Bonus issues & income tax claims

Although the Sensex ended the week up just 36 points, at 5,838, the market was excited on Tuesday, going up 121 points the day Infosys Technologies declared good results, a 2,590 per cent dividend, including a special dividend, and a bonus of 3 shares for each held.
This was followed by Wipro, which overtook Infosys in turnover, both crossing a billion $, which declared a 2:1 bonus, and a 1450 per cent dividend.The tech sector has renewed rejuvenation.
It is not only the tech sector that is faring brilliantly. Other corporate results are equally stunning.
Power company, Reliance Energy (nee BSES) declared Q4 profits to more than treble; cement major Gujarat Ambuja doubled Q4 post tax profits while HDFC Bank grew a comparatively modest but very encouraging 34 per cent.
On Friday 10 out of 18 stocks hitting new highs in the ''A'' group were banking stocks, indicating, perhaps, few concerns over rising interest rates in India.
The generous bonus announcements by the two tech majors were greeted with both applause and scepticism. Applause for the signal of confidence in future earnings the bonus declarations sent.
Scepticism as they could be viewed by an increasingly belligerent Income Tax Department as tax planning, (even though both share the initials IT).
The difference in purchase price and ex-bonus price (which will be punctured drastically thanks to the good ratio) can be offset against capital gains. The IT Department has been on a wild west warpath, raising demands that could be termed outrageously illogical.
It has raised demands of over Rs 200 crore. on both Tata Sons (for exports of software from TCS) and on Wipro, disallowing the benefits granted u/s 10A and B, merely on the ground that the single licence issued did not cover expansions at other locations.
The objective behind the exemption is surely to encourage foreign earnings through exports. Surely that objective cannot be negated now that we have enough? Surely, also, businesses cannot be exposed, over a ten year span, to uncertainties over interpretation?
Similar wild west behaviour was seen in the demand of Rs 81 crore raised on the promoters of HCL Technologies, for sale of shares to an offshore company.
The Department claims undervaluation, and argues that the valuation of the then unlisted company should not have been done by a Chartered Accountant (as permitted) but by an investment banking firm.
The decks are tilted severely against assesses. Almost all of such disputes relate to interpretation.
If the assessee''s interpretation were to be held incorrect, he has to pay penal interest and penalty. If the IT Officers interpretation is held incorrect, nothing happens.
This inequality is a recipe for disaster and if some of the most successful companies are subjected to tortuous litigation on what seems to be frivolous grounds, it would be terrible.
Quality management time is also wasted over petty controversies thrown up over the fee reduction issue at Indian Institute of management. No proof has been advanced that high fees keep away otherwise deserving students.
It would be a crying shame if this were to lead to failure of such reputed institutes to attract quality faculty; the country would then spend multiples of the amount sending students abroad for foreign education. Why do we kill success?
The market is likely to continue its upmove in the coming weeks. More encouraging corporate results and announcements can be expected to feed the bull.