A key budget proposal will help sweeten the deal for any potential suitors of Infrastructure Leasing & Financial Services (IL&FS), which has been under the supervision of a government-designated board after defaulting on repayments in September last year. 

The proposed amendment to Section 79 of the Income-Tax Act will allow buyers to carry forward losses in companies where the government has seized control. Experts said this was aimed at resolving the IL&FS situation. A buyer will be able to set off historical losses in IL&FS and its subsidiaries against future profits, lowering taxable income. 

“The new amendment now means that carry forward of losses will be available in situations like IL&FS and its subsidiaries if there is a new buyer,” said Amit Maheshwari, partner Ashok Maheshwary & Associates LLP. “The company would be eligible to carryforward the loss and adjust even if there is a new buyer, provided the conditions prescribed are met and the principal commissioner, tax commissioner has been heard.” 

The government sacked the management and set up a new board led by Asia’s richest banker Uday Kotak to chart a turnaround at IL&FS last year. The default sparked a liquidity crisis among non-banking finance companies (NBFCs). The board is in the process of selling the financial group’s assets piecemeal as it attempts to salvage a debt burden of nearly Rs 1 lakh crore. 

Section 79 of the I-T Act specifically deals with losses and states that these cannot be carried forward if a majority shareholding — 51% and above — changes hands. The government has already carved out exceptions for startups and companies filing for bankruptcy. The new amendment extends the benefits to companies taken over by the government and whose boards are replaced. 

“The amendment is intended to address the issue that loss carry-forward would have otherwise lapsed if there is non-commonality of at least 51% shareholding in year of set off vis a vis year of loss,” said Ketan Dalal, managing partner, Katalyst Advisors. “This amendment would remove a major deterrent to the ability to transfer ownership of such a company.” 

The budget also proposed to tweak regulations pertaining to Minimum Alternate Tax (MAT), which is levied at 18.5% on profit. 

There may be a twist in the IL&FS saga, said experts. The Serious Fraud Investigation Office (SFIO), the investigation arm of the Ministry of Corporate Affairs (MCA), has alleged that the financial statements of subsidiary IL&FS Financial Services (IFIN) don’t represent an accurate picture. A similar situation could prevail in parent IL&FS and IL&FS Transportation Networks Ltd (ITNL), another subsidiary. 

Due to this reason, the National Company Law Tribunal (NCLT) has allowed recasting of accounts. Whether the losses incurred in the recast financial results will be allowed to be carried forward would be a question that the government may have to specifically answer. 

Source : PTI