Sri Padmanabhaswamy: The Lord of the rings, necklaces and taxes – topic for discussion

http://www.dnaindia.com/india/report_sri-padmanabhaswamy-the-lord-of-the-rings-necklaces-and-taxes_1564164

Sri Padmanabhaswamy: The Lord of the rings, necklaces and taxes
Published: Sunday, Jul 10, 2011, 1:04 IST
By Malavika Velayanikal | Place: Bangalore | Agency: DNA
The recovery of treasure worth over Rs5 trillion from the vaults of Sri Padmanabhaswamy temple in Thiruvananthapuram has stunned the nation.
Thanks to it, in Kerala’s libraries, sections devoted to Travancore history are seeing some action after decades. Interestingly enough, there are plenty of records on the wealth that was unearthed.
The story of how so much wealth flowed into the temple vault begins in the 15th century, when the temple administration was controlled by a closed group, recorded as “ettara yogam” (the council of eight and a half) with eight and a half votes. Of these, eight votes went to seven Pootti (a Brahmin sub-caste) families and one Nair family. The Travancore royals held just half a vote.
This powerful council of eight and a half divided the Travancore region into eight provinces, and the eight lords of Ettuveetil Pilla, a powerful Nair family, was put in charge of each. These eight Nair feudal lords soon became more influential than even the royal family. They were also notorious for their cruelty. History textbooks say that they conspired against the royals, and tried to kill young Marthanda Varma, who had to run away from the palace, and hide among the branches of a huge jackfruit tree. In exile, Marthanda Varma, with help from neighbouring kings, raised an army, attacked and killed all the eight lords, and became the king of Travancore.
The king went on to fight and win many civil wars. The losers were fined heavily, and most of the fines collected went into the temple treasury. The wealth of the Travancore kingdom during his rule was found to be almost as much as that of the Bourbon Kings in France around the same period.
Though an excellent strategist, Marthanda Varma lacked the infrastructure to defend the wealth and his kingdom against attacks, and so had to rely on the faith surrounding the temple. Therefore, in 1750, he ceded his crown at the feet of the deity in an officially recorded event, known as ‘Tripadidanam’. He basically abdicated his throne in favour of Lord Padmanabha, declaring himself and his descendants to be “Padmanabha Dasa”, meaning servants of the Padmanabha who would carry out the God’s commands. Doing so essentially meant the transfer of the kingdom’s wealth to the temple.
With this brilliant move, Marthanda Varma secured his kingdom from possible attacks by his enemies. The neighbouring kings dared not wage war against Travancore, ruled as it was, by the God himself. Instead, they made generous donations to the temple vaults to mollify Padmanabha.
Marthanda Varma renovated the temple and built the massive store rooms under the sanctum sanctorum, which became the vault of the kingdom.
Padmanabha thus became the ruler of the land, and his insignia, “Valampiri Shankhu” (a conch-shell) became the state emblem of Travancore.
Taken from the masses
Historical evidence backs the claim that Marthanda Varma was responsible for most of the wealth found in the recent search. True, the bags of gold coins, diamonds, precious stones, 18-feet-long gold necklaces, jewellery weighing many kilograms, and solid-gold statues of gods and goddesses landed in the vault via the king. But in reality, the temple treasury was nourished by the sweat and blood of the masses as well.
One of the main sources of the royal income was taxes. They were incredibly high for the lower castes, with marriages, childbirth and even death being taxed. Country boats, ploughs, carts, umbrellas, headscarves, why, even a moustache, were taxed. Mothers were allowed to breastfeed their newborns only after they paid the ‘mulakaram’ (breast-tax) to the local lord, who would then grant permission.
It took a small but bloody revolution during the time when the Maathoor Panikkers were the landlords of Kuttanad to stop the breast-tax. The bloodiest story of the protest was of a young woman (name not known) from Cherthala’s Kapunthala family. She breast-fed her child without official sanction and the news reached the ears of the landlord.
Enraged, he rushed to the Kapunthala house. The young woman faced him fearlessly, irking him further. He ordered her to pay the tax, and she agreed. She went into the house, and returned with her two breasts chopped. She threw them at the feet of the shocked landlord, collapsed and died.
There is a custom that the members of the royal family follow. AsPadmanabhadasas, they consider it their duty to keep the wealth of the deity intact. After every temple visit, they vigorously rub off specks of dust stuck on their feet so that Padmanabha does not lose even a grain of dust that belongs to him! While there’s no disputing the fact that the Travancore kings were zealous custodians of the deity’s wealth, it is undeniable that the loot is coloured not just by faith, but also by defeats, fears, deaths, conquests, and atonements.

Sources: Mathilakam Records, Kerala Charithram by P Sankunni Menon, Thiruvithaamkoorinte Charithram by A Sreedhara Menon

Facebook adds in Skype video chat

Facebook announces a partnership with Skype to add a video chat service to the social networking site, a week after Google launched a similar feature. Read more ›

http://www.bbc.co.uk/go/rss/int/news/-/news/technology-14054860

PAN card must to purchase jewellery worth over Rs 5 lakh

BANGALORE: In an attempt to combat black money, the Centre has made it compulsory to submit permanent account number (PAN) for purchase of jewellery or bullion exceeding Rs 5 lakh . The rule of quoting PAN will also apply to those who avail debit cards from banks . The Central Board of Direct Taxes (CBDT) and the Income Tax Department have issued a notification amending the rules.

This amendment will come into effect from July 1, 2011. The CBDT and IT department has already sent a communication to all jewellery dealers, bullion traders, nationalised and private banks which are distributing debit cards.

CBDT has now incorporated four new transaction sunder Rule114Bof the Income Tax Act which will require PAN for these transactions. The rule also stated that the PAN number is necessary for use of debit card, insurance payments exceeding Rs 50,000 a year, buying jewellery or bullion exceeding Rs 5 lakh.

As per the old act PAN was compulsory for getting a credit card. The new amended provision under rule 114B (ii) was inserted for issue of a credit or debit card after quoting PAN. At present any withdrawal of more than Rs 50,000 in a single purchase or issue of cheque for Rs 50,000 needed PAN. Now payment of Rs 50,000 or more in a year as life insurance premium will also require PAN. “It is good from the view point of the country’s economic development but we fear the new rule will create inconvenience for our business and daily transactions,” S Venkatesh Babu , secretary , Bangalore Jewellery Association, said .

Ref http://m.timesofindia.com/business/india-business/PAN-card-must-to-purchase-jewellery-worth-over-Rs-5-lakh/articleshow/8783665.cms

Government Issues Clarification On DTC (Direct Tax Code) Clause For NRIs (Non Resident Indians)

If you are an NRI (Non Resident Indian) fretting over the New Taxation Clauses, due to be introduced as part of DTC (Direct Tax Code), adversely affecting your tax-liabilities, we have some good news in store for you. In one of our earlier blog-posts, we had mentioned a New Clause in DTC (Direct Tax Code), which when implemented will ensure NRIs (Non Resident Indians) who frequent their native country i.e, India, will have to pay More Taxes on their Global Income.

As per the existing laws, an NRI(Non Resident Indians) is liable to pay taxes on his or her global income, if he or she stays in India for a period of more than 182 days in a financial year. But DTC (Direct Tax Code) proposes to shorten this duration to just 60 days.

Indian Government has just issued a clarification on DTC (Direct Tax Code) clauses specific to NRIs. On Saturday, Finance Minister Pranab Mukherjee allayed apprehensions among Non Resident Indians (NRIs) that the proposed Direct Taxes Code (DTC), when implemented, would badly affect them in terms of their tax liability owing to a clause in the Bill defining their residential status. Moreover, no final decision has been taken as yet on the clauses incorporated in the DTC (Direct Tax Code), as the Bill is still under scrutiny by a Standing Committee Of Parliament.

He clarified that it was a “misconception” that if an NRI stays in India for 60 days in a financial year, his status turns into Indian residents for taxation purposes. As per the DTC proposal, an NRI will be deemed as resident only if he has also resided in India for 365 days or more in the preceding four financial years, together with 60 days in any of these fiscal years. “Only when the two criteria are met, an individual will be considered resident for taxation purposes,” he said.

In a further clarification, Mr. Mukherjee pointed out that even if an NRI becomes a resident in any financial year, his global income does not immediately become liable to tax in India. Global income would become taxable only if the person also stayed in India for nine out of 10 precedent years, or 730 days in the preceding seven years.

The NR EYE: NRIs to pay more tax if they stay more in India by MOIZ MANNAN

Overseas Indians would now be severely restricted with regard to their length of stay in India if they were to avoid paying income tax on their global income. A Bill to that effect was introduced in the Indian Parliament last week and if approved is sure to cause a lot of worry to non-resident Indians (NRIs). Perhaps the most severely hit would be NRI businessmen in the Gulf who continue to have business interests at home and thus are frequent visitors.
The new Direct Tax Code (DTC) bill introduced in Parliament proposes to impose tax on the global income of NRIs if they stay in India for a period or periods amounting to 60 or more days in a year. Under the existing Income Tax Act, 1961, an NRI is liable to pay tax on global income if he is in India in that year for a period or periods amounting to 182 days. Thus, if an NRI wants to escape the tax net he will have to spend 10 months out of the country compared to six months under the existing law.
The new code is expected to come into effect from April 1, 2012. The DTC also retains the existing provision under which an NRI is also liable to pay tax on his global income if he resides in India for a period of 365 days or more over a period of four years prior to the assessment year. In addition, the DTC has also removed the ‘Resident Not Ordinarily Resident (RNOR)’ category to simplify the tax laws. Now, there would be only two categories, ‘Resident’ and ‘Non-Resident’.
According to experts, under the proposed dispensation, a non-resident would be at greater risk of becoming an ordinary citizen and become liable to pay tax in India as the threshold limit has been reduced. Officials have been quoted by the media as saying that a phrase “being outside India” in the existing income tax law exempted individuals who stayed outside the country for six months from paying taxes. This was prone to misuse and allowed individuals to escape tax in any country.
More than 25 million Indians stay overseas and one million visit the country every year. A large number of NRIs particularly those working in the gulf countries usually visit India for longer durations. They will be given relief from payment of tax for two years on their global income in the transition period when they become resident from non-resident, a Central Board of Direct Taxes (CBDT) official has been quoted as saying.
Financial expert A.N.Shanbag of Wonderland Consultants says, “Whether NRIs and PIOs will agree – especially with the last point is a moot question – for a finer reading of the DTC seems to suggest that it’s the diaspora who seems to have been the most adversely affected constituency under the DTC.” He makes the point with an example of an NRI who, say, currently earns Rs2,00,000 as NRO interest. With the protection of the basic exemption limit of Rs1,60,000, only Rs40,000 would be taxed at the rates of 10 per cent resulting in a tax liability of Rs4,000. Under DTC, straightaway a flat rate of 20 per cent tax would apply thereby resulting in a tax payable of Rs40,000 – ten times the earlier amount.
Another provision with a sharp impact is that the hitherto fully exempt long-term capital gains on equity and equity mutual funds are slated to be taxed at a flat rate of 30 per cent. The discrepencies in the provisions are so vast that while a resident Indian will be required to pay tax of Rs3,84,000 on his taxable income of Rs25,00,000, an NRI earning equivalent capital gains will be called upon to pay almost double tax of Rs7,50,000.
However, Shanbag says, what will come as a blow to most NRIs and investors in property is that even for let out or deemed let out properties, tax will be payable on the higher of the actual or ‘presumptive rent’. This presumptive rent is a new concept under the DTC. Presumptive rent is fixed at 6% of the ratable value fixed by the local authority. Where no ratable value has been fixed, 6% shall be calculated with reference to the cost of construction or acquisition of the property.
There is one good provision, though, for returning NRIs. An exemption has been provided in case of income earned outside India, if it is not derived from a business controlled from India, in the financial year in which the returning NRI becomes an Indian resident and the immediately succeeding financial year. However, the benefit of the said exemption would be available, only if such individual was a non-resident for nine years immediately preceding the financial year in which he becomes a resident.
The proposed code provides for wealth tax liability in the case of the value of all global assets of an individual or HUF (Hindu Undivided Family). However, an exemption has been provided in case of the value of assets located outside India in case of an individual who is not a citizen of India or an individual or HUF not resident in India. Hence, while returning NRIs who are non-citizens will enjoy wealth-tax exemption for their overseas assets, NRIs with Indian citizenship becoming residents will attract wealth-tax liability on such assets held abroad.

DTC and NRIs

The recently released DTC Bill has unraveled some unpleasant surprises for the NRIs, Rohit Bothra, senior tax professional with Ernst & Young lists down the proposed changes, which the NRI community need to be vigilant about.

The much awaited Direct Tax Code, 2010 (DTC) is finally before the public and the Hon’ble Finance Minister’s effort to maximise the collection of direct tax revenue by widening and deepening the tax net appears to hit the Indians working abroad (NRIs).

The major change introduced by the DTC is in the criteria of determining the residential status of NRIs who, are working abroad, and come on visit to India. Currently, such NRIs who are citizen of India or Person of Indian Origin (PIO) are regarded as resident, only if, they stay in India for 182 days or more in the financial year.

However, under the proposed DTC, any inbound individual (including NRIs/PIO) will become resident, if they are present in India for 60 days or more in the financial year and 365 days or more over a period of four years prior to the financial year and would be liable to pay taxes on their Global Income.

This change would have an adverse impact on the NRIs frequently visiting India either for personal or business visits, since, they now need to plan and check the duration of each of their visits in any year to avoid becoming resident.

However, a resident would be eligible to claim exemption of income accruing to him/her outside India, from a source other than a business controlled in or a profession set up in India, if the resident:

1. has been a non-resident in India in nine out of ten preceding financial years; or

2. has been in India for less than 730 days, during the seven preceding financial years

Thus, NRIs who become resident of India may not be required to pay tax on their global income, if they satisfy any of the above mentioned conditions.

NRI income to be computed under two broad heads

The other major change introduced by the DTC is with respect to computation of income, which now needs to be computed under two broad heads – income from ordinary source and income from special source.

The special source computation requires certain income (interest, dividends by company and profit distributed by a fund on which distribution tax has not been paid, royalty or fees for technical services and income by way of insurance including reinsurance) earned by non residents to be taxed at a specified rate instead of the normal slab rate applicable to individuals.

Moreover, no deduction on account of investment/expenditure in LIC, PF, tuition fees, etc would be available against income from special source.

Under the present domestic law, NRIs have an option to be taxed on specified income (being investment income or income by way of long-term capital gains on foreign exchange asset) at special rates without certain benefits (such as indexation, deductions etc.) or at normal rates with benefits.

Taxable income for NRIs

Under the proposed DTC these optional approaches of taxation have been discontinued and investment income (being interest and dividend) from any asset is taxable under the head Income from special source at specified rates (gross basis without any deduction) and all other income is taxable under the head Income from ordinary sources at normal slab rates.

Thus, an NRI who has earned investment income in India amounting to Rs 2.6 lakhs may not be required to pay any tax in India under the current provisions, if he has eligible investment/ expenditure, the benefit of which can be availed upto the specified limit (Rs 1 lakh) and the normal slab benefit of Rs 1.6 lakhs.

However, under DTC, on the same income the NRI would be required to pay taxes of Rs 52,000 (@20% on Rs 2.6 lakhs).

Though apparently, the above provision appears to be really harsh on the NRIs, the same may even offer a benefit to NRIs who are subject to tax at the rate of 30% in prevailing law and will be taxable @ 20% under the proposed DTC.

NRIs be aware of the provisions of proposed DTC

Thus, the principal of progressive taxation and equity in tax laws seems to get defeated in this case.

Moreover, proposed DTC specifically provides that a non-resident shall not be entitled to claim relief under the provisions of the relevant tax treaty, unless, a certificate of tax residence is obtained by him from the tax authority of the overseas country in a prescribed form.

While this certificate is practically required under the current provisions also (if the case was picked up for assessments); in the proposed DTC the same will become a mandatory requirement.

In summary, a word of caution for NRIs – (be) aware of the provisions of proposed DTC and be learned so as to plan accordingly in advance before 1 April 2012.

DTC – an NRI perspective

To begin with, the NRI can draw comfort from the fact that there are no changes in the manner of taxability or scope of income. But having said that one of the biggest blows in the DTC for an NRI is the removal of the “NOR” or the “Not Ordinarily Resident” Category. Under the existing Act, basis physical presence, a Resident is further classified as Resident and Resident Ordinary (ROR) and Not Ordinarily Resident (NOR). A person is said to be “not ordinarily resident” in India in any previous year if such person is an individual who has not been a resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more. The latter two differ in the scope of Income that is held taxable. The RORs are subject to tax in India on their worldwide income but the NORs/NRs are taxable in India only on their India sourced income. Now under DTC, every NRI visiting India for greater than 182 days in a financial year would become a “Resident” by default, and he would be subject to taxes on his global income.

The concept of NOR has been replaced by providing exemption to the individual on the income which is sourced out of India. This exemption will be available from the financial year in which the NRI becomes a resident and the immediately succeeding financial year, if such individual was a non resident for nine years immediately preceding the financial year in which he becomes a resident. So typically, in case of a returning Indian who has been out of India for a long period of time, he may become liable for tax on his worldwide income (if he retains sources of income overseas) from 3rd or 4th year of coming to India.

Another change is in the DTAA claims. India has signed treaties with 74 different countries to avoid dual taxation on the income of a NRI who is paying taxes in the other country. This is called the Double Taxation Avoidance Agreement or DTAA, under which the NRI could enjoy the benefit of lower withholding of tax. While the current tax law, required the NRI to merely declare that he was a tax resident, under the DTC structure, he will need to submit a Tax residency certificate from the country of his residency. This makes claiming the benefit more stringent and cumbersome.

Having said this, the little breather or if we may call it that, the DTC also has provided special rates of withholding tax on investment income by way of interest on dividends on which DDT has not been paid by the company, etc.

TO summarize, the DTC is a tough nut for the NRI and will add some discomfort once it comes into force on April 1st, 2012.

Direct Taxes Code: How you are affected!

The year 2009 was a landmark year for taxation in India. During this year, the government introduced a landmark Bill — The Direct Taxes Code Bill. It remains to be seen if the finance minister speaks further on the code during his Budget speech on February 26, 2010.

If and when it is implemented, it will affect all of us as it will not only alter the tax we pay, but will also impact our investments, borrowings, and expenses.

Here is how it will affect all of us:

Changes in tax slabs

The biggest impact of the new tax system is the significant widening of income slabs. According to this, people with annual income not exceeding 1.6 lakh (Rs 160,000) will not have to pay any tax. For those with an annual income from Rs 1.6 lakh to Rs 10 lakh (Rs 1 million), you pay tax at 10%; for incomes from Rs 10 lakh to Rs 25 lakh (Rs 2.5 million), the tax is 20%, and it is 30% for incomes exceeding Rs 25 lakh.

So if your annual income is Rs. 2 lakh (Rs 200,000), you fall in the 10% tax slab. These rates and slabs would be applicable from the financial year 2011-12.

However, with this move the government plans to make most of your allowances taxable. Hence if you are a high earner, earning a lot of allowances, your tax liability will go up significantly.

Effect on Capital Gains

As per the new tax code, both the short-term and long-term capital gains are treated equally.

The tax code recommends making both the contribution and return from your investments tax-free, but proposes to tax the maturity proceeds. This will affect your stocks and equity mutual funds. This is different from the present system, in which the maturity proceeds are tax-free.

Impact on tax savings

With the introduction of this code, the government has eliminated the various tax breaks. However the government has hiked the tax savings limit to Rs 3 lakh (Rs 300,000) per annum, while restricting the available investment alternatives.

So now you can invest only in PPF (Public Provident Fund), EPF (Employees Provident Fund), life insurance, superannuation funds, and NPS (New Pension Scheme). Besides you can also claim tax benefits on your children’s education.

However, the code proposes that there will be no more tax benefits for investing in NSCs (National Savings Certificates), Senior Citizens Savings Scheme, tax-saving bank fixed deposits and ELSS (Equity-Linked Savings Schemes).

Impact on home loans

Currently, if you have taken a home loan, the interest payments up to Rs 1.5 lakh (Rs 150,000) and up to Rs 1 lakh (Rs 100,000) towards principal repayment are eligible for tax benefit.

But this is set to end once the new code comes into effect. So if you have paid Rs 3 lakh as interest and Rs 2 lakh as principal, you will not get any tax benefit. However, if you have rented out a home, you can still avail of the tax benefits for taking the home loan.

The exemptions allowed

With the code, the government aims to tax the maturity proceeds of PPF and insurance. But in the case of insurance, deduction will be given only for the sum obtained only if the premium payable is not more than 5% of the sum assured and the sum assured is obtained only when the insurance term is over.

For PPF, the balance in the account as of March 31, 2010 will not be taxed on withdrawal.

Here is a simple example to help figure the effect of the new tax code:

Rahul is a salaried employee. His annual salary is Rs 5 lakh (Rs 500,000). He has invested Rs 50,000 in mutual funds, Rs 20,000 in insurance and Rs 40,000 in PPF.

Moreover he has taken a home loan of which he has already paid Rs 80,000 as principal and Rs 1 lakh as interest.

Let us see how his situation will change once the new tax code comes into effect.

Rahul’s current situation: Currently Rahul gets tax benefit on the amounts he has invested in PPF, mutual funds, insurance as well as on the principal repayment of his home loan. The limit on this amount is Rs 1 lakh.

Besides, Rahul has also paid interest on his home loan. So the total amount tax exempted is Rs 2 lakh (Rs 1 lakh tax exemption under Section 80C of the Income Tax Act and Rs 1 lakh as interest on home loan).

Hence now Rahul’s taxable amount is Rs 3 lakh — (Rs 5 lakh of salary minus Rs. 2 lakh of amount exempted). So the total tax that Rahul will pay on the amount of Rs 3 lakh is Rs 15,000 [Rs 3 lakh – Rs 1.5 lakh = Rs. 1.5 lakh is the taxable amount and the tax rate applicable is 10%]. So he currently pays Rs 15,000 as tax.

Rahul’s situation after the new code: Rahul’s total amount exempted from tax is Rs 1.1 lakh (Rs 110,000) (total of his amounts invested in mutual funds, PPF and insurance) plus Rs 1 lakh paid towards home loan interest. So his tax exempted amount goes up to Rs 2.1 lakh (Rs 210,000).

His total taxable income now becomes Rs. 2.9 lakh (Rs 290,000). Ultimately he ends up paying Rs 13,000 [Rs 2.9 lakh minus Rs. 1.6 lakh = Rs 1.3 lakh (Rs 130,000) that is taxed at 10%].

Rahul will now save Rs 2,000 in tax. He can do this because with the new tax code, the government plans to hike the tax slabs.

While the original tax slab for which tax was not applied was 0-Rs 1.5 lakh, the upper limit after the tax code comes into effect goes up to Rs 1.6 lakh.

Moreover the new code has hiked the tax exemption limits to 3 lakh from present limit of Rs 1 lakh.

Dear friends Effective Parenting: An orientation session by PSMOC Alumni UAE Chapter on 25 February Friday at Dubai

Child rearing is no more a child’s play. Parenting was considered to be an art but it has become a science too. The rubric of joint family model is being replaced by the detached family style that lost the age old link of transmitting the values and ethics in life, leaving the nuclear family in an unchartered territory.

In no uncertain term it is being proved that the childhood days plays a key role in shaping or reshaping the future of a child. Many parents are away from their parents and drowned in the blink blink life style which force them to follow the whims and fancies without any rhyme or reason. Though many parents wanted to have the tested and trusted model to replicate while raising their kids, the same are not available in nearby corner store.

Hence, PSMOC Alumni UAE chapter scheduled a session where in experts will share the benchmarks to be engaged while raising the kids

The target audience will be the parents and the children of above 10 years age. However, there would be a corner space available to engage and entertain those kids who cannot be in the session venue

Due to the limited space availability we require your prior registration and you can route your confirmation to Mr. Abdul Jaleel jaleel71@gmail.com with the following information

Name of the father & mother
Children’s name with age
Number of accompanying children below the age of 10
Your phone number and email

The following are the details of the event

Venue:Al Mihad Institute ,Old labor office building, Al Itthiahd Road(Dubai-Sharjah motor way),Opposite to Police HQ, Dubai

Time: At 2.30pm to 6.30 pm
Date: 25 February, Friday

Let us hope to meet and listen what the experts are going to deliver us

Thanks & regards

On Behalf of PSMOC alumni UAE Chapter
—
PSMO College Alumni UAE Chapter

MUSCAT – Oman has dismantled an Emirati spy ring that was targeting the government and the military in the Gulf sultanate, a security official said Sunday in a report quickly denied by the United Arab Emirates.

“Security forces (of Oman) were able to discover a spy ring belonging to the state security forces of the United Arab Emirates targeting the regime in Oman and the mechanism of governmental and military work there,” said the official, quoted by the official ONA news agency.

The cell was uncovered five months ago, before it was watched and dismantled by Omani security services, an official close to the case told AFP.

The cell “gathered information on the Sultanate’s military, security and economy, in return for large sums of money from Emirati security services,” the same official added requesting anonymity.

The cell “was interested in the issue of the succession of Sultan Qaboos, in the absence of an heir to the throne,” a security official said.

Succession could pose a problem in Oman, as the 70-year-old sultan, who overthrew his father in a bloodless coup in 1970, does not have children.

Qaboos was briefly married in 1976 to his cousin Kamila, the daughter of his paternal uncle Tariq bin Taymur.

The basic law of Oman, adopted in 1996, stipulates that the ruling family meets in the case of a vacuum in power to choose a successor to the sultan within three days.

If they fail to reach an agreement, the Council of Oman, which consists of the Council of State and Majlis ash-Shura (the Consultative Council), appoints the person named in a will left by the sultan.

“The accused will be presented for trial,” the official cited by ONA said.

Reacting, the UAE said it “has received with shock and surprise the information reported by” ONA, adding in a foreign ministry statement carried by state news agency WAM, that it “denies any knowledge of or link to such an alleged network.”

The UAE in the statement declared its “readiness to put all the capabilities and information that will help serve (Oman’s) investigations… and discover those who tried to harm” relations between the two Gulf neighbours.

The dismantling of the spy ring could strain relations between the two countries that are members of the Gulf Cooperation Council, which also includes Bahrain, Kuwait, Qatar and Saudi Arabia.

In July 2008, Oman and the UAE completed the delineation of their 1,000-kilometre (625-mile) shared borders, in line with a June 2002 accord.

The two neighbours differ in politics.

Oman has very good relations with Iran, while the UAE is a staunch ally of the United States. The UAE also has a long-lasting dispute with Tehran over three Iran-controlled islands in the Gulf.

Qaboos, known for rarely travelling out of Oman, was the first foreign leader to travel to Iran since President Mahmoud Ahmadinejad was re-elected in a disputed 2009 vote.

Oman has always had close relations with Iran and remained neutral during the war between the Islamic Republic and Iraq that lasted from 1980 to 1988, unlike most of its Arab neighbours who had supported the regime of the toppled Iraqi President Saddam Hussein.