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The Finance Bill, 2010 (“the Bill”) was presented by the Finance Minister on 26 February, 2010. The proposals contained in the Bill were passed by the Lok Sabha
1(Lower House) of the Parliament today after the Finance Minister’s reply to the debate on the Bill
2. While tabling the proposal to pass the Bill, the Finance Minister had made some amendments to the Bill. The Bill will now be placed before the Rajya Sabha (Upper House) of the Parliament for its consideration before being assented to by the President.
This Alert analysis the amendments made to the Bill which was passed by the Lok Sabha.
1 Source : www.Taxindiaonline.com and loksabha.nic.in
2 Source: www.pib.nic.in
Amendments to the Finance Bill, 2010
Tax & Regulatory Services
News Alert*
29 April, 2010
AMENDMENT PROPOSED IMPACT Investment linked tax incentive for specified business
It is proposed to extend the benefit of deduction under section 35AD of the Income-tax Act, 1961 (“the Act”), to an assessee engaged in the business of building and operating a new hospital with at least one hundred beds of patients.
[Section 35AD / Clause 10]
• Currently, hospitals (of more than hundred bed capacity) constructed in any specified area are eligible for claiming hundred percent deduction for specified period under section 80-IB(11C) of the Act.
• By this amendment, capital expenditure (other than land, goodwill and financial instrument) incurred for a new hospital wholly and exclusively for the purpose of its business would be eligible for deduction under section 35AD of the Act in the year in which such expenditure is incurred.
• It is noteworthy that the Bill has provided in sub-section 3 of section 35AD of the Act to the effect that no deduction shall be allowed under Chapter VIA-C of the Act if a
deduction under section 35AD has been allowed. This restriction would equally apply to the proposal for new hospital now introduced.
It is proposed to extend the benefit of deduction under section 35AD of the Act, to an assessee engaged in the business of developing and building a housing project under a scheme for slum redevelopment or rehabilitation framed by the Central Government or a State Government, and which is notified by the Central Board of Direct Taxes in accordance with guidelines as may be prescribed.
[Section 35AD / Clause 10]
The stated objective of making India slum free is reflected in this proposed amendment, as per which the benefit under section 35AD of the Act is extended to assessees engaged in the business of developing and building of housing projects under notified schemes for slum redevelopment or rehabilitation. Hence, the capital expenditure (other than towards land, goodwill and financial instrument) incurred wholly and exclusively for the purpose of such business would be eligible for deduction in the year in which such expenditure is incurred.
Amendments relating to conversion of a company into an LLP
• It is proposed to exempt capital gains on transfer of shares by shareholders of the company when converting that company into Limited Liability
Partnership (“LLP”) in terms of provisions of section 47(xiiib) of the Act.
[Section 47(xiiib) / Clause 18]
• The Bill proposed to allow tax-neutrality for conversion of a company into an LLP;
however, it did not exempt the transfer of shares by a shareholder of the converting company.
• By this amendment, it is proposed to bring such transfer of the shares too within the exemption provisions. This amendment thus takes care of a lacuna left in the Bill while exempting conversion of a company into an LLP from capital gains tax.
AMENDMENT PROPOSED IMPACT
• It is also proposed that the cost of acquisition of shares in the company converted into an LLP would be deemed to be the cost of acquisition of the rights of the partner in the LLP.
[Section 49(2AA) / Clause 20]
• Furthermore, as a consequential amendment, it is proposed to amend the provisions of section 47A(4) of the Act, bringing to tax, any capital gains arising on transfer of shares when converting a company into a LLP, if the conditions prescribed for exempting such capital gains from tax are not fulfilled.
[Section 47A(4) / Clause 19]
These are a consequential amendments.
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