The Hindu Business Line : Stock split versus bonus issue

According to them, a bonus issue gives only illusory benefits to the shareholders inasmuch as post-bonus, the worth of the shares for the shareholders remains where they were ante-bonus what with the intrinsic value of the shares of the company suffering a dilution — a 1:1 bonus spells halving of the intrinsic worth, what with the pie — net worth — now being shared by twice the number of shares and the shareholders being compensated by the additional shares. Be that as it may.

There is, however, a vital difference between the two. In stock split, the paid-up capital of the company remains the same.

To wit, if a company has issued Rs 10 shares aggregating to Rs 100 crore, a stock split resulting in the face value being reduced to Re 1 per share is not going to increase the paid-up share capital of the company; only the number of shares would have increased ten-fold.

But a 1:1 bonus issue has the effect of doubling the paid-up capital of a company. Like bonus, stock split also leaves the net worth of the company where it was. Which perhaps is why the Americans are not unduly enamoured of bonus issues.

But the Indian experience has been that bonus issue does send out a positive signal so much so that the ex-bonus price does not get exactly halved assuming a 1:1 bonus.

Flat from father to son

I live in my father's flat, which was constructed in 1972. In the society records I have been subsequently made the co-member, but the original registration is in my father's name.

If the flat is now transferred to my name (say as a gift), will its value be considered as taxable in my name? If so, what will be its valuation?

Will it be the current market rate or the depreciated value (which might be negligible)?

G. Sanjay, email

Till such time you are a minor, the income attributable to your share of the property would also be added to the income of your father who is deemed to be its owner notwithstanding the gift.

But once you attain majority, the income from the property attributable to your share would be taxed in your hands.

This in any case is the legislative intent which, of course, is not backed by the language of Section 27, which gives the wrong impression that once gifted to a minor the parent is deemed to be the owner for all times to come irrespective of whether the minor has attained majority or not.

The value of the property itself is not taxable as income because Section 56 targets only money gifts in the first place, and then hastens to exempt gift from lineal ascendants amongst others from its purview.

TDS and disallowance

Is an expenditure disallowed even if the interest for non-remittance of TDS is not paid, or is it disallowed only for non-payment of TDS?

Hari Babu, email

The disallowance referred to in Section 40(a) is with reference to default in deduction or deposit of TDS. Non-payment of interest for such default is not visited with disallowance under this section.

Shares as gift

What happens to gifts of shares made to one's friends and relatives? Are they taxable in the hands of the donor or in the hands of the donee?

Nitin Bafna, email

Mercifully in the hands of neither because donors have been spared of tax liability with the abolition of gift tax and donees have been brought under the pincer of income-tax only with regard to monetary gifts.

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

http://MentorQA.blogspot.com

S. Murlidharan

More Stories on : Income Tax | Income Tax | Insight | Bonus Announcements | For the Asking

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Overview of Common Proficiency Test

Advancing money to sister concerns

Clearing charges

Quicker, Better, Cheaper...

Think for the long term

Rural computer kiosks

UK to probe into India call centre data security

Phishing in dangerous waters

Just Do IT

Stock split versus bonus issue

Just about a month to go for CPT

WCP = Lean plus Six σ