INCOME TAX

INSTRUCTION NO. 1958/1999

 Dated: January 27, 1999

Subject: Approval U/s. 10(23G) of the Income-tax Act, 1961 Monitoring of the same by the CCIT - Regarding.

Section 10(23G) of the Income-tax Act, 1961 was first introduced by the Finance Act, 1996. The section as amended by the Finance Act, 1997 provides for exemption of certain kind of income arising out of investment made by an Infrastructure Capital Fund or an Infrastructure Capital Company in an enterprise wholly engaged in the business of developing, maintaining and operating an infrastructure facility. The terms "Infrastructure Capital Fund", "Infrastructure Capital Company" and "Infrastructure Facility" have been defined in the section. The income exempted are dividend, interest on long term loans and long term capital gains. The exemption is subject to the condition that the enterprise engaged in the infrastructure activity is approved by the Central Government in this regard. Further, rule 2E of the Act has also been notified, containing the guidelines for grant of approval.

2. The incentive of exempting the income arising out of long term finance advanced to an infrastructure facility is intended to help such infrastructure facility to raise adequate funds. Accordingly, the I.T. rules envisage that the approval granted be monitored regularly to ensure that the enterprise for which approval has been granted continues to be engaged wholly in the business of developing, maintaining and operating an infrastructure facility. Sub-rule (8) of Rule 2E of the Income-tax Rules, 1962 empowers the Central Government to withdraw the approval granted under certain circumstances.

3. Accordingly, it has been decided that the CCIT shall monitor every case to which approval u/s. 10(23G) of the Act has been granted to examine whether it continues to carry on the infrastructure facility. Proposal for withdrawal of approval may be made to the Board if any of the circumstances contained in sub-rule (8) of Rule 2E of the I.T Rules, 1962 is attracted. The CCIT are required to send their report in this regard, annually to the Board. In case of new companies, CCIT may like to advise the Assessing Officer for more initiative monitoring in order to ensure that statutory provisions be complied with.

F.No. 225/187/198--ITA-II

(MALATHI R. SRIDHARAN)
Under Secretary to the Govt. of India.