Book profits of sick companies stemming from debt waiver or reduction should continue to be exempt from minimum alternative tax (MAT), said industry body Assocham.
Book profits of sick companies stemming from debt waiver or reduction should continue to be exempt from minimum alternative tax (MAT), said industry body Assocham.
In a note submitted to the Central Board of Direct Taxes Chairman Sushil Chandra, the chamber said that in the absence of a provision for exemption from MAT for such a company, any plan for its revival shall become unworkable and unviable due to the huge and immediate cash flow required to meet the corporate tax liability payable immediately under MAT.
The MAT rate is levied at the rate of 18.5 per cent in India.
"The intent of the legislature in introducing the Insolvency & Bankruptcy Code 2016 was to provide an effective mechanism for time bound resolution of indebtedness issues for financially distressed companies which have been adequately highlighted when government taxes were given lower priority during liquidation waterfall mechanism," Assocham said.
A company must obtain approval of its Resolution Plan from National Company Law Tribunal under Section 31 of the IBC within 180 days, extendable by further 90 days maximum, failing which the liquidation process shall be initiated.
Assocham feels a resolution plan in most such cases shall always involve sacrifices from all stakeholders promoters, creditors etc. The sacrifice from the creditors by way of waiver of certain loans and/or interest shall therefore result in notional profits appearing in the books of accounts of such distressed companies.
Unless exempted, such distressed companies may fail in their Resolution Plan due to the high tax liability that shall accrue upon them on account of MAT while continuing to be under turnaround process and stressed for liquidity.
(This article has not been edited by DNA's editorial team and is auto-generated from an agency feed.)
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