| EPFO ' no' to equity gets finance ministry nod |
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New Delhi, 20 July After prolonged exchanges between the Union finance and labour ministries on whether the Employees' Provident Fund Organisation (EPFO) should invest in equities or not, the former has finally accepted the EPFO's insistence on staying away. EPFO was being asked to invest between zero and 15 per cent of its corpus in equity by the finance ministry, to be able to follow abetter investment pattern. This would allow more flexibility for investment in private bonds, which fetch higher returns. The existing pattern restricts investment of most of its funds in government securities and public sector bonds, with just 10 per cent in private bonds. EPFO has been pushing the case for changing to the better investment pattern, one approved by the finance ministry in 2008, but with the rider that it would not invest in equity. The finance ministry was insisting it should. The labour ministry ( parent one for the body) and EPFO had initially demanded protection of capital and guaranteed returns for any investment in equity. When the finance ministry ruled this out, EPFO revised its proposal and got approval from its Central Board of Trustees (CBT) in February this year. This one, then referred to the finance ministry, said no to equity but worded it differently. Instead of ruling out the equity clause completely, EPFO has said that between zero and 15 per cent investment in equity, it would stick with zero. " There is no minimum requirement and zero investment is also in line with the clause," is the simple explanation of Chief PF Commissioner K K Jalan. And now, the labour ministry says the finance ministry has agreed to EPFO switching over to the investment pattern of 2008 with the zero equity clause. This has to be notified by the labour ministry, say sources. Since there has been a change of labour minister, the entire matter has to be put before him for approval. The matter could go back to the finance ministry if this means fresh queries are raised by the ministry, sources said. Meanwhile, EPFO remains saddled with an investment pattern which most other funds have discarded, a pattern approved by the finance ministry in 2003. " We are virtually being blackmailed into investing in certain bonds, though their returns are low," said an official. EPFO recently got CBT approval on guidelines to select private companies whose bonds they could invest in. So far, it could invest in bonds of no more than seven approved firms. Now, they can select from more. However, until the investment pattern of 2008 is notified, their choice remains restricted to 10 per cent of the corpus. Labour ministry says FinMin has agreed to return to investment pattern of 2008, with zero equity clause CHANGING PREFERENCES A look at where EPFO has invested its corpus over the years (% of corpus) EPFO track record (% of corpus) Note: EPFO follows the 2003 pattern as the 2008 pattern was not notified *Zero equity clause stipulated minimum of 0% investment, maximum of 15% * |
| Save taxes on property sale |
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Arun Kumar owns a residential property in his name which he uses as residence and also owns an office space which has been rented out. Along with this, he has also inherited aplot of land from his father. Kumar works as a whole- time director with a private sector company. As per the provisions of The Income- tax Act (' the Act'), the rental income earned by Kumar from the commercial property will be taxed under the head " Income from house property" and will be allowed all the prescribed deductions on the same. Kumar has recently sold the inherited plot of land and wishes to reinvest the proceeds in another residential property, as advised by his tax consultant, in order to claim exemption under section 54F of the Act. However, Section 54F lays down a pre- condition that the taxpayer should not own more than one residential property ( whose income is chargeable under the head " Income from house property") at the time of the investment, as above, to claim exemption under this section. In Kumars case, the income from the office space is currently being offered under the head "income from house property" other than the residential property that is being claimed as a self- occupied property. Does this imply that Kumar will not be able to claim the exemption under section 54F? The Act does provides exemption on long term capital gains earned on sale of property. One of the provisions is Section 54F of the Act, which provides that if a taxpayer earns any long- term capital gains through sale of any capital asset, other than a house property, then exemption can be claimed by investing the sale proceeds in a house property within the prescribed time limit, that is, within two years from the date of sale of the property or within one year before the date of sale. The time limit is extended to three years, in case the individual were to construct a new house property. In one of the recent cases that came up before the Chennai Income Tax Tribunal, a taxpayer had filed his return of income electronically and claimed deduction under section 54F of the Act in his computation of income. His case was selected for scrutiny by the tax officers. During the course of assessment, the taxpayer submitted that in addition to the new property bought, he owned one more residential property and one commercial property in Chennai. In view of the qualifying condition defined under section 54F, the tax officer rejected the taxpayer's exemption claim on the ground that he is the owner of two properties. For claiming exemption, it is essential that on the date of sale, the taxpayer should not own more than one residential property other than the new property. The officer was also of the view that the term ' residential property' and ' commercial property' have not been defined separately under the Act. A residential property could be converted into commercial and vice versa by virtue of its use. With this view in mind, the officer rejected the taxpayer's claim. At the first appellate level, the appellate officer found merit in the officer's findings and did not grant any relief to the taxpayer. The taxpayer preferred a second appeal with the Tribunal. During the course of the appellate proceedings, the taxpayer's representative submitted that the commercial property owned by the taxpayer has been let out and is being used exclusively for commercial purposes. The income received from letting out is assessed under the head of income "Income from house property". It was further submitted that under the existing provisions of the Act, there is no other head of income provided for assessing rental income received from letting out of commercial property. The taxpayers' representative argued that the view taken by the officer, that rental income from letting out of commercial property being assessed under the head "Income from house property" leading to the conclusion that the owns another residential property, is misconceived. Supporting documents like water supply bills, planning permits issued by the town development authority, rent agreements, etc to show that the building where the property is owned by the taxpayer is a commercial property were not considered by the officers. Thus, it was amply clear that the property is not being used for residential purposes. In its decision, the honourable Tribunal observed that the officer and the first appellate authority have wrongly concluded that the taxpayer owns two residential properties. The Tribunal held that the observation of the officer and first appellate authority, that the property is residential, is not correct. This observation was based on the fact that since the taxpayer has claimed various deductions from rental income, under the prescribed section 24 of the Act, the property should be qualified as a residential property The Tribunal observed that the Act does not differentiate between rental income from house property and a commercial building. Both these incomes are assessed under the head " Income from house property" subject to certain exceptions. The relevant section under the Act prescribes three rules to be complied with for any income to be charged under the head ' House property": a. The property should consist of buildings; b. The person should be the owner of the property; c. The property should not be used for the purpose of his business / profession. It relied on various judicial decisions in the past and held that the term " building" as used in the relevant sections of the Act is not qualified by the word ' residential'. There have been several decisions where the income from letting out of commercial buildings / warehouses / factory premises was held to be assessable under the head House property. Based on the above, the honourable Tribunal held that the taxpayer is eligible to claim the deduction under section 54F of the Act. In case the lower officer's view was further supported by the Tribunal, then it would have been difficult for individuals, like Kumar, owning one residential property and one or more than one commercial properties to claim capital gains exemption. With the favourable decision, Kumar can now reinvest the capital gains from sale of his plot into a second residential home. The author is a certified financial planner SAVE TAX |Sale proceeds from commercial property are eligible for tax exemption |Show proof that property is used solely for commercial purposes |Use documents like water supply bills, planning permits, rent agreements Get a tax deduction on sale of commercial property. Here's how |
| Saroj Poddar's Texmaco launches open offer for Kalindee Rail |
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Kolkata, 20 July Adventz Chairman Saroj Poddar has proposed an open offer to buy 30 per cent stake in Kalindee Rail Nirman Ltd. The offer is being made by Adventz group company Texmaco Rail and Engineering. Kolkata- based Texmaco Rail will pay ₹ 68 for each equity share, the company said in a BSE filing on Saturday. Poddar — who was brought in as a white knight after little- known Jupiter Metal of the Om Kothari group made a hostile bid for the company — has acquired 15.63 per cent in the company from the promoters of Kalindee Rail Nirman, at ₹ 65 a share. The move comes a week after the promoters of Kalindee Rail decided to allot 24.9 per cent shares to Poddar's Texmaco on a preferential basis, at ₹ 65 a share. After the acquisition of promoters' shares, Poddar's holding in Kalindee Rail Nirman stands at 40 per cent, which makes it mandatory to make an open offer. According to Securities and Exchange Board of India ( Sebi) regulations, acompany would have to make an open offer for at least 26 per cent if its stake exceeds 25 per cent. On Wednesday, the Jaipur- based Om Kothari group changed its offer to nonconditional. The offer was for 30 per cent of Kalindee Rail Nirman's equity. It had offered ₹ 65 for each equity share. Poddar had recently said talks with R D Sharma of Kalindee Rail Nirman began two years ago. " Mr Sharma knew the synergistic advantages both our companies shared and we would be in better position to take it forward," he had said. Currently 63.75 per cent of Kalindee Rail Nirman's shares are held by retail investors, while 16.89 per cent belong to non- institutional corporate bodies and 2.42 per cent are accounted for by foreign institutional investors. On Friday, the Kalindee Rail Nirman stock was down 1.33 per cent at ₹ 70.65, before rising to ₹ 72.55 after the takeover buzz. While Poddar appears to have established control in Kalindee, the takeover battle at Vijay Mallya- controlled Mangalore Chemicals & Fertilizers ( MCF) is still on. Earlier this year, Poddar bought into MCF to acquire control at some point, in consultation with Mallya. However, a surprise entry by Deepak Fertilisers upset his plans. On July 3, Deepak Fertilisers acquired 24.46 per cent in MCF. Subsequently, Poddar also bought from the market. At present, he has 16 per cent stake in the company. Talks are on with Mallya for a friendly deal. KALINDEE'S PROFILE Shareholding pattern As on March 2013 ( in %) 63.75 Retail investors 16.89 Noninstitutional corporate bodies 2.42 Foreign institutional investors 1.31 Others 15.63 Indian promoters Story so far |July 10 The Om Kothari group announces conditional open offer to buy minimum 26% in Kalindee |July 13 Promoters of Kalindee decide to allot 24.9% shares via the preferential allotment to Poddars Texmaco |July 17 The Om Kothari group proposes an non- conditional open offer to buy 30% stake in Kalindee at ₹ 65 an equity share |July 20 Saroj Poddar acquires 15.63% of promoters share in Kalindee |July 20 Texmaco Rail and Engineering Ltd proposes to buy 30% stake in Kalindee for ₹ 68 an equity share |
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Company Secretary, Chennai
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