AMALGAMATION AND TAX RELIEF

Tax Relief’s and Benefits in case of Amalgamation

If an amalgamation takes place within the meaning of section 2(1B) of the Income Tax Act,
1961, the following tax reliefs and benefits shall available:-

1. Tax Relief to the Amalgamating Company:

o Exemption from Capital Gains Tax [Sec. 47(vi)]

Under section 47(vi) of the Income-tax Act, capital gain arising from the transfer of assets by the
amalgamating companies to the Indian Amalgamated Company is exempt from tax as such
transfer will not be regarded as a transfer for the purpose of Capital Gain.

o Exemption from Capital Gains Tax in case of International Restructuring [Sec. 47(via)]

Under Section 47(via), in case of amalgamation of foreign companies, transfer of shares held in
Indian company by amalgamating foreign company to amalgamated foreign company is exempt
from tax, if the following two conditions are satisfied:

o At least twenty-five per cent of the shareholders of the amalgamating foreign company
continue to remain shareholders of the amalgamated foreign company, and

o Such transfer does not attract tax on capital gains in the country, in which the amalgamating
company is incorporated

2. Tax Relief to the shareholders of an Amalgamating Company:

o Exemption from Capital Gains Tax [Sec 47(vii)]

Under section 47(vii) of the Income-tax Act, capital gains arising from the transfer of shares by a
shareholder of the amalgamating companies are exempt from tax as such transactions will not be
regarded as a transfer for capital gain purpose, if:

o The transfer is made in consideration of the allotment to him of shares in the amalgamated
company; and o Amalgamated company is an Indian company.

3. Tax Relief to the Amalgamated Company:

o Carry Forward and Set Off of Accumulated loss and unabsorbed depreciation of the
amalgamating company [Sec. 72A]:

Section 72A of the Income Tax Act, 1961 deals with the mergers of the sick companies with
healthy companies and to take advantage of the carry forward of accumulated losses and
unabsorbed depreciation of the amalgamating company. But the benefits under this section with
respect to unabsorbed depreciation and carry forward losses are available only if the followings
conditions are fulfilled:-

o There should be an amalgamation of – (a) a company owning an industrial undertaking

(Note 1) or ship or a hotel with another company, or (b) a banking company referred in section
5(c) of the Banking Regulation Act, 1949 with a specified bank (Note 2), or (c) one or more
public sector company or companies engaged in the business of operation of aircraft with one or
more public sector company or companies engaged in similar business.

[Note 1. The term ‘Industrial Undertaking’ shall mean any undertaking engaged in : (i) the
manufacture or processing of goods, or (ii) the manufacture of computer software, or (iii) the
business of generation or distribution of electricity or any other form of power, or (iv) mining, or
(v) the construction of ships, aircrafts or rail systems, or (vi) the business of providing
telecommunication services, whether basic or cellular, including radio paging, domestic satellite
service, network of trunking, broadband network and internet services. Note 2. Specified bank
means the State Bank of India constituted under the State Bank of India Act, 1955 or a subsidiary
bank as defined in the State Bank of India (Subsidiary Bank) Act, 1959 or a corresponding new
bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of
Undertaking) Act, 1980.

oThe amalgamated company should be an Indian Company.

o The amalgamating company should be engaged in the business, in which the accumulated loss
occurred or depreciation remains unabsorbed, for 3 years or more.

o The amalgamating company should held continuously as on the date of amalgamation at least
three-fourth of the book value of the fixed assets held by it two years prior to the date of
amalgamation.

o The amalgamated company holds continuously for a minimum period of five years from the
date of amalgamation at least three-fourths in the book value of fixed assets of the amalgamating
company acquired in a scheme of amalgamation

o The amalgamated company continues the business of the amalgamating company for a
minimum period of five years from the date of amalgamation.

o The amalgamated company fulfils such other conditions as may be prescribed to ensure the
revival of the business of the amalgamating company or to ensure that the amalgamation is for
genuine business purpose.