`Remove double taxation on dividend distribution'

NEW DELHI, NOV. 29. The Associated Chambers of Commerce and Industry of India (Assocham) has urged the Government to remove double taxation on dividend distribution in its budget proposals for 2005-06.

In a statement the chamber President, Mahendra K. Sanghi, said Section 115(O) of the Finance Act 2004 empowered the government to levy dividend distribution tax, which amounted to double taxation of the same income and penalise the corporate sector because dividend distribution was effected after the corporate profits were already taxed.

The Assocham Chief further said, "The aforesaid section needs to be scrapped as dividend is nothing but distribution of profit of the companies. Only after paying income tax, the profit is distributed among shareholders. Dividend distribution tax thus amounts to double taxation and hence companies should not be penalised by having to pay dividend distribution tax".

In the chamber's view, multiple dividend distribution transaction either should be excluded from the levy of additional income-tax on the amount of dividend distributed by another company or such company should be allowed tax credit in respect of the amount of dividend which it distributes from and out of the amount of dividend on which the other company has already paid additional income-tax under Sec. 115(O).

Stressing on the issue of corporate demergers, the chamber has also suggested that clauses as incorporated in the Finance Act 2004, which require transfer of all corporate liabilities, should be deleted since as are various liabilities, which are not easily transferable separately or where lenders want the corporate liabilities to be retained with the demerged company. The chamber feels that corporate tax rates are still on the higher side and need to be brought down to 30 per cent from 35 per cent.

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