CFI seeks capital gains tax exemption for SPVs

Construction Federation of India (CFI) has advocated capital gains tax exemption for`Special Purpose Vehicle? (SPV) companies on the lines of exemptions provided to Listed companies under Section 10(38) of Income-Tax Act.

In its Pre-Budget Wish List submitted to Finance Ministry, CFI has stated that execution of infrastructure projects is mandatorily carried out through separate ?SPV? companies as required under the respective License Agreement/Concession Agreements. The SPV companies comes under the category of unlisted companies.

In addition, it has sought that construction industry should also be entitled for the benefit of additional depreciation which is currently extended to manufacturing industry under Section 32(iia) of the Act.

Since this industry is capital intensive industry, it should be entitled for additional depreciation on new plant and machinery acquired, by amending definition to include ?assessee engaged in business of manufacture, construction or production of article or thing? is entitled for additional depreciation @ 20%.

The Federation argues that entitlement of this benefit will certainly put construction industry on level playing field with other manufacturing industries.

CFI also seeks exemption of interest payment to foreign lenders by Indian infrastructure/construction companies under Section 10(15) of Act. The amendment if made, will help Indian infra/construction firms to reduce its borrowing and overall project cost, pointed out the Federation.

According to CFI, since industry needs huge amount of investment, liberal ECB policies of RBI has opened the opportunities to Indian infrastructure and construction companies to borrow from overseas. Interest payable on such borrowing is liable to tax in India in the hands of foreign lenders.

CFI also advocated to allow the amortisation of development cost in the hands of developers of the infrastructure facility under PPP / BOT model by making suitable amendment under Section 35ABB. In fact, similar deduction is available to telecom sector under section 35ABB towards cost of license fees paid upfront by them.

Under PPP model, infrastructure facility is developed by developer of the project who is not the actual owner of the facility. Developer gets right to operate and maintain the facility for a specific period and at the end of the specified period infrastructure facility is handed over back to the Government or similar authority. It is the view of the industry that cost of development of such infrastructure facility be allowed uniformly over the specified period mentioned in the concession agreement.

The Federation also seeks extension/relaxation of re-export period to 5 years in case of construction equipments used in infrastructure projects. Currently, 18 months are permissible for use of construction equipments under Notification No.27/2002 Cus. but most infra and power generation projects period takes 3-5 years. It adds burden to the importers who pay full customs duty on such equipments which exceeds 18 months.

CFI representation further demanded custom duty exemption to all units of water supply projects required for initial setting up or for substantial expansion which is currently available for water treatment plan only.

It has suggested the government to enhance the existing threshold limit of Rs.20,000/- to Rs.1 lakh to prevent enormous difficulties in the day-to-day functioning of large construction companies operating in different interior locations. The threshold limits of Rs.20,000/- has been in existence since 1-4-1989 under Section 40A (3) of Income Tax Act.