IA, A-I merger may get a special tax dispensation

New Delhi: The government may promulgate an Ordinance for according a special dispensation to the proposed merger of Indian Airlines and Air-India and allowing the new entity claim income tax benefits on carry forward of accumulated losses.
According to government sources, section 72A of the Income Tax Act allows accumulated losses and unabsorbed depreciation of a sick industrial undertaking to be set off against the profits of a healthy company after a merger. At present, the Act does not specifically extend the set-off benefits to airline mergers.
Accenture, a global consultant evaluating the proposed merger of the two airlines, had studied all options, including even a de-merger. Two of the options being discussed by the Indian Airlines and Air-India boards are: floating a third company, to which the assets of IA and A-I can be leased, and merging IA into A-I.
If a new company is floated, A-I and IA can retain their assets or even lease them to the new company at nominal rates, thus avoiding payment of stamp duty. For a merger, the two companies will have to go through the rigmarole of paying stamp duty to various states, where their fixed assets are located. A re-valuation of assets before merger is also bound to increase their value significantly, forcing the two companies to pay huge stamp duties.
16/10/06 P. Vaidyanathan Iyer & Atreyee Dev Roy/Financial Express

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