Issues of M&A in India
combinations and re-structuring in the form of merger, etc. have been attempted
to face the challenge of increasing competition and to achieve synergy in
business operations. The major issues of M&A are as follows:
acquiring firm claims depreciation in respect of fixed assets transferred to it
by the target firm. The depreciation allowance is available on
the written down value of fixed assets. Further, the depreciation charge is
based on the consideration paid and without any revaluation.
R&D Expenditure It
is possible for the acquiring firm to claim the benefit of tax deduction under
section 35 of the Income Tax Act, 1961 in respect of transfer of any
asset representing capital expenditure on R&D.
Tax Exemption The
fixed assets transferred to the acquiring firm by the target firm are exempt
from capital gains tax. This is however subject to the condition that
the acquiring firm is an Indian Company and that shares are swapped for shares
in the target firm. Further, as the swap of shares is not considered as sale by
the shareholders, profit or loss on such swap is not taxable in the hands of
the shareholders of the amalgamated company.
Carry Forward Losses The
Indian Income Tax Act, 1961 contains highly favorable provision with
regard to merger of a sick company with a healthy company. For instance,
section 72A (1) of the Act gives the advantage of carry forward of losses of
the target firm. The benefit is however available only:
Where the acquiring from is an Indian Company;
Where the target firm is not financially viable;
Where the merger is in public interest,
Where the merger facilities the revival of the business of the target firm; and
Where the scheme of amalgamation is approved by a specified authority.