Introduction:
Section 170 of the Act governs the procedure of taxation in case of succession to business in the event of reorganization or restructuring of the business. Though section 170 provides for assessment in case of succession otherwise than death, in practice, the following difficulties are faced once the process of reorganization starts with an application filed with an adjudicating authority or high court by an entity
The period included forming a conclusion is found to be a long-drawn process and is not time-bound.
The reorganization is often from the preceding date.
During the pendency period of the court proceedings, the income tax proceedings are often completed on the predecessor entity only which the court held such proceedings and consequent amendments illegal as the predecessor ceases to exist.
Validity of the Pending and Completed Proceedings:
With a view to providing clarify that such proceedings Under the Act are valid, it is proposed to insert subsection (2A) to section 170, to provide that the assessment or other proceedings pending or completed on the predecessor in the event of a business reorganization, shall be deemed to made on the successor.
Gap Between Effectiveness of Order and Actual Date of Order:
Due to the indefinite timeline involved in issuing reorganization orders, there is a gap between the effectiveness of such order and the date on which the competent authority passes such order by the competent authority. To enable the entity which going through reorganization for filing modified returns for the period between the date of effectivity of such order and the date of the final order of the competent authority, it has been proposed to insert a new section 170A to the Act.
Modification in Demand:
In the case of business reorganization, as a part of the restructuring process, the competent authority may modify the demand created vide various proceedings in the past by the Income Tax Department. As there is no procedure or mechanism provided in the Act to reduce such demands from the outstanding demand register. Hence, it is proposed to insert a new section 156A into the Act to give effect to such orders of the competent authority and to modify such demands in accordance with such directions.
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