net up 20%

Nicholas Piramal India Ltd (NPIL) has posted a 20 per cent rise in net profit for the third quarter of the current fiscal ending December 31. Net profit rose to Rs 13.42 crore against Rs 11.23 crore in the same period of the previous year.

During the quarter, sales rose by 18 per cent to Rs 132.50 crore against Rs 112.69 crore in the previous year. Similarly, for the nine-month period, while net profit was at Rs 47.08 crore (Rs 36.80 crore), the sales were at Rs 409.16 crore (Rs 347.73 crore).

ICICI Bank net up

The first generation private sector ICICI Bank has posted profit after tax (PAT) of Rs 40.50 crore in the third quarter of the current financial year compared with Rs 28.26 crore for the corresponding quarter of the previous year.

The growth of 43 per cent in net profit was due to an increase of 137 per cent in net interest income and 106 per cent growth in core fee income. The operating expenses during the quarter went up by 158 per cent from Rs 33.44 crore to Rs 86.32 crore, which included an expenditure of Rs 10.53 crore towards credit card programme and on data centres.

HM deeper into the red

The general economic slowdown coupled with an adverse automobile demand in the country, led to a sharp jump of 185.50 per cent in net loss of the CK-GP Birla group company, Hindustan Motors Ltd during the third quarter of the current financial year.

After a meeting today to consider the third quarter results, the board of directors of the company announced that net profit surged to Rs 33.48 crore from Rs 11.73 crore last year.

Net sales had come down to Rs 262.83 crore from Rs 297.32 crore during the period.

Some consolation came in the form of other income which increased to Rs 2.83 crore during the quarter from Rs 1.43 crore last year.

Indal net soars 119%

The Indian Aluminium Company (Indal) has reported a record 119 per cent rise in its net profit at Rs 30.7 crore during the quarter ended December 31, 2000, against Rs 13.9 crore in the previous corresponding quarter.

The Aditya Birla group company has registered a 18 per cent growth in its turnover at Rs 325 crore against Rs 276.8 crore and profit before tax at Rs 68.2 crore, a 69 per cent rise over the comparable quarter of the previous year.


Mumbai, Jan. 23: 
Mahindra Intertrade Ltd (MIL), a subsidiary of Mahindra and Mahindra, has joined hands with the $ 1.2 billion Lego group to market and distribute the latter’s toys in the country.

In fact, Mahindra Intertrade, which focuses primarily on trading, plans to diversify its activities into branded consumer products and the tieup with Lego signifies Mahindra Intertrade’s entry into that arena. The subsidiary is now planning to bring in “more products and categories,” apart from enhancing its own distribution set up, top officials added.

MIL plans to develop strategic relationships with key retail groups and distributors to increase the number of retail outlets.

Speaking to newspersons here today, R. R. Krishnan, managing director, Mahindra Intertrade, said that to begin with, MIL will build Lego’s presence across top 23 towns in the country in a year’s time. This will further be increased to cover the top 50 towns in the second year.

On the cards is setting up of Lego shops to increase brand awareness and communicate the learning value of the construction play materials.

Lego has a three-year presence in the country through a marketing arrangement with a Denmark-based firm East Asiatic Company (EAC). However, EAC recently indicated its decision to reprioritise its operations in India, following which its association with Lego came to an end, John Ungermand, regional sales manager, Lego Asia added.

The toy market in the country, currently put at Rs 350 crore, is said to be growing at the rate of around 25 per cent per annum. Of this, construction toys account for more than 15 per cent of the market.



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