Date:10/08/2005 URL: http://www.thehindubusinessline.com/2005/08/10/stories/2005081002850100.htm

Back PM advisory panel favours exporters on `negative profits' tax exemption

K.R. Srivats

New Delhi , Aug. 9

THE Economic Advisory Council to the Prime Minister has come out in favour of the exporting community on the controversial issue of tax exemption of `negative profits' under Section 80HHC of the Income-Tax Act, 1961.

The exporters' suggestion that the Income-Tax Act be amended retrospectively to enable them to avail themselves of 80HHC exemption even under `negative profit' situations has been "considered favourably" by the Economic Advisory Council to the Prime Minister, official sources said.

The council is understood to have forwarded its recommendations on the issue to the Prime Minister's Office (PMO).

The Federation of Indian Export Organisations' (FIEO) acting Director-General, Mr Ajai Sahai, said that the exporting community had suggested to the Economic Advisory Council that an "explanation" under Section 80HHC of the Income-Tax Act that related to profits directly derived from exports be amended on a retrospective basis from 1992-93.

"We wanted the explanation under that section (Section 80 HHC) to be rephrased as `profit or losses' directly derived from exports so that `negative profit' situations are covered and export incentives are not brought to tax," Mr Sahai told Business Line.

The issue of `negative profits' and the eligibility for tax exemption under Section 80HHC had been referred to the Economic Advisory Council on July 5.

The main issue before the Economic Advisory Council to the Prime Minister was what constituted `negative profits' and whether an assessee was entitled to claim exemptions under Section 80HHC in respect of export incentives when the export business, excluding the export incentives, reflected a loss.

The income tax authorities had reopened a number of cases and denied exporters Section 80HHC deduction benefits, as there was no positive profit from the income derived from exports (after excluding the receipts on account of incentives).

The exporting community had recently staged a "protest demonstration" in the Capital against the Income Tax Department's interpretation of the `negative profits' issue.

The issue of `negative profits' was one among the contentious taxation issues relating to exports that were referred by the Prime Minister, Dr Manmohan Singh, to his Economic Advisory Council for its counsel.

On the taxation of sale of duty entitlement passbook (DEPB) licences, which was one of the issues referred to it, the advisory council had recommended in favour of the Income Tax Department. It, however, came up with certain specific recommendations to soften the blow for small exporters.