CBDT Directive to Income Tax Department/ CIT for Their Comments/ Objections on the Schemes of Amalgmations

Central Board of Direct Tax (CBDT) vide its letter dated April 11th, 2014 addressed to all Chief Commissioner of Income Tax, noted that, recently, schemes of amalgamation, were designed, with retrospective dates, seeking set off of losses of loss making company with the Profits of the profit making company of the Groups and hence adversely impacting the public revenue. It further reiterated that, since the Income Tax Department has not been delegated power to scrutinize the documents, hence, its intervention in the Scheme, were rejected by the High Court as it has no locus standi to oppose such scheme.

To curtail the issues raised above, MCA vide its Circular No. 1/2014 issued on January 15th, 2014 put an obligation on Regional Director (RD) that while the Regional Director are responding to the notices on behalf of Central Government under Section 394A of Companies Act, 1956, then the concerned Regional Director shall also invite specific comments from Income Tax Department, so as to ensure that proposed scheme of reconstruction or amalgamation has not been designed in a manner to defraud the revenue department and consequently being prejudicial to public interest 

In this regard, CBDT through the letter, has further instructed the Income Tax Department, to immediately place upon their comments/ objections to all such scheme of amalgamation or reconstruction, that are prejudicial to the interest of revenue and thereafter, these comments/ objection of the departments are sent by the concerned CIT to Regional Director, MCA for incorporating them in its response to the High Court, thereby, restricting all such schemes. 

IMPACT: In furtherance to the instruction from CBDT, the responsibility has been laid out in the hands of the Income Tax Department/ CIT to analyze all scheme of amalgamation or reconstruction, and object all such scheme that are solely being used as a tool to escape the taxation.

For any Merger & Amalgamation consulting, please contact  Mr. Chaurasia