Block M&As meant to evade taxes: CBDT

Apr 13 2014, 03:23 IST
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SummaryThe Central Board of Direct Taxes (CBDT) has instructed all senior field officers of the income tax department to intervene quickly

The Central Board of Direct Taxes (CBDT) has instructed all senior field officers of the income tax department to intervene quickly on mergers and acquisitions (M&A) that result in tax revenue loss to the exchequer before high courts grant approval to such transactions.

M&As and business restructure transactions require court approval to consummate since only a judicial body can sanction deals that often involve rights of lenders and minority shareholders.

CBDT, the apex body in the finance ministry responsible for corporate and personal income taxes, has said in a letter to the chief commissioners of income tax on Friday that tax officials have to send comments and objections to deals leading to tax revenue loss to officials of the ministry of corporate affairs, who interact with the high courts.

Regional directors (RDs) under the corporate affairs ministry are responsible for seeking comments from all stake holders involved in a corporate transaction and bringing them to the notice of the courts before these get sanctioned.

The CBDT told chief commissioners that RDs would invite specific comments from the income tax department before filing their report on a proposed transaction to the high court concerned.

A rule issued earlier this year by the corporate affairs ministry insists that RDs must invariably obtain

comments from the income tax department on reconstruction and amalgamation of companies “so as to ensure that the proposed scheme has not been designed in such a way so as to defraud the revenue and consequently being prejudicial to public interest”, the CBDT letter said.

The finance ministry is now taking all steps to ensure that its comments are heard by high courts as part of the RDs' reports on proposed deals.

The corporate affairs ministry’s January 15 rule specifically provides for it.

In an earlier case, the court had refused to accept the IT department’s intervention on a deal that sought retrospective approval from the court so as to offset business loss of one group entity against the profits of another entity, leading to lower tax liability.

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