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CII sees scope to scrap surcharge on corporate I-T

Our Bureau

NEW DELHI, Jan. 18

THE Government can eliminate the 10 per cent surcharge on corporate income-tax in the Budget for 2000-2001 without any adverse consequence on revenue collections, as the buoyancy in corporate sales and profit before depreciation interest and tax (PBDIT) is likely to continue in the next fiscal, the Confederation of Indian Industry (CII) has said.

In its pre-Budget memorandum, the chamber said that revenues will grow at no less than 13 per cent and probably nearer 17 per cent.

It added that provisions relating to demergers should apply in all cases where a special resolution regarding such a proposal has been approved by 75 per cent or more of the shareholders present and voting at a properly notified shareholders' meeting.

The CII said this would widen the ambit of demergers, instead of limiting these to cases covered by provisions of Sections 391 to 394 of the Companies Act, 1956.

It added that for tax exemption in demergers, the transferee company should issue shares to the shareholders of the transferor company. ``The CBDT needs to clarify whether this exemption will continue if, in addition to the shares, cash or debt instrumen ts are also issued to the shareholders,'' the memorandum stated.

It pointed out that in demergers, all assets and liabilities of the undertaking must be transferred. ``This does not take into account common assets such as administrative offices, and common liabilities such as excise and sales tax, and therefore, there must be a provision to apportion common assets and liabilities among the undertakings in accordance with generally accepted accounting principles,'' CII said.

The memorandum stated that it would be more appropriate if the definition of net worth under Section 49 includes paid-up capital plus free reserves (as defined for slump sales), against the present definition for purposes of Section 49, which includes on ly paid-up equity capital and general reserves.

The memorandum also called for insertion of a provision in the Income-Tax Act to avoid multiplicity of dividend tax. ``The way to do this is to provide that tax on declared dividend will be payable by a company only at the first stage. If it can be prove d that dividend declared by the recipient company is less than or equal to the dividend received, then there should be no additional tax,'' it stated.

It added that in the case of intermediary investment on holding companies, the tax liability on dividend should only be to the extent they are distributing dividend in excess of what has been received by them. ``This provision should also apply to `pass- though' institutions such as the Unit Trust of India and other mutual funds,'' the memorandum added.

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

On the issue of personal income-tax, the memorandum said that given the present buoyancy in personal income-tax revenue and the assumption that an additional five-eight million people can be in the tax net in 2000-2001, there is a case to eliminate the 1 0 per cent surcharge on income-tax. ``This will not get in the way of growth in revenue, and will send a positive signal to the taxpayers,'' the CII said.

It added that there should be no tax on perquisite value at the time of exercise of stock option or allotment of sweat equity shares. ``Instead, there should be taxes as capital gains only at the time of transfer of shares. At that point, the tax should be levied as the difference between sales price and the price at which the shareholder either exercised the option or was conferred the sweat equity shares,'' the memorandum stated.