The Hindu Business Line : Am I too old to earn income?

I AM a pensioner and I am sure you are well aware of the plight of the people of my ilk. The tax rebate of Rs 20,000 is indeed helpful but the question of tax liability, you would agree, arises much later. In the first place one must have income.

And income-earning opportunities for pensioners have unfortunately been dwindling with each successive Credit Policy pronouncement. In the circumstances, is it my best bet to place my money in the income fund of a reputed mutual fund? -- Shivnath Mathur, New Delhi

I do empathise and sympathise with you and the people of your ilk. The substantial tax rebate by itself is meaningless for a vast majority of senior citizens for whom it is meant because they do not have adequate income in the first place.

Bank deposits are increasingly becoming unattractive with successive paring down of the interest rates on term deposits despite their innate security.

In fact, senior citizens these days look to Credit Policy pronouncements with trepidation. Company deposits fetch much more but come at a price — risk of default.

You may invest in company deposit schemes of reputed companies by ensuring that you remain a small depositor because small depositors get automatic redress in the unfortunate event of default both as to interest and repayment of deposits.

Regular income scheme of reputed mutual funds is a good option inasmuch as they have the wherewithal to invest in a basket of avenues which an individual does not have. But then every intermediation comes at a price. The mutual funds have their own management expenses to be met on which of course there is cap. But the point is, it does cut into the dividends of the participants.

Director's share-ware

OURS is a software company. Our director invests the profits in shares of various companies. What are the procedures to be followed in this regard? If there are losses on sale of any of these shares can they be set off against any income? -- Venkata Jagdish Sakru, e-mail

Your company should follow the drill prescribed by Section 372A of the Companies Act. Do not invest, lend or give guarantee to other companies if that would result in breach of the glass ceiling — 60 per cent of the aggregate of share capital and free reserves or 100 per cent of free reserves, whichever is greater.

Ensure that a unanimous resolution is passed at the board meeting held for this purpose. And maintain a register showing chronologically the details of such investment.

The loss on sale of shares would be either short-term capital loss or long-term, according as whether they were held for less than 12 months or more. If there is a long-term loss, it would be allowed to be set off only against long-term capital gains either in the same year or within the subsequent eight years. A short-term loss is allowed a little more leeway in that it can abate against capital gains of both hues within the same time.

Law, law

IN A transaction with a foreigner which law should be adopted — the Indian or the law of the country to which the foreigner with whom the contract is entered into belongs? -- A. R. Jaikrishnan, e-mail

The Supreme Court, in National Thermal Power Corporation vs Singer Co. (1992 8 CLA 116), held that since the disputes between the two parties had the closest connection with India and the Indian laws, the Indian law would prevail. This view echoes that of Lord Denning, an English judge, that "the proper law of the contract depends not so much on the place where it is made, nor even on the intention of the parties or on the place where it is to be performed but on the place with which it has most substantial connection."

(ASK! Send in your queries on accounting, auditing, corporate law and taxation to ask@thehindu.co.in)

S. Murlidharan

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