Now, Jaya seeks amendment to Finance Bill to delete clause

The Jayalalithaa Government in Tamil Nadu today sought deletion of a specific clause in the Finance Bill 2013 that propose to make certain statutory levies non-deductible from the income of state Public Sector Undertakings, describing it as "retrograde" and "anti-federal."

Clause 7 of the bill seeks to amend section 40 of the Income Tax Act and make any levy by a State Government by way of privilege fee, license fee and royalty on State PSUs not deductible for the purpose of computation of income, Chief Minister J Jayalalithaa said.

In a letter to Prime Minister Manmohan Singh, she said states have the powers to levy such fees and royalties under Article 265 of the Constitution 'read with the relevant entries in List 2 of Seventh Schedule' which were deductible from the income of the State PSUs under Section 37 of the act.

"Clause 7 of the Finance Bill 2013, now seeks to make such statutory levies non-deductible from the income of State Public Sector Undertakings and thereby intends to boost the income of the Central Government at the cost of legitimate tax and non-tax revenue of the State Governments.

"This amounts to an indirect taxation of the income of State Governments and hence is violative of the spirit of Article 289 of the Constitution which exempts the property and income of a State from Union taxation," she said.

The "discriminatory" provision subjects State PSUs to such non-deduction of State Government levies but not Central PSUs, she said adding since the clause gave wide discretion to I-T authorities to determine the non-deductible levies, it would lead to 'needless litigation'.

She accused the Finance Ministry of attempting to act against the Constitutional scheme of distribution of taxation powers between the Centre and the States and to distort the federal polity of the country.

"Clearly this provision is ill-conceived and misguided and has no place in a federal polity like ours. I would, therefore, earnestly urge you to kindly ensure that an official amendment is moved to delete Clause 7 of the Finance Bill 2013 before the Finance Bill is enacted into Law in Parliament," she said.