Section 115JG of ITA, 1961 : Section 115Jg: Conversion Of An Indian Branch Of Foreign Company Into Subsidiary Indian Company

Explanation using Example

Imagine a foreign bank named "GlobalBank Corp", which operates in India through a branch in Mumbai. To comply with regulatory requirements and to expand its operations, GlobalBank decides to convert its Mumbai branch into a wholly-owned subsidiary named "GlobalBank India Ltd". This conversion is carried out in accordance with a scheme framed by the Reserve Bank of India (RBI).

The Indian government, under Section 115JG of the Income-tax Act, 1961, issues a notification that provides GlobalBank Corp with certain tax benefits during the conversion. These benefits include:

• Exemption from capital gains tax that would normally arise from the conversion of the branch to a subsidiary.
• Special provisions for the treatment of unabsorbed depreciation and carry forward of losses, which are different from the usual provisions of the Income-tax Act.

However, these benefits are conditional upon GlobalBank India Ltd's compliance with the terms specified in the RBI's scheme and the government's notification.

Let's say after two years, it is found that GlobalBank India Ltd has not adhered to one of the conditions. As a result, the tax benefits are revoked. The Assessing Officer is then authorized to:

• Consider the previously granted tax benefits as wrongly allowed.
• Recompute the total income of GlobalBank India Ltd for the year in which the benefits were claimed, and make necessary amendments to the tax liability.

This corrective action is subject to the provisions of Section 154 of the Income-tax Act, which deals with rectification of mistakes, and must be completed within a specified time frame.