tax asepct of m&a

7/28/2019 Tax Asepct of M&A

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TAX ASPECTS OF M&A ACTIVITY


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Tax relief to the selling company

Sec47(vi)-exemption from capital gain tax-

capital gain arising from transfer of asset.

Tax relief to the shareholders of selling company

Sec47(vii)-exemption from capital gain tax- capital gain

arising from transfer of Shares by the shareholders

of selling company


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72A-Carry forward and set off of accumulated loss and unabsorbeddepreciation

(1) Where there has been an amalgamation of

(a) a company owning an industrial undertaking or a ship or a hotelwith another company; or

(b) a banking company referred to in clause (c) of section 5 of theBanking Regulation Act, 1949 (10 of 1949) with a specified bank; or

(c) one or more public sector company or companies engaged in thebusiness of operation of aircraft with one or more public sector

company or companies engaged in similar business,

The amalgamated company (subject to fulfillment of certainconditions) carry forward the loss for a period of eight assessmentyears immediately succeeding the assessment year relevant to theprevious year in which the amalgamation was effected.

Tax relief to the purchasing company


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(2) Accumulated loss shall not be set off or carried forward and theunabsorbed depreciation shall not be allowed in the assessment of theamalgamated company unless

(a) the amalgamating (selling) company

(i) has been engaged in the business, in which the accumulated lossoccurred or depreciation remains unabsorbed, for three or more years;

(ii) has held continuously as on the date of the amalgamation at leastthree-fourths of the book value of fixed assets held by it two years prior tothe date of amalgamation;

(b) the amalgamated (purchasing) company

(i) holds continuously for a minimum period of five years from the date ofamalgamation at least three-fourths of the book value of fixed assets ofthe amalgamating company acquired in a scheme of amalgamation;

(ii) continues the business of the amalgamating company for a minimumperiod of five years from the date of amalgamation;

(iii) fulfils such other conditions as may be prescribed to ensure the revivalof the business of the amalgamating company or to ensure that theamalgamation is for genuine business purpose.


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Accumulated Loss

accumulated loss means so much of the loss of thepredecessor firm or the proprietary concern or the privatecompany or unlisted public company before conversion intolimited liability partnership or the amalgamating companyor the demerged company, as the case may be, under thehead Profits and gains of business or profession (notbeing a loss sustained in a speculation business) which suchpredecessor firm or the proprietary concern or thecompany or amalgamating company or demergedcompany, would have been entitled to carry forward and

set off under the provisions of section 72 if thereorganisation of business or conversion or amalgamationor demerger had not taken place;


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Unabsorbed Depreciation

unabsorbed depreciation means so much of theallowance for depreciation of the predecessor firm orthe proprietary concern or the private company orunlisted public company before conversion into limited

liability partnership or the amalgamating company orthe demerged company, as the case may be, whichremains to be allowed and which would have beenallowed to the predecessor firm or the proprietaryconcern or the company or amalgamating company or

demerged company, as the case may be, under theprovisions of this Act, if the reorganisation of businessor conversion or amalgamation or demerger had nottaken place;


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35DD Expenditure incurred wholly and exclusively for the

purpose of amalgamation or demerger of an undertaking

One-fifth of such expenditure for a period of five successive

years beginning with the previous year in which suchamalgamation or demerger takes place.

Indian Company Qualifying Assessee

No deduction would be allowed in respect of such expensesunder any other provisions of the Act


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Section 35(5)- expenditure on scientific

research.(unwritten portion)

Section 35D(5)- treatment of preliminary

expenses. (unwritten portion).

Section 35ABB(6)-expenditure for obtaining a

licenses to operate telecommunications

services


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STAMP DUTY ASPECTS OF M&A

Stamp duty is payable on the value of immovable property transferred by theamalgamating/ transferor company or value of shares issued/consideration paid by

the resulting/ amalgamated/ transferee company.

In certain States there are specific provisions for levy of stamp duty onamalgamation/ demerger order viz. Maharashtra, Gujarat, Rajasthan etc.

Where there is no specific provision, there exists an ambiguity as to whether the

stamp duty is payable as per the conveyance entry or the market value ofimmovable property.

Stamp duty is payable in the States where the registered office of the transferorand transferred companies is situated. In addition to the same, stamp duty mayalso be payable in the States in which the immovable properties of the transferredbusiness are situated.

Normally, set off for stamp duty paid in a particular State is available against stampduty payable in the other State. However, the same depends upon the stamp lawsunder the various States.


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STAMP DUTY

Additional stamp duty on issue of shares is also payablebased on the rates prevailing in the State in which sharesare issued.

The Department of Revenue, Ministry of Finance in May2010, released the draft Amendment Bill containing certainproposed amendments to the Indian Stamp Act, 1899. Oneof the key amendments is to extend the scope ofapplication of the Stamp Act by levying stamp duty onevery order of the HighCourt/Tribunal sanctioning thescheme of amalgamation or reconstruction of companies,including banking companies, by which property istransferred.


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Section 47. TRANSACTIONS NOT REGARDED AS

TRANSFER.

Nothing contained in section 45 shall apply to the following transfers

(vi) Any transfer, in a scheme of amalgamation, of a capital asset bythe amalgamating company to the amalgamated company if theamalgamated company is an Indian company;

(via) Any transfer, in a scheme of amalgamation, of a capital assetbeing a share or shares held in an Indian company, by theamalgamating foreign company to the amalgamated foreigncompany, if -

(a) At least twenty-five per cent of the shareholders of theamalgamating foreign company continue to remain shareholders ofthe amalgamated foreign company, and

(b) Such transfer does not attract tax on capital gains in the country,in which the amalgamating company is incorporated;


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(vii) Any transfer by a shareholder, in a scheme ofamalgamation, of a capital asset being a share orshares held by him in the amalgamatingcompany, if -

(a) The transfer is made in consideration of theallotment to him of any share or shares in theamalgamated company, and

(b) The amalgamated company is an Indiancompany;

Section 47. TRANSACTIONS NOT REGARDED AS

TRANSFER.


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