The Hindu Business Line : Tax sops ruled out for investment cos

The Finance Minister, Mr P. Chidambaram, said that there was no justification for investment companies earning only dividend income and long-term capital gains from securities to remain as zero-tax paying companies.

Addressing a post-Budget meeting, organised by the Federation of Indian Chambers of Commerce and Industry (FICCI) here on Saturday, Mr Chidambaram did not concede to industry demand for review of the Budget proposal to include long-term capital gains on securities in the calculation of book profits for minimum alternative tax (MAT) purposes.

Budget 2006-07 seeks to include long-term capital gains in the MAT base, thereby bringing hitherto tax-exempt investment companies under the MAT fold.

Investment companies with only dividends and long-term capital gains would now have to pay at least some tax. Earlier an investment company, with only dividend income and long-term capital gain income was paying zero tax as both were excluded from taxation and did not form part of book profits.

"Why should any company that has profitable income pay zero tax? I raise this question as a political question, as a moral question and as an ethical question. Why should any company with profits pay zero tax? If it is loss making, we are not coming anywhere near that. If you're a profitable company, some tax has to be paid," Mr Chidambaram told industrialists here.

He said the whole idea of taxing profits would go for a "sixer" if a company has dividends and long term-capital gains income and a question is asked as to why such companies should pay tax.

"I turn around and ask you, if the company has some profits, should it not pay some tax? I don't think there is any great harm if we ask these companies to pay some tax," he said.

The Finance Minister, however, assured FICCI members that he would on May 1 address those issues that stand between industry and 12 per cent manufacturing sector growth.