Air India's capital assets to fly to a holding company

The Central Board of Direct Taxes (CBDT) notified the transfer of Air India’s capital assets to a holding company and offered tax relief to further sweeten the national carrier’s privatisation process. This came a day after it allowed the carry forward of losses for public sector companies undergoing strategic disinvestment, a move that will help privatisation of Air India.

As per the government’s plan to make the state-owned airline attractive to potential buyers, its capital assets are being transferred to Air India Asset Holding Co. Ltd (AIAHL), a special purpose vehicle (SPV) created for holding half the airline’s loans, four of its subsidiaries and non-core assets.

The national carrier is undergoing strategic divestment with the government selling its entire stake and management control to the buyer. Financial bids for the carrier are expected by September 15.

In four separate notifications, the CBDT specified that AIAHL will not be considered a ‘buyer’ in case of the transfer of goods by Air India as part of the plan, and that the carrier will not be considered the ‘seller’ during transfer of goods by it to the holding company. It also exempted the national carrier from tax collected at source (TCS) provisions under the income tax laws on sale of goods, including shares, to the SPV. This will come into effect on April 1, 2022, and will apply to assessment years 2022-23 and onward.

As per provisions introduced last year, a seller having turnover of more than Rs 10 crore in the immediately preceding year, is required to collect TCS at 0.1% on sale of goods to any person for an aggregate value exceeding Rs 50 lakh in the current financial year. Shares of a company sold on the stock exchange would also be considered ‘goods’ and are subject to TCS.

“In order to make the transaction of Air India disinvestment deal financially lucrative for the strategic investor and considering the huge amount of sale consideration involved, the government has exempted Air India from such share/asset sale transaction from TCS provision," said Shailesh Kumar, partner at Nangia & Co LLP.