The Hindu Business Line : Ministry examining issue raised by Nasscom on tax holiday

THE Finance Ministry is examining the facts of the case taken up by Nasscom in its representation to the Revenue Department on Section 10A of the Income-Tax Act, 1961.

Under Section 10A, the profits and gains derived by an undertaking from the exports of articles or computer software are allowed as a deduction from its total income for a period of 10 consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins manufacture of such articles or computer software. The undertaking must have been established in a free trade zone.

"Our action would entirely depend on the facts of the case. They have also highlighted certain judgments to support their position. We are examining the facts of the case. As the assessment order has been passed, they have done the right thing in going in for an appeal," a senior Revenue Department official told Business Line here.

The official also indicated that the Finance Ministry may issue clarifications on doubts of law that may arise on Section 10A. The issue which is the bone of contention between the Revenue Department and Wipro (which has been slapped with tax demand) is the meaning of "undertaking" and whether every expansion of an undertaking would also qualify for a 10-year tax holiday.

"The legal intent of Section 10A is to benefit only newly established undertakings. The department and the company differ on whether expansion should constitute new undertaking or not," informed sources said.

Meanwhile, the National Association of Software and Service Companies (Nasscom) President, Mr Kiran Karnik, told Business Line that the debate is on the "spirit of the law".

"We have made a representation to the Finance Ministry. The perception of the department is that the letter of the law has been violated. But we are trying to impress upon them that the spirit of the law is more important. The intention of Section 10A was to give an exemption to a new venture. Going by that logic, the exemption should be available for every subsequent expansion of the company," Mr Karnik said.

Asked about the outcome of the meeting, Mr Karnik said, "the response was very positive... we are hopeful of a favourable result."

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