CBDT ask officials to ensure M&As do not defraud revenue
May, 14th 2014
Worried over corporates defrauding revenue by mergers and acquisitions, the Finance Ministry has asked its officials to ensure that such deals do not result in loss to the exchequer.
The revenue officials, CBDT said in a communication to Chief Commissioners, should raise concerns on tax issues while submitting their comments on mergers and acquisition deals to the Ministry of Corporate Affairs (MCA) so that they could be incorporated in reports to the high court.
The communication issued by the Central Board of Direct Taxes (CBDT) said officials should "object to the scheme of amalgamation if the same is found prejudicial to interest of revenue".
As per the procedure, M&As are required to be vetted by the high court concerned.
Commenting on the CBDT communication, Amit Maheshwari, Partner, Ashok Maheshwary & Associates, said: "This is a very welcome step as both the ministries would now work together to ensure that there is no leakage of revenue."
Going forward, a close coordination between various government departments would be required to effectively monitor increasingly complex arrangements, he added.
The MCA is required to incorporate "comments and inputs from the Income Tax Department...So as to ensure that the proposed scheme of reconstruction or amalgamation has not been designed in such a way to defraud the revenue and consequently...Prejudicial to public interest".
Under the current rules, Regional Directors of MCA are required to obtain specific comments from the I-T Department within 15 days of the receipt of notice before filing response to the court on mergers and acquisitions.
The CBDT has issued the instructions after a high court rejected its intervention application in a case of amalgamation saying the tax department has no locus standi in the matter as the Regional Director, MCA enjoys that power.
In this particular case, the CBDT tried to intervene at a later stage after it realised that the amalgamation, which was with retrospective dates, was "designed" to set off losses of loss making companies against the profits of the profit making companies of the group to the detriment of the exchequer.