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Core sector firms to take a hit on 801A clarification
Raghavendra Kamath in Mumbai
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March 02, 2007 11:58 IST

The infrastructure companies, which as contractor and sub-contractor firms have claimed benefit under 80 IA, will take a hit of nearly Rs 300 crore (Rs 3 billion) effective 2000, including Rs 60-70 crore (Rs 600-700 million) this year, industry sources said.

Section 80 IA provides for a ten-year tax benefit to an enterprise or an undertaking engaged in development of infrastructure facilities, industrial parks and special economic zones.

The FM clarified, "Only the person who makes investment and executes civil construction work will be eligible for tax benefit, and a person who enters into a contract with another person for executing works contract will not be eligible for tax benefit under the section."

This amendment will take retrospective effect from April 1, 2000, and will apply in relation to the assessment year 2000-01 and subsequent years.

The confusion arose after the Income Tax Appellate Tribunal in the Patel Engineering case equated developers with contractors and passed on the benefits to contractors.

"It was understood that contractor would also be entitled to benefits under section 80 IA. After this, many companies started getting exemptions under the section and accordingly provided for lesser tax. Only those companies would take a hit now," said a industry source.

The companies getting affected by the proposed clarification will be impacted in three ways.

"However, the impact pertaining to last year may be adjusted to reserves, so that impact in the company's profit and loss account could be restricted. Companies which have factored 80 IA benefits in their costs would have quoted lesser price to pass on the benefit to the client may be impacted in respect of current contracts. Collectively, the industry will take a hit of Rs 60-70 crore. In future contracts, the companies may change pricing strategy in such a manner that cost may go up," said the source. Powered by

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