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CII wants surcharge on I-T, corporate tax scrapped

Our Bureau

NEW DELHI, Jan. 4

THE Confederation of Indian Industry (CII) has called on the Government to remove the surcharge on corporate tax and income-tax, especially as direct tax collections have been buoyant.

The chamber's pre-Budget memorandum also called for the abolition of tax on dividends since the dividend should only be taxed in the hands of the recipient.

On the issue of Minimum Alternate Tax (MAT), the chamber said that it was ``bad'' tax and added that the sudden imposition of MAT had completely destroyed corporate tax planning. ``In effect, the Government has said that even if a company legally used th e Government's own concessions to get to zero tax level, it would still have to pay a MAT of 7.5 per cent on book profits. This is the Government's indictment of its own concessions -- something that was justified by the United Front Government by politi cal rhetoric and fiscal expediency,'' the chamber said.

Turning its attention to demergers, CII said that the provisions relating to demergers should apply in all cases where a special resolution regarding such a proposal had been approved by 75 per cent or more of the shareholders present and voting at a pro perly notified shareholders' meeting.

This, the chamber felt, would widen the ambit of demergers, instead of limiting these to cases covered by provisions of Sections 391-94 of the Companies Act.

Regarding amalgamations, the chamber said that the conditions of holding the assets of the amalgamating company by the amalgamated company should be confined to 50 per cent of the written down value of the net fixed assets, instead of the present floor o f 75 per cent. This, CII felt, would allow the amalgamated company to better recycle the remaining assets.

Further, it said that the condition of continuance of business of amalgamating company/companies for five years should be dropped to facilitate business reorganisation that increases the return on capital employed and shareholder value. This condition is not prescribed for a resulting company taking over business from a de-merging company, or in cases where a firm or proprietary concern is succeeded by a company, or even in case where losses of erstwhile business are set-off by an entity in the year of set-off against its other business.

It also suggested for consideration the introduction of carry-backward of business losses with suitable limits, safeguards and provisos. For instance, the scheme may provide that business losses sustained in any one year may be adjusted against profits o f the preceding four-five years, and a third of the consequent tax refund from those years may be granted to the business or company.