Epces circular no. 38 dated 28-2-2007

Epces circular no. 38 dated 28-2-2007
Sub : Amendment to Section 10A and Section 10B of the Income Tax Act by the Budget, 2007

100% EOUs are exempted from income tax under Section 10B of the Income Tax Act. At present this income tax exemption is available upto 31-3-2009. EPCES had requested Ministry of Commerce and Ministry of Finance for removal of sunset clause under Section 10B of the Income Tax Act. This has not been done in this Budget. On the contrary the scope of Minimum Alternate Tax has been extended to Section 10A and 10B. The text of the Finance Bill 2007,  provides as follows:-

Widening the scope of Minimum Alternate Tax

Section 115JB provides that in case of a company, if the tax payable on the total income as computed under the Income tax Act in respect of any previous year relevant to the assessment year commencing on or after the 1st April, 2007, is less than ten per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable for the relevant previous year shall be ten per cent of such book profit.

The Explanation occurring after sub-section (2) of section 115JB says that the expression “book profit” means the net profit as shown in the profit and loss account prepared in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 as increased or reduced by certain adjustments, as specified in that Explanation. The aforesaid Explanation, interalia, provides that the book profit shall be increased by the amount or amounts of expenditure relatable to any income referred to in section 10A or section 10B if such amount is debited to the profit and loss account and it shall be reduced by the amount of income referred to in sections 10A and 10B, if any such amount is credited to the profit and loss account.

The exemption from MAT of the income eligible for deduction under section10A or section 10B is contrary to the basic principle for introduction of MAT, which provides that every corporate taxpayer participating in the economy must contribute to the exchequer. Accordingly, it is roposed to amend clause (f) of the Explanation occurring after sub-section (2) of section 115JB to provide that the book profit shall not be increased by the amount or amounts of expenditure relatable to any income to which section 10A or section 10B applies.

It is further proposed to amend clause (ii) of the said Explanation so as to provide that the amount of income to which any of the provisions of section 10A or section 10B apply, shall not be reduced from the book profit for the purposes of calculation of income tax payable under the aforesaid section.

These amendments will take effect from 1st April, 2008 and will, accordingly, apply in relation to the assessment year 2008-2009 and subsequent years. [Clause 26]

You are requested to immediately analyze this provision and send the implications of this amendment to you urgently, if possible by today evening and in any case by tomorrow, so that we can take up the matter with Ministry of Commerce and Ministry of Finance accordingly.

I would also like to inform that Board of Trade meeting, under the Chairmanship of Shri Kamal Nath, is scheduled on 7-3-2007. EPCES is a member of the Board of Trade. Please send your studied response with actual examples immediately so that we could compile your responses and take up with Ministry of Commerce & Ministry of Finance as well as in the Board of Trade.

This may please be treated as most urgent.

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