I-T Dept can now raise objections to merger schemes
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The Income-Tax Department will now get an opportunity to protect the interests of the Revenue in reconstruction or amalgamation schemes filed for approval before various High Courts.
The Central Board of Direct Taxes (CBDT) has directed the Chief Commissioners of Income-Tax (CCITs) to ensure that the comments/objections of the I-T Department on such schemes are sent to the regional director (Ministry of Corporate Affairs) for incorporating them in the response to the Court.
Till recently, there was no procedure for the I-T Department to raise objections (for any loss of revenue) to any schemes of amalgamation or reconstruction filed before High Courts.
Recently, an amalgamation scheme was sought to be implemented retrospectively and involved setting off of losses of loss-making companies with profits of profit-making companies within the same group, thereby affecting revenues to the exchequer.
To safeguard revenue’s interests, the CBDT now wants CCITs to abide by the Ministry of Corporate Affairs circular of January 2014, which requires the comments of I-T department to be obtained by the regional directors of the Ministry before furnishing any report on reconstruction or amalgamation.
The idea is to ensure that the proposed scheme of amalgamation or reconstruction has not been designed to defraud the Revenue.
Indications are that the new CBDT directive will also apply to schemes of reconstruction/amalgamation filed under the new company law, which came into effect from April 1 this year.
Experts’ take
The CBDT instruction formalises the regional directors’ requirement of taking on record revenue authorities’ comments and objections to a scheme of amalgamation placed before the court for approval, said Vipul Jhaveri, Partner, Deloitte, Haskins & Sells.
While the CBDT letter is a welcome move as it brings a more holistic approach toward protecting the interest of all the stakeholders, it could also delay the process, said Amit Maheshwari, Partner, Ashok Maheshwary & Associates, a firm of chartered accountants.
Jhaveri said the approval of the scheme after due consideration of the Revenue would bring about greater certainty in the Revenue’s acceptance of the scheme at assessment stage.
Also, this requirement was already emphasised in the January 15 circular of the MCA. (The Hindu)
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