I. Clause 5 – Section 10A
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The existing provision
Sec. 10A lays down special provisions in
respect of newly established undertakings in free trade zone,
etc. Sub-sec. (1A), which was substituted by the Finance Act,
2003 with effect from 1-4-2004, provides for a deduction to
the undertakings, which begin to manufacture or produce
articles or things or computer software during the previous
year relevant to any assessment year commencing on or after
1st day of April, 2003 in any special economic zone, as
notified by the Central Government in the Official Gazette.
The deduction available to such undertakings is with respect
to the profits and gains derived from the export of such
articles or things or computer software. The amount of
deduction available is —
| For first five
consecutive
assessment years |
100% of such profit |
| For further two
consecutive
assessment years |
50% of such profit |
For the next three
consecutive
assessment years |
Not exceeding the
fifty per cent of the profit as debited to Profit & Loss
Account and credited to Special Economic Zone
Reserve A/c.
Re-investment Allowance |
The proposed amendment
It is proposed to insert a sunset clause so
as to provide that no deduction under this sub-section shall
be allowed to any undertaking, which begins to manufacture or
produce such articles or things or computer software in a
Special Economic Zone, after 31-3-2009.
The reason
As per the memorandum explaining the
amendment, this proposal is brought in with a view to
rationalise the provisions of section 10A.
The effective date
The proposed amendment will take effect
from 1st April, 2006 and will, accordingly, apply in relation
to assessment year 2006-07 and subsequent years.
Comments
This is in line with the new taxation
policy adopted by the Government of reducing exemption and
lowering rate of tax, as suggested by Kelkar Committee. In any
case, it is refreshing to note that at least the intention to
withdraw an incentive is notified well in advance.
II. Clause 26 — Section 80-IA
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The existing provision
Section 80-IA provides for deduction in
respect of profits and gains from industrial undertakings or
enterprises engaged in infrastructure development, etc. One of
such undertakings eligible for the deduction is an enterprise
carrying on the business of developing or operating and
maintaining or developing, operating and maintaining any
infrastructure facility, which commences such operation and
maintenance on or after 1st April, 1995. Such enterprise is
eligible for a hundred per cent deduction of profits for a
period of ten years, in terms of the exiting provisions of
clause (i) of sub-section (4) of section 80-IA. Sub-clause (a)
of this sub-section (4)(i) provides that the enterprise should
be owned by a company registered in India or by a consortium
of such companies.
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The proposed amendment
It is proposed to amend the above condition
so as to include also an authority or a board or a corporation
or any other body established or constituted under a Central
or State Act within the purview of this sub-section and
sub-clause.
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The reason
To extend the tax benefit also to such
undertakings, which are not incorporated under the Companies
Act, 1956, to enable them to take advantage of the benefits
provided under this clause.
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The effective date
The proposed amendment will take effect
from 1st April 2006 and will, accordingly, apply in relation
to assessment year 2006-07 and subsequent years.
III. Clause 27 — Section 80-IB
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The existing provisions
Section 80-IB provides for deduction in
respect of profits and gains from certain industrial
undertakings, other than infrastructure development
undertakings. One of the eligible industrial undertakings is
an industrial undertaking established in an industrially
backward State, as specified in the Eighth Schedule. Finance
Act, 2002 discontinued such deduction for the industrial
undertakings that began to manufacture or produce articles or
things or to operate cold storage plant on or after 1-4-2004.
However, vide Finance (No. 2) Act, 2004, the deadline was
extended for the industrial undertakings in the State of Jammu
and Kashmir by one year. Under the existing provisions
contained in sub-section (4) of section 80-IB, industrial
undertakings engaged in manufacture or production or operation
of a cold storage plant and set up during the period 1-4-1993
to 31-3-2005 in the State of Jammu and Kashmir are eligible
for a hundred per cent deduction of profits for a period of
five years, followed by twenty-five per cent (thirty per cent,
in the case of companies) for the next five years. The
deduction is subject to a negative list of commodities
included in the Thirteenth Schedule, which should not be
manufactured or produced by such industrial undertakings. The
deduction is not available to industries in the State set up
after 31-3-2005.
Similarly, sub-section (8A) provides for
deduction in the case of a company carrying on scientific
research and development. The deduction available is hundred
per cent of the profits and gains of such business for a
period of ten consecutive assessment years. One of the
conditions for availing such deduction is that such company is
for the time being approved by the prescribed authority at any
time after the 31st day of March, 2000 but before the 1st day
of April, 2005.
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The proposed amendments
It is proposed to extend the terminal date
for setting up of industrial undertakings and commencement of
eligible business in the State of Jammu and Kashmir by two
more years, that is, from 31-3-2005 to 31-3-2007, for the
purpose of sub-section (4).
It is also proposed to extend the deadline
for approval of the company carrying on scientific research
and development by the prescribed authority by two years, that
is, before 1st day of April 2007, for the purpose of
sub-section (8A).
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The reason
With a view to promote the industrial
development of the State of Jammu and Kashmir and with a view
to promote scientific research and development in the country.
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The effective date
This amendment will take effect from 1st
April, 2006 and will, accordingly, apply in relation to the
assessment year 2006-07 and subsequent years.
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Comments
Though these are welcome measures, it is
alway better if such type of extension is not given in a
piecemeal manner, that is, extending by a year or two at a
time.
