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Tuesday, May 14, 2002

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I-T benefit denied to BSNL, MTNL

G. Rambabu


THE Ministry of Finance has refused to grant infrastructure status to telecom majors Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL), which would enable them to seek exemptions under Section 80IA of the Income-Tax Act.

According to official sources, the Finance Ministry has rejected a Department of Telecommunications' (DoT) request to this effect.

Under the said Section, a company that started providing telecom services whether basic or cellular between April 1, 1995 and March 31, 2000 is entitled to an exemption on 100 per cent of the profits derived from that service in the first five years that it provides the service and 30 per cent of the profits derived from that service in the next five years.

Both the companies had sought exemption under this Section, stating that during the period under question, they had invested quite a great deal of resources in upgrading their infrastructure. From cross bar exchanges, they upgraded to analogue exchanges and now to digital exchanges. Being purely infrastructure investment, the tax rebates should be made applicable to them, they have stated.

What is more, they also noted that at the time when it was decided to offer tax incentives for infrastructure companies, there were no private operators in the telecom sector for basic services (in 1995). So the whole burden of developing the infrastructure fell on them, and they need to be compensated.

Being amongst the highest taxpayers, both BSNL and MTNL would have got refunds close to Rs 4,000 crore, if infrastructure status were granted to them. Since private operators in the telecom sector are able to claim a tax rebate on their investments as they have been granted infrastructure status, both BSNL and MTNL who are facing the heat of the competition from them have sought a level playing field.

The sources noted that DoT had taken up this issue with the Finance Ministry quite a few times over the past couple of years, without any definite commitment. The department had sought parity for the telecom PSUs noting that under the build, operate and transfer scheme for gauge conversion of the Railways, tax rebates under this provision were allowed. The Railways had not been building new lines, but was basically upgrading the existing infrastructure. Similarly since both the companies were upgrading their existing network, they too could be granted tax rebates under this Section.

They pointed out that the Finance Ministry had finally told the department that it would not be feasible to grant the companies exemptions under the said Section.

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