The Hindu Business Line : Why can't AGMs be held on Sundays?

The accent on an AGM being held during working hours was rooted in anxiety for the shareholders — that the entire official machinery must be in attendance to answer the queries of members. But to my mind company executives would not mind attending to duties on a Sunday, especially if it is going to be a one-off affair. In any case, putting in extra hours has become an inevitable part of any responsible job. At any rate, convenience of the shareholders is of paramount consideration given the fact that an AGM is an annual event where they have their say for whatever it is worth. The continued insistence on AGMs not being held on a public holiday is antediluvian. If the Government wants attendance of shareholders in large numbers it should rather insist on AGMs being held only on public holidays. In other words, the prohibition on holding an AGM on public holidays must be turned on its head.

STT set-off

I HAVE paid securities transaction tax (STT) on purchase and sale of shares. Can I set this off against my overall tax liability?

K. S. Maniratnam, Chennai

It all depends on whether you are a dealer in shares or an investor therein. More precisely, whether you are assessed in respect of your share market operations under the head `capital gains' or `profits from business and profession'. The fourth proviso to Section 48 explicitly rules out any deduction on account of STT while calculating capital gains, whereas Section 88E gives tax rebate towards STT paid by a dealer in shares. This discrimination is understandable given the fact that capital gains earned from transactions in recognised stock exchanges in India is tax-free if it is of the long-term variety and let off with a small 10 per cent tax if it happens to be of the short-term variety. Small wonder people are falling over each other to board the capital gains bandwagon even if they are dealers.

Loss on shares

I HAVE incurred a loss of Rs 2 lakh on sale of a company's share which I had by mistake bought at a huge price five years ago but which had little market thereafter. Will I get any tax benefit in respect of this loss?

Ajit Dholakia, Ahmedabad

You can set off this loss against long-term capital gains either during the year in which you incurred this loss or at any time during the eight succeeding assessment years. Long-term capital losses and loss from speculative business enjoy the same status — both are sequestered and denied entry into the mainstream of other income.

Vote swing

WHAT if an alternate director votes at a board meeting in a manner not liked by the original director? Can such a vote be rescinded?

Ashim Chakravarthy, Kolkata

An alternate director is not the nominee of the original director, though in practice most of the foreign directors look upon the alternate director as their stooge who will do their bidding. In the event, if the alternate director chooses to be independent and defies the whip, as it were, of the original director, the latter would have no redress apart from denying him this coveted slot once he returns to the state where the board meetings are ordinarily held. Normally, what you have visualised is unlikely to happen given the fact that pliability more than anything else is the primary qualification of an alternate director. But one cannot always be sure. In corporate tussles, loyalties can change as quickly as they were created.

Cold storage as `plant'

I RUN a cold storage plant. Can I treat it as plant and claim depreciation accordingly?

Raghav Swarup Mittal,

New Delhi

The definition of `plant' given in the Income-Tax Act specifically excludes buildings, furniture and fittings. This was done to neutralise the designs of those who tried to claim higher depreciation and other tax benefits reserved for plant and machinery. A cinema theatre was classified as a plant and so was a hospital by intrepid tax planners. But to my mind cold storage plant belongs to a different league altogether. Though it has the trappings of a building, functionally it is very much a plant — the profit earning apparatus of a business. You may try your luck.

CG on bonus shares

HOW does one account for the cost of bonus shares sold while calculating capital gains?

K. Jagannathan, email

Bonus shares do not have any cost. This is what the Income-Tax Act implicitly thinks while deeming cost of bonus shares to be nil. This tax perception is at odds with an accountant's perception. For an accountant, the cost of original shares includes the cost of bonus shares as well. For example, if the cost of 100 original shares is Rs 1 lakh thus making the cum-bonus cost Rs 1,000 per share, on receipt of bonus shares of 100 in a 1:1 bonus issue, the cost of 200 shares would now be Rs 1 lakh, thus making the cost per share Rs 500. This is the averaging method or the spread-over principle. Its rationale is indisputable for it is rooted in commonsense. But the income-tax law was amended more than a decade ago to load the original shares with full cost and making bonus shares cost-free.

In other words, the spread-over principle was given a go-by by the taxman. Assesees cannot possibly complain even though fiscal purists still rile against this as being simplistic. But the taxman seems right because spreading over is not all that simple, especially if the shares have been repeatedly churned and the assessee has had numerous accretions in his holdings through rights and bonus issues.

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

S. Murlidharan

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