The income-tax department wants a bigger role in corporate mergers and acquisitions. It has suggested to the government that all corporate and banking M&A should be routed through the department.
In other words, M&A proposals should be vetted and approved by the income-tax authorities before they are put up for shareholder approval and, subsequently, for the approval of high courts.
The income-tax department has recommended that either the Companies Act should be amended or legal provisions should be clearly laid down, making it mandatory for the companies and banks opting for mergers or amalgamations to get clearance from the income-tax department.
According to sources, banks and companies pay hefty taxes, depending on their profits. While the exemptions accorded to M&A cases are meant for loss-making units, most of the M&As are designed to take advantage of tax benefits.
In some of the cases, M&A activity even amounts to clear tax evasion, income-tax officials contend. The department wants to plug this hole.
The issue is significant against the backdrop of the big mergers that are being planned in the public sector banking sector.
Income-tax department sources said once M&A deals were cleared, the tax department could hardly act even if it had a valid tax claim. Moving court was no solution as it took time, said a department official.
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