Tax exemptions and ailing cement units on acquisition radar

Tax exemptions and ailing cement units on acquisition radar
Published: 21 June 2004

AILING cement companies are in vogue. In a bid to take advantage of the tax shelter accorded to loss-making units, bigger manufacturers are increasingly eyeing them as prime takeover targets.

Over the past few years, there have been several instances of cement majors such as Gujarat Ambuja India Cements and Grasim taking over or merging with sick companies. This includes a number of sick companies referred to the Board for Industrial and Financial Reconstruction (BIFR).

Companies acquiring BIFR units get tax benefits under the Income-Tax Act by way of setting off brought forward losses of the ailing company against the future taxable profits of the acquirer.

For instance, when Radico Khaitan Ltd proposed a reverse merger with the BIFR company Abhishek Cements the former got a tax shelter benefit of about Rs 96.5 lakh factoring in carried forward losses including investment allowance under the I-T Act and waiver of interest as per the Act. Gujarat Ambuja had also acquired Modi Cements a BIFR company and got tax exemptions.