The Bombay High Court recently considered as interesting point on ‘slump sales’ in the income tax context. The case, CIT v Bharat Bijlee 365 ITR 258, arose after the assessee company transferred one of its undertakings (as a going concern) to another entity under a scheme of arrangement u/s 391-394 of the Companies Act, 1956. There was no monetary consideration for the transfer:...
“Inversion” Takeovers
Standard treatises on mergers & acquisitions (M&A) contain the usual benefits or rationale for why a company would take over another. These include growth, size, synergies, and so on. One of the significant benefits of takeovers could also be tax synergies such as setting off the losses of one company against the losses of another. Similar benefits may be available with respect to...
The Meaning of ‘Plant and Machinery’ for the Purposes of Capital Gains
The National Gallery describes Sir Joshua Reynolds as the “leading English portraitist of the 18th century” and expert “in the work of Rembrandt, Rubens and van Dyck”. Improbably, the sale of one of his great paintings, the Omai of the Friendly Isles, recently gave rise to an interesting question of income tax law that has also troubled the Indian courts: what precisely does ‘plant and...
Further Tax Scrutiny of Mergers
In the last few years, mergers of companies (undertaken through schemes of arrangement that require the approval of the High Court) have been subject to greater scrutiny by the tax authorities. One example of a merger that was strongly objected to by the tax authorities is the case involving Vodafone Essar Gujarat Limited (discussed here), although the scheme was sanctioned on appeal to a...
Vexed issue of allowability/quantification/timing of expenditure on ESOPs
A troublesome issue for companies is the deductibility of ESOPs expenditure under the Income-tax Act, 1961. ESOPs (employees stock options/shares) are often given at a discount at their fair value. A share having a fair value of Rs. 100 is given, say, at Rs. 80. This is one extreme of a simple example. In practice, ESOPs are even more complicated with different features such as of vesting...
The Resurgence of REITs
More than 5 years ago (in December 2007), SEBI had issued a consultation paper and draft regulations with a view to paving the way for the introduction of real estate investment trusts (REITs) in the Indian markets (which we had the opportunity to discuss here). However, the plan seemed to have gathered moss for a number of years. Earlier this month, it was revived when SEBI issued another...
Petrodel v Prest: Lord Sumption’s Masterly Analysis of the Corporate Veil
When the history of the corporate veil is written, the year 2013 will perhaps be given as much prominence as the year 1897. Today, the UK Supreme Court allowed Mrs Prest’s appeal against the judgment of the Court of Appeal that seven properties in London owned by the Petrodel group of companies are not properties to which the sole controller of the group is ‘entitled, in possession or reversion’...
Licensee’s rights and remedies against third parties
Earlier this week, the Court of Appeal revisited the very interesting issue of the rights of a licensee and the remedies available against third parties. Leaving aside the tax-context of the case, the two issues before the Court were (i) whether a licensee can enter into a contract with a third party in relation to a right not conferred on the licensee by the license; and (ii) whether a licensee...
Budget 2013: Direct Tax Proposals – Introduction
The Finance Bill, 2013, as introduced in Parliament is available here. Among the amendments introduced, one which has caused some concern is an amendment which states that Tax Residency Certificates are necessary but not sufficient. Much of the concern appears to be undue. Under the general law, TRCs are not conclusive as to residence. The amendment indicates that they are not...
Budget 2013: Taxation as a Solution to a Governance Problem
A couple of months ago, we had discussed the corporate governance issues that emerge when Indian subsidiaries of multinational companies pay substantial amounts to their parents in royalty. While we will have a chance to discuss the taxation issues in the Budget in greater detail, the proposal to increase taxation on such royalty payments stands out. The Finance Minister’s speech notes: 147...
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