Organization Study

A PROJECT ON

“A STUDY ON ” FRINGE BENEFIT TAX AND ITS EFFECT ‘

Submitted To

Bangalore University

MASTER OF BUSINESS ADMINISTRATION

Submitted By
BALACHANDRA.L
Registration Number

09XECMA015

Under The Guidance Of

Mr.Bhaskar .sir
External Guide

EAST POINT COLLEGE OF HIGHER

EDUCATION
Bidarahalli, Virgonagar Post, Bangalore-560049

AFFILIATED TO

BANGALORE UNIVERSITY

2009 - 2011

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INTRODUCTION

TITLE OF THE STUDY:

A STUDY ON’ FRINGE BENEFIT TAX AND ITS EFFECT .

NAME OF THE COMPANY:

.ENGINE DIVISION.Bangalore

CONCEPTUAL BACKGROUND OF THE STUDY:

The Aerospace and Defense Industry was struggling to maintain profitability
even before 11th September 2001, and fears of further terrorism, the conflicts in
Afghanistan and Iraq, and a weak economy combined to devastate the commercial
Aerospace Industry over the ensuing years. On the other hand the wars in Afghanistan
and Iraq have bolstered the coffers if many defense companies, though belt tightening
may be on the way.

RESEARCH DESIGN

AIMS AND OBJECTIVES:

 To know about fringe benefit tax

 To find out the effects fringe tax on compensation plan of the company

 To know the taxation of the company.

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SCOPE OF STUDY:

The study was limited to changes in effects fringe tax on

compensation plan.

STATEMENT OF PROBLEM:
To know the Fringe benefit tax and its impact on compensation plan.

RESEARCH METHODOLOGY:

DATA COLLECTION:
Primary data:
• Questionnaire
• Observation
• Interview
Secondary data:
• Company journals
• Annual reports
• Employee performance records.
• Website

TOOLS AND TECHNIQUES USED FOR ANALYSIS:

• database

• internet

CHAPTER SCHEME:

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CHAPTER NO. CONTENTS

1 INTRODUCTION

2 RESEARCH DESIGN

3 PROFILE OF THE COMPANY /ORGANISATION

/SYSTEM

4 ANALYSIS AND INTERPRETATION OF DATA.

5 SUMMARY OF FINDINGS CONCLUSION AND

RECOMMENDATION

6 BIBLIOGRAPHY

7 ANNEXURE

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INTRODUCTION

FRINGE BENEFIT TAX:

The finance act 2005 has introduced a FRINGE BENEFIT TAX w.e.f 1.4.2005
relevant to the A.Y 2006-07 on employees for the fringe benefits provided to incurred
by them on their employees collectively, for changing fringe benefit tax ,the rate of tax is

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33.66 percent ( including 10percent surcharge &2percent edu cess thereon )on the value
of fringe benefits provided or deemed to have been provided by the employers to their
Employees .this tax is addition to the regular income tax changed on the employers
name ,Importantly no deduction will be allowed towards the fringe benefit tax paid from
taxable income.

Fringe Benefit Tax may seem new to India, but it's not a novel concept. This tax is
already levied in the United States, the United Kingdom, Canada, Australia, New
Zealand, Japan and some other nations.

The fringe benefit tax rules proposed in the Budget by the finance minister are
modeled on the Australian system [1]. With the only difference that fringe benefit tax is
proposed to be taxed at between 10 per cent and 50 per cent in India, whereas in Australia
it is taxed at a flat rate of 60%[2].

Reason For Introducing Fringe Benefit Tax:

Attribution of the personal benefit poses problems, or for some reasons, it is not
feasible to tax the benefits in the hands of the employee, thereby , it was proposed to levy
a separate tax known as the fringe benefit tax on the employer on the value of such
benefits provided or deemed to have been provided to the employees.
For this purpose, a new Chapter XII-H is proposed to be inserted in the Income-tax Act
containing sections 115W to 115WL, which provides for the levy of additional income
tax on fringe benefits.

The chapter is divided into three parts. Part A contains the meaning of certain
expressions used, Part B enumerates the basis of charge, and Part C delineates the
procedures for filing of return in respect of fringe benefits, assessment and the payment of
tax thereon. Perquisites which can be directly attributed to the employees will continue to
be taxed in their hands in accordance with the existing provisions of section 17(2) of the
Income-tax Act and subject to the method of valuation outlined in rule 3 of the Income-
Taxation Rules.

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What is Fringe Benefit Tax?

The taxation of perquisites or fringe benefits provided by an employer to his
employees, in addition to the cash salary or wages paid, is fringe benefit tax. Any benefits
or perks that employees (current or past) get as a result of their employment are to be
taxed, but in this case in the hands of the employer. This includes employee compensation
other than the wages, tips, health insurance, life insurance and pension plans.

Fringe benefits as outlined in section 115WB of the INCOME TAX ACT 1961mean
“ any consideration for employment ,providing by the way of privilege, service, facility
or amenity directly or indirectly provided by an employer to his employees (including
former employees) by reason of their employment.”

They also include reimbursements, made by the employer either directly or

indirectly to the employees for any purpose, contributions by the employer to an approved
super annuation fund as well as any free or concessional tickets provided by the employer
for private journeys undertaken by the employees or their family members.

FBT will be taxed[3] on-

(a) entertainment;
(b) festival celebrations;
(c) gifts;
(d) use of club facilities;
(e) provision of hospitality of every kind to any person whether by way of food and
beverage or in any other manner, excluding food or beverages provided to the employees
in the office or factory;
(f) maintenance of guest house;
(g) conference;
(h) employee welfare;
(i) use of health club, sports and similar facilities;
(j) sales promotion, including publicity;
(k) conveyance, tour and travel, including foreign travel expenses;
(l) hotel boarding and lodging;

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(m) repair, running and maintenance of motor cars;

(n) repair, running and maintenance of aircraft;
(o) consumption of fuel other than industrial fuel;
(p) use of telephone;
(q) scholarship to the children of the employees.
· In cases where the employer is engaged in the business of carriage of passengers or
goods by motor car or by aircraft, a lower percentage of expenses on repair, running and
maintenance of motor cars or aircrafts or fuel expenses has been specified. · Similarly, for
hotels, a lower percentage of the expenses incurred on hospitality has been specified for
purposes of calculating the liability under the fringe benefit tax.

An employer liable to pay fringe benefit tax is required to furnish a return of fringe
benefits before the due date as given in Section 115WD.Section 115WE outlines the
procedure for the assessment of the return of fringe benefits filed by the employer and the
determination of tax or interest payable or refund due and in either case the issue of
intimation to that effect.

Who pays Fringe Benefit Tax[4]

Under the proposed provisions, fringe benefit tax is payable by an employer who is either
an individual or a Hindu undivided family engaged in a business or profession; a
company; a firm; an association of persons or a body of individuals; a local authority; a
sole trader, or an artificial juridical person.

The tax is payable in respect of the value of fringe benefits provided or deemed to have
been provided by an employer to his employees during the previous year.

The value of fringe benefits so calculated, is subject to additional income tax in respect of
fringe benefits at the rate of thirty per cent, as provided in section 115WA.

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The fringe benefit tax is payable by the employer even where he is not liable to pay
income-tax on his total income computed in accordance with the other provisions of this
Act.

The benefit does not have to be provided by the employer directly for him to attract fringe
benefit tax. fringe benefit tax may still be applied if the benefit is provided by a third
party or an associate of the employer or by under an arrangement with the employer.

Quarterly payment of advance fringe benefit tax under sec.115WI:

The fringe benefit tax liability is to be computed every quarter and to be paid in quarterly
installments of advance starting from quarter ended 30th June 2005

Fringe benefit tax for each quarter is to be by the 15th day of the every month following
such quarter exempt for the iast quarter ending 31st march where it is to be paid by the
15th march.

Explanation Of How FBT Will Operate [5]:

# Fringe benefit tax on use of cars, etc-The tax on perquisites like maintenance of a car,
club membership, free meals, credit cards and tours and travel, which were earlier taxed
in the hands of the employees, has been withdrawn and the employer will now be liable to
pay tax on this. Whereby, it will not give any relief to the employees.

Illustration: In the case of the perquisite value of a car, employees are taxed at a rate
ranging between Rs 1,100 (for small cars) and Rs 1,700 a month (for bigger vehicles) in
addition to Rs 300 or 500 for a driver provided by the company.

# It will badly hit the Corporate in India Reports suggest that the fringe benefits tax will
result the Indian incorporations to an additional expenditure of about Rs 25,000 crore.

# Advertising agencies will be hit by fringe benefit tax-The 30 per cent fringe benefit tax
will hurt advertising agencies badly as in this sector about 10% o 12% of an employee's
salary comes in the form of perks.

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In the glamorous world of advertising attending conferences all over the world, wining
and dining to network with clients and bag more business, etc is the done thing. Now all
these expenses will come under the ambit of fringe benefit tax.
Also, advertising agencies are people-oriented one and staff welfare and salaries account
for almost 50 per cent of their expenses. The fringe benefit tax will thus hurt ad agencies
badly.

# Reaction of the Indian Incorporations as to the enactment of FBT-India Inc is quite

nervous about the proposed fringe benefit tax and feels that the gains from the reduction
in corporate tax announced in the last Budget would be nullified by the cut in
depreciation rates.

# Reaction of Software firms[6]-Some software firms feel that a wide variety of payments
would come under the ambit of fringe benefit tax. A recent survey also said that because
of the impact of the fringe benefit tax, companies across sectors are likely to cut down on
the increments that employees would get. The proposal has invited criticism even from
the Institute of Chartered Accountants of India, which has otherwise praised the finance
minister for rationalizing the tax administration.

# Small firms might be spared: A Business Standard report said that the finance ministry
is considering threshold staff strength for levying the fringe benefit tax on employers.

Finance ministry officials indicated that organizations with very few employees could be
exempted from the tax. This is based on the assumption that small employers do not
spend large amounts on fringe benefits. The ministry will also examine combining the tax
return for fringe benefits with the income tax return to avoid the need for filing separate
forms, the report said.

Constitutionality Of Fringe Benefit Tax:

FBT is constitutionally valid as it has come into force by the powers conferred by Indian
Constitution through the below Articles:
1. Article 39: Principles of policy to be followed by the state for securing economic
justice- © to ensure , the economic system should not result in concentration of wealth

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and means of production to the common detriment. Whereby, it’s the duty of Centre to
take steps for securing economic justice. This new measure is nothing but a step taken by
the government as a functional form highlighted under the Article 39 of the constitution.

2. Article 265: No tax can be levied or collected except by authority of law. The
Authority of law means the legislative competence of the legislature imposing the tax. In
this case, the Finance Ministry as passed this legislation which has the absolute legislative
competence to pass the law.

3. Article 14: The principle of classification is applied somewhat liberally in case of a

taxing statutes.

“Where the power to tax exist, the extend of the burden is a matter for discretion of the
law makers”. The evident indent and general operations the tax legislation is to adjust the
burden with the fair and reasonable degree of equality.[7]

4. Article 270: All taxes and duties referred to in the Union List except the duties and
taxes referred to in Article 271 and any tax levied for the specific purposes under any law
made by Parliament shall be distributed between the Union and the states.

5. Article 271: Centre could levy a surcharge on Income tax on non-agricultural income
for its exclusive use without sharing with States.

Head of Expenditure Percentage of Section 115 the expenditure WB (2) deemed to be

fringe benefit

(A) Entertainment 20%

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(B).Hospitality of every kind to any person 20%

(C).Conference (other than fee for participation) 20%
(D).Sales promotion, including publicity excluding advertisement 20%
(E).Employees Welfare 20%
(F).Conveyance, tour and travel, including foreign travel 20%
(G).Use of Hotel, boarding and lodging 20%
(H).Repair, running (including Fuel), maintenance of motorcars and
Depreciation thereon 20%
(I)Repair, Running (including fuel), maintenance of aircraft and
depreciation thereon 20%
(J).Use of Telephone including mobile phone(other than leased lines)20%
(K).Maintenance of accommodation in the nature of guest houses
(Other than for training purposes) 20%
(L).Festival celebration 50%
(M).Use of health club and similar facilities 50%
(N).Use of any other club facilities 50%
(O).Gifts 50%
(P).Scholarship 50%
115WB (1) (b) Any Free or Concessional ticket for private journeys
Actual
115WB (1)( c) Contribution to Superannuation fund

THE CHARTERED ACCOUNTANT 1700 JUNE 2005

TAXATION

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Explanation 2 is for the purposes of Section 10A only and in Explanation (b) is for the
purposes of Section 80HHE only.

G. Need For Reclassification of Expenditure Heads:

With the introduction of Fringe Benefit Tax from 1st April, 2005, there is a need
to revise the expen-diture heads so that the expenditure not liable for fringe benefit do
not get merged with the expenditure liable for Fringe Benefit Tax. Some of the heads
where this regrouping will be required are as under.
 Hospitality provided to theemployees by way of food andbeverage in office or
factory orby way of paid vouchers needto be debited under a separatehead other
than the employee welfare / staff welfare expenditure.
 ii. Expenditure on repair, running and maintenance of motor car and depreciation
thereon need to be classified separately from the expenditure incurred on repair,
running of vehicles other than motor Cars, Bus, Truck and Scooters etc.
 iii. Expenditure on conference fee for participation of employees needs to be
classified separately in view of exemption in clause (C).
 Expenditure, which is taxable as perquisite in the hands of employees is not liable
for Fringe Benefit Tax. As such all such expenditure need to be debited under
the head ‘Salary’ or ‘Establishment Expense’, so that the same does not get
clubbed with the other expenditure which is liable for Fringe Benefit Tax.
Expenditure on maintenance of guesthouse being used for training purposes need
to be classified separately from the expenditure incurred on maintenance of guest-
house as such.

H.Fringe Benefit Tax is not a deductible expenditure:

The fringe benefit tax paid by the employer shall not be an eligible expenditure
while computing profit or gain of business or profession, despite the fact, that the same

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has been paid on account of the liability of the employees. A new sub-section 40(a) (ic)
has been inserted to provide that the Fringe Benefit Tax shall not be deducted while
computing income. The reason for this is that this tax despite being an obligation of the
employee is borne by the employer and still it is not added as fringe benefit while com-
putting the liability of the Fringe Benefit Tax. Thus, the tax is not being compounded of.
In the alternative option, the tax could havebeen compounded of and full deduction of the
tax would have been allowed while computing business income. Under both the
alternatives, the total tax liability issame for a tax paying entity. However, in the
alternative option, the liability of the tax-exempt and loss-making entities would have
been much higher. Further, tax Auditor shall be required to specify the amount of fringe
benefit tax debited in the profit and lossaccount under clause 16(f) of Form3CD of the
tax audit report from assessment year 2006-07 onwards.

Compliance of Fringe Benefit Provisions:

◆ Payment of tax in advance: The Fringe Benefit Tax is applicable from

financial year begin-ning on 1stApril 2005, i.e., assessment year 2006-07. For complying
with the fringe bene-fit provisions, every employer shall be required to compute the value
of the fringe benefits ,every quarter. It is to be noted that there is a liability to pay Fringe
Benefit Tax by way of advance tax every quarter, not on the basis of yearly estimate,
buton the basis of the actual value of fringe benefits computed every quarter. Further,
there is no threshold limit for the liability topay Fringe Benefit Tax in advance every
quarter as is the case under Section 208 of the Act in the case of regular income tax is to
be paid only when the same is Rs. 5000 or more. This may cause genuine hardship
tothose entities, which will be required to pay small or nomad amount of Fringe Benefit
Tax and will also cause administrative problem to the collecting bank as well as tax
administration. In view of this requirement to pay advance tax on actual basis, every
employer shall be required to compute the actual

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THE CHARTERED ACCOUNTANT 1701 JUNE 2005

TAXATION
A new clause (d) is being added to Section 271(1) for levying penalty in case
there is a concealment of the particulars of fringe benefit or inaccurate particulars are
furnished. The penalty for late filing of FBT return shall be Rs. 100 per day for each day
of default starting from the due date of return as against penalty of Rs. 5000 leviable for
late filing of return of regular income.
Amount of the fringe benefit liable for tax. The immediate requirement will be to
compute the same for the first quarter starting from 1stApril 2005 to 30thJune 2005 of the
current year and pay the tax thereon at the rate of 33.66 per cent (inclusive of surcharge
and education cess) by 15thJuly 2005. Similar Liability is to be computed and paid for the
subsequent quarters by 15thOctober and 15th January. However, for the quarter ending on
31stMarch, the fringe benefit tax is to be paid even before the end of the quarter, i.e., by
15thMarch.In case of failure to pay the tax for any quarter, or where the tax paid is less,
then there shall be a liability to pay interest at the rate of 1 per cent on the amount of the
short-fall for every month or part of the month till the short-fall continues. The liability to
pay interest under the Fringe Benefit Tax is on monthly basis and shall continue till the
date it is actually paid. The provision of interest liability in case of default or delay in
payment of fringe benefit tax in advance are on the line of section 234B and 234C of the
act with exception that these two have been merged by providing that interest is to be paid
from the date of the default till actual payment. (There is no breaking of the period up to
31stMarch and the period thereafter). Further, in case of default in any quarter, interest is
to be computed on monthly basis as against quarterly basis under Section 234Cof the Act.

The liability to pay interest in case of shortfall of tax is on actual amount of the
tax payable without any concession on account of estimation as is the case under Section

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234B and Section234C of the Act where interest is payable only when the advance tax
paid is less than 90 per cent of the actual tax liability .This may cause practical
difficulties particularly for the last quarter where the tax is to be deposited by 15thMarch,
i.e., 16 days even before the quarter ends. Further, in the case of entities such as banks
having a large number of branches, it may practically be difficult to compile information
of all the branches within aperiod of 15 days from the end ofthe quarter and that too after
making the provision of the expenditure incurred on accrual basis.

THE CHARTERED ACCOUNTANT 1702 JUNE 2005

Every employer who has provided the fringe benefits to his employees is
required to file return of fringe benefits irrespective of whether such employer is
required to file return of his own income under Section 139 of the Act or not. The
due date of filing. Return shall be 31stOctober for a company and a person whose
accounts are required to be audited.

Perquisite versus Fringe Benefit :

With the shifting of the tax liability on employer from employees in respect of
certain fringe benefits, these fringe benefits that were hitherto taxable in the hands of the
employees as perquisites, will no longer be taxable in the hands of the employees. For
this, Rules for valuation of perquisites have been amended vide notification no.68/2005
dated 28thFebruary, 2005, where by Rule 2 relating to valuation of motor car perquisite,
Rule3(6)relating to free or concessional journey given to transportemployees,Rule3(7)(ii)
to 3(7)(vi)relating to value of travelling, free meals, gift, credit cards, club facility and
Rule 3(8) relating to valuation of any other benefit and exempting expenses on
telephones having withdrawn. Further, clause (vi) of Section 17(2)has been amended to
provide that only those fringe benefit and amenity shall be included in the perquisite of

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the employees, which are not chargeable to tax under fringe benefit tax. The meaning of
this will be that those benefit or amenity, on which tax is payable by the employer as
fringe benefit tax will not be included in the income of the employees. Similarly,
subsection (3) of Section 115WB has been inserted in the chapter on the Fringe Benefit
Tax to provide that privilege, service, facility or amenity does not include perquisite in
respect of which tax is paid or payable by the employee. Income of the employee in view
ofthe provisions of the Section 17(2), the same is not liable for any fringe benefit tax.
Thus, there exists mutual exclusion between the two What is taxable in the hands of
employee cannot be taxed as fringe benefits in the hands of the employer in view of
Section115WB (3) and what is taxable as fringe benefit in the hands ofemployer cannot
be taxed in the hands of employees in view of amended clause (vi) of Section17(2) of the
Act. Thus, there is no scope of double taxation .House rent allowance, rent free
accommodation, transport allowance, leave travel concession, perquisite on account of
reimbursement of medical expenses (in view of proviso to Section 17(2)), interest-free or
concessional loan, sup-ply of gas, electric energy or waterf or household consumption,
use of mobile assets and transfer of mov-able assets shall not be liable for Fringe Benefit
Tax and shall be considered as perquisite in the hands of the employee only of course
after considering exemption

THE CHARTERED ACCOUNTANT 1703 JUNE 2005

TAXATION
In case of failure to pay the tax for any quarter, or where the tax paid is less,
there shall be a liability to pay interest at the rate of 1% on the amount of the short
fall for every month or part of the month till short-fall continues. Liability to pay
interest under the Fringe Benefit Tax is on monthly basis and shall continue till the
date it is actually paid. In respect of such perquisite, if, any available under the Act.
However, facility or amenity extended to the employees by way of motor car, free meal,
gift, credit card, club facility, telephone is not to be included in the hands of the
employees as perquisites as these are now to be taxed as fringe benefits in the hands of

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the employer. The new Fringe Benefit Tax in a way has given an additional increment to
the employees as their liability to pay tax in case they are enjoying facility or amenity by
way of motor car, etc, will get reduced by the amount of tax which would otherwise have
been payable every month by way of deduction of tax at source.

Business Expenditure versus Fringe Benefit

An important issue after levy of Fringe Benefit Tax is the disallowance of the
expenditure incurred under Section 37(1) on account of personal use in view of the fact
that the provision of Sec 37(1) has not been amended to provide any exclusion. As per
provision of Section 37(1), expenditure incurred wholly and exclusively for the purposes
of business or profession not being in the nature of capital expenditure or personal
expenses is allowable. Thus, expenditure incurred by any employer, which is of personal
nature, will not be allowable expenditure even after payment of Fringe Benefit Tax. It
may be clarified that expenditure incurred on employees, i.e., where the relationship is
that of employer-employee, is not considered to be personal in nature as any payment or
expenditure incurred on employee is in consideration of services provided by the
employee and as such is for business purposes. Thus, there cannot be any disallowance
under Section 37(1) in respect of expenditure incurred on the employee. However, where
there is no employer-employee relationship, such as expenditure incurred on partners or
non-employee directors, if the expenditure incurred is of personal nature and not for
business purposes, the same will not be eligible for deduction under Section 37(1) of the
Act and consequently, there will not be any liability to pay fringe benefit tax on such

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expenditure as the expenditure has not been incurred in the course of business or
profession. However, where the expenditure incurred for partners or non-employee
directors is relatable to business and there may be some element of personal nature in
such expenditure, such as use of motor cars, etc, the same need not be disallowed now as
the same is liable for fringe benefit tax by capturing the personal element of such
expenditure as otherwise it may lead to double taxation. Fringe Benefit Tax is a new
law. As is the case with any new law, many issues will arise on its interpretation and
application. One can only hope that all such issues get sorted out and clarified at the
earliest.
■

THE CHARTERED ACCOUNTANT 1704 JUNE 2005

With the introduction of Fringe Benefit Tax, the expenditure heads need
to be revised so that the expenditure not liable for fringe benefit do not get
merged with expenditure liable for this Tax. For example, hospitality provided to
employees by way of food and beverage in office or factory or by
way of paid vouchers need to be debited under a separate head other
than the employee well-fare/staff welfare expenditure.
TAXATION
INVITATION FOR CONTRIBUTING ARTICLES FOR COMING ISSUES
We have decided to bring out the July 2005 issue of The Chartered Accountant as
special issue on the theme ‘Accountancy Profession in Global Perspective’ to mark the
56th Chartered Accountants Day (July 1, 2005). The professionals are invited to
contribute articles on the theme from both national and international angles. The articles
should not exceed 4,000 words each. Every article should have an Executive Summary of
about 100/150 words, author’s e-mail ID, postal address and contact numbers along with

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a passport size photograph. Theme for other future issues is: August – Service Tax
September – SMPs and SMEs The articles for the July 2005 special issue should reach us
by June 9, 2005 while the write-ups for August 2005 issue should reach us by July 9,
2005.The articles can be sent to us by e-mail at [email protected] / [email protected]
or by post (two manuscripts along with a soft copy of article, e-mail Id and passport size
photograph) to The Editor, The Chartered Accountant, Journal Section, ICAI, PO Box
7100, New Delhi – 110002. The contributors may go through the ‘Guidelines for Authors
of The Chartered Accountant Journal’ hosted on the website of the Institute at the link
http://www.icai.org/announ/guidelinesauthors.html for reference.

INTRODUCTION

India's Finance Bill 2005 recently introduced the controversial Fringe Benefits Tax,
which has compelled the business community to rethink and redesign their pay systems.
Hewitt asked companies in India what they really think of it.

Perhaps the most discussed Act of the year; the government's decision to impose a tax on
fringe benefits provided by employers in India has come under close scrutiny from local
business, sparking off much debate in the corporate world. Viewed by many as unfair, the
general feeling is that the tax will have a significant impact on organizations both
financially as well as administratively.

The Fringe Benefits Tax

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Effective from April 1, 2005, the Fringe Benefits Tax (FBT) directly targets
perquisites provided by an employer to his employees, over and above their basic wages.
It levies a 33.6 percent tax on many benefits including:

• Any privilege, service, facility or amenity provided by the employer to the

employee;

• Reimbursements made directly or indirectly to the employee;

• Free concessional tickets for private journeys of employees or their family

members; and

• Employer contributions to approved superannuation funds.

The following expenses shall also come under the purview of fringe benefits, even if
they are a business expense:

• Entertainment;

• Festival celebrations;

• Gifts;

• Use of club facilities;

• Provision of hospitality including food and beverage;

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• Maintenance of guest houses;

• Conference attendance;

• Employee welfare;

• Use of health clubs and similar facilities;

• Sales promotions including publicity;

• Conveyance, tour and travel, including foreign travel

expenses;

• Hotel board and lodging;

• Running costs of vehicles, including repair and

maintenance;

• Use of telephones; and

• Sponsorship of employees' children.

The impact of the FBT

Whatever the compromise organizations reach in terms of who pays for the tax, one thing
is clear. Companies will need to differentiate between costs incurred for business
purposes and those incurred as benefits to employees. And they will also have to asses the
relative value of employee engagement activities such as social gatherings and festival
celebrations.

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Companies need to develop a very clear strategy to ensure that their rewards
framework matches the strategic needs of the business and that the
mechanics of the total rewards structure reinforces the desired corporate
culture and management style. Strategy should focus on providing
meaningful choices to a diverse work force that support desired behaviors,
while ensuring optimum return of investment for the business. Suri
comments, "The general sentiment across companies in India is that the FBT
is not a progressive form of taxation
India's Finance Bill 2005 recently introduced the controversial fringe Benefits tax, which has
compelled the business community to rethink and redesign their pay systems. Hewitt asked
companies in India what they really think of it.

The Fringe Benefits Tax

Effective from April 1, 2005, the fringe Benefits tax(FBT) directly targets
perquisites provided by an employer to his employees, over and above their basic wages.
It levies a 33.6 percent tax on many benefits including:

• Any privilege, service, facility or amenity provided by the employer to the

employee;

• Reimbursements made directly or indirectly to the employee;

• Free concessional tickets for private journeys of employees or their family

members; and

• Employer contributions to approved superannuation funds.

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 Fringe Benefits Tax (FBT)

Since its inception in 1986, calculating FBT has become highly technical and
complex. With extensive experience in guiding businesses through FBT, we offer
pragmatic, straight forward advice and assistance around:

• The FBT treatment of specific benefits and opportunities to potentially

reduce liability
• Your systems and compliance processes
• Annual FBT compliance obligations – including reviewing and/or
preparing your FBT return
• Identifying available exemptions and

The Hon’ble Finance Minister in the Finance Bill 2005 had proposed to levy tax
in the hands of the employer in respect of the benefits being extended to the employees by
such employer. The objective, as stated by the Finance Minister, is the difficulty in
isolating the personal elements in respect of the benefits provided to the employees where
there is a collective enjoyment of such benefits for purposes of business but includes
partially the benefit of personal nature. After the introduction of the Bill many issues
were raised by the trade, industry and chambers. After extensive consultations and
deliberations the initial proposal put for-ward in the Finance Bill 2005 was modified. The
salient features of the fringe benefit tax after amend-mint and notification of the Finance
Act, 2005 are as under:

A. Applicability
The fringe benefit tax is a tax to be paid by an employer in addition to the income
tax payable for every assessment year starting from the assessment year 2006-07. The
taxis to be paid in respect of the fringe benefits provided or deemed to have been
provided by an employer to his employees. The liability to pay fringe benefit tax shall be
there even when there is no liability to pay income tax by an employer. Accordingly, all

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those who fall within the definition of employer shall be required to pay tax on the fringe
benefits provided to the employees irrespective of the fact that income, which an
employer is earning, is exempt under the Income Tax Act or there is a loss. Accordingly,
those entities which are claiming exemption under Section 10 such as mutual funds,
undertakings in free trade zone claiming exemption under Section10A, export oriented
units claim-ing exemption under Section 10Bor under Section 10BA, shall be liable to
pay the fringe benefit tax. The is a fringe benefit tax ability of the tax of the employees to
beborn by the employer. That is wh yeven loss making entities and entities whose income
is exempt shall also be required to pay fringe benefit tax.

B. Meaning of ‘Employer’

The liability to pay fringe benefit tax is on the employer. For this purpose an
employer shall mean a company, a firm, an association of persons or a body of
individuals, a
local authority and every artificial.

INDUSTRY PROFILE
The Aerospace and Defense Industry was struggling to maintain profitability even
before 11th September 2001, and fears of further terrorism, the conflicts in Afghanistan
and Iraq, and a weak economy combined to devastate the commercial Aerospace Industry
over the ensuing years. On the other hand the wars in Afghanistan and Iraq have bolstered
the coffers if many defense companies, though belt tightening may be on the way.

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The mother of all defense deals occurred in 2001 when Lockheed beat out Boeing for
the $200 billion joint Strike Fighter contact, the largest Defense contract ever. Spread out
over almost 30 years, it may be the last major deal for drones ( as evidenced in
Afghanistan with the use of General Atomics Predator) is expected to continue,
supplanting the need for the more expensive manned Aircraft and making it unnecessary
to risk pilots lives in comb it.

In the interim, the soaring costs in Iraq have also put a damper on some other major
projects. In 2004 the US Army cancelled the planned $40 billion apache reconnaissance
helicopter program; early in 2005 there was talk of scaling back the F/A-22 Raptor
program and of reducing the number of C-130J Aircraft on order.

A desire to be smart, fast and mobile has replaced the “more and bigger” doctrine of
the Cold War. To the end, several companies including Lockheed Martin. Northrop
Grumman and General Dynamics have invested in hardware and software companies that
focus on Government Customers. The top Defense contractors are Lockheed Martin.
Boeing Northrop Grumman, BAE SYSTEM, Raytheon, General Dynamics, Thales and
EADS.

On the commercial side, airlines – by far the biggest customers in the sector have
lost billions since 2001. By way of illustration, the top nine airlines lost $10 billion in
2002, almost $6 billion in 2003, and about $4 billion in 2004, and both UAL (the parent
of United Airlines) and US Airways have filed for bankruptcy protection. As mentioned
previously, September 11 and subsequent travel fears dealt a devastating blow to a
commercial aircraft market that was already reeling from a market slowdown. That
market, which accounts for about 40%of Aerospace and Defense industry spending is
divided into four segments: large commercial aircrafts ( planes of 100 seats and more);
maintenance, repair and overhaul; jet engines and business and regional aircraft (less than
100 seats).

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In 2001 Boeing and Airbus, the world’s only large commercial aircraft market,
saw orders plummet by 45% and 28%, respectively, Airbus recently surpassed Boeing in
orders, but the . Formers 2002 delivers dropped 7% from 2001. Boeing meanwhile
experienced a staggering 28% decline in deliveries from 2001. As a result the drastic fall-
off in business. Boeing cut about 30000 jobs or roughly 30% of its commercial aircraft
workforce in 2002.

Aircraft orders picked up in 2003 and 2004 as Boeing and Airbus continues to
duke it out for airline orders. Boeing is working on its long-range, fuel-efficient, mid-
sized, 7E7 Dream liner (due in 2008), and a 550 passenger behemoth. Airbus then upped
the ante by announcing that it would built the A350 (due in 2010) to compete directly
with Boeing 7E7.

The maintenance, repair and overhaul, jet engine, and business and regional
aircraft markets have suffered right along with airlines and large commercial aircraft
makers. The biggest regional aircraft makes are Bombardier, Gulf Stream and Textron’s
Cessna Unit. GE Aircraft Engines, Rolls Royce, and Pratt & Whitney are the three largest
jet engine makers.
The space market is made up of two primary segments; satellites and rocket
manufacturing and launch services.

The major players include Boeing, Lockheed Martin, Northrop Grumman, Alcatel
Space, Astrium, Orbital Sciences and Arianespace. Expectations for the long-term
profitability of the space market continue to outstrip the short-term realities, but
companies continue to invest in this area. Even before the terrorist attacks, Boeing for
example, was placing more emphasis on this market in its strategic thinking, and
proposed a sweeping overhaul of the world’s air traffic control system.

Aviation is one of the most significant technological influences of out time and
empowers the nation with strength. It is a major tool for economic development and has a

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significant role in National Security and International Relations. India has been fortunate
to have started Aeronautics related activities in 1940, with the establishment of HAL. The
Company was conceived by the visionary and far sighted industrialist, Sir Walchand
Hirachand in December 1940 in association with the Government of Mysore.

COMPANY PROFILE

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Seth. Walchand Hirachand

Hindustan Aeronautics Limited (HAL) came into existence on 1st October

1964. The Company was formed by the merger of Hindustan Aircraft Limited with
Aeronautics India Limited and Aircraft Manufacturing Depot, Kanpur.

The Company traces its roots to the pioneering efforts of an industrialist with
extraordinary vision, the late Seth Walchand Hirachand, who set up Hindustan Aircraft
Limited at Bangalore in association with the erstwhile princely State of Mysore in
December 1940. The Government of India became a shareholder in March 1941 and took
over the Management in 1942.

Today, HAL has 19 Production Units and 9 Research and Design Centres in 7
locations in India. The Company has an impressive product track record - 12 types of
aircraft manufactured with in-house R & D and 14 types produced under license. HAL
has manufactured over 3550 aircraft, 3600 engines and overhauled over 8150 aircraft
and 27300 engines.

HAL has been successful in numerous R & D programs developed for both
Defence and Civil Aviation sectors. HAL has made substantial progress in its current
projects:

 Dhruv, which is Advanced Light Helicopter (ALH)

 Tejas - Light Combat Aircraft (LCA)
 Intermediate Jet Trainer (IJT)
 Various military and civil upgrades.

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Dhruva delivered to the Indian Army, Navy, Air Force and the Coast Guard in
March 2002, in the very first year of its production, a unique achievement.

HAL has played a significant role for India's space programs by participating in the
manufacture of structures for Satellite Launch Vehicles like

 PSLV (Polar Satellite Launch Vehicle)

 GSLV (Geo-synchronous Satellite Launch Vehicle)
 IRS (Indian Remote Satellite)
 INSAT (Indian National Satellite)

HAL has formed the following Joint Ventures (JVs) :

 BAeHAL Software Limited

 Indo-Russian Aviation Limited (IRAL)
 Snecma HAL Aerospace Pvt Ltd
 SAMTEL HAL Display System Limited
 HALBIT Avionics Pvt Ltd
 HAL-Edgewood Technologies Pvt Ltd
 INFOTECH HAL Ltd

Apart from these seven, other major diversification projects are Industrial Marine Gas
Turbine and Airport Services. Several Co-production and Joint Ventures with
international participation are under consideration.

NATURE OF THE BUSINESS CARRIED:

HAL's supplies / services are mainly to Indian Defence Services, Coast Guards
and Border Security Forces. Transport Aircraft and Helicopters have also been supplied
to Airlines as well as State Governments of India. The Company has also achieved a

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foothold in export in more than 30 countries, having demonstrated its quality and price
competitiveness.

HAL has won several International & National Awards for achievements in R&D,
Technology, Managerial Performance, Exports, Energy Conservation, Quality and
Fulfillment of Social Responsibilities.

• HAL was awarded the “INTERNATIONAL GOLD MEDAL AWARD” for

Corporate Achievement in Quality and Efficiency at the International Summit
(Global Rating Leaders 2003), London, UK by M/s Global Rating, UK in
conjunction with the International Information and Marketing Centre (IIMC).

• HAL was presented the International - “ARCH OF EUROPE” Award in Gold

Category in recognition for its commitment to Quality, Leadership, Technology
and Innovation.

• At the National level, HAL won the "GOLD TROPHY" for excellence in Public
Sector Management, instituted by the Standing Conference of Public Enterprises
(SCOPE).

The Company scaled new heights in the financial year 2008-09 with a turnover of
Rs.10,373 Crores

DIVISIONS OF HAL

The Hindustan Aeronautics Limited is divided into a number of divisions having

there their respective factory setups in different parts of the country. These individual
setups work independently and contribute towards the overall requirements of the entire
Corporation. Each division specializes in specific areas of the development of the
aeronautics and provides the required service at the required stages of the manufacturing
process. The various divisions are

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VISION, MISSION OBJECTIVES AND QUALITY POLICY

VISION
“To make HAL a dynamic vibrant, value based learning organization with human
resources exceptionally skilled, highly motivated & committed to meet the current &
future challenge. This will be driven by core values of the Company fully embedded in
the culture of the organization”.
MISSION
“To become a globally competitive aerospace industry while working as an instrument for
achieving self-reliance in design, manufacture and maintenance of aerospace defense
equipment and diversifying to related areas, managing the business on commercial lines
in a climate of growing professional competence".

PRODUCT / SERVICE PROFILE:

Aircarft Engine

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Jaguar Adour 804/811

Hawk Adour 871

Advanced Light Helicopter TM 333

Aircarft Engine

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Cheetah Helicopters Artouste III B

chetak Helicopters Artouste III B

Dornier 228 GARRETT 331 – 5

Aircarft Engine

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Kiran MK II ORPHEUS 70105

HS – 748 DART 533

Seaking Helicopters Gnome 1400 – IT

Aircarft Engine

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Canberra / Hunter AVON

LCA GTSU

PTA 7 PTAE-7

SERVICE :

Service facilities in HAL Engine Division

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1. Repair and Overhaul of Engines

2. Spectro Photo-metric Oil Analysis (SOAP test)

3. Electron Beam Welding

4. Robotic Plasma Spray Facility

5. Sermetal Coating (High Temperature Corrosion Resistance Painting)

6. Chemical Milling

7. Turn Key Basis - Design and Construction of Engine Test Beds.

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AREA OF OPERATION

OWNERSHIP PATTERN
The company is under the ministry of defense (Government of India). It is fully
governed and controlled by Government of India through ministry of defense. Its day to
day activities and operation is looked after by a group of people appointed by the
Government of India, Directors and Members, who are answerable to the Government of
India.

COMPETITORS INFORMATION
The company does not have any competitors in domestic market, for its aircraft. It
requires huge sum of money and vast area of land for establishing a company and it also
involves huge risk, which the private parties would not like to take. The aircraft division
manufactures aircrafts purely for countries defense purposes. So its main customer is IAF
(Indian Air Force).

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But the company is having few competitors for its export projects like Boeing &
Airbus doors. From countries like China and Pakistan.

Since the incorporation of the HAL, it has never experienced competition as such
being the monopolistic organization in the manufacturing aircrafts in the nation. But with
the pass of time different organizations like Infosys, Satyam, Tata Consultancy Services
and few other companies have given a threatening call to HAL in design works of
aircrafts using Computer Aided Design. These companies have also indulged in poaching
of employees from HAL by offering good salary and perks.

INFRASTRUCTURAL FACILITIES
EDUCATIONAL FACILITIES
The company has established schools at Bangalore, Hyderabad, Koraput, Nasik,
Lucknow, Kanpur and Korwa districts for the benefits of the employees’ children. The
administration of these schools is vested in the educational committees constituted for the
purpose in respective divisions. The company, to the extent possible provides
accommodation, failure and equipment for the schools. Tuition fees charges in the
schools vary from place to place depending upon the grant in aid if any received from the
State Governments and other recurring/non-recurring expenditure connected with the
running of the schools.

SPORTS CLUB
With a view to develop sports talent amongst the employees’ sports club have
been established in the divisions. The company provides playgrounds, accommodation
and grant for encouraging sports activities. Membership in sports club is open to all
employees. Sports grounds and club buildings are maintained at company’s expenses. In
order to streamline sports activities in the divisions, comprehensive scheme for
encouraging sports is also in vogue of the company.

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CO-OPERATIVE SOCIETIES
Co-operative societies formed by the employees are functioning in township with
assistance provided by the management. The run stores for the supply of essential articles
of daily use, fair price shops etc.

OFFICERS CLUB
The company encourages formation of officers club in the divisions to facilitate the
recreational and cultural activities of officers and their family members. Accommodation
on normal rent is provided to the clubs. The company also provides financial assistance
for the functioning of the clubs.

TRAINING HALLS

HMA has five air-conditioned and acoustically-treated training halls with seating
capacity varying from 15 to 50, with flexible seating arrangements. Each classroom is
equipped with an Overhead projector, writing board, Public Address System, Digital
Light Processing Projector (DLP), computer with the necessary state-of-the-art software
to make presentations.

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LIBRARY

A good library with over 12000 books mainly on management topics, a number of
professional journals and an impressive collection of audio-visual aids supplement
classroom learning and assignments.

AUDITORIUM

An auditorium air-conditioned and acoustically designed with 180 seats is also available
for viewing films / videos and conducting seminars. A well-lit dais is also suitable for
cultural Programs by participants.

ACCOMMODATION

Forty fully furnished twin occupancy rooms and five dormitories provide accommodation
for a hundred participants. A neat and tidy cafeteria within the campus provides nutritious
food and caters to the palate of the participants from all over the country

RECREATION CENTER

The recreation centre is equipped with a home-gym, facilities for indoor and outdoor
sports and also a television set, which provide the participants the much needed relaxation
during the off-hours and holidays. A lot of newspapers and magazines are also available.

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ACHIEVEMENTS / AWARDS:

MoU Award for Excellence in Performance for the year 2002-03 as one of the
Top Ten PSEs.
_ Engineering Export Promotion Council (EEPC) Award for the 10th consecutive
year.
_ Arch of Europe Award for quality and Technology in the “GOLD CATEGORY”
from Business Initiative Directions (BID), Madrid, Spain
_ The Engine Division has been credited with ISO 9002 Certificate from December
1995 onwards
_ Laboratory is approved by Honeywell, USA as authorized 'SOAP' (Spectrometric
Oil analysis Programme) facility for Garrett Engine.

AWARDS
• Government of India has HAL as an excellent performer under Memorandum of
Understanding criteria.
• HAL was awarded ‘Regional Top Exporter Shield’ for exporting products and
services to the tune of Rs. 40 crore.
• The helicopter division was awarded the Jawaharlal Nehru trophy for best
production division of HAL for 1972 to 1994.

• It is received highest rating “LAAA” for long term debts and “AIT” for short term
debts from Investment and Credit Rating Agency.
• HAL Kanpur was awarded Rajya Sabha shield by Kanpur town official language
implementation committee.
• Avionics division, Hyderabad has got a National award for R & D in electronics
from DSIR, Ministry of Science and Technology.
• Hal is one of the two firms to be awarded as A Grade by the combined team of
vendor quality approval was Aerospatiale and Dassault aviation who audited air
craft division in November – December 1997.

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FUTURE GROWTH AND PROSPECTS

HAL has inked Joint venture with Sukhoi. HAL formed a joint venture with Russian
Sukhoi aircraft manufacture to produce a passenger Jet. HAL is trying for a joint venture
for the Jet air craft and also studying the viability of the project. Senior officials of
Bangalore based HAL said.

The officials were to a group of Indian newsman at the MAKS 2005 air show. Under
the Russian Region jet (RRT) program, Sukhoi Animation holding is developing a family
of jet to carry 60, 75 and 95 passengers co-designed by Boeing, the jet is scheduled to
make its maiden Flight by 2007 with deliveries set to begin in 2008, sources in the
company’s civil aircraft division said; Sukhoi proposed to sell 800 jet, by 2020, and most
of them to abroad, they said.

Mr. Ashok K Baweja, former Chairman of HAL, a public sector undertaking of

Government of India and Mr. Marc, Chairman and CEO of SNECMA, a SAFRAN group
company, France, saying the share holder agreement of new joint venture company at
Bangalore.

More specifically, the JVC will produce critical components for SNECMA as well as
for TURBOMECA, another company of SAFRAN GROUP, leader of Helicopter Engine.
In the beginning JVC. will start manufacturing CFM-56 engines, old most popular engine
that powers Boeing and Air Bus Air Craft.

During the occasion Mr. Ashok K Baweja, started that “HAL and SNECMA have
been working together on several programmers and setting up of this joint venture
company will synergies, the best practice of both the companies, business related to civil
aeronautical sector offers enormous opportunities and both the partners would benefits in
a major way in the international market through this joint venture”.

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MARKETING DEPARTMENT

CUSTOMER:
INTERNATIONAL CUSTOMER DOMESTIC CUSTOMER

• Airbus Industrie, France • Air India

• APPH Bolton, UK • Air Sahara
• BAE Systems, UK • Airports Authority of India
• Chelton, UK • Bharat Electronics
• Coast Guard, Mauritius • Border Security Force
• Corporate Air, Philippines • Coal India
• Cosmic Air, Nepal • Defence Research & Development
• Dassault Aviation, France Organization
• Dowty Aerospace Hydraulics, • Govt. of Karnataka
UK • Govt. of Maharashtra
• EADS, France • Govt. of Rajasthan
• ELTA, Israel • Govt. of Uttar Pradesh
• Hampson, UK • Govt. of West Bengal
• Honeywell International, • Indian Airforce
USA • Indian Airlines
• Island Aviation Services, • Indian Army
Maldives • Indian Coast Guard
• Israel Aircraft Industries, • Indian Navy
Israel • Indian Space Research Organisation
• Messier Dowty Ltd., UK • Jet Airways
• Mistubishi Heavy Industries, • Kudremukh Iron ore Company ltd.
Japan • Oil & Natural Gas Corporation Ltd.
• MOOG, USA • Ordnance Factories
• Namibian Air Force, Namibia • Reliance Industries
• Peruvian Air Force , Peru • United Breweries

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• Rolls Royce Plc, UK

• Royal Air Force, Oman
• Royal Malaysian Air Force,
Malaysia
• Royal Thai Air Force,
Thailand
• Smiths Industries, UK
• Snecma, France
• Strongfield Technologies, UK
• The Boeing Aircraft
Company, USA
• Transworld Aviation, UAE
• Vietnam Air Force, Vietnam

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SWOT ANALYSIS

A Scan of internal and external environment is an important part of the strategic

planning. Environment factors internal to the firm usually to be classification as the
strengths or weakness and those external to the firm can be classified as the opportunities
or threats. Such as analysis of the strategic environment is referred as SWOT
ANALYSIS.

The SWOT analysis provides information that helps in matching the firms resources
and capabilities to competitive environment on which it operates. As such it is an
instrument in the strategy formulation and selection in and administration if the company.

STRENGTHS:

• Company having good market image, and prestige with innovative

technology up gradation.

• Having been established in 1964 .HAL has gained wide market share and

also has become familiar to many customers.

• Bell is an ISO 9001 and iso14001 certified company and lays great

important.

• On quality and environment responsibility

• R and D strength to design and develop Engines with good technology in

as per requirements of the markets.

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• Hal has wide market network spread over the country as experienced in

export business also.

• Hal has a wide network of depots and over number of dealers spread over

the nation.

• Comprehensive support infrastructure and training facilities.

• Heating and ventilation blocks and harmonious management employee

relationship.

• Hal has a good industries relation by effective .has won the prestigious
award for export twice.

• Product rang to our consumers and high degree of participating

management.

• The bell philosophy is totally customer centric. It seeks to satisfy the end
customer in all respects.

• profits of the company during the last few years is increasing so HAL can
expand their business

OPPORTUNITIES:

• The product of Hal comprises wide range to cater different needs of customer
so it can utilize this opportunity against competitors thread.

• Company can grab the market with small period as it is already established

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CONCLUSION

HAL is widely spread throughout the country. It has got its liaison offices even abroad
i.e. Russia and London (U.K) it reports to director finance of HAL.The type HAL
organization chart is functional. Organization chart which is vertical too.Ministry of
defence of Government of India is the owner of HAL. So far no public issue is brought
by the company.
HAL is engaged in manufacturing Aircrafts/Helicopter/other Avionics meant for Indian
Air Force/Army/Navy/BSF/various programs related to space. Therefore its customers
are defence and non-defence both.HAL - Engine division is involved in manufacturing,
repairing overhauling the Engines for Aircrafts/Helicopter/Missiles.HAL is known for its
quality products.
Principle of departmentation is applied on division for HAL. So HAL - Engine division
is bifurcated into many departments for smooth functioning and achieving production
targets as per the formed tasks assigned time to time by its defence and non-defence
customers. In case of HAL departmentation is based on various functions i.e. production,
marketing, finance, purchase etc.HAL follows proper design, drawings and various
departments of HAL - Engine

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Conclusion:
Therefore, from the above we can clearly understand the reason why the center(Finance
Ministry) has enacted this Fringe Benefit Tax. This will surely act as a boon as this tax is
nothing but an economic security measure that is enhanced by the Government in order to
achieve the equality and also increase the government fund through a rightful mean.
Hence, FBT is constitutionally valid. Whereby, its time for the Government to make
clarifications as to the doubts that has raised in the application of FBT.
[1] In Australia, when you invite your client to a meal what you spend on your own lunch
will attract fringe benefit tax, and not what you spend on your client's lunch, which is
marked as business expense.(an illustration)
[2] Source: Rediff Business Desk dated onMarch 22, 2005
[3]Given under Section 115WB of Income tax Act, 1961.
[4]115W. In this Chapter, unless the context otherwise requires,
(a) employer means,
(i) a company;
(ii) a firm;
24[(iii) an association of persons or a body of individuals, whether incorporated or not;]
(iv) a local authority; and
(v) every artificial juridical person, not falling within any of the preceding sub-clauses:
25[Provided that any person eligible for exemption under clause (23C) of section 10 or
registered under section 12AA or a political party registered under section 29A of the

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Representation of the People Act, 1951 (43 of 1951) shall not be deemed to be an
employer for the purposes of this Chapter;]
(b) fringe benefit tax or tax means the tax chargeable under section 115WA.
[5]Source: Rediff Business Desk dated onMarch 22, 2005
[6] Now, it acts as a major source of share in service sector and makes a highest
contribution in providing employment opportunities and profit earning.
[7] Hoechst Pharmaceuticals Ltd. .v. State of Bihar AIR 1983 Sc 1019, State of Kerala .v.
Aravind Ramkant Modawakr (1999) 7 SCC 400
[8] Article 14: “No person shall be deprived his life or personal liberty except according
to procedure established by law”.
[9] Maneka Gandhi .v. Union of India, AIR 1978 SC 597, R.D. Shetty. v. Airport
Authority, AIR 1979 SC 1628
[10] Article 19(1)(g) : all citizens shall have the right to practice any profession , or to
carry on any occupations , trade or business.
[11] Article 301: Freedom of trade, commerce and intercourse subject to the provisions of
this part , trade , commerce, and intercourse throughout the territory of India shall be free.
[12] Schedule VII – List 1 – Union List of our Indian Constitution.

Fringe benefit tax (FBT): Calculating fringe benefit tax

Alternate rate calculation process

Note
From 1 October 2010 personal tax rates have changed, so the higher FBT rate of
61% has reduced to 49.25%. The following information is using the rates from 1
October 2010 onwards. If you are calculating your FBT requirements for periods
prior to 1 October 2010, you will need to use the previous rates.

How it works

The alternate rate calculation process allows an employee's fringe benefits to be

taxed at their marginal tax rate. It ensures that fringe benefits of employees

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earning less than $70,000 are not over-taxed (as they may be under the single
rate option). An alternative is the short form alternate rate option.

Note
Calculations used to complete the alternate rate options are calculated in your
annual income year or in the fourth/final quarter returns (quarters 1 to 3 should be
calculated using the single rate option of 49.25% or the alternate rate option of
43%).

If you want to use the alternate rate system to calculate fringe benefit tax on an
employee's fringe benefits:

• ensure you have the information required

• follow the four steps required (or use the alternate rate calculator, which
does the calculation for you)
• undertake other calculations required
• keep the required records.

You should be aware of some specific issues if you are calculating fringe benefit
tax for shareholder-employees or employees receiving attributed income.

You will need more information

To complete the alternate rate calculation process, you need to know:

• cash remuneration details for each employee to whom fringe benefits have
been attributed
• the taxable value of the fringe benefits that have been attributed to
individual employees.

Complete the calculations for your annual return or, if you file on a quarterly
basis, as part of the final quarter return.

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Follow these steps to calculate the net cash remuneration

1. Calculate the net cash remuneration. Use the table below to calculate the
tax on gross cash remuneration.
2.

2009-10 income tax rates

Employee's gross cash Tax rate Cumulative

remuneration per dollar balance

$0 to $14,000 12.5% $1,750.00

$14,001 to $48,000 21% $8,890.00
$48,001 to $70,000 33% $16,150.00
$70,001 and higher 38% -
3.

2010-11 income tax rates

Employee's gross cash Tax rate Cumulative

remuneration per dollar balance

$0 to $14,000 11.5% $1,610.00

$14,001 to $48,000 19.25% $8,155.00
$48,001 to $70,000 31.5% $15,085.00
$70,001 and higher 35.5% -

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2011-12 income tax rates

Employee's gross cash Tax rate Cumulative

remuneration per dollar balance

$0 to $14,000 10.5% $1,470.00

$14,001 to $48,000 17.5% $7,420.00
$48,001 to $70,000 30% $14,020.00
$70,001 and higher 33% -

2. Add the value of attributed fringe benefits to the net cash remuneration
calculated in step 1. This is the employee's fringe benefit-inclusive cash
remuneration.
3. Calculate the tax payable on the fringe benefit-inclusive cash remuneration
(that is, the answer to step 2), using the rates below:
4.

2009-10 alternate rates

Income range Tax rate Cumulative balance

$0 to $12,250 14.29% $1,750.00

$12,251 to $39,110 26.58% $8,890.00
$39,111 to $53,850 49.25% $16,150.00
$53,851 and higher 61.29% -
5.

2010-11 alternate rates

Income range Tax rate Cumulative balance

$0 to $12,390 12.99% $1,609.00

$12,391 to $39,845 23.84% $8,154.00
$39,846 to $54,915 45.99% $15,085.00
$54,916 and higher 55.04% -
6.

2011-12 alternate rates

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Income range Tax rate Cumulative balance

$0 to $12,530 11.73% $1,469.00

$12,531 to $40,580 21.21% $7,419.00
$40,581 to $55,980 42.86% $14,019.00
$55,981 and higher 49.25% -
4. From the tax payable on the fringe benefit inclusive cash remuneration
(that is, the answer to step 3), deduct tax calculated in step 1 on the cash
remuneration. The result is the FBT payable on that employee's fringe
benefits.

Example
During 2009-10 Ted, an employee, receives a salary of $50,000, a bonus of
$2,000, and fringe benefits of $5,000.

His employer follows the four steps of the alternate rate calculation process:

1. Calculate the net cash remuneration.

Net remuneration = $52,000 less $10,210 (tax on gross cash remuneration) =
$41,790
2. Add the value of attributed fringe benefits to the net cash remuneration to
get Ted's fringe benefit-inclusive cash remuneration.
Value of fringe benefits plus net remuneration = $5,000 plus $41,790 = $46,790
3. Calculate the tax payable on the fringe benefit-inclusive cash
remuneration.
Tax payable on $46,790 = $12,671.00
4. Deduct the tax calculated in step1 from the tax payable to get the FBT
payable.
$12,671.00 less $10,210 = $2,461.00

The FBT payable on Ted's fringe benefits is $2,461.00.

Other calculations you need to do

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As well as calculating the FBT payable based on the above steps, you must:

• include calculations for non-attributed benefits taxed at the single rate:

o 2009-2010 - 49% (or 61% for major shareholder-employees)
o 2010-2011 - 45.99% (or 55.04% for major shareholder-employees)
o 2011-2012 - 42.86% (or 49.25% for major shareholder-employees)
• make an adjustment for the fringe benefit tax assessed in quarters 1 to 3 if
you are a quarterly filer.

Keeping your records

When you use the alternate rate calculation process, you must maintain records
that will confirm the amount of fringe benefit tax you have calculated. The Fringe
benefit tax guide (IR409) gives more information on the records you should keep.

If you are completing the FBT alternate rate calculation sheet, you can transfer
the totals for each employee from the calculator to the FBT alternate rate
calculation sheet for your records. The taxable value calculation sheets show the
taxable value for each category of fringe benefits. For more detail on the records
required for each category, see:

• motor vehicles
• low-interest loans
• free, subsidised or discounted goods and services
• employer contributions to funds, insurance, health insurance and
superannuation schemes.

If you file quarterly returns and are completing an alternate rate calculation sheet
for the final quarter, you need:

• FBT returns and FBT taxable value sheets for each quarter
• annual payroll data for employees who received fringe benefits during any
of the four quarters.

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You'll also receive a Fringe benefit tax return guide (IR425) with your final quarter
FBT retur

ENGINE DIVISION

Details showing TA\DA incurred for official the quarter ending 31/6/2005

Sl.no months particular amount 20’/.on 33.66’/.

(4) item tax on
(5) item

1.apr’05 Office computation 109453 21890 736.8

1.
2.may’05 Office computation 311851 62370 20993
3.june’05 Office computation 163982 32796 11039

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total 585286

1.apr’05 Seminar&conference 4566 913.2 307.3

2.
2.may’05 Seminar&conferance 46300 9260 3.116
3.june’05 Seminar&conferance 16417 32834 1.105

total 67283

1.apr’05 Conveyance 406803 81360 27385

3. 2.may’05 reimbursement auto for
the period 1.7.05 to
3.june’05
30.9.05
total 406803

ENGINE DIVISION

Details showing TA\DA incurred for official the quarter ending 30/9/2006

Sl.no months particular amount 20’/.on item 33.66’/.

tax on
item
1.
1.july’05 Office computation 203547 40709 13702
2.aug’05 Office computation 330731 66146 22264
3.sep’05 Office computation 499201 9984 3360

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total 1033479
2. 1.july’05 Seminar&conference 15811 31622 106.43
2.aug’05 Seminar&conference 172152 34430 1159
3.sep’05 Seminar&conferance 360227 72045 24250

total 548190
1.july’05 Conveyance
3.
2.aug’05 reimbursement auto for 406803 81360 2738
3.sep’05 the period1.7.05 to 30.9.05
total 406803

4
1.july’05 Gift vouchers
2.aug’05 Gift vouchers
3.sep’05 Gift vouchers 13500 2700 908.8

total 13500

ENGINE DIVISION
Details showing TA\DA incurred for official the quarter ending 31/12/2006
Sl.no months particular amount 20’/.on item 33.66’/.
tax on
item
1.
1.oct’05 Office computation 158260 31652 1065
2.nov’05 Office computation 443336 88667 29845
3.dec’05 Office computation 228102 45620 1535

total 829698

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2.
1.oct’05 Seminar&conference 20216 4043 1360
2.nov’05 Seminar&conferance 67409 13481 4537
3.dec’05 Seminar&conferance 158881 31776 10695

total 246506

3.
1.oct’05 Conveyance
2.nov’05 reimbursement auto for 208928 41785 14065
3.dec’05 the period 1.10.05 to
31.12.05
total 208928

4
1.oct’05 Gift vouchers
2.nov’05 Gift vouchers
3.dec’05 Gift vouchers 40500 8100 2726
40500

ENGINE DIVISION

Details showing TA\DA incurred for official the quarter ending 31/3/2006

amount 20’/.on 33.66’

Sl.n months particular item /. tax
o on
item

1.jan’06 Office computation 366456 73291 24669

1.
2.feb’06 Office computation 4224627 844925 28440
3.mar’06 Office computation 291640 58328 19633

total 4882723

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1.jan’06 Seminar&conference 54181 10836 3647

2.
2.feb’06 Seminar&conferance 29340 5868 1975
3.mar’06 Seminar & conference 6000
total 89521

Mar’06 Gift vouchers 24000 4800 1615

3.

total 24000

ENGINE DIVISION
Details showing TA\DA incurred for official the quarter ending 30/6/2006
Sl.no months particular amount 20’/.on 33.66’/.
item tax on
item

1.mar’06 Office computation 472128 94425 31783

1.
2.apr’06 Office computation 393744 78748 26506
3.may’06 Office computation 66661 13332 4.487
4.june’06 Office computation 142037 28407 9561

total 1074570
1.mar’06 Seminar&conference 24414 4882 1643
2.apr’06 Seminar&conference 24458 4981 1646
2.
3.may’06 Seminar&conferance 12416 2483 835.8
4.june’06 Seminar&conferance 22632 4526 1523
total 83920

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1.mar’06 Conveyance
2.apr’06 reimbursement auto 217019 43403 14609
3. 3.may’06 for the period 1.7.06
4.june’06 to 30.9.06
total 217019

1.mar’06 Gift vouchers 0 0 0

2.apr’06 Gift vouchers 9000 1800 605.8
4 3.may’06 Gift vouchers 7500 1500 504.9
4.june’06 Gift vouchers 12000 2400 807.8

total 18000

ENGINE DIVISION

Details showing TA\DA incurred for official the quarter ending 30/9/2006

Sl.no months particular amount 20’/.on item 33.66’/.

tax on
item
1.
1.july’06 Office computation 1213180 242.636 81671
2.aug’06 Office computation 204519 40903 13768
3.sep’06 Office computation 356279 71255 23984

total 1773978
2. 1.july’06 Seminar&conference 31558 6311.6 2124.4
2.aug’06 Seminar&conference 191113 38222 12865
3.sep’06 Seminar&conferance 124373 24874 8372

total 347044

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1.july’06 Conveyance
3.
2.aug’06 reimbursement auto for 235640 47128 15863
3.sep’06 the period1.7.06 to 30.9.06
total 235640

4
1.july’06 Gift vouchers 4500 900 302.9
2.aug’06 Gift vouchers 6000 1200 403.9
3.sep’06 Gift vouchers 7500 1500 504.9
total 18000

ENGINE DIVISION
Details showing TA\DA incurred for official the quarter ending 31/12/2006
Sl.no months particular amount 20’/.on item 33.66’/.
tax on
item
1. Sept 06 surplus\short -246370
1.oct’06 Office computation 334222 66844 22450
2.nov’06 Office computation 6014860 1202972 404920
3.dec’06 Office computation 319916 63983 21536

total 6422631
2.
1.oct’06 Seminar&conference 267030 53406 17976
2.nov’06 Seminar&conferance 87682 17536 5902.7
3.dec’06 Seminar&conferance 487865 97573 32843

total 1014964

3.
1.oct’06 Conveyance
2.nov’06 reimbursement auto for 251625 50325 16939
3.dec’06 the period 1.10.06 to
31.12.06
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total 251625

4
1.oct’06 Gift vouchers 7500 1500 504.9
2.nov’06 Gift vouchers 6000 1200 403.9
3.dec’06 Gift vouchers 6000 1200 403.9

19500

ENGINE DIVISION
Details showing TA\DA incurred for official the quarter ending 31/3/2007
Sl.no months particular amount 20’/.on item 33.66’/.
tax on
item
1.
1.jan’07 Office computation 163526 32705.2 11008
2.feb’07 Office computation 2353819 470.763 152.45
3.mar’07 Office computation 450000 90000 30294

total 2787264
2.
1.jan’07 Seminar&conference 222195 44439 14958
2.feb’07 Seminar&conferance 17410 3482 1172.04
3.mar’07 Seminar&conferance 275000 55000 3366

total 9874000

3.
1.jan’07 Conveyance
2.feb’07 reimbursement auto for 327417 65483.4 22014.7
3.mar’07 the period 1.1.07 to
31.3.07

total 327417

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4
1.jan’07 Gift vouchers 10000 2000 673.2
2.feb’07 Gift vouchers 10000 2000 673.2
3.mar’07 Gift vouchers 10000 2000 673.2

total 30000

ENGINE DIVISION
Details showing TA\DA incurred for official the quarter ending 30/6/2007
Sl.no months particular amount 20’/.on 33.66’/.
item tax on
item

1.apr’07 Office computation 345000 69000 23225

1.
2.may’07 Office computation 445000 89000 29957
3.june’07 Office computation 1500000 300000 100980

total 2290000

1.apr’07 Seminar&conference 15000 3000 1009.8

2.
2.may’07 Seminar&conferance 170000 34000 11444
3.june’07 Seminar&conferance 6000 1200 403.9

total 38000

1.apr’07 Conveyance
3. 2.may’07 reimbursement auto for 135000 27000 9088.2
3.june’07 the period 1.4.07 to
30.6.07

total 135000

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1.apr’07 Gift vouchers 40000 8000 2.692

4 2.may’07 Gift vouchers 15000 3000 1009.8
3.june’07 Gift vouchers 45000 9000 3029.4
100000

ENGINE DIVISION

Details showing TA\DA incurred for official the quarter ending 30/9/2007
Sl.no months particular amount 20’/.on 33.66’/
item . tax
-339579
1.july’07 Office computation 170847 34169 11501
1.
2.aug’07 Office computation 250000 50000 16830
3.sep’07 Office computation 275000 55000 18513

total 695847

Jun-07 Seminar&conference 555098 111.019 37369

2.
1.july’07 Seminar&conference 5179189 1035837 348.66
2.aug’07 Seminar&conferance 275000 55000 18513
3.sep’07 Seminar&conferance 100000 20000 6732

total 5554189

1.july’07 Conveyance
3. 2.aug’07 reimbursement auto for 70000 14000 471.24
3.sep’07 the period 1.7.07 to
30.9.07

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total 70000

1.july’07 Gift vouchers 35000 7000 2356.2

4 2.aug’07 Gift vouchers 35000 7000 2356.2
3.sep’07 Gift vouchers 35000 7000 2356.2

total 95000

LEARNING EXPERIENCE

Following are the findings after the study of HAL organization:

• HAL is a very big organization which is spread throughout the country, in the
form of various divisions.
• It's various divisions are under administrative control of various complexes for
smooth flow of activities and its closed supervision and by one of the CEO of that
complex i.e Managing Director.
• HAL's various complexes report to its corporate office, i.e. registered office/head
office located in Bangalore.
• Each division is headed by either General Manager or Executive Director.
• After analyzing its organization chart the type of organization chart is based on
functions such as production, marketing, personnel and administration, finance
customer service etc.
• HAL is a central government, public sector undertaking under head of department
and its department of defence production.
• HAL looks after the manufacturing, repair and overhaul activities of Fighter
Aircrafts/Helicopters besides various other manufacturing activities. For e.g.- LP
Engines for missiles and even its outer shell.
• Each division is specified for carrying out certain activity of
production/repair/overhaul/supply of spares. For e.g. - Engine Division is engaged
in manufacturing of Engines for fighter Aircraft/Helicopter, supply of avionics

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Organization Study

and overhauling and repair.

SUGGESTIONS

• HAL is to concentrate on R&D area.

• Low cost products will bring immense revenue to HAL.
• Weak market image in international market is to be improved by HAL.
• Each officer must be provided with their departments organization chart.
• Each officer should be provided opportunity to study various manuals of not only
his/her department but also other departments.
• Each officer should be provided with IFS training to enable them to give their best
to the organization and organization may get 100% benefits of IFS.
• To reduce the attrition rate, better pay package and living facilities may be
provided in order to check brain drain.
• Man power can be utilized in most effective way by bringing out the ideas of each
person that would help in division progress.
• New management techniques such as JIT and SCM can be introduced in order to
make the customers happier of the services that are rendered to them by the
division.
• Hal can enter joint venture projects with other global Honeywell players like Pratt
& Whitney, Electrical and others to gain technical excellence in the field of
aviation to become a global player.
• Supply chain management must be introduced in domestic as well as international
business to easy the customers to get the services in time.

• Profits generated by the organization, can be utilized to improve the work life of
employees by providing better infrastructure. It may help in reducing attrition
rate.
• Poor remuneration - Securities are paid low compared to MNC's. Pay has to be
geared in accordance to the standard of MNC.

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Conclusion :

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