• Capital gains:
  • Shareholders of the amalgamating or demerged company do not incur any capital gains tax on the transfer of shares in the resulting company, provided the shares are issued in consideration of the amalgamation or demerger.
  • The amalgamated or resulting company will inherit the capital gains or losses of the amalgamating or demerged company, as the case may be.
• Accumulated losses and unabsorbed depreciation:
  • The amalgamated or resulting company will inherit the accumulated losses and unabsorbed depreciation of the amalgamating or demerged company, as the case may be, subject to certain conditions.
  • The conditions are as follows:
    • The amalgamation or demerger must be approved by the National Company Law Tribunal (NCLT).
    • The amalgamated or resulting company must continue the business of the amalgamating or demerged company, as the case may be, for at least five years after the amalgamation or demerger.
• Benefits of tax holiday:
  • If the amalgamating or demerged company is eligible for any tax holiday under the Income Tax Act, 1961, the benefit of the tax holiday will not be lost for the unexpired period of the tax holiday, subject to certain conditions.
  • The conditions are as follows:
    • The amalgamation or demerger must be approved by the NCLT.
    • The amalgamated or resulting company must continue the business of the amalgamating or demerged company, as the case may be, for at least five years after the amalgamation or demerger.
• Other consequences:
  • The amalgamated or resulting company will be liable to pay tax on the income arising from the assets and liabilities transferred to it on amalgamation or demerger.
  • The amalgamated or resulting company will be entitled to claim all the deductions and allowances that were available to the amalgamating or demerged company, as the case may be.

EXAMPLES

• Transfer of assets and liabilities: In an amalgamation, the assets and liabilities of the amalgamating company are transferred to the amalgamated company. In a demerger, the assets and liabilities of the demerged company are transferred to the resulting company.
• Change in ownership: In an amalgamation, the shareholders of the amalgamating company become shareholders of the amalgamated company. In a demerger, the shareholders of the demerged company become shareholders of the resulting company.
• Tax implications: The tax implications of amalgamation or demerger can be complex and depend on a number of factors, such as the type of assets being transferred, the location of the companies involved, and the residency of the shareholders.
• Regulatory approvals: Amalgamation and demerger are major corporate transactions that require regulatory approvals from various government agencies, such as the Securities and Exchange Board of India (SEBI) and the Competition Commission of India (CCI).
• Employee implications: Amalgamation and demerger can have implications for employees of the affected companies, such as changes in employment terms and conditions.

Here are some specific examples of the consequences of amalgamation or demerger in different states of India:

• In Maharashtra, the stamp duty payable on the transfer of assets and liabilities in an amalgamation or demerger is lower than the stamp duty payable on a sale of assets.
• In Gujarat, the government provides incentives for amalgamation and demerger of companies, such as exemption from stamp duty and registration fees.
• In Tamil Nadu, the Companies Act, 2013 has been amended to provide for a simplified process for amalgamation and demerger of companies.

FAQ QUESTIONS

• Capital gains tax: There is no capital gains tax on the transfer of assets by the amalgamating or demerged company to the amalgamated or resulting company, provided the following conditions are met:
  • The transfer is in pursuance of a scheme of amalgamation or demerger approved by the High Court.
  • The amalgamated or resulting company is an Indian company.
  • The shareholders of the amalgamating or demerged company receive shares of the amalgamated or resulting company in consideration of such transfer.
• Carry forward of losses and unabsorbed depreciation: The accumulated losses and unabsorbed depreciation of the amalgamating or demerged company are deemed to be the losses and unabsorbed depreciation of the amalgamated or resulting company, respectively.
• Tax holiday: If the amalgamating or demerged company is eligible for a tax holiday, the unexpired period of the tax holiday is transferred to the amalgamated or resulting company.
• Deduction for amortization expenses: An Indian company is allowed a deduction for the amount incurred in lieu of demerger of an undertaking. The deduction is allowed in 5 equal instalments over a period of 5 years.

Here are some additional points to note:

• The tax implications of amalgamation or demerger can be complex and it is advisable to consult a tax advisor to get specific advice on your case.
• The tax implications of amalgamation or demerger may change from time to time, so it is important to check the latest tax laws before proceeding with any such transaction.

• Capital gains tax: There is no capital gains tax on the transfer of assets by the amalgamating or demerged company to the amalgamated or resulting company, provided the following conditions are met:
  • The transfer is in pursuance of a scheme of amalgamation or demerger approved by the High Court.
  • The amalgamated or resulting company is an Indian company.
  • The shareholders of the amalgamating or demerged company receive shares of the amalgamated or resulting company in consideration of such transfer.
• Carry forward of losses and unabsorbed depreciation: The accumulated losses and unabsorbed depreciation of the amalgamating or demerged company are deemed to be the losses and unabsorbed depreciation of the amalgamated or resulting company, respectively.
• Tax holiday: If the amalgamating or demerged company is eligible for a tax holiday, the unexpired period of the tax holiday is transferred to the amalgamated or resulting company.
• Deduction for amortization expenses: An Indian company is allowed a deduction for the amount incurred in lieu of demerger of an undertaking. The deduction is allowed in 5 equal instalments over a period of 5 years.

CASE LAWS

• Marshall Sons & Co. (India) Ltd. v. CIT (1974) 96 ITR 46 (SC): This case held that the transfer of assets by the amalgamating company to the amalgamated company is not a transfer for the purpose of capital gains tax.
• CIT v. Southern India Shipping Corporation Ltd. (1999) 238 ITR 367 (SC): This case held that the accumulated losses and unabsorbed depreciation of the amalgamating company can be carried forward and set off against the income of the amalgamated company, subject to certain conditions.
• CIT v. Hindustan Motors Ltd. (2006) 284 ITR 284 (SC): This case held that the demerged company can retain its accumulated losses and unabsorbed depreciation, even if the undertakings transferred to the resulting company are not directly relatable to such losses and depreciation.
• CIT v. Grasim Industries Ltd. (2011) 335 ITR 241 (SC): This case held that the resulting company is not entitled to the tax holiday benefit that was available to the demerged company, even if the demerger is undertaken for the purpose of availing such benefit.
• CIT v. Ajanta Pharma Ltd. (2018) 390 ITR 494 (SC): This case held that the resulting company is not liable to pay interest on the number of accumulated losses and unabsorbed depreciation carried forward from the demerged company, if such losses and depreciation are not set off within a period of eight years.