CBDT chief justifies tax holiday basis for EPZ units

By Our Special Correspondent

CHENNAI, JUNE 16. The new Chairman of the Central Board of Direct Taxes (CBDT), Mr. A. Balasubramanian, today refuted the contention that linking of tax holidays for EOU/EPZ/STP units with ownership in the latest Finance Act went against the objective of granting such incentives.

Participating in an interactive session organised by the Chartered Accountants Study Circle (CASC), Mr. Balasubramanian said the tax incentive was meant for those who started the industry concerned and not for the economic or sectoral activity, and hence withdrawal of the benefit in case of substantial change of ownership (exceeding 50 per cent of equity) of units was fully justified.

Responding to criticism that the increase in the dividend tax to 20 per cent from ten per cent would act as a disincentive to foreign investors, particularly in view of the fact that this was not taken care of by the bilateral double taxation avoidance agreements in force, Mr. Balasubramanian said the Union Finance Ministry had taken note of such complaints.

When it was pointed out that a lot of domestic companies organised in the form of holding companies and subsidiaries would suffer as a result of the higher dividend tax, he said if businesses chose to organise themselves in any particular manner for their own convenience, the tax system could not be expected to adjust itself to their needs. Companies would have to observe some ``discipline'' and not try to make out that there was ``multiple taxation'' on them. He denied that the dividend tax was a disincentive to corporatisation of businesses.

While rejecting several other suggestions made by tax practitioners, including indexation of capital gains for the period assets were held by previous owners, the CBDT Chairman said the Income-tax Department had decided to bring down departmental appeals within two years. Noting that tax arrears totalled Rs. 45,000 crores, he said Chief Commissioners had been instructed to monitor second appeals being made by the department. There was heavy pendency of appeals at present. The department's target was to ensure that by the year 2005, the first appeals would be decided in six months.

Mr. Balasubramanian said circulars issued by the department were bound to be different and more elaborate compared to Press Notes which preceded them as an immediate means of communication. While it could be demanded that there should be `no contradiction' between the Press Notes and subsequent circulars, it would not be proper to demand that the Press Notes be given the status of law.

He said set-off of refunds due from the department against tax payable by assessees would be possible only after implementing total switch-over to the PAN (permanent account number) system and computerisation of processing of returns. Facilities had been introduced for obtaining PAN on-line from the Commissioners in charge-of the computer system, he said, rejecting allegations that there was a huge backlog in respect of PAN allotment. Whatever backlog was there was largely due to the failure of assessees to fail up Form No 49A.

Already the Commerce Ministry (Directorate-General of Foreign Trade) had incorporated PAN in its documentation and a time would come when the State governments too would insist on PAN as a business identification, Mr. Balasubramanian said.

Mr. T. N. Manoharan, consultant, said presumptive taxation of retail trade had received poor response because the rate had been fixed at five per cent of the turnover. The scheme would probably succeed if it was reduced to three per cent, he said. He expressed the fear that the department's stipulation that the end-result of returns taken up for scrutiny by officers should justify selection of the case for scrutiny, though aimed at transparency and fairness, would in practice induce officials to impose higher taxes in such cases even if it was not warranted.

Mr. V. Ranganathan, consultant, suggested that even when the Institute of Chartered Accountants of India (ICAI) came out with distinctive accounting standards for companies engaged in financial leasing`` and ''operational leasing``, the present tax provisions favouring the lessor should continue for some more time till the leasing industry got stabilised.

He felt that the provision for advance payment of tax as early as June 15 was causing refunds because company executives were eager to avoid payment of interest in case of underestimation of income. The first advance tax date should be shifted to September 15, Mr. Ranganathan said.

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