Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: ACCOUNTING STANDARDS :: TDS :: ARTICLES ON INPUT TAX CREDIT IN VAT :: VAT RATES :: ACCOUNTING STANDARD :: Central Excise rule to resale the machines to a new company :: VAT Audit :: TAX RATES - GOODS TAXABLE @ 4% :: empanelment :: cpt :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: list of goods taxed at 4% :: articles on VAT and GST in India :: form 3cd :: due date for vat payment
 
 
News Headlines »
 GST Council fails to break deadlock over indirect tax regime, next meet on Dec 11 and 12 to hammer out differences
 Invoking Writ Jurisdiction For Income Tax Matters
 How to file income-tax returns online
 How Income Tax Returns Are Scrutinised
 All About New Income Disclosure Scheme to make Demonetisation successful
 Your deposit may draw income tax notice
 Accepting payment under IDS 2016
 New disclosure scheme could see 50% tax and 4-year limit on cash use for unaccounted deposits
 Pay 50% tax on unaccounted deposits, or 85% if caught, says Modi government
 Deadline to pay property tax in old currency extended
 Cabinet clears amendments to Income Tax Act

Is there a need to review tax benefits for mergers?
December, 05th 2006
It will be useful to review whether Section 72A should be expanded: Expert


MR GIRISH VANVARI

The Indian-Air India merger proposal has been in the air for some time now. With the Union Finance Ministry indicating that the coming together of the two national airlines may get the blessings of Section 72A of the Income-Tax Act, it looks like that the way forward is bright. However, to remove the haze about what the tax benefits may be under income-tax provisions, the Business Line contacted Mr Girish Vanvari, Executive Director of KPMG, Mumbai.

What is the rationale of Section 72A?

The Indian tax law offers several concessions for merger/de-merger. One of the key concessions is the transfer of unabsorbed losses and unabsorbed depreciation.

How does that help?

Transfer of unabsorbed losses and unabsorbed depreciation facilitates the revival of loss-making units. Further, as an additional incentive, the law provides for a revival of the eight-year period for the carry forward of unabsorbed losses. This concession is, however, available only in the case of mergers of companies engaging in manufacturing activities, telecommunications, manufacturing of computer software, specified banks, power generation companies and so forth.

Not all mergers are eligible for the concessions?

Interestingly, most of the activities in the service sector, which forms part of the heart of the Indian economy, are not covered under this provision. For example, merger of advertising companies, airline companies, consulting companies and so on, is not entitled to this concession.

Are there any other conditions?

Yes, there are cumbersome conditions to be satisfied for the transfer of unabsorbed loss and depreciation. The law requires the merging company to carry on the business for at least three years prior to the merger and for the merged company to carry on the business for at least five years after the merger. Further, it also requires continuity of ownership of a portion of the fixed assets of the merging company for a specified period before and after the merger.

Do de-mergers also have to meet similar criteria?

As far as de-mergers are concerned, the conditions for transfer of unabsorbed losses and depreciation are not that onerous. There is no restriction on carrying on the business or on the ownership of the assets. Further, the concession is available to all businesses unlike mergers. However, there is no revival of the carry forward period.

Can there be occasions when a merger or de-merger fails to reap the anticipated tax benefits?

Acceptability to the revenue authorities of the transfer of unabsorbed losses/ depreciation, in case of mergers/de-mergers, would normally depend on the commercial rationale of the transaction and satisfaction of the above-mentioned conditions. Mergers/de-mergers driven by tax motives are likely to be more prone to scrutiny than transactions driven by genuine commercial rationale.

Is there a need for a re-look at Section 72A in the context of a rise in M&A (merger and acquisition) activity?

Yes, in the run-up to the Budget, it may be useful to review whether the ambit of the Section should be expanded to include other sectors, such as the service sector and as to whether the conditions for carry forward should be liberalised.

D. Murali

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Content Management System developers CMS developers Content Management Solutions CMS Solutions CMS India Content Management System India CMS development India Website CMS Website Content Management India Portal CMS India CMS Outsourcing CMS Vendor Complete CMS Custom CMS Services

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions