New Delhi, July 10 The relief over the correction of an ‘anomaly’ pertaining to Section 10 AA of Income Tax Act — that will now allow companies to enjoy full tax benefits for operations in Special Economic Zones (SEZs) — is muted, as the amendment will take effect from April 2010, and not retrospectively.
This means that companies, including IT and BPO firms, which had established operations in
SEZ as a unit and not as a separate entity, would be able to enjoy the full exemptions from assessment year 2010-2011, but no such relief would be available to them for the past years.
MindTree Ltd, which has operations in two SEZs (Bangalore and Chennai), said that last year 30-40 per cent of its total revenue came from SEZs.
If the issue is not addressed, the company’s extra tax outgo (on account of the anomaly) would stand at Rs 10 crore for the financial year 2009.
“It is a huge issue. The basis on which all of us committed investments into SEZs over the last two-three years, was the benefit of tax exemption for the first five years,” said Mr Rostow Ravanan, Chief Financial Officer of MindTree.
The crux of the issue is the method of computation of exempted profits in the case of SEZs. The original wording had prompted some companies to set up operations in SEZs as a separate entity.
The Government, in the Interim Budget, had decided to remove the anomaly with regard to the language of Section 10 (AA). The full Budget now seeks to correct the ‘anomaly’ such that exemption would be calculated on the total turnover of an undertaking. But what has disappointed the IT industry is the fact that the proposed amendment will be effective from April 1, 2010 and, accordingly, apply to the assessment year 2010-11 onwards.
The Chairman of National Association of Software and Services Companies (Nasscom), Mr Pramod Bhasin, said, “We will have to discuss this. The Government has done a lot for us. As far as this change is concerned, we want to ask them, understand the intention. We will engage in a dialogue with them.”
Many IT industry officials feel that an amendment with a prospective effect could lead to litigations. “It leaves room for confusion and litigation. The issue will not impact WNS, (a global BPO) as we have set up SEZ operations as separate entity, but from an overall industry point of view, many companies who which have set up SEZ operations as units, will face a problem,” said Mr Alok Misra, Group Chief Financial Officer of WNS.
Source : Business Line