Explanation to Section 80-IA

Mar 18 2007, 01:49 IST
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In section 80-IA of the Income Tax Act, 1961, after sub-section (13), a new explanation is proposed to be added by the Finance Bill, 2007, which reads as under: “For the removal of doubts, it is hereby declared that nothing contained in this section shall apply to a person, who executes a works contract entered into with the undertaking or enterprise, as the case may be.”

On the face of it, the Explanation looks innocuous and a routine one. However, if it is considered in the background of legal provision, where it proposes to remove doubts, it becomes clear that there are no doubts, which are proposed to be removed and in effect the Explanation is meant to enable the tax department to detract from a position, which it had consciously taken in the year 1999 and now wants to go back from that position from retrospective effect ie, from the date the relevant law was enacted.

This is nothing less but a breach of faith of taxpayers, who acted on the basis of law as laid down by the Finance Act, 1999 and took benefit but which the tax department now intends to withdraw without any ostensible grounds.

To understand the nature of the amendment, it is necessary to give a background as to what the law is, which is proposed to be changed and why the Explanation has been made operative from April 1, 2000 and see the legal provisions, which were operative before April 1, 2000 and those operative from April 1, 2000.

A new sub-section (4) was brought in section 80-IA by the Finance Act, 1999. Before that, law in relation to the same subject was contained in sub-section (4A). The position in regard to two provisions is mentioned hereinafter.

Sub-section (4A) before April 1, 2000

The requirement for getting tax benefit u/s 80-IA was, besides other conditions, that the enterprise, which claims the benefit of tax holiday, should start developing, operating and maintaining the infrastructure facility on or after April 1, 1995.

Sub-section (4) after the amendment by the Finance Act, 1999

Section 80-IA was substituted by two sections - 80-IA and 80-IB - by the Finance Act, 1999 w.e.f. April 1, 2000. In this substitution, clause (4A) earlier (supra) became clause (4). The new clause provides that for getting the tax holiday benefit, the company (or consortium of companies) must enter into agreement with the prescribed body for “carrying

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