Tax sop to be boon for SBI in Yes Bank rejig

MUMBAI:

State Bank of India

(SBI) and other lenders that had purchased 10 billion equity shares of Yes Bank at Rs 10 per share under the reconstruction scheme approved by the RBI will not have to pay

tax

on the price differential (between what was paid by it and the fair market value).


In a notification issued on Tuesday, the Central Board of Direct Taxes (

CBDT

) has provided for an exemption from

deemed tax

to the equity share purchase transaction covered by the ‘Yes

Bank

Limited Reconstruction Scheme, 2020’.

Section 56(2)(x) of the I-T Act provides that, In case shares of a company are received for a consideration less than its fair market value (FMV), then the differential is treated as ‘income from other sources’ and taxed in the hands of the investor. This, in common parlance, is referred to as deemed tax.

“The notification, which carves out exceptions from the applicability of section 56(2)(x), provide a much-needed clarity and relief from unintended tax consequences that investors would have to factor in recent high-profile rescue schemes, such as Yes Bank and IL&FS, orchestrated by the government,” says Nangia Andersen partner Aravind Srivatsan.

CBDT’s notification also exempts shareholders who are in receipt of unquoted shares of a company, including its tiered subsidiaries (up to three tiers), under a resolution plan approved by the National Company Law Tribunal (

NCLT

) under sections 241 and 242 of the Companies Act, which cover cases of oppression and mismanagement.

“In the backdrop of the pandemic resulting in distressed businesses, there could be other cases falling within the ambit of the notification that would require resolution by the NCLT. CBDT’s notification will help ensure that investors are more willing to step in and salvage the situation,” says EY-India partner (financial services) Anish Thacker.

SBI’s executive committee approved of this purchase in mid-March. The notification also applies retrospectively from the financial year 2019-20 onwards (which is the assessment year 2020-21). As retrospective amendments often come in the harsh glare of stakeholders, CBDT points out, “It is hereby certified that no person is being adversely affected by giving retrospective effect to these rules.”

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