Expectation from Budget 2018 – MAT provisions in view of Insolvency and Bankruptcy Code

  • Blog|Insolvency and Bankruptcy Code|
  • 2 Min Read
  • By Taxmann
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  • Last Updated on 25 January, 2021

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As per the last report, 2500 fresh cases have been filed with National Company Law Tribunal (NCLT) since the enactment of IBC. Recently the Insolvency and Bankruptcy Code, 2016 (IBC) was introduced for revival or rehabilitation of companies from insolvency. In order to streamline the rehabilitation of insolvent companies, IBC seeks to replace and consolidate the existing framework by bringing together all existing provisions. This code, on one hand seeks to provide life line to the insolvent companies, on the other hand it aims to provide cash realization to the Banks by addressing their long standing non-performing assets (NPAs) problem.
 
For Banks to write off the NPAs have to incur a cost in the form of significant compromise on the amount given as loans advances. What it entails for the companies under stress is to write back of such loans and corresponding gains in their P&L account. While it is debatable whether such gains should be subjected to income tax or not, such gains are invariably subjected to Minimum Alternate Tax (MAT) in the hands of companies under insolvency.
 
In a resolution plan, prospective bidders are required to propose a plan for the resolution of company listing out the ways of discharging the liabilities of financial creditors, unsecured creditors, operation creditors, promoters, public etc. 
 
While the best structure for resolution plan includes cleverly laid ideas for discharging aforementioned liabilities, what is important to note here is the fact that it is the successful bidder who has to deal with the tax consequences as a result of acquisition of the insolvent company. 
 
In Budget 2018, these are some of the key expectations from the perspective of MAT in align with IBC. 
 

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