Union Budget 2023-24 + FINANCE Bill, 2023

Provisions related to business reorganisation

Section 170A of the Act was inserted vide Finance Act, 2022 in order to make provisions for giving effect to the order of business reorganisation issued by tribunal or court or an Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016.

2. The section provides that in case of business reorganisation, where a return of income has been filed by the successor under section 139 of the Act, such successor shall furnish a modified return within six months from the end of the month in which such order of business reorganisation was issued, in accordance with and limited to the said order. Consequently, Rule 12AD has been notified prescribing the form and manner of furnishing such modified return by companies by the Board vide Notification No. 110/2022 dated 19.09.2022.

3. The provisions pertaining to business reorganisation and corporate restructuring are also available under other statutes like the Companies Act, 2013. Considering the multiplicity of provisions, certain issues have come to the fore since the insertion of section 170A in the Act last year. These pertain to the entities who have previously furnished the return for the relevant assessment year, obligation on the Assessing Officer (AO) for passing or modifying assessment or reassessment orders, the requirement of furnishing modified return etc. In order to avoid any unintended litigation, it is proposed to amend the law to clarify the same.

4. Accordingly, it is proposed to substitute section 170A, to provide that notwithstanding anything contained in section 139, in a case of business reorganisation, where prior to the date of order of the tribunal or the High Court or Adjudicating Authority as defined in clause (1) of section 5 of the Insolvency and Bankruptcy Code, 2016, any return of income has been furnished for any assessment year relevant to a previous year, by an entity to which such order applies, the successor shall furnish, within a period of six months from the end of the month in which the said order was issued, a modified return in the form and manner, as may be prescribed, in accordance with and limited to the said order. This would also enable modification of the returns filed by the predecessor wherever required

5. There was no provision of the procedure to be followed by the Assessing Officer after the modified return is furnished by the successor entity. It is therefore being provided that, if proceedings of assessment or reassessment for the relevant assessment year have been completed on the date of furnishing of modified return under sub-section (1), the Assessing Officer shall pass an order modifying the total income of the relevant assessment year in accordance with the order of the business reorganisation and taking into account the modified return so furnished. Where proceedings of assessment or reassessment for the relevant assessment year are pending on the date of furnishing of modified return under sub-section (1), the Assessing Officer shall pass an order assessing or reassessing the total income of the relevant assessment year in accordance with the order of the business reorganisation and taking into account the modified return so furnished.

6. For the purposes of such assessment or reassessment, unless provided otherwise, all other provisions of the Act shall apply and the tax shall be chargeable at the rate applicable to such assessment year.

7. It is also proposed to define the following terms for the purposes of this section:

“business reorganisation" means the reorganisation of business involving the amalgamation or demerger or merger of business of one or more persons;

"successor" means all resulting companies in a business reorganisation, whether or not the company was in existence prior to such business reorganisation.

8. This amendment will take effect from the lst day of April, 2023.

[Clause 77]

 

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Full Text:

Union Budget 2023-24 + FINANCE Bill, 2023

Business reorganisation obligations require successors to file modified returns and compel Assessing Officers to align assessments with reorganisation orders. Section 170A requires successor companies affected by a business reorganisation to furnish a modified return in prescribed form and manner limited to the reorganisation order, enabling modification of predecessor returns. The Assessing Officer must, on receipt, modify completed assessments or assess/reassess pending proceedings in accordance with the reorganisation order and the modified return, with all other Act provisions applying and tax charged at the rate applicable to the relevant assessment year.