Industry group Assocham on Thursday wrote a letter to Finance Minister Arun Jaitley seeking more power for the National Company Law Tribunal to grant relief on tax imposed or waive accrued interest on stressed assets referred to it under the Insolvency and Bankruptcy Code.
In the letter, Assocham Secretary General D S Rawat said that in cases where any outstanding liability inclusive of any accrued interest is waived in accordance with the approved Resolution Plan for such entities (the corporate debtor), such waiver or writeback may attract tax under both normal and Minimum Alternate Tax (MAT) provisions.
"This will burden the stressed enterprise with huge transactional tax liability and make the resolution process unviable, as the new resolution applicant and the stressed business have to shell out this additional sum, which in some cases may reach up to 35 per cent of the waived liability," Rawat wrote.
The NCLT, the chamber suggested, should be authorised to grant relief on such waiver or writeback of outstanding liabilities under normal as well as MAT provisions.
It argued that there are certain provisions of the Income Tax Act which cast huge tax liabilities in the resolution process, which if required to be discharged in absence of statutory protection would defeat the entire purpose of resolution as there will hardly any money left for revival of the asset.
Also, the resolution plan would involve transfer, assignment, issue of shares and securities for infusion of capital and transfer of ownership of stressed business and other immovable assets which may not be at the book value or fair market value as defined in the law, said the industry body.
Assocham held that this may lead to huge transactional tax liability in the hands of the stressed business or the new resolution applicant on a notional income, jeopardising viability of the plan.