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I-T benefits under Sections 10A & 10B -- Extend exemption to closely-held cos: CII

Our Bureau

NEW DELHI, May 27

THE Confederation of Indian Industry (CII) has urged the Finance Ministry to exempt ``closely-held companies'' from the condition relating to transfer of ownership or the beneficial interest in undertakings availing themselves of tax benefits under Secti ons 10A and 10B of the Income-Tax Act, 1961.

The Government had only recently through the Finance Act, 2001 specified that the condition relating to transfer of ownership of companies in Sections 10A and 10B would not be applicable in cases where the change in shareholding of a company results in a ``company in which public are substantially interested''.

Before this amendment, the income-tax law had stipulated that an assessee who has set up newly established industrial undertakings in free trade zones (FTZs) and newly established export-oriented units (EOUs) would be deprived of the deduction available under Sections 10A and 10B if the ownership or the beneficial interest in the undertaking is transferred by any means during a previous year.

CII has now demanded that the restriction on transfer of ownership for availing Sections 10A and 10B benefits should not be applicable even for ``closely-held companies''.

Taking up the cause of the software industry, the chamber has in a statement claimed that such a restriction would lead to undue hardship for the exporting community in the software industry where mergers and acquisitions (M&A) activity are ``extremely c ommon''.

Terming such restrictions as a ``constraint'' for the growth of the information technology sector, CII has said that removal of all constraints to the growth of the IT sector was all the more important in the backdrop of the slowdown in the US economy wh ich constituted the biggest market for Indian software exports.

The chamber has also pointed out that the 10-year tax holiday (through Sections 10A and 10B) for units set up as 100 per cent EOUs and units set up in FTZs had been introduced for encouraging exports from the country.

CII is of the view that consolidation should be viewed as driver for growth and more importantly competitiveness and that changes in management/promoters should not be construed ``negatively'' so as to result in withdrawal of such tax benefits.