Govt notifies capital asset transfer from Air India to AIAHL, exempts tax provisions for divestment

The government has notified the transfer of capital assets from Air India to Air India Asset Holding Ltd (AIAHL), as part of the government’s plan. It also exempted the national carrier from tax collected at source provisions under the income tax laws on sale of goods, including shares, to the special purpose vehicle.

In four separate notifications, the Central Board of Direct Taxes (CBDT) specified that AIAHL will not be considered as ‘buyer’ in case of transfer of goods by Air India as part of the plan, and that Air India will not be considered as ‘seller’ during transfer of goods by it to AIAHL.

As per the government’s plan to make Air India attractive to potential buyers, Air India’s capital assets will be transferred to AIAHL, a special purpose vehicle created for holding half of the airline’s loans, four of its subsidiaries and non-core assets.

In one of the notifications, the Board has notified transfer the airline’s capital assets to the special purpose vehicle AIAHL.

“The central government hereby notifies the transfer of capital asset under plan approved by central government from Air India Limited, being transferor public sector company, to Air India Assets Holding Limited, being transferee public sector company,” the Board said in the notification Saturday.

This will come into effect from April 1, 2022 and will apply to assessment years 2022-2023 and onwards.

The exemption from tax collected at source (TCS) has been done to make the sale of Air India more attractive to investors. The national carrier is undergoing strategic divestment with the government selling its full stake and management control to the buyer. Financial bids for the same are expected by September 15. As per TCS provisions introduced last year, a seller having turnover of more than Rs 10 crore in immediately preceding year, is required to collect TCS at 0.1% on sale of goods to any person for aggregate value exceeding Rs 50 lakhs in current financial year. Shares of a company sold off stock exchange would also be considered as ‘goods’ and is 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.