Merger and Acquisition & Taxation Aspects

In any merger or amalgamation, financial aspects of the transaction are of prime

importance as the same are expected to accrue financial benefits. While framing a scheme of
merger or amalgamation, a company has to fulfill the conditions prescribed under the Company
Law as already discussed in previous lessons, but it has also to look after two very important
aspects, i.e., taxation and stamp duty.

Tax considerations predominate and inevitably direct the manner in which the entire
scheme has to be designed. Tax planning in cases of amalgamations of companies is perhaps the
most vital aspect of decision-making involved in framing of the scheme of amalgamation. A
company is planning a merger or a takeover; need to do intensive tax planning before finalizing
the deal to get the maximum tax concession and benefits in the deal. In India, law provides for
ample benefits in the form of various provisions to companies going in for amalgamation.

Taxation aspects of merger and demerger includes aspects such as capital gain and
carry forward of losses after merger. Deemed dividend and its tax implications are also
important considerations.

Highlights:

• Under Section 72A, a special provision is made which relaxes the provision relating to
carrying forward and set-off of accumulated business loss and unabsorbed depreciation
allowance in certain cases of amalgamation.
• Capital gains tax is leviable if there arises capital gain due to transfer of capital assets.