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Corporate Tax Planning

Notes Other Benefits of Amalgamation
After going through the above stated provisions we can say that if a company complies with all
formalities as mentioned in the provisions of Income Tax Act in relation to Amalgamation and

merger than its can enjoy the benefits of following Tax Concessions:

1. Expenditure on Scientific Research Section 35(5): Where an amalgamating company
transfers any asset represented by capital expenditure on the scientific research to the

amalgamated Indian company in a scheme of amalgamation, the provisions of section
35 which were applicable to the amalgamating company shall become applicable to the
amalgamated company consequently

(a) Unabsorbed capital expenditure on scientific research of the amalgamating company

will be allowed to be carried forward and set off in the hands of the amalgamated
company

(b) If such asset ceases to be used in a previous year for scientific research related to
the business of amalgamated company and is sold by the amalgamated company
without having being used for other purposes, the sales price, to the extent of the
cost of the asset shall be treated as business income other amalgamated company.
The excess of the sale price over the cost of the asset shall be subject to the provisions
of the capital gains
2. Expenditure on acquisition of patent rights or copy rights Section 35A(6): Where the patent
or copyrights acquired by the amalgamating company is transferred to any amalgamated
Indian company, the provisions of section 35A which were applicable to the amalgamating
company shall become applicable in the same manner to the amalgamated company
consequently
The expenditure on patents copyrights not yet written off shall be allowed to the
amalgamated company in the same number or balance instalments
Where such rights are later on sold by the amalgamated company, the treatment of the
deficiency or surplus will be same as would have been in the case of the amalgamating

company However, if such expenditure is incurred by the amalgamating company
after 31-3-1998, deduction under section 35A is not allowed, as such expenditure will
be eligible for depreciation as intangible asset. In this case, provisions of depreciation
shall apply
3. Expenditure of know-how Section 35AB (3): With effect from assessment year 2000-
01, where there is a transfer of an undertaking under a scheme of amalgamation, the
amalgamated company shall be entitled to claim deduction under section 35AB in respect
of such undertaking to the same extent and in respect of the residual period as it would
have been allowable to the amalgamating company, had amalgamation not taken place.
However, if such expenditure is incurred by the amalgamating company after 31--31998,
deduction under section 35AB is not allowed, as such expenditure will be eligible for
depreciation as intangible asset. In this case provisions of depreciation shall apply
4. Treatment of preliminary expenses Section 35D(5): Where an amalgamating company
merges in a scheme of amalgamation with the amalgamated company, the amount of
preliminary expenses of the amalgamating company, which are not yet written off, shall be
allowed as deduction to the amalgamated company in the same matter as would have been
allowed to the amalgamating company.
5. Amortisation of expenditure in case of amalgamation Section 35DD: Where an assessee,
being an Indian company, incurs any expenditure, on or after the 1st day of April, 1999,
wholly and exclusively for the purposes of amalgamation or demerger of an undertaking,
the assessee shall be allowed a deduction of an amount equal to one-fifth of such expenditure

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