Provisions related to business reorganisation – Budget 2023
Section 170A of the Act was inserted vide Finance Act, 2022 in order to make provisions for giving effect to the order of business reorganisation issued by tribunal or court or an Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016.
2. The section provides that in case of business reorganisation, where a return of income has been filed by the successor under section 139 of the Act, such successor shall furnish a modified return within six months from the end of the month in which such order of business reorganisation was issued, in accordance with and limited to the said order. Consequently, Rule 12AD has been notified prescribing the form and manner of furnishing such modified return by companies by the Board vide Notification No. 110/2022 dated 19.09.2022.
3. The provisions pertaining to business reorganisation and corporate restructuring are also available under other statutes like the Companies Act, 2013. Considering the multiplicity of provisions, certain issues have come to the fore since the insertion of section 170A in the Act last year. These pertain to the entities who have previously furnished the return for the relevant assessment year, obligation on the Assessing Officer (AO) for passing or modifying assessment or reassessment orders, the requirement of furnishing modified return etc. In order to avoid any unintended litigation, it is proposed to amend the law to clarify the same.
4. Accordingly, it is proposed to substitute section 170A, to provide that notwithstanding anything contained in section 139, in a case of business reorganisation, where prior to the date of order of the tribunal or the High Court or Adjudicating Authority as defined in clause (1) of section 5 of the Insolvency and Bankruptcy Code, 2016, any return of income has been furnished for any assessment year relevant to a previous year, by an entity to which such order applies, the successor shall furnish, within a period of six months from the end of the month in which the said order was issued, a modified return in the form and manner, as may be prescribed, in accordance with and limited to the said order. This would also enable modification of the returns filed by the predecessor wherever required
5. There was no provision of the procedure to be followed by the Assessing Officer after the modified return is furnished by the successor entity. It is therefore being provided that, if proceedings of assessment or reassessment for the relevant assessment year have been completed on the date of furnishing of modified return under sub-section (1), the Assessing Officer shall pass an order modifying the total income of the relevant assessment year in accordance with the order of the business reorganisation and taking into account the modified return so furnished. Where proceedings of assessment or reassessment for the relevant assessment year are pending on the date of furnishing of modified return under sub-section (1), the Assessing Officer shall pass an order assessing or reassessing the total income of the relevant assessment year in accordance with the order of the business reorganisation and taking into account the modified return so furnished.
6. For the purposes of such assessment or reassessment, unless provided otherwise, all other provisions of the Act shall apply and the tax shall be chargeable at the rate applicable to such assessment year.
7. It is also proposed to define the following terms for the purposes of this section:
“business reorganisation” means the reorganisation of business involving the amalgamation or demerger or merger of business of one or more persons;
“successor” means all resulting companies in a business reorganisation, whether or not the company was in existence prior to such business reorganisation.
8. This amendment will take effect from the 1st day of April, 2023.
[Clause 77]
Extract of relevant clause of Finance Bill 2023
Clause 77 of the Bill seeks to substitute section 170A of the Income-tax Act relating to effect of order of tribunal or court in respect of business reorganisation.
The existing section provides that in case of business reorganisation where a return of income has been filed by the successor under section 139 of the Act, such successor shall furnish a modified return within six months from the end of the month in which such order of business reorganisation was issued in accordance with limited to the said order.
The proposed sub-section (1) seeks to provide that notwithstanding anything contained in section 139, in a case of business reorganisation, where prior to the date of order of a High Court or tribunal or Adjudicating Authority, any return of income has been furnished under the provisions of section 139 for any assessment year relevant to a previous year, by an entity to which such order applies, the successor shall furnish, within a period of six months from the end of the month in which the said order was issued, a modified return in the form and manner, as may be provided by rules, in accordance with and limited to the said order.
The proposed sub-section (2) seeks to provide that if proceedings of assessment or reassessment for the relevant assessment year have been completed on the date of furnishing of modified return under sub-section (1), the Assessing Officer shall pass an order modifying the total income of the relevant assessment year in accordance with the order of the business reorganisation and taking into account the modified return so furnished and it is also proposed that if proceedings of assessment or reassessment for the relevant assessment year are pending on the date of furnishing of modified return under sub-section (1), the Assessing Officer shall pass an order assessing or reassessing the total income of the relevant assessment year in accordance with the order of the business reorganisation and taking into account the modified return so furnished.
The proposed sub-section (3) seeks to provide that unless otherwise provided, all other provisions of the Income-tax Act shall apply to the assessment or reassessment made under this section and in such cases, the tax shall be chargeable at the rate applicable to such assessment year.
The proposed Explanation seeks to define the expressions “business reorganisation” and “successor” for the purposes of this section.
This amendment will take effect from 1st April, 2023.
Extract of Relevant Amendment Proposed by Finance Bill, 2023
77. Substitution of new section for section 170A.
For section 170A of the Income-tax Act, the following section shall be substituted, namely:–
Effect of order of tribunal or court in respect of business reorganisation.
‘170A. (1) Notwithstanding anything to the contrary contained in section 139, in a case of business reorganisation, where prior to the date of order of a High Court or tribunal or an Adjudicating Authority as defined in clause (1) of section 5 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as order in respect of business reorganisation), as the case may be, any return of income has been furnished by an entity to which such order applies under the provisions of section 139 for any assessment year relevant to the previous year to which such order applies, the successor shall furnish, within a period of six months from the end of the month in which the order was issued, a modified return in such form and manner, as may be prescribed, in accordance with and limited to the said order.
(2) Where the assessment or reassessment proceedings for an assessment year relevant to a previous year to which the order in respect of the business reorganisation applies,–
(a) have been completed on the date of furnishing of the modified return in accordance with the provisions of sub-section (1), the Assessing Officer shall pass an order modifying the total income of the relevant assessment year determined in such assessment or reassessment, in accordance with such order and taking into account the modified return so furnished;
(b) are pending on the date of furnishing of the modified return in accordance with the provisions of sub- section (1), the Assessing Officer shall pass an order assessing or reassessing the total income of the relevant assessment year in accordance with the order of the business reorganisation and taking into account the modified return so furnished.
(3) Save as otherwise provided in this section, in an assessment or reassessment made in respect of an assessment year under this section, all other provisions of this Act shall apply and the tax shall be chargeable at the rate or rates as applicable to such assessment year.
Explanation.—In this section, the expressions—
(i)“business reorganisation” means the
reorganisation of business involving the amalgamation or demerger or merger of business of one or more persons;
(iii) “successor” means all resulting companies in a business reorganisation, whether or not the company was in existence prior to such business reorganisation.’.
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