Indian economy will grow faster than Chinese in 2012: World Bank

For years, India has been the second-fastest growing major economy in the world. That could soon change, with the Indian economy set to expand at a faster pace than the Chinese economy in 2012, according to World Bank data.

This is expected to result from continued high demand in India even as measures to combat overheating kick in for the Chinese economy.

The multilateral agency`s World Economic Outlook has projected that India will grow at 8.7% in 2012, compared to China`s 8.4%. In 2011, however, China would continue to grow at a faster pace than India.

Although no reasons were mentioned in the report released on Thursday, the slowdown in China could be the result of an increase in interest rates as inflation has emerged a major concern across the border too, economists said. China has seen a rapid turnaround after the financial crisis on the back of fiscal stimulus.

In case of India, the economy has benefited from robust domestic demand and a revival in investor and consumer sentiment although higher interest rates are expected to shave off a few basis points from the overall growth rate. Improved external demand and stronger private capital inflows have also played a role. This year, a favourable monsoon has helped the farm sector expand and has in the process boosted rural demand as well.

Economists, however, played down the numbers. "If you are keeping scores, it`s fine but you must remember China is a $5.5 trillion economy while India is a $1.3 trillion economy. Even with a slower growth rate, incremental demand in China will remain much bigger than in the US," said Saumitra Chaudhuri, a member of the Prime Minister`s Economic Advisory Council and a member of the Planning Commission.

"It may be the case for one or two years but what matters is whether India can sustain high growth," added D K Joshi, chief economist at rating agency Crisil.

"It has to be seen how they are saying that the (China`s) growth rate will decline from 10% plus levels to 8.4%. For us, 8.7% is probably closer to our trend growth," said Pronab Sen, senior advisor in the Planning Commission.

China and India have seen rapid growth and have helped push up the global growth rate in the year`s post the financial meltdown. But India has always lagged its Asian rival, often referred to as the factory to the world, as China has flooded the international market with products ranging from lingerie to LCD television.

In recent years, foreign investors have bet big on India too, setting up manufacturing facilities but it has always been the second-most preferred destination. The increase in wages in China could, however, tilt the competitiveness scales in India's favour.

Overall, the report said that in 2011 and 2012, the global economy is shifting into a phase of slower but solid growth, with India and China contributing towards almost half of the global growth.

The World Bank estimated that global GDP, which expanded by 3.9% in 2010, will slow down to 3.3% in 2011 before reaching 3.6% in 2012.

In terms of policy prescriptions, the report said that in case of the South Asia, where India is driving growth, the recent monetary tightening would need to be pursued further given the region's high fiscal deficits, high inflation and rising current account deficit.

The report also warned that countries such as India, China and Brazil would have to grapple with high levels of capital inflows given the interest shown by foreign institutional investors. "Heavy inflows to certain big middle-income economies may carry risks and threaten medium-term recovery, especially if currency value rises suddenly or if asset bubbles emerge," it said.

Your Apps Are Watching You

Few devices know more personal details about people than the smartphones in their pockets: phone numbers, current location, often the owner's real name—even a unique ID number that can never be changed or turned off.

WSJ's Julia Angwin explains to Simon Constable how smartphone apps collect and broadcast data about your habits. Many don't have privacy policies and there isn't much you can do about it.

These phones don't keep secrets. They are sharing this personal data widely and regularly, a Wall Street Journal investigation has found.

An examination of 101 popular smartphone "apps"—games and other software applications for iPhone and Android phones—showed that 56 transmitted the phone's unique device ID to other companies without users' awareness or consent. Forty-seven apps transmitted the phone's location in some way. Five sent age, gender and other personal details to outsiders.

The findings reveal the intrusive effort by online-tracking companies to gather personal data about people in order to flesh out detailed dossiers on them.

Among the apps tested, the iPhone apps transmitted more data than the apps on phones using Google Inc.'s Android operating system. Because of the test's size, it's not known if the pattern holds among the hundreds of thousands of apps available.

Apps sharing the most information included TextPlus 4, a popular iPhone app for text messaging. It sent the phone's unique ID number to eight ad companies and the phone's zip code, along with the user's age and gender, to two of them.

Both the Android and iPhone versions of Pandora, a popular music app, sent age, gender, location and phone identifiers to various ad networks. iPhone and Android versions of a game called Paper Toss—players try to throw paper wads into a trash can—each sent the phone's ID number to at least five ad companies. Grindr, an iPhone app for meeting gay men, sent gender, location and phone ID to three ad companies.

"In the world of mobile, there is no anonymity," says Michael Becker of the Mobile Marketing Association, an industry trade group. A cellphone is "always with us. It's always on."

iPhone maker Apple Inc. says it reviews each app before offering it to users. Both Apple and Google say they protect users by requiring apps to obtain permission before revealing certain kinds of information, such as location.

"We have created strong privacy protections for our customers, especially regarding location-based data," says Apple spokesman Tom Neumayr. "Privacy and trust are vitally important."

The Journal found that these rules can be skirted. One iPhone app, Pumpkin Maker (a pumpkin-carving game), transmits location to an ad network without asking permission. Apple declines to comment on whether the app violated its rules.

Smartphone users are all but powerless to limit the tracking. With few exceptions, app users can't "opt out" of phone tracking, as is possible, in limited form, on regular computers. On computers it is also possible to block or delete "cookies," which are tiny tracking files. These techniques generally don't work on cellphone apps.

The makers of TextPlus 4, Pandora and Grindr say the data they pass on to outside firms isn't linked to an individual's name. Personal details such as age and gender are volunteered by users, they say. The maker of Pumpkin Maker says he didn't know Apple required apps to seek user approval before transmitting location. The maker of Paper Toss didn't respond to requests for comment.

Many apps don't offer even a basic form of consumer protection: written privacy policies. Forty-five of the 101 apps didn't provide privacy policies on their websites or inside the apps at the time of testing. Neither Apple nor Google requires app privacy policies.

To expose the information being shared by smartphone apps, the Journal designed a system to intercept and record the data they transmit, then decoded the data stream. The research covered 50 iPhone apps and 50 on phones using Google's Android operating system. (Methodology available here.)

The Journal also tested its own iPhone app; it didn't send information to outsiders. The Journal doesn't have an Android phone app.

Among all apps tested, the most widely shared detail was the unique ID number assigned to every phone. It is effectively a "supercookie," says Vishal Gurbuxani, co-founder of Mobclix Inc., an exchange for mobile advertisers.

On iPhones, this number is the "UDID," or Unique Device Identifier. Android IDs go by other names. These IDs are set by phone makers, carriers or makers of the operating system, and typically can't be blocked or deleted.

"The great thing about mobile is you can't clear a UDID like you can a cookie," says Meghan O'Holleran of Traffic Marketplace, an Internet ad network that is expanding into mobile apps. "That's how we track everything."

Ms. O'Holleran says Traffic Marketplace, a unit of Epic Media Group, monitors smartphone users whenever it can. "We watch what apps you download, how frequently you use them, how much time you spend on them, how deep into the app you go," she says. She says the data is aggregated and not linked to an individual.

The main companies setting ground rules for app data-gathering have big stakes in the ad business. The two most popular platforms for new U.S. smartphones are Apple's iPhone and Google's Android. Google and Apple also run the two biggest services, by revenue, for putting ads on mobile phones.

Apple and Google ad networks let advertisers target groups of users. Both companies say they don't track individuals based on the way they use apps.

Apple limits what can be installed on an iPhone by requiring iPhone apps to be offered exclusively through its App Store. Apple reviews those apps for function, offensiveness and other criteria.

Apple says iPhone apps "cannot transmit data about a user without obtaining the user's prior permission and providing the user with access to information about how and where the data will be used." Many apps tested by the Journal appeared to violate that rule, by sending a user's location to ad networks, without informing users. Apple declines to discuss how it interprets or enforces the policy.

Phones running Google's Android operating system are made by companies including Motorola Inc. and Samsung Electronics Co. Google doesn't review the apps, which can be downloaded from many vendors. Google says app makers "bear the responsibility for how they handle user information."

Google requires Android apps to notify users, before they download the app, of the data sources the app intends to access. Possible sources include the phone's camera, memory, contact list, and more than 100 others. If users don't like what a particular app wants to access, they can choose not to install the app, Google says.

"Our focus is making sure that users have control over what apps they install, and notice of what information the app accesses," a Google spokesman says.

Neither Apple nor Google requires apps to ask permission to access some forms of the device ID, or to send it to outsiders. When smartphone users let an app see their location, apps generally don't disclose if they will pass the location to ad companies.

Lack of standard practices means different companies treat the same information differently. For example, Apple says that, internally, it treats the iPhone's UDID as "personally identifiable information." That's because, Apple says, it can be combined with other personal details about people—such as names or email addresses—that Apple has via the App Store or its iTunes music services. By contrast, Google and most app makers don't consider device IDs to be identifying information.

A growing industry is assembling this data into profiles of cellphone users. Mobclix, the ad exchange, matches more than 25 ad networks with some 15,000 apps seeking advertisers. The Palo Alto, Calif., company collects phone IDs, encodes them (to obscure the number), and assigns them to interest categories based on what apps people download and how much time they spend using an app, among other factors.

By tracking a phone's location, Mobclix also makes a "best guess" of where a person lives, says Mr. Gurbuxani, the Mobclix executive. Mobclix then matches that location with spending and demographic data from Nielsen Co.

In roughly a quarter-second, Mobclix can place a user in one of 150 "segments" it offers to advertisers, from "green enthusiasts" to "soccer moms." For example, "die hard gamers" are 15-to-25-year-old males with more than 20 apps on their phones who use an app for more than 20 minutes at a time.

Mobclix says its system is powerful, but that its categories are broad enough to not identify individuals. "It's about how you track people better," Mr. Gurbuxani says.

Some app makers have made changes in response to the findings. At least four app makers posted privacy policies after being contacted by the Journal, including Rovio Mobile Ltd., the Finnish company behind the popular game Angry Birds (in which birds battle egg-snatching pigs). A spokesman says Rovio had been working on the policy, and the Journal inquiry made it a good time to unveil it.

Free and paid versions of Angry Birds were tested on an iPhone. The apps sent the phone's UDID and location to the Chillingo unit of Electronic Arts Inc., which markets the games. Chillingo says it doesn't use the information for advertising and doesn't share it with outsiders.

Apps have been around for years, but burst into prominence when Apple opened its App Store in July 2008. Today, the App Store boasts more than 300,000 programs.

Other phone makers, including BlackBerry maker Research in Motion Ltd. and Nokia Corp., quickly built their own app stores. Google's Android Market, which opened later in 2008, has more than 100,000 apps. Market researcher Gartner Inc. estimates that world-wide app sales this year will total $6.7 billion.

Many developers offer apps for free, hoping to profit by selling ads inside the app. Noah Elkin of market researcher eMarketer says some people "are willing to tolerate advertising in apps to get something for free." Of the 101 apps tested, the paid apps generally sent less data to outsiders.

Ad sales on phones account for less than 5% of the $23 billion in annual Internet advertising. But spending on mobile ads is growing faster than the market overall.

Central to this growth: the ad networks whose business is connecting advertisers with apps. Many ad networks offer software "kits" that automatically insert ads into an app. The kits also track where users spend time inside the app.

Some developers feel pressure to release more data about people. Max Binshtok, creator of the DailyHoroscope Android app, says ad-network executives encouraged him to transmit users' locations.

Mr. Binshtok says he declined because of privacy concerns. But ads targeted by location bring in two to five times as much money as untargeted ads, Mr. Binshtok says. "We are losing a lot of revenue."

Other apps transmitted more data. The Android app for social-network site MySpace sent age and gender, along with a device ID, to Millennial Media, a big ad network.

In its software-kit instructions, Millennial Media lists 11 types of information about people that developers may transmit to "help Millennial provide more relevant ads." They include age, gender, income, ethnicity, sexual orientation and political views. In a re-test with a more complete profile, MySpace also sent a user's income, ethnicity and parental status.

A spokesman says MySpace discloses in its privacy policy that it will share details from user profiles to help advertisers provide "more relevant ads." My Space is a unit of News Corp., which publishes the Journal. Millennial did not respond to requests for comment on its software kit.

App makers transmitting data say it is anonymous to the outside firms that receive it. "There is no real-life I.D. here," says Joel Simkhai, CEO of Nearby Buddy Finder LLC, the maker of the Grindr app for gay men. "Because we are not tying [the information] to a name, I don't see an area of concern."

Scott Lahman, CEO of TextPlus 4 developer Gogii Inc., says his company "is dedicated to the privacy of our users. We do not share personally identifiable information or message content." A Pandora spokeswoman says, "We use listener data in accordance with our privacy policy," which discusses the app's data use, to deliver relevant advertising. When a user registers for the first time, the app asks for email address, gender, birth year and ZIP code.

Google was the biggest data recipient in the tests. Its AdMob, AdSense, Analytics and DoubleClick units collectively heard from 38 of the 101 apps. Google, whose ad units operate on both iPhones and Android phones, says it doesn't mix data received by these units.

Google's main mobile-ad network is AdMob, which it bought this year for $750 million. AdMob lets advertisers target phone users by location, type of device and "demographic data," including gender or age group.

A Google spokesman says AdMob targets ads based on what it knows about the types of people who use an app, phone location, and profile information a user has submitted to the app. "No profile of the user, their device, where they've been or what apps they've downloaded, is created or stored," he says.

Apple operates its iAd network only on the iPhone. Eighteen of the 51 iPhone apps sent information to Apple.

Apple targets ads to phone users based largely on what it knows about them through its App Store and iTunes music service. The targeting criteria can include the types of songs, videos and apps a person downloads, according to an Apple ad presentation reviewed by the Journal. The presentation named 103 targeting categories, including: karaoke, Christian/gospel music, anime, business news, health apps, games and horror movies.

People familiar with iAd say Apple doesn't track what users do inside apps and offers advertisers broad categories of people, not specific individuals.

Apple has signaled that it has ideas for targeting people more closely. In a patent application filed this past May, Apple outlined a system for placing and pricing ads based on a person's "web history or search history" and "the contents of a media library." For example, home-improvement advertisers might pay more to reach a person who downloaded do-it-yourself TV shows, the document says.

The patent application also lists another possible way to target people with ads: the contents of a friend's media library.

How would Apple learn who a cellphone user's friends are, and what kinds of media they prefer? The patent says Apple could tap "known connections on one or more social-networking websites" or "publicly available information or private databases describing purchasing decisions, brand preferences," and other data. In September, Apple introduced a social-networking service within iTunes, called Ping, that lets users share music preferences with friends. Apple declined to comment.

Tech companies file patents on blue-sky concepts all the time, and it isn't clear whether Apple will follow through on these ideas. If it did, it would be an evolution for Chief Executive Steve Jobs, who has spoken out against intrusive tracking. At a tech conference in June, he complained about apps "that want to take a lot of your personal data and suck it up."

JP Morgan and Morgan Stanley get China nod

China has sent out signals that it will buy friendship with the United States with market access. It has opened doors for two New York-based investment bankers—JP Morgan and Morgan Stanley—ahead of Chinese president Hu Jintao's meeting with Barack Obama in Washington on January 18.

The move may have some implication for Indian companies seeking a listing in US stock exchanges. Bringing in two more foreign players in a field dominated by Chinese investment banks suggest a rising desire for US listings among Chinese companies , who might give some competition to Indian firms wooing the emerging market funds in that country.

The entry of JP Morgan and Morgan Stanley is bound to soften Washington's mood towards Beijing because China offers a hugely attractive IPO market for investment bankers. Chinese companies raised $74 billion through IPO’s last year.

But their Chinese partners will still call the shots in the new business as local laws do not allow more than a 33% stake for foreign partners in underwriting business. Foreign underwriters attract little business in China, with UBS ranking 18th in 2010.

Beijing recently softened the EU's policies towards it by offering to bail out countries like Spain that are affected by the financial crisis. The big question now is whether such sops would influence US policy on China on political issues that include Washington's relationship with India, Pakistan, Japan and North Korea.

JP Morgan, the world's third-biggest manager of equity sales in 2010, has taken China's First Capital Security as a partner. Morgan Stanley has tied up with Huaxin Securities.

Mere commercial connection between income and industrial undertaking would not be sufficient for claiming deduction under section 80-IB

Mere commercial connection between income and industrial undertaking would not be sufficient for claiming deduction under section 80-IB.

The derivation of the income must be directly connected with the business in the sense that the income is generated by the business. It would not be sufficient if it is generated by the exploitation of a business asset.

The fact that the Legislature has used the expression "profits and gains derived from the business of industrial undertaking" has some significance and it connotes that the immediate and effective source of income eligible for grant of relief under section 80-IB must be the industrial undertaking itself and not any other source. - [2010] 8 TAXMANN.COM 267 (AHD. - ITAT)

Can compensation received in lieu of future profits from abandoned project be taxed as business profits particularly when expenses attributable to project were allowed as revenue expenditure?

Can compensation received in lieu of future profits from abandoned project be taxed as business profits particularly when expenses attributable to project were allowed as revenue expenditure?
-YES, says Delhi HC


NEW DELHI, DEC 22, 2010: THE major issue before the High Court is - Whether compensation received by the assessee in lieu of future profits from the abandoned project is taxable as business profits particularly when the expenses attributable to the abandoned project were allowed as revenue expenses. YES is the High Court's answer. The other issues are - Whether once revenue proves that a particular receipt is income, the burden to prove that such receipt is not income shifts on the assessee and Whether the restrictive covenant having life span of three years and the same can be withdrawn at any time during this period after the approval of the other party, changes the colour of the receipt from revenue to capital.


Facts of the case

M/s. DCM and Kailash Nath & Associates (briefly KNA) entered into a collaboration Agreement dated 17th July, 1986 inter alia with respect to the development of 66.53 acres of land owned by DCM situated at Bara Hindu Rao, New Rohtak Road, Delhi. Under this Agreement, the KNA was to develop and construct multistoried residential flats, flatted factories, shopping complex, schools etc. on the aforesaid land belonging to the DCM. Owing to the magnitude of the project, however, with the mutual consent of DCM and KNA, the appellant-company, M/s. Ansals Properties and Industries Ltd., presently known as M/s. Ansals Properties & Infrastructure Ltd. was inducted for implementation of the project by an Agreement dated 24th November, 1988 entered into between the DCM, KNA and ANSALS. Thereafter some disputes arose between DCM and the assessee along with other participant - KNA and the assessee agreed to neglect the ongoing project subject to compensation - DCM paid the same - AO taxed the compensation as revenue receipt - CIT(A) affirmed the same - ITAT affirmed the order of the CIT(A).


On appeal, the HC held that,

• the Tribunal has rightly opined that the compensation was for the loss of future profits and for the development already undertaken by the assessee, the expenses in relation to such development having already been claimed and allowed as revenue expenditure. Thus, the Tribunal held that what was paid was for the deprivation of the potential income;
• the Tribunal rightly noted that there was not even a mention in the Agreement that the amount paid was towards the restrictive covenant and on the other hand a reading of the Settlement Agreement entered into between the parties clearly shows that the DCM had agreed to pay compensation for the "annulment of the very rights of KNA and ANSALS to carry on business of completing the project under the Principal Agreement and for being deprived of the potential income which could have arisen from carrying on such business, a sum of Rs.6.75 crores to KNA, which is inclusive of refund of Security Deposit of Rs.3.90 crores and a sum of Rs.8.25 crores to ANSALS, which is inclusive of refund of security deposit of 4 crores respectively………"
• undoubtedly, in the preceding clause, i.e. Clause 2, it is mentioned that KNA and ANSALS had agreed that they shall not undertake, without prior written consent of the DCM, similar projects in the vicinity of the said project for a period of 3 years from the date of the signing of the Agreement, but the sum of Rs.8.25 crores, as is clear from a cumulative reading of clauses 2 and 3 of the Agreement, was paid as compensation for the termination of the Agreement to carry on the business of completing the project under the "Principal Agreement" and "for being deprived of the potential income which could have arisen from carrying on such business." The intention of the parties, it is settled law, is conveyed by the terms of the Agreement. In the absence of any ambiguity in the Agreement, the Tribunal was fully justified in construing the intention of the parties;
• the scope and ambit of the restrictive covenant must be examined in the backdrop of the entire fact situation. On examination, it is found that the clause has limited significance, being to save the interest of the DCM, which was to develop the property as an absolute owner. By no stretch of imagination, such a clause was intended to divest the appellant of its income earning apparatus. Had the clause resulted in depriving the appellant of its income earning apparatus, and prohibited it from taking up a similar project anywhere in Delhi, there might have been some strength in the contention of the appellant that it had lost a capital asset and the amount which accrued to it for the loss of the capital asset must be viewed as a capital receipt not assessable to tax. This was not so; the Agreement between the parties was in the normal course of business. In other words, the normal incidence of business. Prohibition to carry on a similar project in the vicinity was on account of the nature of the business and was more by way of affording a safety valve to DCM;
• as regards the restrictive covenant, it cannot be lost sight of that what was prohibited was not to undertake similar project anywhere in or around Delhi, but not to undertake a similar project in the vicinity and that too for the limited duration of 3 years. This was subject to another rider. The restrictive clause was not to undertake a similar project in the vicinity of the existing project for a period of three years, without the written consent of the DCM. To be noted that with the approval of the DCM, it was open to the appellant to undertake a similar project, assuming the site for such a project to be available;
• the counsel for the appellant has sought to draw strength from the decision rendered by the Supreme Court in the case of Best & Co. Pvt. Ltd. where the duration of the restrictive covenant was five years. Yet, it was viewed by the Supreme Court as an independent obligation which came into operation on the termination of the agency and hence not taxable as a revenue receipt. But there is a marked difference in the facts of the said case when placed in juxtaposition to the facts of the instant case;
• in any case, the restriction placed was far from absolute in that it was to remain operative for a limited duration of time and pertained to a limited geographical area within the contours of Delhi. This apart, it was left open to the appellant to approach DCM for its written approval to the appellant carrying on a similar project in the vicinity (assuming such a project was available in the vicinity). Since all disputes were being set at rest, this undertaking appears to have been incorporated in an incidental manner so as to avoid any conflict of interest amongst the erstwhile partners in the project. Viewed from any angle, it is to be seen as a safety valve for the DCM rather than an absolute restriction on the appellant from carrying on its business. Even otherwise, it could hardly be said that given the nature of the restrictive covenant in the Agreement, the appellant was hampered from operating its profit making apparatus in other spheres and even in the very same sphere.

In case of a company, notice under section 148 is to be served on its Principal Officer for making a valid assessment under section 147

In case of a company, notice under section 148 is to be served on its Principal Officer for making a valid assessment under section 147.


Where the notice under section 148 was not served upon the Principal Officer of the assessee-company but on a person who was not empowered to receive the notice, the service of notice under section 148 was not a valid service, and the assessment completed under section 147 in the absence of a valid service was bad in law. - [2010] 8 TAXMANN.COM 266 (LUCKNOW - ITAT)

Facebook Deal Offers Freedom From Scrutiny

Facebook’s new financial security could buttress the company’s independence and help Mark Zuckerberg retain near absolute control.SAN FRANCISCO — In Silicon Valley, going public used to be the ultimate rite of passage for a start-up — a sign it had arrived.

No more.

With its $500 million infusion from Goldman Sachs and other investors, Facebook is now flush with cash, and a market value of about $50 billion, giving it the financial muscle it needs to compete with better-heeled rivals like Google.

And Facebook hopes for an even bigger advantage from the deal, the ability to delay an initial public offering. That would allow it to remain free of government regulation and from the volatility of Wall Street. It would also allow Mark Zuckerberg, the company’s chief executive, to retain near absolute control over the company he co-founded in a Harvard dorm room in 2004.

This strategy was unthinkable in Silicon Valley just a few years ago, when hundreds of start-ups with scant revenue and no profits, like Pets.com and Webvan, raced to go public, and investors eagerly lined up to buy their shares.

Lots of people would stand in line to buy shares in Facebook, but for now, only an exclusive few — wealthy clients of Goldman Sachs — will be able to. On Monday, Goldman sent e-mail to certain clients, offering them the chance to invest in the company.

That offer is the latest sign of the emergence of active markets in the shares of closely held companies. Those markets are helping successful start-ups like Facebook develop the financial wherewithal to compete in the big leagues of business. They have also become an avenue for venture capitalists and start-up employees to cash in their stock, turning many overworked engineers into instant millionaires.

And so a young mogul like Mr. Zuckerberg, the world’s youngest billionaire at age 26, can enjoy many of the benefits of going public without having to tie the knot with Wall Street. Other hot technology companies like Twitter, Zynga and Groupon are also tapping secondary markets to keep stock market investors at bay. They are in no rush to go public and no longer need the bragging rights that a stock offering used to bestow.

“This is a topsy-turvy world,” said Scott Dettmer, a founding partner of Gunderson Dettmer, a law firm that has advised venture capitalists, start-ups and entrepreneurs since the 1980s. He added that even a few years ago, “there were all sorts of business reasons to go public, but for entrepreneurs it was also a badge of honor.”

Perhaps more than any company founder, Mr. Zuckerberg, who declined to comment for this article, has frequently expressed his lack of interest in Wall Street, though Facebook is clearly not above taking its cash. He passed on opportunities to make a killing, for example, when, at age 22, he rejected billion-dollar offers for Facebook.

“Mark would absolutely prefer not have an I.P.O. until he absolutely has to,” said David Kirkpatrick, the author of “The Facebook Effect.” “He absolutely doesn’t want to sacrifice control because he believes that his vision is necessary to keep powering the company forward.”

Mr. Zuckerberg’s quest to keep Facebook private, though, will not last forever. Federal regulations require companies with 500 or more investors to disclose their financial results, eliminating one of the principal advantages of staying private.

The Goldman Sachs investment, for a stake of less than 1 percent in the company, is formulated in part to skirt those rules. But it may help for only a limited time. The Securities and Exchange Commission is investigating private company trades in secondary markets, and regulators may decide that what is good for Facebook is not necessarily good for the investing public.

Still, the huge cash infusion is a coup both for Mr. Zuckerberg, who is said to own about a quarter of the company, and Facebook. The deal gives the company cash to hire employees or build data centers.

It also puts Facebook, which makes most of its money through advertising, on a path to surpass Google, by some measures, as the most successful Internet company to come out of Silicon Valley. Facebook is on track to bring in as much as $2 billion in revenue this year.

The deal with Goldman values Facebook at nearly twice the $27 billion that Google was worth after its first day as a public company in August 2004. Google did not cross the $50 billion mark until about six months later.

The two companies have become enemies, but their founders share a deep suspicion of Wall Street, born in part from witnessing the devastation that followed the dot-com bubble. Like Mr. Zuckerberg, the founders of Google, Larry Page and Sergey Brin, set up two classes of shares, which kept them in control after the public offering. They also vowed not to be beholden to short-term investors.

Mr. Zuckerberg is exhibiting many of the same misgivings about the stock market. Mr. Zuckerberg has frequently demurred when asked about an eventual public offering. One of Facebook’s earliest investors said recently that the company would not go public before 2012.

But Mr. Zuckerberg is benefiting from the fast-growing market for trading in the shares of privately held tech companies, which the Google founders did not have. Through private exchanges like Secondmarket and Sharespost, and through direct transactions between investors, closely held companies, their investors and their employees have been able to sell their shares to others. For start-ups today, that has opened new options to going public.

“Companies have financing alternatives that they didn’t have,” said Marc Bodnick, a managing partner at Elevation Partners, which invested in Facebook in the last year.

Those alternatives have become more attractive for companies, in part because of the increased regulations imposed on public companies but also because of the rise in short-term trading, which leaves some executives feeling they have lost control of their companies.

Ben Horowitz, a partner with Andreessen Horowitz, a venture capital firm, said the cost of being a public company had risen to about $5 million a year, from about $1 million a year. Mr. Horowitz, an early employee of Netscape, said that such costs would have eaten into the meager profits of the pioneering Internet company when it went public in 1995. Additionally, accounting and legal requirements have become distractions for many start-ups, said Mr. Horowitz, whose firm is an investor in Facebook.

Those distractions are bothersome for strong-willed entrepreneurs like Mr. Zuckerberg.

“If you’re 30 years old and you think you’re building a business that’s going to be a 100-year-old business, what year you’re public doesn’t really matter,” Mr. Bodnick said. “But if you think the steps you’re taking are laying the groundwork to long-term strategic growth, it’s good to be quiet, it’s good to be out of the light.”

Still, some experts say that the option to remain private is a luxury that only few start-ups will be able to enjoy.

“Things have changed dramatically for the 2 percent of companies that stand out from the pack like Facebook,” said Lise Buyer, the principal of the Class V Group, which advises private companies about going public. Ms. Buyer, a former Google executive who was involved in its public offering, added: “If you are a semiconductor, or a biotech company, or an enterprise software company, you are not going to have investors throwing money at you without any disclosure.”


By MIGUEL HELFT

Source: The NewYork Times

RIM offers interception solution using Cloud Computing

With the approaching deadline to offer complete solution for monitoring of its contents by January 31, BlackBerry maker Research in Motion (RIM) has offered lawful interception in its security architecture through cloud computing from Indian operators. Cloud computing is Internet-based service, whereby shared servers provide software and data to computers and other devices on demand.

RIM infrastructure is ready to receive and process through the cloud computing-based system, lawfully intercepted

BlackBerry Messenger data from Indian service providers, the Canada-based firm said in a letter to the government.

Earlier, RIM had assured the Government that they will provide the 'final solution' for the lawful interception of BlackBerry Messenger services by January 31, 2011. The company has said that this was the understanding that they were to put in place the system by January 31.

According to sources in the know, the Ministry of Home Affairs has asked the Intelligence Bureau (IB) to validate the technology (cloud computing) being offered by RIM.

BlackBerry has over one million subscribers in India, which is one of the fastest growing markets in the world in terms of new subscriber additions.

The Canada-based company made it clear that its security systems are still cutting edge by saying, "RIM maintains a consistent global standard for lawful access requirements that does not include special deals for specific countries.

Last year, RIM had assured the Government that it would provide a final solution for lawful interception of BlackBerry Messenger services by January next year. The project is likely to be completed by the end of January 2011.

With regard to Blackberry's Enterprise mail service, however, it had asserted that the company had no ability to provide customers' encryption keys.

With respect to the same issue, Robert E Crow, Vice President, Industry, Government and University Relations, RIM, had met Home Minister P Chidambaram and explained the status of its project.

Company had also claimed that there was no deadline from the government and it was RIM that had said it would work with operators to ensure that security agencies were able to intercept BlackBerry Messenger data.

The company had also asserted that there was "no change" in its security architecture and sought to dispel talks of its ban in India as mere rumours.

The rumours around BlackBerry services stems from the fact that Indian government had earlier asked Blackberry to provide complete access or face a ban.

Source: Hindustan Times

Where while deleting penalty, Tribunal had not considered decision of jurisdictional High Court, Tribunal's order was liable to be set aside

Where while deleting penalty, Tribunal had not considered decision of jurisdictional High Court, Tribunal's order was liable to be set aside - [2010] 8 TAXMANN.COM 265 (KAR.)

Goldman Sachs - Facebook

Facebook, the popular social networking site, has raised $500 million from Goldman Sachs and a Russian investor in a deal that values the company at $50 billion, according to people involved in the transaction.


The deal makes Facebook now worth more than companies like eBay, Yahoo and Time Warner.

The stake by Goldman Sachs, considered one of Wall Street’s savviest investors, signals the increasing might of Facebook, which has already been bearing down on giants like Google.

The new money will give Facebook more firepower to steal away valuable employees, develop new products and possibly pursue acquisitions — all without being a publicly traded company. The investment may also allow earlier shareholders, including Facebook employees, to cash out at least some of their stakes.

The new investment comes as the Securities and Exchange Commission has begun an inquiry into the increasingly hot private market for shares in Internet companies, including Facebook, Twitter, the gaming site Zynga and LinkedIn, an online professional networking site. Some experts suggest the inquiry is focused on whether certain companies are improperly using the private market to get around public disclosure requirements.

The deal could add pressure on Facebook to go public even as its executives have resisted. The popularity of shares of Microsoft and Google in the private market ultimately pressured them to pursue initial public offerings.

So far, Facebook’s chief executive, Mark Zuckerberg, has brushed aside the possibility of an initial public offering or a sale of the company. At an industry conference in November, he said on the topic, “Don’t hold your breath.” However, people involved in the fund-raising effort suggest that Facebook’s board has indicated an intention to consider a public offering in 2012.

There has been an explosion in user interest in social media sites. The social buying site Groupon, which recently rejected a $6 billion takeover bid from Google, is in the process of raising as much as $950 million from major institutional investors, at a valuation near $5 billion, according to people briefed on the matter who were not authorized to speak publicly.

“When you think back to the early days of Google, they were kind of ignored by Wall Street investors, until it was time to go public,” said Chris Sacca, an angel investor in Silicon Valley who is a former Google employee and an investor in Twitter. “This time, the Street is smartening up. They realize there are true growth businesses out here. Facebook has become a real business, and investors are coming out here and saying, ‘We want a piece of it.’ ”

The Facebook investment deal is likely to stir up a debate about what the company would be worth in the public market. Though it does not disclose its financial performance, analysts estimate the company is profitable and could bring in as much as $2 billion in revenue annually.

Under the terms of the deal, Goldman has invested $450 million, and Digital Sky Technologies, a Russian investment firm that has already sunk about half a billion dollars into Facebook, invested $50 million, people involved in the talks said.

Goldman has the right to sell part of its stake, up to $75 million, to the Russian firm, these people said. For Digital Sky Technologies, the deal means its original investment in Facebook, at a valuation of $10 billion, has gone up fivefold.

Representatives for Facebook, Goldman and Digital Sky Technologies all declined to comment.

Goldman’s involvement means it may be in a strong position to take Facebook public when it decides to do so in what is likely to be a lucrative and prominent deal.

As part of the deal, Goldman is expected to raise as much as $1.5 billion from investors for Facebook at the $50 billion valuation, people involved in the discussions said, speaking on the condition of anonymity because the transaction was not supposed to be made public until the fund-raising had been completed.

In a rare move, Goldman is planning to create a “special purpose vehicle” to allow its high-net-worth clients to invest in Facebook, these people said. While the S.E.C. requires companies with more than 499 investors to disclose their financial results to the public, Goldman’s proposed special purpose vehicle may be able get around such a rule because it would be managed by Goldman and considered just one investor, even though it could conceivably be pooling investments from thousands of clients.

It is unclear whether the S.E.C. will look favorably upon the arrangement.

Already, a thriving secondary market exists for shares of Facebook and other private Internet companies. In November, $40 million worth of Facebook shares changed hands in an auction on a private exchange called SecondMarket. According to SharesPost, Facebook’s value has roughly tripled over the last year, to $42.4 billion. Some investors appear to have bought Facebook shares at a price that implies a valuation of $56 billion. But the credibility of one of Wall Street’s largest names, Goldman, may help justify the company’s worth.

Facebook also surpassed Google as the most visited Web site in 2010, according to the Internet tracking firm Experian Hitwise.

Facebook received 8.9 percent of all Web visits in the United States between January and November 2010. Google’s main site was second with 7.2 percent, followed by Yahoo Mail service, Yahoo’s Web portal and YouTube, part of Google.

For Mr. Zuckerberg, the deal may double his personal fortune, which Forbes estimated at $6.9 billion when Facebook was valued at $23 billion. That would put him in a league with the founders of Google, Larry Page and Sergey Brin, who are reportedly worth $15 billion apiece.

Even as Goldman takes a stake in Facebook, its employees may struggle to view what they invested in. Like those at most major Wall Street firms, Goldman’s computers automatically block access to social networking sites, including Facebook.

By ANDREW ROSS SORKIN and EVELYN M. RUSLI

Source: The New York Times

After Vodafone, Govt mulls taxing Kraft-Cadbury deal

The finance ministry is looking into whether Kraft Foods will have to pay taxes to Indian authorities in its $19 bn takeover of Cadbury last year, in response to a public interest petition.

The case is the second in recent years where questions have been raised on global firms' tax liability in India following a blockbuster deal, adding to regulatory uncertainty for foreign companies chasing the India growth story.

Indian tax authorities last year asked Vodafone to pay $2.5 billion tax on its 2007 purchase of Hutchison Whampoa Ltd's mobile business in the country, which the company is currently fighting in court.

Uncertainty over taxes, environmental clearances and other regulations, on top of a slew of corruption scandals, have eroded Asia's third-largest economy's appeal among overseas corporate investors.

"These types of cases are something the Indian authorities have been pursuing for the past two or three years, but it is not a widespread international practice," said Abhishek Goenka, a partner at BMR Advisors in Bangalore.

"We are expecting a number of similar cases which will obviously create an element of concern for cross-border M&A from an Indian perspective," he added.

Foreign direct investment in India fell more than 24 percent in the first seven months of the current fiscal year to $12.56 billion, and analysts have said flows were likely to remain subdued for the near term on concerns over the slow pace of reforms and political volatility in India.

WEAK CASE?

Last month, a New Delhi-based law firm filed a writ petition on behalf of a social activist Ved Prakash in the Delhi High Court, saying Cadbury evaded substantial tax liability in India, as a global deal in which U.S.-based Kraft took over Cadbury also included assets in India.

"On paper, it looks weak," N.C. Hegde, a tax partner at Deloitte Haskins & Sells in Mumbai, told Reuters on Tuesday.

Kraft's Cadbury acquisition was global, with India just a part of the transaction, and thus should not be subject to Indian taxes, he said.

The Delhi High Court asked the petitioners to make a representation before the ministry of finance.

"It seems to be very premature now. The court could not ignore a public interest litigation ... the court will ask the government to look into the matter, the government will look into if they have any kind of case against Cadbury," Hegde said.

Source: The Economic Times

Whether, for expenses to be allowed against 'income from other sources' a nexus between expenditur and income is mandatory? [Sec 57(iii)]

Sec 57(iii) - Whether, for expenses to be allowed against 'income from other sources' a nexus between expenditur and income is mandatory?

-YES, says ITAT

BANGALORE, DEC 21, 2010: THE issues before the ITAT are - whether, for expenses to be allowed against 'income from other sources' u/s 57, nexus between the expenditure and the receipt is mandatory. YES, says Tribunal. The nex questin is - Whether such expenses can be allowed in the manner business expenditure is allowed. NO, says the Tribunal.

Facts of the case

The assessee is the owner of a hotel property at Bangalore consisting of land, building and other facilities, which was given on lease to Taj Group of Hotels. The assessee receives lease rent computed on the basis of the profit of the business. In the previous year relevant to the assessment year under appeal, the assessee received a license fee of Rs.3,59,88,998/-. It is the principal source of income of the assessee company. It has also received an interest income of Rs.13,36,240/. After claiming the expenditure under different heads, a total income of Rs.3,07,71,200/- was returned by the assessee company. The assessee had always claimed that the lease income was received under the head `business income'. But this proposition was not accepted by the Revenue. The Revenue treated the license fee and other incidental income as `income from other sources'. This dispute reached up to the High Court of Karnataka and the HC held that the Revenue was right in treating the income under the head `income from other sources'. Thus, the dispute on the head of income was resolved and the assessee also accepted the same.

In the course of assessment proceedings, the Assessing Officer found that the assessee company had claimed expenditure to the extent of Rs.68,09,588/- under different heads. The Assessing Officer observed that the assessee company was earning income as licence fee under the head `income from other sources' and it was not carrying on defacto business and, therefore, the expenses allowable in the computation of income must be confined to the rule provided u/s 57 of the Income-tax Act. The Assessing Officer held that the expenses cannot be held as deduction in the nature of business expenditure. The expenses can be allowed only to the extent permitted u/s 57. Initially he proposed to disallow all the expenditure claimed by the assessee company. In response to that proposal, the assessee submitted that the expenses were allowable under the head `income from other sources' and the claim of the assessee has already been accepted by the ITAT Bangalore Bench in its own case relating to the assessment years 1995-96 to 1998-99 and, therefore, based on the order of the ITAT, expenses need to be allowed.

The Assessing Officer accepted some of the contentions of the assessee and agreed to allow essential expenditure in the nature of salaries, PF, ESI etc. The Assessing Officer allowed expenditure necessary for the assessee company to retain its corporate status and other establishment expenses. But the Assessing Officer held that many of the expenses claimed by the assessee company as deduction are not directly connected to its income assessed under the head `income from other sources'. For eg. he found that salary, wages and bonus amounting of Rs.17,08,300/- included the commission of Rs.15,26,770/- paid to the executive Chairman of the assessee company which cannot be allowed. Finally, the Assessing Officer disallowed expenditure to the extent of Rs.49,27,648/- as against a total amount of Rs.68,09,588/- claimed by the assessee company. The CIT (A) confirmed the additions made by the assessing officer except depreciation allowance.

On further appeal, the Tribunal held,

• it is one thing that the assessee company might have incurred expenses under the above heads and it is another thing that whether all those expenses could be allowed as deduction in computing income from other sources;
• expenses could be allowed as deduction u/s 57(iii) only if the assessee has established the nexus between the expenditure and the income earned;
• in the present case, the assessee was not able to establish any nexus between the various disallowances confirmed by the CIT(A) and the income earned by the assessee company by way of lease rentals. The assessee could not produce evidence to prove the nexus of the traveling expenses of the directors, entertainment expenses and the commission expenses with the income from other sources that whether these have resulted into any increase in lease rentals. Hence, addition is confirmed.

Object of setting up an educational institution is by definition "charitable" and such an entity will essentially be of charitable nature

Object of setting up an educational institution is by definition "charitable" and such an entity will essentially be of charitable nature.


There cannot be any limit on the fees charged in order to fulfill such object of setting up an educational institution. - [2010] 8 TAXMANN.COM 279 (KOL. - ITAT)

Deductibility of legal expenses will depend on nature and purpose of legal proceeding in relation to business whose profits are under computation and cannot be affected by final outcome of that proceeding

Deductibility of legal expenses will depend on nature and purpose of legal proceeding in relation to business whose profits are under computation and cannot be affected by final outcome of that proceeding.

In case the legal expenses are in the nature relating to the business of the assessee then the expenses are allowable under section 37(1). - [2010] 8 TAXMANN.COM 268 (MUM. - ITAT)