8/3/2019 Sri Deb

1/11

IIPM NAME :-Srideb Saha

SECTION :-PGP/SS/FINANCE/10-12

SUBJECT :-Corporate tax

TOPIC :- 1) TAX PLANING REGARDING MAKE OR BUYDECISION

2) MERGER AND AMALGAMATION

FACULTY :-Dr. Santanu Mitra

Page | 1

8/3/2019 Sri Deb

2/11

CONTENTS

SERIALNO.

PARTICULARS PAGE NO

1 Acknowledgement 3

2 Tax planning regarding make or buy decision 4-5

3 Tax planning regarding merger and amalgamation 6-7

4 Bibliography 8

ACKNOWLEDGEMENT

Page | 2

8/3/2019 Sri Deb

3/11

On the very outset of this report, it is my pleasure to be indebted to various people,

who directly or indirectly contributed in the development of this work and who

influenced my thinking while compiling this project.

I take this opportunity to express my sincere and heartfelt obligation towards all

the personages. Without their guidance, help and encouragement, I would not have

made headway in this project.

I owe debt of gratitude to my faculty Dr. Santanu Mitra for providing the required

guidelines and imparting help, support & experience even at the cost of busy

schedule.

I would like to convey my sincere regards to our collage librarian Mr. Anirban

Sarkar for his whole hearted contribution throughout the project by giving andsuggesting books on this topic.

TAX PLANNING REGARDING

Page | 3

8/3/2019 Sri Deb

4/11

(1) Make or Buy Decision

The buying decision is taken only when it is finalized that a particular asset is to be

acquired. In most of the industries, the conception of establishing a new project

itself involves acquisition of fixed assets. In assembling industry differentcomponents are assembled to make a produced. Now a decision regarding the

manufacturing of these components is to be taken. It is decided whether the

product/part/component of product should be bought from the market or should be

manufactured by having necessary manufacturing facilities.

The main consideration affecting such a decision is cost. In a make or buy

decision, the variable cost of making the product or part/ component of product is

compared with its purchase price prevailing in the market.

However, where the component manufacturing involve additional fixedexpenditure, purchase of any plant and machinery or establishment of a new

separate unit, then total cost will have to be considered. In such special situations

the following tax consideration must be kept in mind.

1) Where the manufacturing of the product requires additional

fixed cost also

Since in this case, the assessee will have to incur additional fixed cost it willform part of the cost of manufacturing of the product.

2) Where the manufacturing of the product requires

In this case, although, there will be cash outflow for establishing a new unit,

but the tax incentives shall be as under.

3) Exemption under section 10A

If the product to be manufactured is for exports, there will be full exemption of

income till assessment year 2010-11, if the unit is established in a free trade

zone and certain conditions are satisfied.

Page | 4

8/3/2019 Sri Deb

5/11

4) Exemption under section 10AA

The unit of an entrepreneur, which begins to manufacture or produce any

article or thing or provide any service in a special economic zone on or after

01-04-2005, shall be allowed a deduction of 100% the profits and gains derived

from the report, of such articles or things of 5 consecutive years beginning with

the assessment year relevant to the previous year in which the unit begins to

manufacture or produce such articles or things or provide services, as the case

may be, and 50% of such and gains for further 5 assessment years.

5) Exemption under section 10B

If the product to be manufactured is for exports, there will be full exemption of

income till assessment of income till assessment year 2010-11 if the unit is an

export oriented unit and certain conditions are satisfied.

6) Depreciation under section 32

Since a new unit will be established, it will acquire building, plant and

machinery, furniture and certain tangible assets, shall eligible for depreciationon such assets.

7) Deduction under section 80B

If the unit established is a now unit, it shall be eligible for deduction under

section 80-IB if the assessee cannot claim exemption under section 10A and

10B.

8)If the facilities for production are existing land and the assessee

wishes to discontinue the manufacturing of such product:

It is possible that buying of such product is cheaper than manufacturing and if it

is to be continued for a very long time, the assessee may have to sell thePage | 5

8/3/2019 Sri Deb

6/11

existing plant and machinery etc. In this case, there will be short term capital

gain/loss if the entire block of assets is sole or there will be short term capital

gain if the part of the block is sold for a price more than the W.D.V. of the

block.

TAX PLANNING REGARDING

Amalgamation and Merger:

If any amalgamation takes place within the meaning of section 2(1B) of theIncome-Tax, the following tax concession shall be available.

1. Tax Concession to Amalgamating Company.

2. Tax Concession to shareholder of the Amalgamating Company.

3. Tax concession Amalgamated Company.

Tax Concession to Amalgamation Company

1) Capital gains tax not attracted

According to section 47 (VI), where there is a transfer of any capital asset in the

scheme of amalgamation, by an amalgamating company to the amalgamated

company, such transfer will not be regarded as a transfer for the purpose of capital

gain provided the amalgamated company, to whom such assets have been

transferred is an Indian Company.

2) Tax concession to a foreign amalgamating company [section

47(Via)]

Where a foreign company holds any shares in an Indian company and transfers the

same, in the scheme of amalgamation, to another foreign company, such

Page | 6

8/3/2019 Sri Deb

7/11

transaction will not be recorded as transfer for the purpose of capital gain under

section 45 of the Income tax Act of the following conditions are satisfied.

i) At least 25% of the shareholder of amalgamating foreign company should

continue to remain shareholders of amalgamated foreign company, and

ii) Such transfer does not attract tax on capital gains in the country in which the

amalgamating company is incorporated.

Tax concession to the shareholders of a amalgamating company

[Section 47 (VII)]

Where a shareholder of an amalgamating company transfers his shares in a scheme

of amalgamation, such transaction will not be regarded as a transfer for capital

gain purpose, if following conditions are satisfied.

i) The transfer of shares is made in consideration of the allotment to him of

any share or shares in the amalgamated company, and

ii) The amalgamated company is an Indian Company.

Tax Concessions to the amalgamated company:

The amalgamated company shall be eligible for tax concessions only if the

following two conditions are satisfied:

Page | 7

8/3/2019 Sri Deb

8/11

i) The amalgamation satisfies all the three conditions laid down in section

2(B), and

ii) The amalgamated company is an Indian Company.

BIBLIOGRAPHY

1. Student guide to Income Tax

o Singhania

o Ahuja and Gupta

Page | 8

8/3/2019 Sri Deb

9/11

Page | 9

8/3/2019 Sri Deb

10/11

Page | 10

8/3/2019 Sri Deb

11/11

Page | 11