The Central Board of Direct Taxes (CBDT) has offered tax relief for investors participating in restructure of companies such as the Yes Bank the board of directors of which are superseded by the government for alleged mismanagement.
The apex direct tax policy making body has given waiver to investors in such cases from a provision in income tax law that taxes discounts received while acquiring shares in companies. The Income-tax (14th Amendment) Rules, 2020 notified by the Board says that the provision relating to taxation of discounts on share price will not be applicable in cases where the National Company Law Tribunal (NCLT) has replaced the board of directors of a company on a petition by the central government and the shares of the company are acquired as part of the court approved rescue plan.
This is expected to encourage investors to participate in cases where mismanaged companies are restructured under the oversight of the tribunal. The amendment signed off on Monday says that section 56(2)(x) of the Income-tax Act that stipulates that discounts on share value are taxable in the hands of the share acquirer if the discount from fair value is more than ₹50,000 shall not apply in cases where the government steps in to salvage a mismanaged business.
Experts said the move could benefit restructuring of entities like the Yes Bank. Banks are covered under the Companies Act but are also subject to laws governing the banking sector.
According to Suraj Nangia, partner at Nangia Andersen LLP, the government has apparently sought to encourage investors in participating in the Yes Bank reconstruction scheme or any other scheme for reconstruction of a company in whose case proceedings under Companies Act are pending before the NCLT in cases of alleged oppression and mismanagement. The RBI had superseded the board of directors of the bank in March this year.
The same amendment to the rules also granted income tax exemption to persons receiving property in unregulated colonies in the national capital by way of recent regularisation.