Mukesh's pipeline firm to seek tax break restoration

Reliance Gas Transportation India Ltd (RGTIL), the pipeline company wholly owned by Reliance Industries promoter Mukesh Ambani, has decided to write to the finance ministry, seeking a restoration of profit-linked tax benefits the Budget has replaced with an investment-linked tax break.

In a presentation to be submitted to the finance ministry, RGTIL will ask for restoration of benefits under Section 80-IA of the Income Tax Act, which introduced a tax holiday for companies laying and beginning to operate a cross-country natural gas pipeline.

The only big cross-country pipeline commissioned in the last one year is RGTIL’s east-west pipeline, which began operations in April 2009, transporting gas from Kakinada on the east coast to Maharashtra and Gujarat.

The Finance Bill has proposed to amend section 80-IA to withdraw the 10-year tax holiday on profits and substitute it with an investment-linked tax holiday under a new section, 35AD, that proposes a one-time 100 per cent deduction on capital expenditure on laying and operating cross-country natural gas, crude oil and petroleum product pipelines.

According to taxation experts, Section 80-IA provided 100 per cent tax exemption on profits derived from the pipeline business for any 10 consecutive years. Under Section 35AD, the deduction will only be allowed on the capital expenditure incurred during the year in which the expenditure is incurred (excluding expenditure on the acquisition of land or goodwill or financial instruments). Also, assesees will not be allowed any tax holiday under the provision of Section 80-IA.

This means pipeline companies have been denied the benefit of a 10-year tax holiday extended to infrastructure projects.

Terming this amendment a highly retrograde step, sources close to the development said the proposal did not give any consideration to networks that have been set up or were in the process of being completed and had committed huge investments after accounting for the availability of a10-year tax holiday.

“What is not clear is what happens to those companies that commissioned their pipelines before April 1, 2007, because the new Section 35AD is applicable only to those pipeline projects executed after that date,” said a Mumbai-based analyst.