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Unit 13: Tax Treatment for Business Restructuring

Withdrawal of Deduction or Allowance Notes

Sub-section (3) provides that where any of the conditions laid down in sub-section (2) are not
complied with, the set off or allowance for depreciation made in any previous year in the hands
of the amalgamated company shall be deemed to be the income of the amalgamating company
chargeable to tax for the year in which such conditions are not complied with.
!

Caution Meaning of “Industrial undertaking”
Industrial undertaking means any undertaking which is engaged in:

1. The manufacture or processing of goods; or
2. The manufacture a computer software; or

3. The business of generation or distribution of electricity or any other form of power;
or

4. The business of providing telecommunication services, whether basic or cellular,
including radio paging, domestic satellite service, network of trunking, broadband
network and internet services; or
4. Mining; or

5. The construction of ships, aircrafts or rail systems.”
Power of Central Government to Prescribe Other Conditions

Section 72A (2)(iii) empowers the Central Government to prescribe other conditions to ensure
that the amalgamation is for “genuine business purpose” or for the purpose of revival of the
business of amalgamating company.
Rule 9C prescribes that the amalgamated company should achieve the level of production of at
least 50% of the installed capacity of the said undertaking before the end of 4 years from the date
of amalgamation and maintain the said minimum level till the end of 5 years from the date of
amalgamation. The assessee is required to obtain a report in the prescribed form as given in the
Rules.

An issue arises that the above condition prescribed vide the above notification cannot be satisfi ed

in case where the installed capacity is not there. Examples could be software companies, units
engaged in assembly/processing activities etc.
Apart from carrying forward unabsorbed business loss and unabsorbed depreciation, the
amalgamated company shall also be entitled to carry forward and set off the following unabsorbed
expenditures of the amalgamating company:

1. Capital expenditure on Scientific Research u/s 35;
2. Expenditure in connection with amalgamation u/s 35DD;
3. Expenditure for obtaining licence to operate telecommunication services u/s 35ABB;

4. Preliminary expenses u/s 35D;
5. Deduction for expenditure on prospecting etc. for minerals u/s 35E.

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