If the investment amounts are large it would be advisable to consult your tax advisor before you sell either of the shares rather than later
Sometime back, Aditya Birla Nuvo Ltd (ABNL), Grasim Industries and Aditya Birla Capital entered into following composite scheme of arrangement. In step one Aditya Birla Nuvo was merged with Grasim Industries. Shares of Grasim were allotted to sharesholders of ABNL as per scheme. In step two, Aditya Birla Capital Ltd (ABCL) was demerged from Grasim. Shares of ABCL were allotted to shareholders of Grasim as per scheme. As per my understanding, there are no income tax implications for such merger / demerger for share holders of above companies in respect of the above arrangement. Kindly let me know whether my understanding is correct.
— Madan Mohan Mendhiratta
The answer is limited to capital gains implication for an investor shareholder at the point when the various merger/demerger transactions as mentioned in the query took place. The issue of shares by Grasim to the shareholders of ABNL would not be regarded as a transfer and similarly the issue of shares by ABCL limited to the shareholders of Grasim consequent to the demerger would not amount to transfer as well. As and when the shares held in either Grasim or ABCL are sold the cost of acquisition would need to be determined primarily with reference to the cost incurred by the investor shareholder while acquiring the shares in ABNL. The period of holding of shares in Grasim will include the period for which the shares were held in ABNL and the period of holding to be taken into account for shares held in ABCL would include the period for which the shares were held in Grasim.
In other words there is no tax consequence for investor shareholders at the time when the amalgamation and demerger happened but it would have implications as and when the investor shareholders sells the resultant shares of Grasim/ABCL. If the investment amounts are large it would be advisable to consult your tax advisor before you sell either of the shares rather than later.
Harsh Roongta is a chartered accountant and Sebi-registered investment expert
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