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I AM a small depositor in a manufacturing company that has failed to repay my deposit on maturity. Should I seek redress before the National Company Law Tribunal (NCLT) or will I automatically get it? -- Tarun Vohra, New Delhi

A defaulting company is required to admit its guilt before the Tribunal within 60 days. In other words, the redressal mechanism as far as small depositors are concerned is set rolling by the defaulting company itself. There is no way it can take things easy because the penalty is indeed a deterrent with a daily fine of Rs 500 and imprisonment up to three years for failure to admit guilt within the prescribed time.

Yet, if the company is blasé about it, you may yourself go the Tribunal in terms of Section 58A(9).

Quotation conversion

WHEN I read share market quotations, I find substantial difference in quotation for the same share in Indian stock exchange vis-à-vis its quotation in the New York or London stock exchange when the latter quotation is converted into the prevailing rate of exchange. Why this is so? -- Manik Chand Kasliwal, Lucknow

What you are referring to is the quotation for ADRs or GDRs in foreign bourses vis-à-vis the quotation for underlying shares in Indian stock exchanges. First of all, let me clarify that even within Indian exchanges there are often widespread differences, giving rise to what is called arbitrage opportunities.

For example, one may be able to buy shares of a company from the Madras Stock Exchange and sell it in the Bombay Stock Exchange if quotations for the same share are depressed in the former vis-à-vis the latter. In fact, this is done all the time. People in the know often wonder why this arbitrage opportunity should exist, especially now that we live in the virtual world.

After all, thanks to networking, one can trade in the National Stock Exchange from any corner of India. In fact, for the entire nation of England, there is only one stock exchange — London. As far as foreign bourses are concerned, you would agree there is an additional factor — rate of exchange. Please note that while shares in India are quoted in Indian rupees, ADRs and GDRs are quoted in dollars for the simple reason that they are designated in dollars.

Persons trading in the New York Stock Exchange, for example, are least bothered about the rate of exchange between the dollar and the rupee when they do not have any intention of converting the ADRs or GDRs into their underlying shares. Yes, if they have such intentions, they too can profit from the arbitrage opportunity. Such arbitrage opportunities are explained by the local perceptions abroad.

For example, Infosys may quote at a substantially higher price in New York because the floating ADRs are relatively small and may be because the investing public there places a greater P/E ratio on IT shares. In other words, ADRs and their underlying shares are not exactly homogenous and, hence, the difference in their quotations.

Regime unfair?

IN TERMS of Section 115AD, FIIs are not entitled to take advantage of the cost indexing formula when they sell their long-term shares. Besides, their capital gains are computed in terms of Indian rupees, whereas for non-residents generally, capital gains are computed with reference to the foreign currency. Is not this regime unfair to them? -- Neha Sharma, Mumbai

Section 115AD is flawed in that it assumes that when FIIs trade in Indian bourses, their income is assessable as capital gains. An FII is avowedly in the business of buying and selling shares and is not, therefore, entitled to don the robes of an investor.

For an investor, the appropriate head is `capital gains'. For a dealer the appropriate head is `Profits and gains from business... .' One must get this straight.

In fact, there is sizeable revenue leakage due to dealers in shares taking shelter under `capital gains' under the very nose of the tax administration. Section 115AD should have captured the gains as business income, in which case, tax would have been payable at the normal rate and not at the concessional rate of 20 per cent as far as long-term capital gains (LTCG) are concerned.

Besides, the leeway given by the section also enables FIIs to take advantage of various tax shelters reserved for LTCG to which a dealer is not entitled. The two relaxations denied to FIIs in the event are the only correct things done by the section. There is nothing unfair in these denials because these relaxations are meant for investors and not dealers.

Across years

WHAT would happen to the dividend, interim or other, declared during the month of March 2003 but paid in the month of April 2003? -- Richards Mariadas, Sharjah

On the dividend contemplated by you, tax liability would devolve on shareholders. The company itself would be free from the distribution tax liability. If it was final dividend, the shareholders would be obliged to treat this as their income for 2002-03, even though they have received it in the next previous year, 2003-04.

This is because Section 8 says that dividend other than interim becomes taxable in the hands of the shareholders as soon as it is declared. If it was however interim, the denouement would have been pushed to the previous year 2003-04 had the company made the dividend unconditionally available to the shareholders only in the month of April because Section 8 says that interim dividend is includible in the total income only when the same is made unconditionally available. But one thing is clear — in either case distribution tax is not on because it has been ushered in only in respect of dividend declared or distributed on or after April 1, 2003.

Special resolution

WHEN a special resolution was taken up, nine voted in favour, two against and four abstained. Was the special resolution carried? -- Rachana Lodaya, e-mail

Yes. Fence sitters or abstainers should not be counted either way. The mandate of Section 189 is clear — votes cast in favour are not less than three times the number of votes cast against the resolution.

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

S. Murlidharan

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