The Hindu Business Line : Why is there less interest in rights issues?

The spate of rights issue that have come unstuck in recent times have only to blame the negative sentiments. Investors have been badly stung. It would take a lot of time for them to recover from the stupor.

At best of times a rights issue succeeds only if it is priced on attractive terms vis-À-vis the market quotation for the shares of the company. For, post-rights, there is bound to be a dilution in the price given the fact that a rights issue results in increasing the number of floating shares. Moreover, as of now, there is only an OTC market for renouncing one’s rights.

It is good that steps are afoot to launch a platform in the bourses for trading in renunciations. A vibrant market for renunciations would result in somebody or the other subscribing to the rights issue with the registered shareholder helping himself to a tidy sum without coughing up anything.

Rent update

Please explain what is unrealised rent realised subsequently and arrears of rent.

Moti Lal Pahwa, Ludhiana

Unrealised rent is deductible from the figure of actual rent while computing the annual value. It can be likened to bad debts. Therefore if it is subsequently recovered, maybe through successful court proceedings, in all fairness it should be offered to tax. This is what Section 25AA says.

Arrears of rent, on the other hand, is revision of rent with retrospective effect or correct determination of rent ending ambiguity with retrospective effect. Section 25B ropes in this too for taxation under the head ‘income from house property’.

While both the provisions are unexceptionable, one cannot understand why the Government has failed to give the standard deduction of 30 per cent from unrealised rent recovered subsequently even as the very next Section 25B, dealing with arrears, conspicuously and pointedly allows a standard deduction of 30 per cent from arrears of rent targeted by it for taxation.

Long term capital gains

I find that Section 54EC does not permit one to deposit ones long-term capital gains in Capital Gains Account Scheme 1988 pending investment in the specified securities, whereas the other two important tax shelters contained in Sections 54 and 54F do. Why this discrimination?

Rishab Shukla, Bhopal

To my mind this is not discrimination but a very practical approach to different situations. You see Sections 54 and 54F require one to invest in a house which admittedly cannot be done always before one files his income-tax return.

In any case these two sections give as much as two years for purchase and three years for constructing a house reckoned from the date of transfer of the original long.

Therefore, in addition to addressing the difficulty in finding a house immediately experienced, especially by those who sell their house during the twilight of the previous year, the bridge investment, so to speak is in keeping with the overall tenor of the schemes enshrined in these two sections.

But Section 54EC does not pose this problem. After all one has to invest in the prescribed bonds, NHAI’s or REC’s, which can be done without much ado and, therefore, requires no time, strictly speaking, even though the section gives as much as six months from the date of transfer to do so.

Yes, those transferring their assets during the fag end of the previous year may not get the full six months to do so but that hardly can be a grievance because in any case he has to take the trouble of depositing in the Capital Gains Accounts Scheme, assuming it is permitted. He might as well invest the money in the specified bonds.

US bailout

What explains the volte-face by the US Government? First it was prepared to sink $700 billion in the toxic assets, but it has had a sudden change of heart and now it wants only to use this money for beefing up the capital of the beleaguered banks.

S. S. Tamizhselvan, Coimbatore

I think your query itself supplies the answer partially. It is infinitely wise any day for the government to subscribe to capital rather than pick up useless assets of a beleaguered bank.

That way it would not be saddled with NPAs and would steer clear of throwing good money after bad. Infusion of further capital is the most sensible thing to do — it would be able to call the shots besides earning something from the investment.

Creeping acquisition

What is the justification for allowing the promoters exemption from the public offer requirement through creeping acquisition?

Suguna Jairam, Chennai

There are two possible justifications. First, promoter is the one who has built the company sedulously from the scratch. In all fairness, goes the argument, he should not be dislodged by an upstart from the control of the company he has promoted.

Therefore the norms applicable to a gatecrasher or Johnny-come-lately should not be applicable to him. Which is why he is allowed to consolidate his position steadily every year without having to make a public offer.

Second, it would be unfair and burdensome for the promoter if he were asked to buy 20 per cent of the share capital of the company from public even if he inches from 15 per cent control to 16 per cent control.

S. MURLIDHARAN

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