Effect of order of tribunal or court in respect of business reorganisation.

314(1)

Irrespective of anything to the contrary contained in section 263, if prior to the date of order in respect of business reorganisation, any return of income has been furnished under the provisions of the said section by an entity for any tax year to which such order applies, the successor shall furnish, within six months from the end of the month in which the order was issued, a modified return in such form and manner, as prescribed, in accordance with and limited to the said order.

314(2)

Where the assessment or reassessment proceedings for a tax year to which the order in respect of the business reorganisation applies,––

• (a) have been completed on the date of furnishing of the modified return as per the provisions of sub-section (1), the Assessing Officer shall pass an order modifying the total income of the relevant tax year determined in such assessment or reassessment, in accordance with such order and taking into account the modified return so furnished;
• (b) are pending on the date of furnishing of the modified return as per sub-section (1), the Assessing Officer shall pass an order assessing or reassessing the total income of the relevant tax year as per the order of the business reorganisation and taking into account the modified return so furnished.

314(3)

Subject to any other provisions of this section, in an assessment or reassessment made in respect of a tax year under this section, all other provisions of this Act shall apply and the tax shall be chargeable at the rate or rates as applicable to such tax year.

314(4)

In this section,—

• (a) “business reorganisation” means the reorganisation of business involving the amalgamation or demerger or merger of business of one or more persons;
• (b) “order in respect of business reorganisation” means an order of a High Court or tribunal or an Adjudicating Authority as defined in section 5(1) of the Insolvency and Bankruptcy Code, 2016; and
• (c) “successor” means all resulting companies in a business reorganisation, whether or not the company was in existence prior to such business reorganisation.

Explanation

Section Summary:

Section 314 of the new income tax law addresses the tax implications and compliance requirements when a business undergoes reorganisation, such as amalgamation, demerger, or merger. It ensures that tax filings and assessments are adjusted to reflect the changes brought about by the reorganisation, as per the order issued by a High Court, tribunal, or Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016.

Key Changes:

1. Modified Return Filing: The successor entity (resulting from the reorganisation) must file a modified return within six months from the end of the month in which the reorganisation order is issued. This is a new requirement to align tax filings with the reorganisation order.
2. Assessment Adjustments: If assessments or reassessments are already completed or pending, the Assessing Officer must modify or reassess the total income of the relevant tax year based on the reorganisation order and the modified return.
3. Clarification of Terms: The section explicitly defines key terms like "business reorganisation," "order in respect of business reorganisation," and "successor," which were not previously defined in such detail.

Practical Implications:

1. For Taxpayers (Successor Entities):
   • Must file a modified return within six months of the reorganisation order.
   • Ensure that the modified return reflects the changes mandated by the reorganisation order.
2. For Assessing Officers:
   • Must adjust or reassess the total income of the relevant tax year based on the modified return and the reorganisation order.
   • Ensure compliance with the new provisions while maintaining consistency with other applicable tax laws.
3. For Businesses Undergoing Reorganisation:
   • Need to be aware of the timeline and procedural requirements for filing modified returns.
   • Must maintain proper documentation to support the changes reflected in the modified return.

Critical Concepts:

1. Business Reorganisation: Refers to amalgamation, demerger, or merger of businesses. This could involve one or more entities.
2. Order in Respect of Business Reorganisation: An order issued by a High Court, tribunal, or Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016, that legally sanctions the reorganisation.
3. Successor: The resulting entity or entities after the reorganisation, regardless of whether they existed before the reorganisation.

Compliance Steps:

1. Step 1: Obtain the reorganisation order from the relevant authority (High Court, tribunal, or Adjudicating Authority).
2. Step 2: Prepare and file a modified return within six months from the end of the month in which the order is issued.
3. Step 3: Ensure the modified return aligns with the reorganisation order and includes all necessary adjustments.
4. Step 4: Provide supporting documentation to the Assessing Officer if required during the assessment or reassessment process.

Examples:

1. Scenario 1: Company A merges with Company B, and the High Court issues a reorganisation order on March 15, 2024. The successor entity (Company AB) must file a modified return by September 30, 2024 (six months from the end of March).
2. Scenario 2: If the assessment for the tax year 2022-23 was already completed before the modified return was filed, the Assessing Officer must modify the total income for 2022-23 based on the reorganisation order and the modified return.

This section ensures that tax filings and assessments are updated to reflect the legal and financial changes resulting from business reorganisations, promoting clarity and compliance.