Professional Documents
Culture Documents
1.
Capital gains tax not attracted According to Section 47(vib) of the Income Tax,
1961 where there is any transfer, in a demerger, of a capital asset by the demerged company
to the resulting company, if the resulting company is an Indian company shall not be regarded
as a transfer for the purposes of capital gains.
2.
47(vid) of the Income Tax, 1961 when there is any transfer or issue of shares by the resulting
company, in a scheme of demerger to the shareholders of the demerged company if the
transfer or issue is made in consideration of demerger of the undertaking shall not be
regarded as a transfer for the purposes of capital gains.
in
Net
Company
_______________________________
Net worth of demerged company before demerger.
The demerged satisfies all the conditions laid down in Section 2(19AA) of the Income
Tax ACT, 1961
As per S.2(19AA) of the Income Tax Act, 1961, unless the context otherwise requires,
the term demerger, in relation to companies, means the transfer, pursuant to a
scheme of arrangement under sections 391 to 394 of the Companies Act, 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
include:
(a) the liabilities which arise out of the activities or operations of the undertaking;
(b) the specific loans or borrowings (including debentures) raised, incurred and
3. For determining the value of the property referred to in sub-clause (iii), any change
previous year the deduction calculated at the prescribed rates as if the succession or the
amalgamation or the demerger, as the case may be, had not taken place, and such deduction
shall be apportioned between the predecessor and the successor, or the amalgamating
company and the amalgamated company, or the demerged company and the resulting
company, as the case may be, in the ratio of the number of days for which the assets were
used by them.
2. Expenditure on acquisition of patent rights and copyrights Section 35A (1) of the
Income Tax, 1961 provides in respect of any expenditure of a capital nature incurred after the
28th day of February, 1966 but before the 1st day of April, 1998, on the acquisition of patent
rights or used for the purposes of the business, there shall, subject to and in accordance with
the provisions of this section, be allowed for each of the relevant previous years, a deduction
equal to the appropriate fraction of the amount of such expenditure.
Section 35A (7) Where in a scheme of demerger, the demerged company sells or otherwise
transfers the rights to the resulting company (being an Indian company),(i) the provisions of sub-sections (3) and (4) Section 35A shall not apply in the case of the
demerged company; and
(ii) the provisions of this section shall, as far as may be, apply to the resulting company as
they would have applied to the demerged company, if the latter had not sold or otherwise
transferred the rights.
However, if such expenditure is incurred by the demerged company 31.03.98, deduction
under Section 35A is not allowed, as such expenditure will be eligible for depreciation.
3. Expenditure on Know how Section 35AB(3) of the Income Tax, 1961 provides where
there is a transfer of an undertaking under a scheme of amalgamation or demerger and the
amalgamating or the demerged company is entitled to a deduction under this section, then,
the amalgamated company or the resulting company, as the case may be, shall be entitled to
claim deduction under this section in respect of such undertaking to the same extent and in
respect of the residual period as it would have been allowable to the amalgamating company
or the demerged company, as the case may be, had such amalgamation or demerger not taken
place.
amount equal to one-fifth of such expenditure for each of the five successive previous years
beginning with the previous year in which the amalgamation or demerger takes place.
7. Computation
of
actual
cost
to
resulting
company
of
capital
assets
9. Carry forward and set off of accumulated loss and unabsorbed depreciation allowance
- Section 72A(4) of the Income Tax, 1961
Notwithstanding anything contained in any other provisions of this Act, in the case of a
demerger, the accumulated loss and the allowance for unabsorbed depreciation of the
demerged company shall
(a) where such loss or unabsorbed depreciation is directly relatable to the undertakings
transferred to the resulting company, be allowed to be carried forward and set off in the hands
of the resulting company;
(b) where such loss or unabsorbed depreciation is not directly relatable to the undertakings
transferred to the resulting company, be apportioned between the demerged company and the
resulting company in the same proportion in which the assets of the undertakings have been
retained by the demerged company and transferred to the resulting company, and be allowed
to be carried forward and set off in the hands of the demerged company or the resulting
company, as the case may be.
10. Deductions in respect of profits and gains from industrial undertakings or enterprises
engaged in infrastructure development, etc - Section 80-IA of the Income Tax, 1961 Where the gross total income of an assessee includes any profits and gains derived by eligible
business, there shall, in accordance with and subject to the provisions of this section, be
allowed, in computing the total income of the assessee, a deduction of an amount equal to
hundred per cent of the profits and gains derived from such business for ten consecutive
assessment years.
Where any undertaking of an Indian company which is entitled to the deduction under this
section is transferred, before the expiry of the period specified in this section, to another
Indian company in a scheme of amalgamation or demerger
(a) no deduction shall be admissible under this section to the amalgamating or the demerged
company for the previous year in which the amalgamation or the demerger takes place; and
(b) the provisions of this section shall, as far as may be, apply to the amalgamated or the
resulting company as they would have applied to the amalgamating or the demerged company
if the amalgamation or demerger had not taken place.
11. Tax on income from bonds or Global Depository Receipts purchased in foreign currency
or capital gains arising from their transfer - Section 115AC(5) of the Income Tax,
1961 provides that where the assessee acquired Global Depository Receipts or bonds in an
amalgamated or resulting company by virtue of his holding Global Depository Receipts or
bonds in the amalgamating or demerged company, as the case may be, in accordance with the
provisions of sub-section (1) Section 115AC of the Income Tax, 1961 of , the provisions of
that sub-section shall apply to such Global Depository Receipts or bonds.