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Tax planning and implication

amit agarwal (dept head) (137 Points)

06 December 2011

Hii budies

it is an urgent enquiry

a pvt limited company is spliting of into two where the one is carryng business of old company

and the new one is required to register with roc with fresh name...

however a mojor shareholder and director retired from old co and become director in new with major shareholding. moreover a main product line along with related employees and client of old company has been transferred to new co by the old for a certain consideration...

so my question is what are the tax implication and liability in old as well as new co...

suggest tax planning if any??????

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6 Replies

amit agarwal (dept head) (137 Points)
Replied 06 December 2011

plzz also let me know how the consideration received and product line sacrificed by the old co will be treated under it act??

amit agarwal (dept head) (137 Points)
Replied 06 December 2011

plzz also let me know how the consideration received and product line sacrificed by the old co will be treated under it act??

sams siddiki (CA finalist) (30 Points)
Replied 06 December 2011

There is no any more procedure for Old company, if there is any change in directors or shareholder then file Form 32 with ROC and for tax planning, you have liability only on those taxes which came as a apportionment on old company during split off.

And for new company, all the procedure as it comply to new company should be followed i.e. Registration with ROC. And regarding tax, you have liability only on those taxes which came as a apportionmaent on new company during split off. And regarding change in director, it will be covered while getting registered yourself with ROC. No any further procedure is required.

amit agarwal (dept head) (137 Points)
Replied 06 December 2011

thanks bro

but my question was that only what tax planning can be done for liability arising while apportionment due to split off ?????

amit agarwal (dept head) (137 Points)
Replied 12 December 2011

hey gues nobody has reply to the same???????

gnanagurusasmy (ca) (55 Points)
Replied 12 December 2011

there are 2 ways of spliting a company-

a) Demerger

b) Asset Purchase Method

Demerger:

the Assets and liabilities which are porposed to be transferred to the new company should be ascertained. The difference between Asset and liabilities to be transferred will be the share capital for the new company and the shareholders of the existing company will get the shares of the new company based on the net asset value (Asset - Liabilities).

Tax impact : (Existing Company)

the book value of the asset proposed to be transferred should be trated as transfer value and hence no capital gain.

Tax Impact (Existing Shareholder)

the shares to be alloted by the new company to the existing shareholder will be taxed as capital gain, when it is sold. the cost of purchase of shares will be Nil.

Asset Purchase Method

the Assets and liabilities which are porposed to be transferred to the new company should be valued, which could be current market value. The difference between Asset and liabilities to be transferred will be settled by cheque by the new company to the existing company.

Tax impact : (Existing Company)

the difference between the book value of the asset(-)liabilites proposed to be transferred and market value shall be treated as capital gain for the existing company.

Tax Impact (Existing Shareholder)

Not applicable.