Merger and Acquisition - Income Tax Perspective

Abstract

In ever-growing economies, in case of business entities, the acquisition, consolidation or merger options are impeccable to endure and, relevant in the market. Globalization coupled with faster to be developments in technology are further challenging to both, the centuries-old businesses and the new entities alike. The term Merger and Acquisition (hereinafter 'M&A') is a broader one and includes other forms also, to say, amalgamation, acquisition via business purchase, share purchase, slump sale and itemized sale, combination, capital restructure via buyback and capital reduction, reverse merger and demerger. History has recorded seven-periods as 'Merger Waves' 1 caused by the aforesaid reasons. The first six-merger wave occurred between 1897 and 2007 and seventh wave from 2011 onwards. In India's context, the first major M&A attempt was witnessed during 1983 when Sri. Swaraj Paul, a London-based industrialist's bid to take management control of two Indian entities, viz., Escorts Limited and Delhi Cloth Mills Limited followed by India Cements attempt on Raasi Cements Limited during 1998. Recent past successful attempts can be listed as Vodafone Group Plc.'s business transfer deal with Hutchinson in 2007, Emami Limited's acquisition of Zandu Pharmaceutical Works Limited in 2008, Vedanta Resources Plc.'s acquisition of the stake in Cairn India in 2011, Walmart Inc.'s acquisition of the stake in Flipkart Private Limited and Idea Cellular's merger with Vodafone India, Hindustan Unilever Limited's all-stock acquisition of Glaxosmithkline Consumer Healthcare Limited during 2018 and the latest one by Larsen and Toubro's acquisition of the stake in Mindtree Limited during March 2019. Meanwhile, sensing the hostile bidding attempts and to regulate 'M&A Regime', the Indian Government has brought in a number of legislations with suitable amendments as and when its found necessary, such as Industrial Development and Regulation Act, 1951, Monopolistic and Restrictive Trade Practice Act, 1969, Foreign Exchange Regulation Act, 1973 (now replaced with Foreign Exchange Management Act, 1999), Companies Act, 2013, SEBI (Listing Obligation & Disclosure Requirements), 2015, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, Income-tax Act, 1961, Delisting Regulations 2009, Indian Accounting Standards or Ind-AS, Competition Act, 2002, recently introduced Insolvency and Bankruptcy Code, 2016, GST Laws and proposed changes in Foreign Direct Investment to regulate e-commerce sector. The present article predominantly deals with income-tax law perspective.