IIPM

NAME :-Srideb Saha SECTION :-PGP/SS/FINANCE/10-12 SUBJECT :-Corporate tax TOPIC

DECISION 2) MERGER AND AMALGAMATION

:- 1) TAX PLANING REGARDING MAKE OR BUY

FACULTY :-Dr. Santanu Mitra

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CONTENTS
SERIAL NO. PARTICULARS
Acknowledgement Tax planning regarding make or buy decision Tax planning regarding merger and amalgamation Bibliography

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1 2 3 4

3 4-5 6-7 8

ACKNOWLEDGEMENT
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On the very outset of this report, it is my pleasure to be indebted to various people, who directly or indirectly contributed in the development of this work and who influenced my thinking while compiling this project. I take this opportunity to express my sincere and heartfelt obligation towards all the personages. Without their guidance, help and encouragement, I would not have made headway in this project. I owe debt of gratitude to my faculty Dr. Santanu Mitra for providing the required guidelines and imparting help, support & experience even at the cost of busy schedule. I would like to convey my sincere regards to our collage librarian Mr. Anirban Sarkar for his whole hearted contribution throughout the project by giving and suggesting books on this topic.

TAX PLANNING REGARDING

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(1) Make or Buy Decision

The buying decision is taken only when it is finalized that a particular asset is to be acquired. In most of the industries, the conception of establishing a new project itself involves acquisition of fixed assets. In assembling industry different components are assembled to make a produced. Now a decision regarding the manufacturing of these components is to be taken. It is decided whether the product/part/component of product should be bought from the market or should be manufactured by having necessary manufacturing facilities. The main consideration affecting such a decision is cost. In a make or buy decision, the variable cost of making the product or part/ component of product is compared with its purchase price prevailing in the market. However, where the component manufacturing involve additional fixed expenditure, purchase of any plant and machinery or establishment of a new separate unit, then total cost will have to be considered. In such special situations the following tax consideration must be kept in mind.

1) Where the manufacturing of the product requires additional fixed cost also
Since in this case, the assessee will have to incur additional fixed cost it will form part of the cost of manufacturing of the product.

2) Where the manufacturing of the product requires

In this case, although, there will be cash outflow for establishing a new unit, but the tax incentives shall be as under.

3) Exemption under section 10A

If the product to be manufactured is for exports, there will be full exemption of income till assessment year 2010-11, if the unit is established in a free trade zone and certain conditions are satisfied.
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4) Exemption under section 10AA

The unit of an entrepreneur, which begins to manufacture or produce any article or thing or provide any service in a special economic zone on or after 01-04-2005, shall be allowed a deduction of 100% the profits and gains derived from the report, of such articles or things of 5 consecutive years beginning with the assessment year relevant to the previous year in which the unit begins to manufacture or produce such articles or things or provide services, as the case may be, and 50% of such and gains for further 5 assessment years.

5) Exemption under section 10B

If the product to be manufactured is for exports, there will be full exemption of income till assessment of income till assessment year 2010-11 if the unit is an export oriented unit and certain conditions are satisfied.

6) Depreciation under section 32

Since a new unit will be established, it will acquire building, plant and machinery, furniture and certain tangible assets, shall eligible for depreciation on such assets.

7) Deduction under section 80B

If the unit established is a now unit, it shall be eligible for deduction under section 80-IB if the assessee cannot claim exemption under section 10A and 10B.

8) If the facilities for production are existing land and the assessee wishes to discontinue the manufacturing of such product:
It is possible that buying of such product is cheaper than manufacturing and if it is to be continued for a very long time, the assessee may have to sell the
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existing plant and machinery etc. In this case, there will be short term capital gain/loss if the entire block of assets is sole or there will be short term capital gain if the part of the block is sold for a price more than the W.D.V. of the block.

TAX PLANNING REGARDING Amalgamation and Merger:

If any amalgamation takes place within the meaning of section 2(1B) of the Income-Tax, the following tax concession shall be available.
1.

Tax Concession to Amalgamating Company.

2. Tax Concession to shareholder of the Amalgamating Company. 3. Tax concession Amalgamated Company.

Tax Concession to Amalgamation Company

1) Capital gains tax not attracted According to section 47 (VI), where there is a transfer of any capital asset in the scheme of amalgamation, by an amalgamating company to the amalgamated company, such transfer will not be regarded as a transfer for the purpose of capital gain provided the amalgamated company, to whom such assets have been transferred is an Indian Company.

2) Tax concession to a foreign amalgamating company [section 47(Via)]

Where a foreign company holds any shares in an Indian company and transfers the same, in the scheme of amalgamation, to another foreign company, such
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transaction will not be recorded as transfer for the purpose of capital gain under section 45 of the Income tax Act of the following conditions are satisfied.
i)

At least 25% of the shareholder of amalgamating foreign company should continue to remain shareholders of amalgamated foreign company, and

ii) Such transfer does not attract tax on capital gains in the country in which the amalgamating company is incorporated.

Tax concession to the shareholders of a amalgamating company [Section 47 (VII)]

Where a shareholder of an amalgamating company transfers his shares in a scheme of amalgamation, such transaction will not be regarded as a transfer for capital gain purpose, if following conditions are satisfied. i) The transfer of shares is made in consideration of the allotment to him of any share or shares in the amalgamated company, and ii) The amalgamated company is an Indian Company.

Tax Concessions to the amalgamated company:

The amalgamated company shall be eligible for tax concessions only if the following two conditions are satisfied:
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i) The amalgamation satisfies all the three conditions laid down in section 2(B), and ii) The amalgamated company is an Indian Company.

BIBLIOGRAPHY
1. Student guide to Income Tax o Singhania o Ahuja and Gupta

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