The second point could become the bone of contention. If the tax authorities do not view the surrender as a transfer of business, then shareholders will have to pay tax on the value of the shares that they receive.

Alternatively, if the petrochemicals and refining businesses are carved out, then it would easily pass the test of de-merger without any tax implications for the shareholders.

Deal between the brothers

The stake of the Ambani family in Reliance's businesses is held through a number of privately held companies and trusts. Mr Mukesh Ambani is also said to hold a stake in his individual capacity in Reliance Infocomm. In this backdrop, if the transfer should lead to Mr Mukesh Ambani controlling Reliance Industries and IPCL only, with Mr Anil Ambani controlling the other three businesses, then structuring a deal that does not involve any tax payment could prove to be a challenge.

The tax implications in the case of Reliance Infocomm could be substantial. This is because value of the stake in Reliance Infocomm is likely to be several times the cost of the original investments. Also, with Reliance Infocomm being an unlisted entity, any transfer involving shares in the company would attract tax at a basic rate of 30 per cent on the capital gains.

As regards the family stake held in the name of a Hindu Undivided Family comprising the members of the Dhirubhai Ambani family, a partition of assets in the context of settlement would escape taxation.

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