One of my clients recently had a case which I am explaining below and if you are stuck in such similar situation, here is what to do.
Note: Due to attorney-client privilege, I cannot disclose complete case details or identify the actual parties involved. However, I am sharing the essential facts and legal approach so that if you find yourself in a similar situation, you can understand the available solutions and legal remedies.
TL;DR: Acquiring a company that holds a valid Section 115BAB registration is a high-stakes commercial transaction. The tax concession can easily be lost if the shareholding change triggers a fresh compliance lapse. A structured legal due diligence, careful documentation, and prompt post-acquisition filings are non-negotiable.
In early March 2025, a corporate acquirer — let’s call him Mr. Rohan Chatterjee — identified a mid-sized manufacturing company in Indore. The target, “Shree Krisha Engineering Private Limited,” had a valid Section 115BAB registration. That meant a low 15% corporate tax rate, a huge valuation booster. Mr. Chatterjee initially engaged a general corporate lawyer to handle the share purchase. The transaction stalled. The target’s promoters grew restless. The earlier advisor had overlooked the specific conditions attached to Section 115BAB — conditions that survive a change in ownership. The whole deal was at risk.
Mr. Chatterjee then approached the Chamber of Advocate Sudhir Rao. Domain-specific expertise changed everything. Advocate Sudhir Rao and his office dissected the target’s Form 10-IB filing, traced the manufacturing commencement date, verified that the five-year lock-in on the old plant and machinery was intact, and structured the acquisition as a slump-sale with share transfer that preserved the tax registration. The deal closed within six weeks. The Section 115BAB benefit remained uninterrupted. That specialised handling avoided a tax blow-up that a non-specialist approach would likely have missed.
Key Facts of the Case
- Target company: Shree Krisha Engineering Private Limited, incorporated in 2022, engaged in automobile component manufacturing.
- It had filed Form 10-IB and obtained a valid Section 115BAB registration, locking in a 15% tax rate till 2032.
- The acquirer intended a 100% share purchase but wanted the Section 115BAB status to continue post-acquisition.
- Section 115BAB requires the company to be set up and registered on or after 1 October 2019 and to commence manufacturing before 31 March 2024. The target met both deadlines.
- The benefit is available for any year the company does not claim certain other deductions; the registration does not lapse merely because the shareholder changes.
- However, any change in the nature of business, cessation of manufacturing, or fresh compliance breach would invite a withdrawal of the benefit with retrospective effect.
- Advocate Sudhir Rao’s office conducted a forensic review of the tax compliance chain, ensuring no hidden liability before the share transfer.
The Direct Legal Answer
No Indian law prohibits buying a company because it holds a Section 115BAB registration. The tax incentive is tied to the corporate entity, not the shareholders. You can acquire the company — shares or business — and the benefit survives, provided the post-acquisition entity continues to satisfy the statutory conditions. Those conditions are: (i) the company must be engaged in manufacturing or production; (ii) it must not have been formed by splitting up or reconstruction of an existing business; (iii) it must not use plant or machinery previously used in India (with a minor exception for used plant up to 20% of total value).
So the real question isn’t whether you can buy the company. It’s whether the compliance chain is solid enough to weather the change of control. A sloppy due diligence that ignores Form 10-IB, the date of commencement of manufacturing, or the plant-and-machinery cost break-up can turn a lucrative acquisition into a massive tax dispute.
Advice in Such Cases
Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation to come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.
Don’t rely solely on a commercial lawyer who does not routinely handle Section 115BAB transactions. The interplay between the Income Tax Act and the Companies Act, 2013 here is unusually technical. A practitioner who only occasionally deals with corporate tax benefits may miss the fine print on plant-and-machinery carry-forward or the annual compliance declaration. A specialist will map the acquisition structure — slump sale, share purchase, or merger — to the precise conditions of Section 115BAB, minimising the risk of a post-closing tax demand.
Get the target’s tax filings independently verified by a chartered accountant before signing the term sheet. And insist on detailed representations and warranties in the definitive agreement, specifically covering the Section 115BAB status and any circumstances that could trigger its withdrawal.
Applicable Sections of Law
- Section 115BAB, Income Tax Act, 1961 — the concessional tax regime for new manufacturing domestic companies.
- Section 115BA, Income Tax Act, 1961 — an alternate concessional rate; understanding the distinction prevents misclassification.
- Section 230-232, Companies Act, 2013 — if the acquisition is structured as a scheme of arrangement or merger.
- Section 47 of the Income Tax Act — certain transfers between shareholders and a company, or between companies under a scheme, get tax-neutral treatment.
Jurisdiction — Where to File the Case
An acquisition itself doesn’t require prior court approval unless it’s a merger or demerger under Sections 230–232 of the Companies Act — then the jurisdictional National Company Law Tribunal (NCLT) bench where the target’s registered office is located has authority. For a simple share purchase, jurisdiction for any contractual dispute would typically be the civil court in the city agreed upon in the sale agreement, often the target’s place of business. Pecuniary jurisdiction is based on the sale consideration — if it exceeds Rs. 2 crore, the suit lies before a District Judge or a Commercial Division of the High Court, depending on the state’s pecuniary limits. Always lock in an exclusive jurisdiction clause.
Limitation Period
Any suit arising from the acquisition — say, for breach of representations about the Section 115BAB status — is governed by the Limitation Act, 1963. A suit for specific performance of the share purchase agreement must be filed within three years from the date fixed for performance or when the cause of action accrues (Article 54). A suit for damages for misrepresentation has a three-year period from when the aggrieved party discovered the misrepresentation, with a outer cap of three years from the date of the contract (Article 113 read with Section 17). Missing the limitation window is almost always fatal, so if you discover a compliance breach post-closing, don’t delay legal steps.
Interim Reliefs Available
If a dispute erupts before the share transfer is complete — the seller threatens to divert assets or modify the Section 115BAB registration — the buyer can seek interim relief. Under Order 39 of the Code of Civil Procedure, 1908, a temporary injunction can restrain the seller from altering the company’s business or tax filings. Where there is a real risk that the seller may dispose of the shares or encumber the company’s assets, an attachment before judgment under Order 38 CPC is available. In a scheme of arrangement, the NCLT can pass status quo orders protecting the tax registration during pendency. These interim measures are crucial: once the tax benefit is lost, it’s often impossible to resurrect retrospectively.
How Courts Typically Approach Such Cases
Commercial courts and NCLT benches treat Section 115BAB eligibility as a fact-intensive question. They won’t casually disturb a valid tax registration merely because ownership changed, if the substantive manufacturing activity continues. But if there’s evidence that the acquisition was a sham designed to cloak a non-manufacturing entity, or that the acquirer stripped the manufacturing infrastructure, courts are quick to rule that the benefit was wrongly claimed. The judiciary also looks harshly upon misrepresentations in the sale agreement. A buyer who can show that the seller concealed a compliance gap that later triggered a tax demand usually gets strong reprieves, including damages.
If You Are the Victim
- Immediately pull all tax filings of the target company — Form 10-IB, ITR-6, tax audit report — and check for red flags.
- Engage a forensic auditor and a corporate tax advocate in parallel; don’t wait for the seller’s explanations.
- If you suspect a deliberate misrepresentation, issue a legal notice framing the breach and reserving your right to sue for damages.
- Don’t let the seller close any pending tax proceedings; intervene through an application if necessary.
- Preserve every email, WhatsApp message, and term sheet that discussed the Section 115BAB status — those become crucial evidence.
Documents You Must Keep Ready
- Certified true copies of the target’s Memorandum and Articles of Association.
- Form 10-IB and acknowledgment from the Income Tax Department showing the valid registration.
- Audited financial statements for the last three years.
- Income Tax Returns and tax audit reports (Form 3CD) of the target.
- Details of plant and machinery invoices and the 20% used-machinery certification.
- Board resolution approving the sale and the draft share purchase agreement.
- Any prior legal advice the target received on Section 115BAB compliance.
- Correspondence between the parties about the tax benefit.
What Evidence Is Required?
- Primary evidence: original Form 10-IB, tax challans, and board minutes — these are admissible without secondary proof.
- Secondary evidence: certified copies of ITR‑V acknowledgments and e-filing proofs, which can be tendered if originals are lost.
- Digital evidence: emails and encrypted chats where the seller confirmed the tax benefit stands; they must be accompanied by a Section 65B certificate under the Indian Evidence Act.
- Expert opinion: a chartered accountant’s report on the compliance timeline and the 20% used-plant threshold.
- Oral testimony: the target’s company secretary who oversaw the Form 10-IB filing often becomes a crucial witness.
Timeline of Legal Process
- Step 1. Legal notice / demand letter — 1 to 2 weeks.
- Step 2. Negotiation and alternative dispute resolution — 4 to 8 weeks.
- Step 3. If litigation becomes unavoidable: drafting and filing the plaint or company petition — 2 to 3 weeks.
- Step 4. Issuance of summons, appearance of defendant, written statement — 8 to 12 weeks from filing.
- Step 5. Framing of issues, discovery, evidence — 6 to 12 months, depending on court pendency.
- Step 6. Final arguments, judgment — another 3 to 6 months.
- Step 7. Execution / appeal — variable; an appeal can add 1 to 2 years.
- Commercial courts generally move faster; a contested suit may wrap up in 12 to 18 months if no procedural delays. Tribunal matters before NCLT can be even quicker.
Understanding the Costs
The total cost of a matter like this varies significantly from one case to the next — it depends on the complexity of the dispute, the forum involved, the number of hearings, and the specific facts of your situation. There is no single fixed figure that applies to everyone.
A professional advocate can give you an accurate estimate only after reviewing all your facts and documents in a consultation.
Can the Matter Be Settled Out of Court?
Absolutely. In fact, most commercial disputes of this nature settle. The buyer and seller can enter a compromise deed agreeing to indemnify tax liabilities or to restructure the consideration. If a suit is already filed, the court can refer the matter to mediation under Section 89 of the CPC. Pre-litigation mediation is also an option, and a settlement reached there can be converted into a consent decree. For pending income-tax appellate matters arising from a wrongly claimed 115BAB benefit, the Dispute Resolution Panel mechanism or a direct settlement with the tax department under the Vivad se Vishwas scheme can cut short years of litigation. Since no criminality is involved, there is no bar on compounding, and settlement is often the wisest commercial call.
Common Mistakes People Make
- Not verifying the Form 10-IB filing date and the actual commencement of manufacturing — a mismatch can unravel the tax benefit.
- Hiring a general corporate lawyer who lacks deep experience with Section 115BAB, resulting in weak representations and indemnity clauses that don’t cover tax withdrawal.
- Relying on oral assurances from the seller about the tax status instead of insisting on a hard due diligence report.
- Ignoring the 20% used-plant limit. Even a minor breach can invite a demand for the entire differential tax amount.
- Failing to obtain a board resolution specifically affirming the Section 115BAB status before closing the transaction.
- Delaying post-acquisition annual compliance filings — even a few days’ slip can trigger a notice and a demand for higher tax with interest.
FAQs People Normally Have
Does the Section 115BAB benefit get lost if I buy 100% of the shares?
No. The benefit runs with the company so long as the company doesn’t breach any of the statutory conditions. A mere change in shareholding doesn’t disqualify it.
What if the company was formed by splitting a family business — can it still claim the benefit?
No. Section 115BAB explicitly says the company must not be formed by splitting up or reconstruction of a business already in existence. If the breakup involved using substantial old assets or a pre-existing customer base, the tax department will challenge the claim.
Can I still get the 15% rate if the company started manufacturing after 31 March 2024?
No. The lower rate under Section 115BAB is available only if the company commences manufacturing on or before 31 March 2024. For later dates, the normal slab rate applies unless another concession is available.
Is the benefit permanent?
It is available for any previous year relevant to the assessment year beginning on or after 1 April 2020, so long as the company does not opt out and continues to meet the conditions. There is no sunset clause as of now, but the company loses the benefit if it claims certain other deductions or ceases manufacturing.
What’s the biggest red flag in due diligence?
A mismatch between the date of incorporation and the date of first substantial manufacturing activity. Or invoices for used plant and machinery that exceed 20% of total value — that alone kills the benefit.
This article is general legal information, not legal advice. Consult a qualified advocate about your specific situation.
Advocate Sudhir Rao, Supreme Court of India