The Hindu : Tax exemption sought for project exports

Online edition of India's National Newspaper
Monday, Nov 11, 2002

National

National

Tax exemption sought for project exports

By Our Special Correspondent

NEW DELHI Nov. 10. To give a fillip to project exports, the Associated Chambers of Commerce and Industry of India (Assocham) has recommended removal of tax discrimination between product and project exporters, increased deduction on income from royalties and patents, rationalisation of tax treatment for joint ventures (JVs) and exemption from Customs duty for used equipment.

In a note to the Finance and Commerce Ministries, the chamber has stated that the discrimination between product and project exporters should be minimised and project exporters made eligible for 100 per cent tax exemption.

It has also suggested that Section 80HHB, dealing with profits and gains from projects outside India, be reviewed and deduction in respect of profits and gains from housing projects under Section 80HHBA be raised in the case of deemed export (World Bank or multilaterally funded) projects in India.

Assocham feels that the deduction in respect of income from royalties, patents, inventions, designs or registered trade marks outside India must be raised from 50 to 100 per cent under Section 80-O and that Section 44AD for person/company engaged in the business of civil construction or supply of labour for civil construction must be reviewed.

Joint ventures have emerged as an important vehicle for companies to pool their resources — manpower, materials or equipment — and share risks in the execution of construction projects overseas. These JVs are most often unincorporated, project-specific entities, pooling expertise and resources for a particular project.

The Income Tax Act 1961 treats such JVs as an Association of Persons (AOP), for the purposes of taxation. This poses problems in the case or profit-sharing JVs, as the company cannot set off losses of a JV against profits of the parent or profits of the JV against losses of the parent.

The Chamber has stated that double taxation of distributed profits/exemption on dividend income from foreign companies must be studied. The Government has given a tax holiday to companies to encourage investments in infrastructure. But the provisions are diluted by the tax on distributed profits and MAT. This also brings the project export and consultancy firms under taxation.

As regards cross border leasing and hiring of equipment, Assocham has pointed out that cross border leasing and hiring of equipment is irrationally subjected to import duty.

The lessee does not own the equipment during its use. It is a case of temporary import and therefore by no logic should it be subjected to import duty. Further, the lesser pays withholding tax of 10 per cent. The construction sector in India needs to be enabled to utilise leased equipment to the maximum.

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