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What does the acronym M&A stand for?
What does the acronym M&A stand for?
Mergers and Acquisitions
The scale of M&A reflects global economic conditions.
The scale of M&A reflects global economic conditions.
True
What has spurred international and domestic M&A activity in India?
What has spurred international and domestic M&A activity in India?
Government intervention, favorable stock market conditions, and a stable banking system
Which of the following statements is NOT TRUE regarding India's merger and acquisition scenario in 2021?
Which of the following statements is NOT TRUE regarding India's merger and acquisition scenario in 2021?
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Which of the following is NOT one of the ways in which M&A transactions can be undertaken?
Which of the following is NOT one of the ways in which M&A transactions can be undertaken?
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An 'amalgamation' under the Indian Income Tax Act 1961 (ITA) occurs when two or more companies merge to form a single new company.
An 'amalgamation' under the Indian Income Tax Act 1961 (ITA) occurs when two or more companies merge to form a single new company.
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Which of the following statements is TRUE regarding the Supreme Court's (SC) view on corporate shell after an amalgamation?
Which of the following statements is TRUE regarding the Supreme Court's (SC) view on corporate shell after an amalgamation?
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An amalgamation must satisfy the condition that all the properties and liabilities of the amalgamating company become the property or liability of the amalgamated company.
An amalgamation must satisfy the condition that all the properties and liabilities of the amalgamating company become the property or liability of the amalgamated company.
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Shareholders holding at least 3/4th in value of shares in the amalgamating company must become shareholders of the amalgamated company for an amalgamation to be deemed legitimate.
Shareholders holding at least 3/4th in value of shares in the amalgamating company must become shareholders of the amalgamated company for an amalgamation to be deemed legitimate.
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The ITA specifically exempts the transfer of capital assets in a scheme of amalgamation by an amalgamating company to the amalgamated company from capital gains tax when the amalgamated company is an Indian company.
The ITA specifically exempts the transfer of capital assets in a scheme of amalgamation by an amalgamating company to the amalgamated company from capital gains tax when the amalgamated company is an Indian company.
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A 'slump sale' under the ITA is defined as a transfer of assets from one company to another without assigning values to individual assets.
A 'slump sale' under the ITA is defined as a transfer of assets from one company to another without assigning values to individual assets.
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Capital gains arising from slump sale are always taxed as STCG according to the ITA.
Capital gains arising from slump sale are always taxed as STCG according to the ITA.
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The term 'undertaking' in the context of slump sale includes a combination of individual assets that do not constitute a business activity by themselves.
The term 'undertaking' in the context of slump sale includes a combination of individual assets that do not constitute a business activity by themselves.
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The Supreme Court in R.R. Ramakrishna Pillai case clarified that the transfer of an asset for consideration other than monetary consideration is deemed an exchange, not a sale, under the ITA.
The Supreme Court in R.R. Ramakrishna Pillai case clarified that the transfer of an asset for consideration other than monetary consideration is deemed an exchange, not a sale, under the ITA.
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The Bombay High Court in Bharat Bijlee Limited case held that a ‘slump sale’ requires a cash consideration for the transaction.
The Bombay High Court in Bharat Bijlee Limited case held that a ‘slump sale’ requires a cash consideration for the transaction.
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The Finance Act 2021 broadened the definition of ‘slump sale’ under the ITA to include the transfer of undertaking in a slump sale ‘by any means’, effectively overturning the Delhi High Court's decision in Bharat Bijlee Limited.
The Finance Act 2021 broadened the definition of ‘slump sale’ under the ITA to include the transfer of undertaking in a slump sale ‘by any means’, effectively overturning the Delhi High Court's decision in Bharat Bijlee Limited.
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A slump sale requires the transfer of ALL assets of the undertaking to qualify as a slump sale.
A slump sale requires the transfer of ALL assets of the undertaking to qualify as a slump sale.
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The term 'going concern' is a crucial consideration in determining whether a transaction can be deemed a slump sale.
The term 'going concern' is a crucial consideration in determining whether a transaction can be deemed a slump sale.
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The lump-sum consideration for a slump sale must attribute individual values to assets and liabilities within the undertaking.
The lump-sum consideration for a slump sale must attribute individual values to assets and liabilities within the undertaking.
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In a demerger, the undertaking of one or more companies is transferred either to a newly formed company or to an existing company, and the remaining business of the company continues to be vested in the first company.
In a demerger, the undertaking of one or more companies is transferred either to a newly formed company or to an existing company, and the remaining business of the company continues to be vested in the first company.
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The ITA defines a ‘demerger’ under Section 2(19AA) as a transfer of an undertaking by a demerged company, pursuant to a scheme of arrangement under the CA, 2013, to a resulting company.
The ITA defines a ‘demerger’ under Section 2(19AA) as a transfer of an undertaking by a demerged company, pursuant to a scheme of arrangement under the CA, 2013, to a resulting company.
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The transfer of properties and liabilities from the demerged company to the resulting company must occur immediately before the demerger, according to the ITA.
The transfer of properties and liabilities from the demerged company to the resulting company must occur immediately before the demerger, according to the ITA.
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A demerger must meet the condition that the value of the properties and liabilities transferred from the demerged company to the resulting company is immediately before the demerger, excluding any increase in value due to revaluation.
A demerger must meet the condition that the value of the properties and liabilities transferred from the demerged company to the resulting company is immediately before the demerger, excluding any increase in value due to revaluation.
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The Finance Act 2019 relaxed the book value condition in a demerger by allowing the resulting company to record the assets and liabilities at values different from the values appearing in the books of account of the demerged company, provided it complies with Indian Accounting Standards.
The Finance Act 2019 relaxed the book value condition in a demerger by allowing the resulting company to record the assets and liabilities at values different from the values appearing in the books of account of the demerged company, provided it complies with Indian Accounting Standards.
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A demerger must satisfy the condition that the resulting company must issue shares to the shareholders of the demerged company in a proportionate basis, except when the resulting company is already a shareholder of the demerged company.
A demerger must satisfy the condition that the resulting company must issue shares to the shareholders of the demerged company in a proportionate basis, except when the resulting company is already a shareholder of the demerged company.
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A demerger necessitates the approval of at least 3/4th in value of the shares in the demerged company by its shareholders, excluding the shares already held by the resulting company, its nominee, or subsidiary.
A demerger necessitates the approval of at least 3/4th in value of the shares in the demerged company by its shareholders, excluding the shares already held by the resulting company, its nominee, or subsidiary.
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The ITA requires that the undertaking transferred in a demerger must be on a 'going concern' basis, ensuring the continuation of the business operations without any interruptions.
The ITA requires that the undertaking transferred in a demerger must be on a 'going concern' basis, ensuring the continuation of the business operations without any interruptions.
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Unlike slump sale, the transfer of liabilities is NOT an essential element of a demerger.
Unlike slump sale, the transfer of liabilities is NOT an essential element of a demerger.
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The ITA exempts transfer of capital assets in a scheme of demerger from capital gains tax, provided the resulting company is an Indian company.
The ITA exempts transfer of capital assets in a scheme of demerger from capital gains tax, provided the resulting company is an Indian company.
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Study Notes
Mergers and Acquisitions (M&A) in India
- M&A are a common global and Indian market activity, reflecting economic trends.
- Indian M&A activity saw a record high in 2021, with 598 deals totaling $112.8 billion.
- Domestic M&A activity in India reached a high of 321 deals in 2021, exceeding 2020's 208 deals.
- Inbound M&A activity peaked at $68.47 billion in 2021.
- The US was a major target for Indian outbound M&A deals, with $2.18 billion in 2021.
- Tax laws significantly influence M&A decisions in India.
Types of M&A Transactions
- Amalgamation/Merger: A court-approved process where one or more companies combine into a single entity. This process transfers all properties and liabilities to the new entity. Shareholder approval (with at least 75% of shares) is necessary.
- Demerger: A court-approved process where a business or undertaking of one company is separated and transferred into a new entity (resulting company).
- Share Purchase: Acquisition of a target company's shares by an acquiring company.
- Slump Sale: Sale of an entire business or undertaking as a going concern, without individually valuing assets and liabilities. A lump sum is paid for the entire business.
- Asset Sale: Individual assets and liabilities of a company are transferred to another entity.
Merger Taxation
- Indian Income Tax Act (ITA), 1961: This act outlines tax implications for different M&A categories.
- M&A structure significantly impacts tax outcomes.
- Amalgamation is considered tax-neutral under certain circumstances, where the transfer of capital assets is exempt from capital gains tax.
- Transfer of shares and capital assets in a scheme of amalgamation are exempt from capital gains tax when the conditions are met, e.g., 75% shareholder approval, and the resulting company is an Indian company.
- Merger conditions must be met for exempt transfers.
- The Supreme Court (SC) has differentiated amalgamation from a winding-up and clarified specific aspects of amalgamation in certain cases.
Other Considerations
- Indirect Taxes: Goods and Services Tax (GST) is generally not applicable to business transfers via amalgamation, but specific conditions apply. Regulations allow transfers of unutilized input tax credit.
- Stamp Duty: Tax on certain M&A transactions, levied by both central and state governments, often varies by state. Court-approved mergers or schemes often are subject to stamp duty. There may be exemptions.
- Appointed Date: The effective date of the scheme of arrangement is critical in compliance in M&A transactions.
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Description
This quiz explores the landscape of Mergers and Acquisitions (M&A) in India, highlighting key statistics from 2021 and the impact of tax laws. Participants will learn about different types of M&A transactions including amalgamations, demergers, and share purchases. Test your knowledge on the dynamics of M&A in the Indian market.
