Hello Auditor

What are the corporate tax provisions for amalgamations?

Definition and Recognition of Amalgamation

  • Amalgamation refers to the merger of one or more companies into another company.
  • It must meet the definition under section 2(1B) of the Income-tax Act, 1961.
  • All assets and liabilities of the amalgamating company must be transferred to the amalgamated company.
  • Shareholders of the amalgamating company must receive shares in the amalgamated company.
  • The transaction should be a genuine merger for tax recognition.

Tax Neutrality Under Section 47

  • Transfer of capital assets in a scheme of amalgamation is not regarded as a taxable transfer.
  • Section 47(vi) exempts capital gains in the hands of the amalgamating company.
  • Section 47(vii) provides exemption for shareholders if they receive shares in exchange.
  • Conditions must be fulfilled to qualify for this exemption.
  • Tax neutrality is granted only for mergers between Indian companies.

Carry Forward of Losses and Depreciation

  • Under section 72A, accumulated business losses and unabsorbed depreciation of the amalgamating company can be carried forward.
  • The amalgamated company must continue the business of the amalgamating company for at least five years.
  • Assets must be retained for a minimum of five years from the date of amalgamation.
  • The scheme must be approved by a competent authority like a tribunal or board.
  • The benefit is not available in case of shell companies or abusive transactions.

Depreciation and Asset Treatment

  • Assets transferred are eligible for depreciation in the hands of the amalgamated company.
  • Depreciation is calculated based on the written down value of the assets.
  • Block of asset concept continues after amalgamation.
  • The year of transfer allows partial depreciation based on usage.
  • Cost of acquisition for the amalgamated company is the original cost to the amalgamating company.

Filing and Compliance Requirements

  • Amalgamation details must be disclosed in the return of income.
  • Approval order from the relevant authority must be preserved and submitted when required.
  • Updated books and tax records of both companies must be maintained.
  • PAN, TDS, and other statutory registrations may require migration or update.

Assessment or pending proceedings continue against the amalgamated entity.

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