The Hindu Business Line : Why go in for currency swaps? For the Asking

This is a very good question, the one that assails many a right thinking person. Why start a conglomerate if one’s intention is to go for demerger in due course. Similarly, why borrow in Japanese yen when what you want is US dollar as evidenced by the swap done later on.

An example is in order to explain why what appears to be a charade is not indeed so. Let us say an Indian company is in good books of Japan and is able to get a huge long-term loan from a Japanese financial institution on favourable terms, of course, in Japanese yen. But let us also say its revenue streams on the export front are in US dollars. It would find it more comfortable to go for a currency swap so that it is able to repay a loan denominated in the currency in which it has a natural hedge and advantage — the US dollar in which it earns its export revenue.

Ousting Table A

Can a public company oust Table A by inserting a clause to this effect in its Articles?

NRK Marimuthu, Namakkal

Table A holds sway only to the extent a company’s articles is silent on a given issue. If, therefore, a given situation is not dealt with by the Articles, naturally the relevant clause of Table A would fill the void. A clause ousting the operation of Table A where it becomes applicable is unsustainable and is void being repugnant to the law contained in the Companies Act.

Service tax on rent

Can tax be deducted also on service tax included in the rent?

C. P. Ethirajan, email

The income-tax department’s stand is that the tenant required to deduct tax from rent has to do so on what he pays, which incidentally includes the service tax also, given the fact that service tax is invariably passed on to the enjoyer of service. While this is debatable, the fact remains that TDS (tax deduction at source) is only an ad hoc payment of tax and in the final analysis service tax is not going to swell your income, though it must be conceded that the excess deduction might cause difficulties to people whose total income is such that the tax deducted would be excessive warranting refund by the department.

Tax planning

My husband owns a proprietary business. He hasn’t exhausted his quota of Rs 1 lakh under Section 80C nor has he claimed any depreciation. Suggest ways in which he can legitimately avoid tax.

Jayalakshmi, email

I don’t know whether you or for that matter anybody else helps him in his business. If salary is payable it is very much a business expenditure, though salary to close relatives always comes for a close scrutiny. If he has got office equipment, including computer or car used for business, he can claim depreciation on these by all means. He can also use Section 80C to the hilt. If he is paying tuition fees of children, they qualify for deduction under this section so long as they are not in respect of more than two children.

F&O operations

Is Section 44AB mandating tax audit if the turnover was in excess of Rs 40 lakh, applicable to F&O (futures and options) operations in the stock market as well?

Deepak Raikar, email

Section 44AB envisages turnover of Rs 40 lakh or more for triggering off the mandatory tax audit requirement. If one is a dealer in shares and while being so also operates in the futures and options segment, he would be required to have his accounts tax audited if his turnover from the cash segment as well as from the derivatives segment breaches the threshold either in combination or on a standalone basis.

Thus if sale of shares in the cash segment by him was Rs 30 lakh and sale in the futures segment Rs 15 lakh, he squarely attracts the audit requirement. In the above example, if he had bought put options for shares worth Rs 15 lakh by paying a premium of, say, Rs 50,000, the audit requirement would not be triggered unless he had exercised his option to sell the shares arising out of his put option at least to the extent of Rs 10 lakh so as to take his total turnover to the Rs 40 lakh threshold.

S. MURLIDHARAN

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