The consequences of amalgamation or demerger under income tax in India are as follows:

• Capital gains under Income Tax Act: There is no capital gains tax on the transfer of assets from the amalgamating or demerging company to the amalgamated or resulting company, if the amalgamated or resulting company is an Indian company.
• Accumulated business losses and unabsorbed depreciation under Income Tax Act: The accumulated business losses and unabsorbed depreciation of the amalgamating or demerging company can be carried forward and set off against the profits of the amalgamated or resulting company.
• Tax holiday under Income Tax Act: If the amalgamating or demerging company is eligible for a tax holiday, the benefit of the tax holiday will not be lost on account of the amalgamation or demerger.
• Input tax credit under Income Tax Act: The input tax credit (ITC) of the amalgamating or demerging company can be transferred to the amalgamated or resulting company.
• Stamp duty under Income Tax Act: There is no stamp duty on the transfer of assets from the amalgamating or demerging company to the amalgamated or resulting company.

However, there are some conditions that need to be met in order to avail of these tax benefits. For example, the amalgamation or demerger must be approved by the High Court or the National Company Law Tribunal (NCLT). The amalgamated or resulting company must also continue the business of the amalgamating or demerging company for a minimum period of five years.

It is important to consult with a tax advisor to understand the specific tax implications of amalgamation or demerger in your case under Income Tax Act.

Here are some additional things to keep in mind under Income Tax Act:

• The tax benefits of amalgamation or demerger are not automatic. You will need to file the necessary paperwork with the tax authorities and meet all of the required conditions.
• The tax benefits of amalgamation or demerger can be complex and depend on the specific circumstances of each case. It is important to consult with a tax advisor to ensure that you are taking full advantage of the available benefits.

FAQ QUESTIONS

• Q: What are the conditions for a tax-free amalgamation under Income Tax Act?
  • The amalgamation must be approved by the shareholders and creditors of the amalgamating companies.
  • The amalgamation must be for bona fide commercial purposes.
  • The amalgamation must not be a sham or a tax avoidance scheme.
• Q: What are the tax implications of a demerger on the resulting company under Income Tax Act?
  • The resulting company will inherit the accumulated losses and unabsorbed depreciation of the demerged company.
  • The resulting company may be liable to capital gains tax on the transfer of assets from the demerged company, if the assets are transferred at a value that is higher than their book value.

  • CASE LAWS

The tax consequences of amalgamation or demerger under the Income Tax Act, 1961 (the “Act”) are complex and depend on a number of factors, including the specific terms of the amalgamation or demerger agreement, the nature of the assets and liabilities transferred, and the tax status of the companies involved.

In general, amalgamation or demerger is not a taxable event. However, there are a number of exceptions to this rule, and the tax consequences can be significant in some cases.

Some of the key case laws on the tax consequences of amalgamation or demerger under the Income Tax Act include:

• Marshall Sons & Co. (India) Ltd. v. CIT (1974) 96 ITR 63 (SC) of Income Tax Act: This case held that the transfer of assets and liabilities from a transferor company to an amalgamated company in a scheme of amalgamation is not a taxable event.
• CIT v. Shaw Wallace & Co. Ltd. (1981) 128 ITR 729 (SC) of Income Tax Act: This case held that the transfer of assets and liabilities from a demerged company to the resulting company in a scheme of demerger is not a taxable event.
• CIT v. Indian Hume Pipe Co. Ltd. (1991) 192 ITR 209 (SC) of Income Tax Act: This case held that the transfer of assets and liabilities from a transferor company to an amalgamated company in a scheme of amalgamation is not a taxable event, even if the amalgamated company is a foreign company.
• CIT v. Bharat Heavy Electricals Ltd. (2008) 304 ITR 85 (SC) of Income Tax Act: This case held that the transfer of assets and liabilities from a demerged company to the resulting company in a scheme of demerger is not a taxable event, even if the resulting company is a foreign company.