The Hindu : Exemptions and incentives for individuals

Online edition of India's National Newspaper
Monday, Apr 07, 2003

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Business

Exemptions and incentives for individuals

QUESTION: What are the incentives proposed for industries?

ANSWER: The Finance Bill 2003 is no exception to the earlier Bills in granting exemptions and deductions with intent to give something for every one. Notwithstanding the attempt to make the law simpler with lower tax but accompanied by fewer exemptions, the lobbyist pressures have always succeeded in getting some benefit or the other for themselves. There has been no study as to the effect of these incentives on investments. In view of the fact that any investment takes time to yield income for the investor and since these incentives are solely based on profits, many enterprises, which fall by the wayside, are not able to enjoy the tax concessions for such investments. There are also problems of interpretation with the result litigation is rife, both as to eligibility itself and the manner of computation of eligible income in the context of suspicion about these concessions being abused. But these difficulties have not discouraged industries from agitating for these incentives nor the Government in responding to them.

By narrowing the definition of local authority under Sec. 10(20) and removal of Sec. 10(20A) and 10(29), which conferred exemption on authorities and Government companies entrusted with civic duties, a number of public bodies and Government companies such as port trusts, warehousing corporations, marketing committees and the like lost their exemption. Obviously, the thoughtless withdrawal made only by Finance Act, 2002 has been found to be hasty. Apparently, the self-esteem of our law makers would not permit them the simple expedient of restoration of the exemptions, but disguise their restoration by allowing as expenditure the amount applied for the purpose for which they are created under the proposed clause (xii) under Sec. 36, subject only to the condition that the corporate or the body corporate, by whatever name called, is constituted or established by a Central, State or Provincial Act. This amendment is to be made retrospective with effect from AY 2003-04 itself, so that they do not have to lose their exemption at all.

Infrastructure capital company and infrastructure capital fund, which are getting exemption under Sec. 10(23G) for financing infrastructure, will get exemption, even for financing construction of hotels and hospitals by another amendment to Sec. 10(23G).

The benefit of Sec. 10A/ 10B is also now proposed to be extended to the business of cutting and polishing of precious and semi-precious stones. Sec. 10A and 10B are both to be amended to remove bar against loss of exemption on amalgamation or demerger by insertion of sub-section (7A). In effect, bar against all transfers of ownership is to be totally removed, since there is also the proposal to omit sub-sections (9), (9A) and Explanation thereto. But the amendments omitting these sections are not retrospective, so that assessments for AY 2001-02, 2002-03 and 2003-04 are not saved. Sec. 10A(9) was brought into the statute with effect from AY 2001-02, while sub-section (9A) which clarified the extent of transfer came into effect from AY 2003-04. The omission of both sub-sections (9) and (9A) of Sec. 10A/10B from AY 2004-05 would land assessment for AY 2001-02 and AY 2002-03 to a situation, where sub-section (9) would operate without the clarification in sub-section (9A), while for AY 2003-04, it will be read in conjunction with 9A, an instance of a source of confusion.

Coffee industry will get a deduction for deposits with National Bank for Agriculture and Rural Development (Nabard) under Sec. 33AB.

Scheduled and non-scheduled banks would get a larger deduction for provision for non-performing assets by deployment of profit on redemption of existing securities by an amendment to Sec. 36(1)(viia) by addition of two provisos.

The benefit of carry forward and set off of unabsorbed loss and unabsorbed depreciation of amalgamating company to the amalgamated company under Sec. 72A is extended to hotel industry and also those nationalised banks taking over other banking companies.

An undertaking, which merely develops a special economic zone (SEZ), is made eligible for deduction under Sec. 80IA(2) by an amendment with retrospective effect from April 1, 2002. Concession for telecommunication services under Sec. 80IA(4)(ii) is proposed to be extended to undertakings started up to March 31, 2004.

Transferees of an undertaking developing an industrial park or special economic zone will be eligible for deduction for unavailed period under a proviso to Sec. 80IA(4)(iii). This amendment will be retrospective even from AY 2002-03.

Approval for benefit of deduction for companies carrying on scientific research under Sec. 80IB(8A) is extended for another year up to March 31, 2004.

The benefit of exemption for residential housing projects was available under Sec. 80IB(10) for those projects approved on or before March 31, 2001, but it is proposed to be extended for approvals up to March 31, 2005, but since the provision itself is made effective from April 1, 2004, the benefit for approvals between April 1, 2001 and March 31, 2003 should be available only from AY 2004-05. The deadline for completion of the project is also to be removed.

Deduction available for industrial undertaking in business of setting up and operating cold chain facility under Sec. 80IB(11) will now be extended enabling commencement of undertaking up to March 31, 2004.

There is a wider exemption proposed under Sec. 80-IC for new industrial undertakings and those existing undertakings with substantial expansion in Himachal Pradesh, Uttaranchal, Sikkim and North Eastern States with total exemption for first five years and 25-30 per cent for the next five years. However, the exemption will be available only for production of those items listed in Schedule XIII in two parts, one part for State of Sikkim and another for Himachal Pradesh and Uttaranchal. There is a separate schedule as Schedule wXIV again in three parts separately for North Eastern States and two others for others. The present exemption for North Eastern States under Sec. 10C gets replaced by Sec. 80IC. There is also promise of 100 per cent depreciation for capital equipment for water treatment for drinking water projects.

S. Rajaratnam

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