Computation of income falling under section 10(23G)
1. Section 10(23G) of the Income-tax Act, 1961 was inserted by the Finance (No.2) Act, 1996, w.e.f. 1-4-1997. This clause exempts income by way of dividend, interest and long-term capital gains arising out of investments made in an enterprise engaged in the business of developing, maintaining and operating an infrastructure facility. The exemption is available subject to fulfillment of various conditions as contained in the section read with rule 2E of the Income-tax Rules, 1962.
2. The Board has received a number of references seeking to know whether it is the gross income that is exempt or it is the net income after taking into account all expenses incurred to earn the receipt, that is, exempt from tax.
3. The Board has considered the issue and it is clarified that it is the net income after taking into account all expenses incurred to earn the same, that is, exempt under section 10(23G) of the Act. The term “income” as used in the opening words of section 10 and in clause (23G) of the said section refers to income as computed under the provisions of the Income-tax Act. The terms “income” and “gross receipts” have distinct and separate meanings and have been used, accordingly, under the Act. Thus, what would be exempt under clause (23G) of section 10 is the income by way of dividend, interest or long-term capital gains and not the gross receipt.
4. Secondly, another issue on which clarification has been sought is whether, in order to avail of exemption of interest on long-term finance, by infrastructure capital company/fund, the enterprise engaged in business of development, maintaining and operating an infrastructure facility should have been approved for that particular assessment year in respect of which exemption is claimed. In this connection, it is clarified that an enterprise is required to take approval under section 10(23G) of the Act for all the assessment years during which the long-term finance is repaid and interest on long-term finance shall be exempt in the hand of infrastructure capital company/fund for only those assessment years in which the enterprise is approved under section 10(23G).
5. Next issue on which clarification has also been sought is whether tax is required to be deducted at the time of payment of the interest income to an infrastructure capital company or fund by an approved ‘infrastructure enterprise’. It is clarified that according to the existing provision of the Act, tax is required to be deducted at source in all such cases. However, such infrastructure capital company or fund may apply to their Assessing Officers for certificate of deduction at lower rate or for certificate of non-deduction of TDS under section 197 of the Act and on receipt of such applications, the Assessing Officer shall issue the requisite certificate expeditiously.
Circular : No. 780, dated 4-10-1999.