M&As may be the rule as Sinha extends I-T incentives

there should be a spurt in mergers and amalgamations with the government easing the norms for 10a and 10b companies. according to the changes announced by the finance minister yashwant sinha on friday, income tax benefits would be available to merged entities, despite changes in the beneficial ownership of firms and sole proprietary concerns. beneficial ownership is defined in income tax law as equity holding exceeding 51 per cent. existing tax laws extend tax benefits to companies only when there was no change in beneficial ownership of the merged entity for a period of five years and the entity continues in its existing line of business for the same period of time. these norms were put in place both for listed companies merging with other listed companies, as well as firms and sole proprietary concerns. the intent was to stop the mergers and amalgamations entered into with the sole intention of extending the tax benefit available under section 10a and 10b. such a possibility existed since tax holidays under section 10a and 10b were available for a period of 10 years, though they were being gradually phased out under other sections. industry and tax consultants, however, argued that this provision was impeding even genuine mergers and amalgamations, particularly for partnerships and sole proprietary concerns. this was because change in ownership was frequent in case of firms and proprietary firms where the ownership was tightly held, with brothers often being shareholders. the frequent change in ownership was particularly a problem in the case of the hindu undivided family, where the ownership often underwent quick changes with frequent division in the family business. bearing this mind, the finance minister is now proposing to ease the beneficiary ownership norms for firms and proprietorships, though the existing tax treatment would continue in case of listed companies.