When the Right Structure Protects Value
Background
A leading paper manufacturing company, had gone through a major transaction several years ago. At the time, the focus was simple, close the deal cleanly, protect the promoters’ interests, and ensure the structure held up in the long run.
Mantraa was involved during the deal’s closure, helping design the structure and draft the documentation so the transaction would stay defensible even years later.
The promoters wanted something simple: peace of mind that once the deal was done, it would stay done.
The Challenge
Years after the transaction was completed, the tax authorities reopened the case. The issue was whether the income from the sale should be classified as Capital Gains, as declared, or Business Income, which would have created a significant tax liability.
It was the kind of challenge that tests whether a deal was structured right at the start.
The promoters were confident, but a lot depended on how the documentation and structure had been built years earlier.
Mantraa’s Role
Back during the deal, Mantraa had worked on creating a tax efficient and compliant structure for the sale. Every clause, from how the consideration was worded to how ownership was transferred, had been carefully aligned with capital gains treatment under the Income Tax Act.
We had also reviewed and documented the intent of the transaction clearly, that it was an investment exit, not a trading activity. When the case was reopened seven years later, that original groundwork became the company’s strongest defence.
Mantraa supported the promoters again during the review, helping them present the original documentation and logic to the authorities.
The Impact
The structure held up exactly as intended. The authorities accepted the original position, recognising the income as capital gains. There were no penalties or reclassification, the company’s value and credibility stayed intact.
What could have turned into a lengthy and costly tax dispute ended quietly, thanks to the way the deal had been structured and worded years earlier.
