To facilitate the state government/state electricity board and independent power producers to proceed with the on-going power purchase agreement negotiations and lower tariff, the Income Tax Act 1961/Income Tax Rules 1962 and the Electricity Supply Act 1948 were amended. As a result of that, in case of assets of an undertaking engaged in generation and distribution of power, depreciation on capital assets can be claimed on the straight line method (as opposed to the written down value method that was compulsory under the law). That too at the same rate at which it was reimbursed by the state electricity board under the Electricity Supply Act 1948.For this purpose, the Appendix I A specifying the rates of depreciation to be claimed on straight line method was added to Income Tax Rules in addition to Appendix I, which specify the rates of depreciation to be claimed on the written down value method.
The Finance Bill (No 2) 1998 has now made the following amendments from the assessment year 1998-99 inSection 32 and Section 41 and inserted Section 50 A to cover the cases where such assets is sold or discarded.
1) Clause (iii) has been inserted in section 32(I) to provide for the manner of computation of depreciation when an asset on which depreciation has been claimed under section 32(I)(i) is sold, discarded, demolished or destroyed in the previous year. The terminal depreciation amount will be the amount by which the money payable in respect of such building, machinery, plant or furniture together with amount of scrap value if any fall short of the written down value thereof.
2) Sub section 2 has been inserted in section 41 to provide for the manner of calculation of the amount which shall be chargeable to income tax as income of the business of the previous year in which the money payable for the assets is sold or discarded, demolished or destroyed. The money payable in respect of such building machinery plant or the furniture as the case may be together with amount of scrap value, if any, exceedsthe written down value so much of the excess as does not exceed the difference between the actual cost and written down value shall be chargeable to income tax as income of the business of the previous year in which the moneys payable for the building machinery plants or furniture become due. Where the money payable in respect of the building machinery plant or furniture become due in a previous year in which the business for the purpose of which the building machinery plant or furniture was being used is no longer in existence, the above provision will apply as if the business is in existence in that previous year.
3) Further, section 50A has been inserted that where the capital is an asset in respect of who a deduction on account of depreciation under section 32(1)(i) has been obtained by the assessee in any previous year on the strength line basis the provisions of section 48 and 49 shall apply subject to the modification that the written down value as defined in section 43(6) of the assets as adjustedshall be taken to be the cost of the acquisition of the assets.
Withholding tax on the external commercial borrowings In the budget proposal, it was proposed to withdraw the exemption on the interest payable by an industrial undertaking on moneys borrowed or debt incurred in a foreign country in respect of purchases outside India, and on money borrowed by it in foreign currency from sources outside India under a loan agreement approved by the central government under section 10(15) of the Income Tax Act 1961.
It has been decided that the exemption will not be withdrawn in respect of the external commercial borrowings. This decision has been taken to prevent the burden of the taxes in respect of external commercial borrowings being passed on to the Indian corporate sector.
The Jindals are Delhi-based chartered accountants
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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