CBDT activates seven ITR forms for FY 2018-19 (See 'TOG News') Govt ties up with foreign labs to promote NIFTEM-made products (See 'TOG News') Govt adopts cloud technology to boost e-governance (See 'TOG News') NCLAT grants relief to JP Associates (See 'Corpbrief') Govt directs coal allotment on priority to state DISCOMs (See 'Corpbrief') Govt prioritizes state-run DISCOMs for allotment of coal (See 'TOG News') L&T Construction wins Rs 3,191 cr order for Dhaka Metro Zensar Partners with Pegasystems for Digital Transformation Solutions BSE inks MoU with Brink's India Toyota and Suzuki to start discussion for Technological Development & Vehicle Production A Basic Primer on GDPR and its Relevance to the Indian Context (See 'TOG INSIGHT' in 'Taxongo.com') SEBI Act - Effort in connivance of Noticee alongwith other connected entities to create artificial volume & manipulation of price is violation of PFUTP Regulations and SEBI Act: SEBI (See 'Legal Desk') Competition Act - When sugar mills have liberty to negotiate on higher price for unreserved molasses, boundation to sale reserved molasses at low prices because of limitation on prices of country liquor cannot be said to be anti competitive: CCI (See 'Legal Desk') PNB fraud - ED files chargesheets against Nirav Modi (See 'TOG News') Education is a key to holistic development of an individual: Naidu (See 'TOG News') ED files charge sheet against Nirav Modi GAIL (India) records highest ever annual PAT of Rs 4,618 cr L&T Construction wins order valued Rs. 2112 cr YES Bank empanelled as Settlement Bank by NSE Home Credit India raises Rs 6 Bn till Mar 2018 (See 'Corpbrief') Bring Diesel & Petrol under GST to cut prices: Fadnavis (See 'TOG News') Segregated Nominee Account Structure in International Financial Service Centre (IFSC) (See 'Dashboard') Competition Act - When activities of OP are not such that fall under the definition of enterprise the commission can not decide on issue of dominance of position : CCI (See 'Legal Desk') SEBI Act - Collective effort of Noticee alongwith other connected entities to create artificial volume & manipulation of price is violation of PFUTP Regulations and SEBI Act - SEBI (See 'Legal Desk') Irresponsible Litigation - Rip Van Winkleism Syndrome continues to afflict Union of India!! (See 'Cob(Web)' in 'TIOL') Govt gives nod to restructure Scooters India Ltd (See 'Corpbrief') ABB India & NITI Aayog to collaborate on Artificial Intelligence Govt to launch project for sharing start-up info with Netherlands (See 'Corpbrief') Cabinet gives nod to Indo-Moroccan cooperation in renewable energy (See 'TOG News') India, France to collaborate on R&D in renewable energy (See 'TOG News') Naidu invites ASEAN nations to invest in Northeast (See 'TOG News') India & Angola to collaborate in area of electronics & IT (See 'Corpbrief') Cabinet gives nod to MoU with Denmark for best practices in food safety (See 'Corpbrief') Govt not likely to reverse fuel pricing deregulation: Moody's (See 'TOG News') Patents Act - Contravention of plaintiffs' registered patent by defendant, in manufacturing & selling of Ferric Carboxymaltose for treatment of iron deficiency anaemia, amounts to violation under Patents Act: HC (See 'Legal Desk') Competition Act - When informant fails to prove that price demanded by UPAVP at time of allotment is final price of flat, further enhancement in price doesn't prove abuse of dominance in terms of Section 4: CCI (See 'Legal Desk') Southern states prone to natural disasters: Naidu (See 'TOG News') Rajnath Singh presents gallantry awards to BSF (See 'TOG News') Finmin ties up with 40 entities to extend loans under PMMY (See 'Corpbrief') Delhi HC asks Axis Bank to renew RCom bank guarantees L&T Construction bags orders worth Rs 40.33 bn across domestic markets NSE sues Singapore bourse for offering offshore derivatives despite ban MCA to probe mismanagement charge against Fortis Beware of the consequences of filing of Income-tax return late! (See 'Corp Einsicht') Naidu to lay foundation stone of NIDM's Southern Campus in AP (See 'TOG News') World Health Assembly - India committed to universal health coverage (See 'TOG News') Architects Act - Incorporation of companies or LLPs, rendering architectural services, cannot be prohibited under Architects Act, 1972: HC (See 'Legal Desk') SEBI Act - Synchronized & circular trading done by Noticee with prior arrangement, which created artificial volumes and misleading appearance, is violation under PFUTP Regulations: SEBI (See 'Legal Desk') India to participate in global meet to discuss clean energy (See 'TOG News') Former CECs meet to discuss electoral management (See 'TOG News')

Amendments proposed by Finance Bill, 2018 for companies under IBC, 2016

Published: Feb 13, 2018

THE Insolvency and Bankruptcy Code, 2016 (IBC) was introduced for revival of distressed companies i.e. companies not able to meet their financial obligations. The National Company Law Tribunal (NCLT) is the adjudicating authority for insolvency and bankruptcy cases. As per a recent media report over 2,400 cases have been filed before the NCLT since the enactment of the IBC.

On one hand, the IBC provides support to distressed companies and on the other hand it helps banks resolve the mounting non-performing assets (NPAs) problem. Banks have to take a significant haircut on loans advanced and this would result in a write-back of liability in the books of the company under IBC.

In recent times, some of the big corporate houses of India have shown keen interest in acquiring distressed companies under the IBC. The prospective investor has to submit a resolution plan in the NCLT for revival of the company. The resolution plan would capture how the liabilities of the financial creditors, operational creditors etc. would be discharged. In certain cases it is also proposed that financial creditors are issued equity shares or convertible instruments in consideration for the loan.

The said restructuring of loan poses certain tax challenges which would be a hindrance for the investor in reviving the distressed company. Some key issues relating to the restructuring are as under:

• Brought forward losses may not be available on change in shareholding of more than 49%

• Tax on write-back of liabilities under normal provisions of the Income-tax Act, 1961 (the Act)and Minimum Alternate Tax (MAT) provisions

• For the purpose of computing book profit for calculating MAT, a deduction is allowed in respect of loss brought forward or unabsorbed depreciation as per books whichever is lower

In this regard various investors and bankers made a representation before the government to provide some relaxation to companies under IBC. The Central Board of Direct Taxes vide its press release dated 6 January 2018 indicated its intention to provide relief to companies under IBC.

With a view to reduce hardships faced by companies under IBC, the Finance Bill 2018 has proposed amendments which addresses some of the above mentioned issues. The amendments proposed in the Finance Bill 2018 vis-à-vis the current provisions are tabulated as under:

Current Provisions

Amendments proposed by the Finance Bill, 2018

As per section 79 of the Act, tax business losses of a company in which public is not substantially interested would lapse on account of change in shareholding of more than 49%.

Tax business loss of companies under IBC would not lapse on account of change in shareholding beyond 49% provided the resolution plan is approved after giving a reasonable opportunity of being heard to the Jurisdictional Principle Commissioner or Commissioner

As per section 115JB of the Act for the purpose of computing book profit for calculating MAT a deduction is allowed in respect of loss brought forward or unabsorbed depreciation as per books whichever is lower.

For companies under IBC,deduction is allowed in respect of aggregate amount of loss brought forward and unabsorbed depreciation (as per books)for computing book profit under section 115JB of the Act.

The amendments proposed by the Finance Bill, 2018 will provide some relief to investors/companies under IBC. This is a step taken in the right direction and will help companies under IBC to revive in due course.

[Shripal Lakdawala is a Partner, Madhvi Jajoo is a Manager and Rahul Khaitan is a Deputy Managerat Deloitte Haskins and Sells LLP. The views expressed are strictly personal.]

TIOL CORP SEARCH

TIOL GROUP WEBSITES