Budget Amendments do not target Mergers & Acquisition deals

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Budget Amendments do not target Mergers & Acquisition deals

AIT News Network

MUMBAI. There are certain amendments proposed in the Finance Bill, 2008 in respect of the provisions of the Income Tax Act of India pertaining to deduction of tax at source. There are reports in some sections of press that these amendments target merger and acquisition transactions such as Vodaphone where controlling interest in an Indian company changed hands on account of certain cross-border transactions.

According to SC Tiwari Top Tax Expert and Mumbai based Advocate; in this context, it is important to remember that dispute in Vodaphone case is as to whether there is charge of tax in India at all. The statutory provisions relating to deduction of tax at source do not create any charge of tax in India. Hence the reports in the press in this behalf appear to be far-fetched.
Vodafone bought a controlling stake in Hutchison Essar an Indian Company for almost 11 Billion Dollars. There have been around 400 merger and acquisition transactions in last couple of years and Income Tax Deparment has issued notices to several companies asking for capital gains tax in such cases. Several Companies have challenged the notices in High Court.
The Finance Bill 2008 vide clause 43 has proposed amendment in TDS provisions as under with retrospective effect from 1^st June 2002.

“In section 201 of the Income-tax Act, for sub-section (1), the following sub-section shall be substituted and shall be deemed to have been substituted with effect from the 1st day of June, 2002,

namely:—

''(1) Where any person, including the principal officer of a company,—

(a) who is required to deduct any sum in accordance with the provisions of this Act; or

( b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax:

Provided that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax."

Further, Clause 38 of the Finance Bill 2008 provides as under:

“In section 191 of the Income-tax Act, for the Explanation, the following Explanation shall be substituted and shall be deemed to have been substituted with effect from the 1st day of June, 2003,namely:—

''Explanation.–For the removal of doubts, it is hereby declared that if any person, including the principal officer of a company,—

(a) who is required to deduct any sum in accordance with the provisions of this Act; or

(b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or after so deducting fails to pay, or does not pay, the whole or any part of the tax, as required by or under this Act, and where the assessee has also failed to pay such tax directly, then, such person shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default within the meaning of sub-section ( 1) of section 201, in respect of such tax.".

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