Grandfathered tax computation in case of merger and aquisitions

Has this question been answered?

I am seeking the solution to same query and so will many people stuck with M&A affected stocks.

Originally posted by : Acche Din
	Has this question been answered? I am seeking the solution to same query and so will many people stuck with M&A affected stocks.

17-June-2021:

I echo Acche Din's query about the M&A effect on grandfathering of stock prices.

Also, let's say grandfathering is not allowed (on the specious plea that Bandhan Bank shares were not listed as on 31-January-2018). In such a case, can a taxpayer take advantage of Section 112A, in case the total worth of Bandhan Bank shares sold is less that Rs. one lakh in a financial year? 

Any responses, please (Bandhan Bank shares not listed as on 31-January-2018) and therefore, Section 112A not applicable?

There has been no reply received so far. Schedule 112a will be applicable for sure but it is not clear how two different ISIN can be input in the given format, how merger ratio will be taken into account for different quantity of share bought and sold, how FMV of Gruh will apply to Bandhan shares now being sold.

Originally posted by : Acche Din
	There has been no reply received so far. Schedule 112a will be applicable for sure but it is not clear how two different ISIN can be input in the given format, how merger ratio will be taken into account for different quantity of share bought and sold, how FMV of Gruh will apply to Bandhan shares now being sold.

I am heartened by your response of "Schedule 112a will be applicable for sure" because such an approach is in the spirit of the law. I hope our Finance Minister (Smt. Nirmala Seetharaman) takes this into consideration.

As to the question of two different ISINs, I believe that there should be no need to enter the ISIN of Gruh upon sale of Bandhan Bank shares (Gruh being now non-existent).

However, the matter of entering a grandfathered value for Bandhan Bank shares could be an issue in the tax return format.

A grandfathering rate that seems logical is 0.568 shares of Bandhan Bank (in lieu of Gruh) x Rs. 584.85 (Gruh's grandfathered rate, as on 31-1-2018)= Rs. 332.20.

Allowing of the above figure of Rs. 332.20 as the grandfathering rate for Bandhan Bank shares would provide much-needed relief to the taxpayers.

1 For grandfathering, the FMV would be the highest price quoted on the recognised stock exchange on 31 January 2018. - which for Gruh is Rs 593.20 on NSE (you have considered the closing price of Rs 584.85)

2. When I sell 568 SHARE OF BANDHAN. it is equivalent of 1000 SHARES OF GRUH. So in my understanding, the FMV should be 1044 (calculated as (593.20 x 1000)/568). Remember you are now selling BANDHAN share so the equivalence to Bandhan is 1000/568 not the other way around.

Originally posted by : Acche Din
	1 For grandfathering, the FMV would be the highest price quoted on the recognised stock exchange on 31 January 2018. - which for Gruh is Rs 593.20 on NSE (you have considered the closing price of Rs 584.85) 2. When I sell 568 SHARE OF BANDHAN. it is equivalent of 1000 SHARES OF GRUH. So in my understanding, the FMV should be 1044 (calculated as (593.20 x 1000)/568). Remember you are now selling BANDHAN share so the equivalence to Bandhan is 1000/568 not the other way around.

Thank you for the clarifications, Acche Din.

I see the logic of 1000/568 since the shares now being sold are Bandhan Bank shares (and not 568/1000).

Also, thank you for the insight into considering the highest price as on 31 January 2018 at Rs. 593.20 on NSE (instead of the closing price of Rs 584.85).

As for ISIN, while we will put that of Bandhan Bank since that is the company whose shares we are selling, the Income Tax authority will be finding it difficult to match the FMV per share (which will be for Gruh) witn Bandhan ISIN. 

This too will remain a puzzle to be resolved.

Originally posted by : Acche Din
	As for ISIN, while we will put that of Bandhan Bank since that is the company whose shares we are selling, the Income Tax authority will be finding it difficult to match the FMV per share (which will be for Gruh) witn Bandhan ISIN.  This too will remain a puzzle to be resolved.

4-Oct.-2021

I hope there is clarity on the applicability of Section 112A.

This is critical or else it will mean that 10% long-term capital gains will be applicable without the benefit of grandfathering.

Maybe the share department of Gruh Finance can provide more clarity. Has anybody contacted them? I tried contacting them once over the phone and was told that there was no clarity with regard to the applicability of Section 112A.

Many employees of Gruh Finance would be in possession of large holdings (from ESOPs, bonus shares, etc.,) and the outgo at 10% LTCG would be substantial.

There is absolutely no question of foregoing grandfathering benefit which has been granted by Finance Minister by Budget Bill in 2018 and parliament has passed it. I have written to CPC Grievance cell and twitted to FM, Revenue Secretary, PMO too. I intend to use FMV of Gruh as per calculation above and in cost of acquisition will use equivalent quantity of Gruh for quantity of Bandhan sold e.g. for every 568 shares sold, cost of acquisition of 100 Gruh will be used. This is correct conversion, logical application.

Originally posted by : Acche Din
	There is absolutely no question of foregoing grandfathering benefit which has been granted by Finance Minister by Budget Bill in 2018 and parliament has passed it. I have written to CPC Grievance cell and twitted to FM, Revenue Secretary, PMO too. I intend to use FMV of Gruh as per calculation above and in cost of acquisition will use equivalent quantity of Gruh for quantity of Bandhan sold e.g. for every 568 shares sold, cost of acquisition of 100 Gruh will be used. This is correct conversion, logical application.

16-Oct.-2021

Thank you for your response of 12-Oct.-2021, Acche Din.

Incidentally, I am in Ahmedabad for the past few weeks and contacted Gruh Finance again over the telephone. I was told (as earlier) that was told that there was no clarity with regard to the applicability of Section 112A.

I hope and pray that the issue of the ISIN for Gruh (or putting in the FMV of Gruh against the Bandhan Bank ISIN) gets resolved.

Very nice ?

No INE number for Bandhan  for FMV  as not listed 

so you need to insert INE of Gruh qty 1000

the aggregate cost of purchase you have

insert FMV of Gruh

the sale price of Bandhan  324 as on sale day so 1000x0.568x324 = Average sale price of Gruh 

Now the problem is you are selling Bandhan and Gruh sale price will not match with NSE or BSE as does not exist

or they accept my method or they make modifications in the software when you insert INE of Gruh average sale tab should automatically convert to Bandhan average sale price based on Gruh to Bandhan share conversion ratio.

ref Shri Jagdish comment of 19th, (quote) Now the problem is you are selling Bandhan and Gruh sale price will not match with NSE or BSE as does not exist (unquote) Sir, question of Gruh sale does not arise since Gruh is what was purchased and Bandhan is what you are selling. In case of Gruh, you only need to put  total cost of purchase not per unit price. The main issue that will potentially arise is that for INE there is only one cell where you put the INE of the stock which you are selling (in this case Bandhan) whreas FMV you will put is for Gruh and therefore total FMV will be calculated will be on the basis of number of units sold (of Bandhan) multiplied by FMV (of Gruh) = so you have apples and oranges being put together. 

Unless and until the ITR provides for a merger ratio inclusion for equivalence to be established for premerger and post merger company, this cant be logically resolved. Secondly even if one puts FMV of Gruh for the present, the FMV of Gruh should be adjusted for merger ratio.

Originally posted by : jagdish chhugani
	Very nice ? No INE number for Bandhan  for FMV  as not listed  so you need to insert INE of Gruh qty 1000 the aggregate cost of purchase you have insert FMV of Gruh the sale price of Bandhan  324 as on sale day so 1000x0.568x324 = Average sale price of Gruh  Now the problem is you are selling Bandhan and Gruh sale price will not match with NSE or BSE as does not exist or they accept my method or they make modifications in the software when you insert INE of Gruh average sale tab should automatically convert to Bandhan average sale price based on Gruh to Bandhan share conversion ratio.

6-Feb.-2022 (Sun.)

Absolutely well-put, Achhe Din, reg. making modifications to the Income Tax software wherein one inserts the INE of Gruh and the average sale tab should automatically convert it into Bandhan Bank's average sale price; based on the Gruh-to-Bandhan share conversion ratio.

That said, here's a poser:

Does Sec. 112A apply at all in this case? Let us say that I want to sell Gruh by such quantity that my capital gains do not exceed Rs. 1,00,000 in a particular financial year; so as to avoid (not evade) paying LTCG on the sale of shares. Is this within the ambit of the law?

Is this permissible? I would much appreciate some clarity