This proposed new section seeks to make disposal of assets from one company to another company a non taxable event, if such disposal will be effected through a Scheme of Arrangement and Reconstruction under the provisions of the Companies Ordinance, 1984 or the Banking Companies Ordinance, 1962.  The section also proposes following conditions for the disposal to be non-taxable event:

1. the transferee must undertake to discharge liabilities (not exceeding transferor’s cost of the asset), if any, in respect of the asset;
2. the transferee must not be exempt from tax for the tax year in which the disposal takes place; and
3. the scheme must be approved by the High Court, State Bank or SECP, as the case may be, on or after July 1, 2007.

It may be noted that the amendment proposes that the asset will retain its character in the hand of the transferee and it will have same value for tax purposes as it had in the hand of transferor.

The proposed section also seeks to render issue, cancellation, exchange or receipt of shares as a result of the Scheme of Arrangement and Reconstruction as non-taxable event if the scheme is be approved by the High Court, SBP or SECP, as the case may be, on or after July 1, 2007.  If the shares are subsequently disposed of, the cost of shares will be the cost prior to operation of the scheme.