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Example: Where A merges with another company B in a scheme of amalgamation, and immediately before the amalgamation, company B held 20% of the shares in company A, the above mentioned condition will be satisfied if shareholders holding not less than 3/4th in value of the remaining 80% of share in company A i.e. 60% thereof ( th of 80) , becomes the shareholder of the company B by virtue of the amalgamation.
Provisions relating to Carry forward and set off of losses, in amalgamation [section 72A]
As per section72A , amalgamated company is entitled to carry forward the unabsorbed depreciation and accumulated losses of the amalgamating company provided the following conditions are satisfied : There should be an amalgamation of A company owing an industrial undertaking or ship or a hotel with another company, or A banking company referred in section 5(c) of the Banking Regulation Act, 1949 with a specified bank, or One or more public sector company or companies engaged in the business of operation of Aircraft with one or more public sector company engaged in similar business.
1)
2) The following conditions laid down under section 72A are satisfied by the amalgamating company and the amalgamated company as the case may be. a) Conditions to be satisfied by the amalgamating company i. The amalgamating company has been engaged in the business in which the accumulated loss occurred or depreciation remains unabsorbed for three years or more ii. The amalgamating company has held continuously as on the date of the amalgamation at least 75% of the book value of fixed assets held by it two yrs prior to the date of amalgamation
b) Conditions to be satisfied by the amalgamated company i. The amalgamated company holds continuously for the minimum period of five yrs from the date of amalgamation at least 75% of the book value of fixed assets of the amalgamating company acquired in the scheme of amalgamation; ii. The amalgamated company continues the business of amalgamating company for a period of 5 years from the date of amalgamation. iii. The amalgamated company fulfills such other conditions as may be prescribed to ensure the revival of business of the amalgamating company or to ensure that the amalgamation is for genuine business purposes laid down by section 72 A(2)(b)(iii).
The following points should be noted 1. If expenditure is allowed under sec.35DD , then the same is not allowed as deduction under any other provision of the act. 2. Unlike sec.37(1) which prohibits deduction in respect of capital expenditure , sec.35DD does not stipulate any such restriction.
Consequences of amalgamation
In pursuance of amalgamation the amalgamated company in case it is an Indian com. Shall be entitled to benefits available under sections 35, 35AB, 35ABB, 35d, 35DDA, 35E, 41, 80-IA, and 80-IB as they would have applied to amalgamating company. if no amalgamation had taken place
MEANING OF DEMERGER
"Demerger", in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956 (1 of 1956), by a demerged company of its one or more undertakings to any resulting company in such a manner that (i) All the property of the undertaking, being transferred by the demerged company, immediately before the demerger, becomes the property of the resulting company by virtue of the demerger
(ii) All the liabilities relatable to the undertaking, being transferred by the demerged company, immediately before the demerger, become the liabilities of the resulting company by virtue of the demerger; (iii) The property and the liabilities of the undertaking or undertakings being transferred by the demerged company are transferred at values appearing in its books of account immediately before the demerger (iv) The resulting company issues, in consideration of the demerger, its shares to the shareholders of the demerged company on a proportionate basis;
(vi) The transfer of the undertaking is on a going concern basis; (vii) The demerger is in accordance with the conditions, if any, notified under sub-section (5) of section 72A by the Central Government in this behalf.
2. Tax relief to Foreign Demerged Company: a foreign company holds any shares in an Indian company and transfer the same to resulting company in the course of demerger, such transfer will not be regarded as Transfer for the purpose of capital gain, if following conditions are satisfied: 75% of the shareholders of demerged foreign company continue to remain shareholders of the resulting foreign company. Capital gains tax is not attracted on the demerged foreign company in the country of its incorporation.
TAX BENEFITS TO THE SHAREHOLDERS OF THE DEMERGED COMPANY As per section 47 (vi d), any transfer or issue of shares by the resulting company to the shareholders of the demerged company, in scheme of demerger, is not regarded as Transfer for the purpose of Capital Gains.
Carry forward and set off of business losses and unabsorbed depreciation of the demerged company.
The accumulated loss and Unabsorbed depreciation, in a demerger, should be allowed to be carried forward by the resulting company if these are directly relatable to the undertaking proposed to be transferred.
Where it is not possible to relate the undertaking, such loss and depreciation shall be APPORTIONED between demerged company and resulting company in a proportion of the assets coming to the share of each as a result of demerger.
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