Amalgamation and its Tax Impacts.Amalgamation in respect of company means the merger of one or more company with another company or the merger of two or more companies to form one company in such manner that:All the Property/Liability of the amalgamating Co. or Companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of amalgamation.Shareholders holding 75% or more in value of shares in amalgamating company or companies became shareholder of the amalgamated Company.

Created by: 153177 Date: 4/21/2011Doc. Classification: General

Following will not be regarded as amalgamation.Merger of one company with another co. as

result of acquisition of property of one company by another company pursuant to purchase of such property by the other company.

Merger of one company with another company as a result of distribution of property of one company to the other company after winding up of first mentioned company.

Taxation of Shareholders.When a shareholder in the scheme of amalgamation

transfers the shares held by him in the amalgamating company in that case there will be no transfer of shares held by him in the amalgamating Co. if the following condition are satisfied: The transfer is made by him in consideration of allotment to

him of the shares in the amalgamated Co and The amalgamated company is the Indian Co.

Here for the purpose of Capital Gain the cost of acquisition of the shares in the amalgamated Co. shall be the cost of acquisition of the shares in the amalgamating Co.

In determining the period for which the shares in the amalgamated company are held, the period for which the shares were held in the amalgamating Co. shall also be included.

Taxation of Amalgamating Company.There will be no capital gains on transfer of a capital

assets in case of amalgamated Co. is Indian company.There will be no capital gain on transfer of shares

held in Indian company in the scheme of amalgamation by amalgamating foreign company to the amalgamated foreign company if the following condition are satisfied: At least 25% of shareholders of Amalgamating foreign

Co. becomes the shareholder of Amalgamated foreign Co. and

Such transfer does not attracts Capital Gain tax in the country in which amalgamating Co. is incorporated.

Taxation of Amalgamated Company. Here for the purpose of Capital Gain the cost of acquisition and the cost of

improvement of the property in the amalgamated Co. shall be the cost of acquisition and the cost of improvement of the shares in the amalgamating Co.

In determining the period for which the capital assets which were held by the amalgamated company are the period for which the capital assets were held in the amalgamating Co.

Treatment of followings in the amalgamated Company. Expenditure on Scientific Research. Expenditure on Acquisition of Patent rights or copy rights. Expenditure for obtaining license to operate telecommunication Serv. Treatment of Preliminary Expenses. Treatment of capital expenditure on family planning. Treatment of expenses of amalgamation: the deduction shall be 1/5 th of

such expenditure on amalgamation. Amortisation of VRS Expenses: the un-amortised deduction shall be

allowed to amalgamated company as if amalgamation has not taken place.

Taxation of Amalgamated Company.Recovery of Allowance earlier allowed to amalgamating

Company: such amt will be treated as Income from PGBP and will charged to tax in the previous year.

Bad Recovery by Amalgamated Co. is not taxable in its hands.Debts of Amalgamating Co. written off as bad debts by the

amalgamated co hence the deduction for the same is allowed to them as per Supreme Court Judgement.

Any Cap. Assets is transferred by the amalgamating co. to amalgamated co. and the later is an Indian co. then the actual cost of earlier co. will be taken as same for later co.

When any block of assets is transferred Deduction of depreciation between the amalgamating co and

Amalgamated co.: In the ratio of number of days for which the assets were used by them.

When an Undertaking which is entittled exemption under Section 10A/10B/10AA/80IA/80IB/80IC/80IE.

Demerger and its Tax impact. Concept of demerger.Meaning of demerger: Demerger in relation to co. means :

The transfer by demerged co. of its one or more undertakings to any resulting company pursuant to scheme of arrangement u/s 391 to 394 of the companies act 1956 and all the conditions are fulfilled:

a) All the property of the undertaking being transferred by demerged company immediately before the demerger becomes the property of resulting co. Here property includes all assets whether fixed or current assets or intangible assets excluding Def. Rev expenses, Misc Expenses.

b) All the liability of undertaking being transferred by the demerged becomes the liability of resulting co.

Note: Liability shall include: Which arises out of the activity or operations of the undertaking so transferred. It also include the specific loans or borrowings raised, incurred and utilised solely for the activity or operation of the undertaking so transferred and in case other than that proportionate transfer.

The transfer of undertaking is on going concern basis.

Tax implication to demerged co.There will be no capital gains on transfer of a capital assets in

case of demerger, by the demerged co. to the resulting co. provided resulting co. is Indian company.

There will be no capital gain on transfer of shares held in Indian company in the demerger by demerged foreign company to the resulting foreign company if the following condition are satisfied: At least 75% of shareholders of demerged foreign Co. continue to

remain shareholders of resulting foreign Co. and Such transfer does not attracts Capital Gain tax in the country in

which resulting foreign co. is incorporated. Deduction of depreciation between the demerged co. and resulting

co.: treat like demerger took place and accordingly calculate dep. After that allocate in the ratio of number of days for which the assets were used by them.

Carry forward of losses and depreciation: Check directly relates to the co. transferred then such loss will be carry forward by resulting co. else in the ratio of assets retained by the demerged co : assets transferred to resulting co.

Tax implication of transferee co. Treatment of followings in the amalgamated

Company.Expenditure on Scientific Research-Here the demerged

co. will only carry forward the unabsorbed scientific research capital expenditure.

Expenditure on Acquisition of Patent rights or copy rights acquired before 01.04.1998.

Expenditure for obtaining license to operate telecommunication Serv.

Treatment of Preliminary Expenses.Treatment of capital expenditure on family planning.Treatment of expenses of demerger: the deduction shall

be 1/5th of such expenditure on amalgamation.Amortisation of VRS Expenses: the un-amortised

deduction shall be allowed to amalgamated company as if amalgamation has not taken place.

Tax implication of transferee co.Recovery of Allowance earlier allowed to demerged

co: such amt will be treated as Income from PGBP and will charged to tax in the previous year to the resulting co..

Bad Recovery by demerged co. is not taxable in its hands.

Debts of demerged co. written off as bad debts by the amalgamated co hence the deduction for the same is allowed to them as per Supreme Court Judgement.

Any Cap. Assets is transferred by demerged co. to resulting co. and the later is an Indian co. then the actual cost of earlier co. will be taken as lower of the following: Actual Cost to demerged co. or WDV of assets to demerged co. here this clause is applicable when demerged co. has not claimed dep. However resulting co. wants to claim

Various tax concession pursuant to demerger .No capital gain to shareholders in transferor co

and also to the demerged co.No deemed dividend to shareholders in demerged

co.Losses/unabsorbed dep of demerged undertaking

allowed to be carried forward by the transferee co.Cost of acquisition of shares in demerged

company will be the cost to the transferee co.1/5th demerger expenses shall be allowed to

resulting co.Deductions.

Provision relating to set off and Carry forward and set off of accumulated losses and unabsorbed depreciation in amalgamation or demerger.Where there has been amalgamation of a company owning:

An Industrial undertaking or A ship or A hotel With another company orOne or more public sector company or companies engaged in the

business of operation of aircraft with one or more public sector co.

Then notwithstanding anything contained in any other provision of Income tax act, the accumulated loss and the unabsorbed depreciation of amalgamating co. shall be deemed to be loss or dep. of amalgamated co. for the P.Y in which the amalgamation was effected. In this case the provisions of the act relating to set off and carry forward of losses and depreciation shall apply accordingly.

TDS General Exception: payment made to Central Govt, State Govt, RBI,

Statutory corporation. u/s 192; u/s 193 rate is 10% and upto Rs 2500 exempt. 194A: Interest From Bank Rs. 10000 rate is 10% any other interest Rs.

5000. 194B: Winning from lotteries: Rs. 10000 exempt rate is 30% 194BB: Winning from Horse race: Rs. 5000 exempt rate is 30% 194C: Payment to Contractors , Pay to Advt/Sub Contr , Payment to

Transportor: Rs. 30000 (75000 in a year) rate is 2% (Co, Firm, Society) and 1%(HUF, Ind).

194D: Insurance Commission Rs. 20000 rate is 10%. 194H: Commission/Brokerage Rs. 5000rate is 10%. 194I: Rent-property/ Rent Plant/Machinery: Rs 180000 rate is 10% for

property and 2% for others. 194J: Professional Fees: Rs. 30000 rate is 10%.