Savings lands Tirupur man in trouble ~ US Treasury bonds at Dharapuram

Savings a good habit ~ it is said that the first expenditure in a monthly budget should start with ‘savings’.  Salary earners struggle as many a times, your monthly outgo starts even before salary gets credited. People buy on credit and already the credit card bill would be hanging like a ‘damocles sword’ ; then there are the EMIs of Housing Loan, vehicle loan, jewel loan and more….

Still one saves for Income tax purposes; investing in PPF, NSC, Infrastructure bonds and the like ~ some join chits like the ones run by Jewellers.  The fortunate few, who could still have something left, place Fixed Deposits ~ the adventurous few – fish in stock market, buying shares and debentures……….  ~ the conservative ones invest in bonds…….. In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. It is a debt security, under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest (the coupon) and/or to repay the principal at a later date, termed the maturity.  Interest is usually payable at fixed intervals  -

The Q is : ‘is investment wrong and would the Investor land in some trouble ?”    The man from Dharapuram, a small place near Tirupur is in trouble with the Income Tax Department Officials stalking him – striking headlines of all newspapers…….. why ? 

Some papers says it to be ‘mother of all IT hauls’ a la Kandasamy film style.  Income Tax Department has seized United States Treasury bonds or T-bonds valued at an eye-popping Rs 26,000 crore from a little known “shares and debentures trader” in Dharapuram.  The Central Board of Direct Taxes is now investigating the matter.  Ramalingam, the man in the eye of a storm, claimed he was a copra and groundnuts dealer. His house was raided a couple of days ago after officials of a Barclays Bank branch where he had gone to liquidate the US bonds grew suspicious and alerted the Income Tax office in Chennai. Officers of the I-T Department (Chennai and Coimbatore circles) in a joint operation raided the house and seized bonds worth $5 billion, fixed deposit worth several crore rupees and some “contract agreements”.

TOI reports that Enforcement Directorate (ED) officials and other central agencies are pursuing a Brazilian angle in the seizure of US treasury bonds worth $5 billion from a Tirupur financial consultant on New Year’s eve.      Central agencies have found that T M Ramalingam, from whom IT officials seized the bonds, had sought permission from the Union petroleum ministry to set up a refinery called ‘Bharaneedharan Oil Refinery’ at Thondi near Ramanathapuram. Investigators are trying to find out who Bharaneedharan is. They also said Ramalingam has stakes in a company in Singapore called Bharaneedharan.  IT officials have summoned Ramalingam to their headquarters in Chennai on Friday for a formal inquiry though he told TOI that he may not travel to Chennai as he was unwell. IT officials have also collected details of five nationalised and private bank accounts operated by Ramalingam. “Reportedly, US authorities have been approached to check the validity of the treasury bonds seized from Ramalingam.

The mystery over the seizure of US treasury bonds worth $5 billion deepened on Thursday with investigating officials saying that the Tirupur businessman from whose house the documents where recovered could have been leading a double life — one in which he was a small-town trader of agricultural products and the other of a shrewd financial broker dealing in millions.      The officials said T M Ramalingam (46), who is educated only up to Class 10, is well versed in financial and business aspects, especially with regard to securities and bonds. They are even more baffled by the fact that the man, who was in the possession of financial instruments valued at about 28,000 crore, had not filed income tax returns even once. They said he had visited several countries in the recent past, including Singapore, Myanmar and Brazil.

While the Income Tax department is probing the authenticity of U.S. treasury bonds, legal experts have expressed doubts over the genuineness of the documents, as well as the legality of an individual holding such high-volume bonds in the name of investment.  TOI quoting an expert states that an Indian resident is entitled to invest up to $ 200,000 a financial year. Lawyers dealing with company affairs note that they have never seen any company showing as investment any U.S. or other foreign country’s security bonds in its balance sheet. Some add that any investment in the foreign country by a resident in India can be made only with specific or general permission of the RBI. Any transaction in Foreign Exchange is also governed by the FEMA and rules made there under. If any transaction does not adhere to the Act and Rules it has to be construed as unlawful.

So the IT seizure has created buzz; it is stated that under the law, a resident Indian can remit up to $ 200,000 per financial year under the Liberalized Remittance Scheme (LRS) for permitted current and capital account transactions including purchase of securities from the foreign currency resources outside India. Individuals, institutions and governments are allowed to invest in U.S. Treasury Bonds. If the source of funds is not explained in accordance with law the assessee is liable to be prosecuted under the provisions of the IT Act. Such cases can also be referred to other Central revenue departments for action under various provisions of the said enactment. .  According to a report in The Hindu,  US Treasury Department has largely dispensed with issuing paper T-bills and has certainly not issued any with a denomination as high as $1 billion.

United States Treasury security is a government debt issued by the United States Department of the Treasury through the Bureau of the Public Debt. Treasury securities are the debt financing instruments of the United States federal government, and they are often referred to simply as Treasuries.

With regards – S. Sampathkumar

4th Jan 2013.