Amalgamation – Action in concert for tax benefit?
By Subhashree R
In a recent case before NCLT, the income tax department objected to the scheme of amalgamation proposed by the petitioner/applicant companies which had common shareholders stating that the main purpose of the amalgamation was avoidance of tax and that it amounted to abuse of the provisions of the Income Tax Act. The NCLT declined to sanction the scheme stating that tax concerns must be addressed prior to approaching the NLCT for sanction. The objection of tax department was that ideally the company should have sold its investment or property and paid tax on the business income, applicable taxes on distribution of dividend. Such objections have been raised in the past, but decisions have tended to favour applicants for amalgamation reasoning that an otherwise legitimate or commercially sound transaction should not be questioned only because it confers some tax benefits. Interestingly, GAAR provisions were cited at the stage of sanction and perhaps, all that the revenue authorities had to show was the likelihood or possibility of detriment. The applicability of GAAR to this transaction is not free from doubt also from the angle of ‘appointed date’. This can surely become hurdle to business plans unless one is able to demonstrate the commercial substance in transactions....
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