Conversion of An Indian Branch of Foreign Company into Subsidiary India Company - Section 115JG - International Taxation - Income Tax

Conversion of An Indian Branch of Foreign Company into Subsidiary India Company - Section 115JG Where a foreign company (foreign bank) is engaged in the business of banking in India through its branch situated in India and such branch is converted into a subsidiary company thereof, being an Indian company (hereafter referred to as an Indian subsidiary company) in accordance with the scheme framed by the Reserve Bank of India, then, notwithstanding anything contained in the Act and subject to the conditions as may be notified by the Central Government in this behalf, - the capital gains arising from such conversion shall not be chargeable to tax in the assessment year relevant to the previous year in which such conversion takes place; the provisions of this Act relating to treatment of unabsorbed depreciation, set off or carry forward and set-off of losses, MAT credit of the branch of foreign company shall apply to the subsidiary company as they applied to foreign company. For Capital Gains exemption: Indian branch amalgamates with Indian Subsidiary as per the scheme of amalgamation approved by shareholders of the foreign company and the Indian subsidiary and sanctioned by the RBI. All assets liabilities of branch transfer to Indian subsidiary company. Assets and liabilities are transferred at book value. Note- Any revaluation would not be considered while determining the value of the assets. Foreign bank nominees should hold 100% of share capital of Indian subsidiary till the end of the year of conversion at least 51% of the voting power of Indian subsidiary for a period of next 5 PY s. Foreign company does not receive any consideration or benefit other than by way of allotment of shares in the Indian subsidiary. The provisions relating to Unabsorbed depreciation, set off or carry forward of losses, MAT Credit and the computation of income in case of foreign company and Indian subsidiary shall apply with the following modifications, exceptions and adaptation- Provisions Modification/exception/adaptation Allowance of depreciation u/s 32 In the year of amalgamation, Depreciation between Indian Branch and Indian subsidiary shall be apportioned in the ration of the number of days for which assets were used by them; Set-Off and C/F of losses and depreciation Accumulated PGBP losses (Other than speculative loss) and unabsorbed of Indian Branch will be treated as lossess and depreciation of subsidiary company for the year in which conversion took place. Note: Losses can be carried forward for fresh 8 years. Determination of actual cost u/s 43(1) The actual cost of the block of assets in case of the Indian subsidiary company shall be the written down value of the block of assets as in the case of the Indian branch on the date of its conversion into the Indian subsidiary company. Cost of acquisition of other capital assets COA of assets acquired by Indian Subsidiary in amalgamation = COA of Indian Branch MAT Credit MAT credit of the Indian Branch can be carried forward and set-off by the Indian subsidiary for a fresh period of 15 years. Amortisation of VRS Expenditure VRS allowed to Indian Subsidiary for remaining period as per section 35DDA . Deemed credit balance in provision for bad and doubtful debt Credit balance of provision of bad and doubtful debts in books of Indian Branch as per section 36(1)(via) will be deemed to be credit balance of Indian Subsidiary. Non-applicability of section 56(2) (x) Section 56(2) (x) shall not apply on the receipt shares by foreign bank from Indian subsidiary on conversion. (2) In case of failure to comply with any of the conditions specified in the scheme or in the notification issued u/s 115JG(1), all the provisions of this Act shall apply to the foreign company and the said Indian subsidiary company without any benefit, exemption or relief under u/s 115JG(1). Consequence if there is a failure to comply any condition in any subsequent year : Where , in a previous year ,any benefit ,exemption or relief has been claimed and granted to the foreign company or the Indian subsidiary company in accordance with the provision of section 115JG(1) and subsequently ,there is failure to comply with any of the condition specified in the scheme or in the notification issued under section 115JG(1) , then Such benefit ,exemption or relief shall be deemed to have been wrongly allowed . The assessing officer may ,notwithstanding anything contained in this act recomputed the total income of the assessee for the said previous year and make the necessary amendment :and The provision of the section 154 shall ,so far as may be, apply thereto and the period of four year specified in section 115JG(7) being reckoned from the end of the previous year in which the failure to comply with the condition referred to section 115JG(1) take places.