Godrej family's billion-dollar business restructuring won't attract tax: Here's why
The Godrej Group, a 127-year-old family-owned conglomerate, has recently declared its decision to split into two separate entities. This strategic move, led by the third generation of the Godrej family, involves a multi-billion-dollar settlement that will not attract any capital gains tax. Insiders privy to the developments have told Moneycontrol that the Godrej Group has opted for a 'family arrangement' under tax law, which is exempt from capital gains tax provisions of the Income Tax Act.
Post-split management and tax-exempt route details
Following the split, different factions of the Godrej family will manage distinct businesses. Adi and Nadir Godrej, along with their heirs, will oversee listed companies such as Godrej Industries, Godrej Properties, Godrej Agrovet, Godrej Consumer and Astec Lifescience. Meanwhile, Jamshyd Godrej and Smita Crishna will take charge of the unlisted company, Godrej & Boyce. This restructuring meets all necessary criteria for a tax-exempt 'family arrangement,' as per the report.
Supreme Court guidelines for valid family arrangements
The Godrej family's settlement follows a precedent set by the 1976 Supreme Court verdict (Kale vs Deputy Director of India). The court outlined four key principles for valid family arrangements. Firstly, all parties involved must be direct relatives. Secondly, the arrangement should address any existing or potential disputes over assets and ensure fair wealth distribution within the family.
Godrej family's compliance with Supreme Court conditions
The third condition of the Supreme Court guidelines requires each party to forfeit some claims in favor of others. In line with this, Adi and Nadir are relinquishing their stakes in unlisted Godrej & Boyce, while Jamshyd and Smita will surrender most of their holdings in listed entities. The fourth condition necessitates that each party acknowledges other parties' rights in the agreement, a term all members of the Godrej family have agreed to.
