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I have purchased 10 shares of Siemens for Rs 16,000 but now my portfolio value is only Rs 8,000, what is happening. I thought that a 1:1 bonus will increase my stock value, 10 shares plus 10 shares of Rs 16,000 = Rs 32,000, but the stock val ue has reduced and I just have 8,000. Should I buy bonus in future?

Normally, a bonus issue is an implied statement of strength and confidence in future growth so as to be able to sustain and service the enlarged capital. US investors are, however, hugely sceptical about bonus issue, dubbing it as an illusion that leaves one’s net worth where it was given the fact that no cash flows into the investors’ coffers what with the entire exercise being a book entry.

It appears you bought these shares at a cum-bonus price and had pitched your expectations rather high. The ex-bonus price always is at a steep discount to the cum-bonus price what with now there being many more number of shares — in this case twice justifying halving of quotations. The Indian experience though has been that the ex-bonus price does not come down pro rata if the company is promising. You should always be on guard while buying cum-bonus.

A school collects the following fee from parents for a student who is in Plus-2: a) activity fee — Rs 5,000; b) tuition fee — Rs 43,200; c) SWF & M — Rs 250; d) stationery and school supplies — Rs 250; e) lab fee — Rs 1,200; and f) computer fee — Rs 1,750.

The total fee works out to Rs 51,650. Which of the above are allowable under Section 80C of Income-Tax Act, 1961?

V. Murali, email

Section 80c uses the words tuition fees and hence, strictly speaking, all other items in the above list should fall by the wayside. But I do feel the school could have helped the taxpaying parents considerably by including computer fee as well as the lab fee under the broad category of tuition fee given the fact that even in the computer and science labs what is imparted is only tuition.

Nabard, in whose bonds I had invested to get tax exemption on long-term capital gains, has given me the option to redeem the bond after three years even though the bond matures for payment only five years after allotment. Should I make use of this offer? What would be the tax consequences?

S. D’Souza, email

Under Section 54EC, the lock-in period is three years. That is, if you redeem the bonds before the expiry of three years, the tax exemption conferred on you would be withdrawn in that the long-term capital gains that were exempted would now become liable to tax. Now that the lock-in period is over, Nabard has given you this option which you may or may not utilise depending upon factors such as availability of better investment avenues, need for funds, etc.

My client is dealing in metal scrap. He regularly imports scrap from foreign companies. There is no godown or agent of the seller in India. Goods are directly shipped from ports outside India. Payment is made in foreign exchange. In such a case is my client liable to deduct tax at source while making the payment to the foreign seller?

Hina, email

From the facts stated by you, it appears that there is no business connection in India. Make sure that the agreement for this purpose was not signed in India because in the past there have been instances where the factum of the contract having been signed in India has given rise to presumption of business connection in India to that extent. Your client would be saving his skin by referring the matter to Authority for Advance Ruling (AAR). He is entitled to do so because even a resident can make an application in respect of a matter arising out of his dealings with a non-resident. Alternatively, your client can make an application to his assessing officer (AO) stating all the facts in terms of the right conferred on him by Section 195(2) and act as per his advice in which case also his skin would be saved.

S. MURLIDHARAN

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

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