By Shayan Ghosh & Shamik Paul
Lenders have written to the finance ministry seeking clarifications on the applicability of the minimum alternate tax (MAT) requirement for investments in stressed companies admitted to the National Company Law Tribunal (NCLT), Varsha Purandare, MD & CEO, SBI Capital Markets (SBI Caps) told FE. “Suppose a company which has a negative net worth, because of losses it has accumulated, is seeking bids and a bidder offers a valuation of say Rs 3,000 crore or Rs 5,000 crore. Then the difference between the net worth and the sale consideration will be taxable,” she said, adding that a lot of investors have been asking how it will be treated. Under the existing income tax guidelines, a company also has to pay MAT on the haircut taken by lenders as it would result in a notional profit on the books of the distressed company. M S Sahoo, chairperson , Insolvency and Bankruptcy Board of India, said that the issue of MAT is being discussed at present.
Meanwhile, in April industry body Assocham had sought exemption from MAT by the insertion of a suitable substitution of or addition to the Income Tax Act in respect of the restructuring under the Insolvency and Bankruptcy Code (IBC). “Unless otherwise exempted, such distressed companies may fail in their resolution plan simply due to the high tax liability that shall accrue upon them on account of MAT while continuing to be under turnaround process and stressed for liquidity,” Assocham had said in a statement.
The Reserve Bank of India (RBI), had on June 13, asked banks to refer a dozen troubled companies — with a combined debt of close to Rs 2.4 lakh crore—to the NCLT, following several failed attempts at loan recovery. Under IBC, the IRP gets 180 days to submit a restructuring plan for the company and the timeline can be extended by another 90 days. If the company fails to come up with a solution within the specified time, it would be liquidated. The resolution plan will have to be approved by the committee of creditors by a 75% majority and submitted to the NCLT.