While the government is pursuing an aggressive privatisation plan, hiving off real estate assets is a key element of the strategy to avoid accusations of companies being sold at a hefty discount, as was the case in some of the strategic sales undertaken by the Atal Bihari Vajpayee government until 2004. In the coming months, the government is set to line up several PSUs for privatisation.
Government sources told TOI that in case of SCI, the company’s headquarters in south Mumbai, and some other assets are to be hived off before the sale, for which expression of interest has been sought. Similarly, there is a large tract of land owned by BEML in Bengaluru, which is proposed to be carved out from the company before the strategic sale.
In the past, the government realised that these transactions were not only cumbersome but also required it to put in funds before the transaction or synchronise the company’s stake sale as well as the hiving off to meet the requirements prescribed in the law. “Often it is tough to do so, so we have proposed the amendments,” a senior officer told TOI.
In fact, during the transfer of VSNL’s surplus land to a new entity, which has now been listed, the government realised the complications that were involved. While the VSNL sale took place nearly two decades ago, the process of land transfer into a new entity was completed a few months ago.
As a result, the Finance Bill has proposed to insert an explanation in section 2 (19AA) of the Income Tax Act to clarify that the reconstruction or splitting up of a PSU into separate companies will be deemed to be a demerger, if it has done to transfer any asset of the demerged entity to the resultant company and if the new company is also a PSU on the appointed date. Besides, other conditions that are notified by the Centre need to be fulfilled.
Similarly, section 72A(1) is also proposed to be amended with effect from April. “It is likely that a significant number of PSUs will intend to opt for business arrangements, in view of the relaxations provided. With a view to encourage reorganisation and involvement of private-expertise, the proposed amendments are expected to act as a catalyst to the disinvestment targets, to achieve optimal utilisation of resources,” Vinod Kothari Consultants said in a note.