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Unit 13: Tax Treatment for Business Restructuring

for each of the five successive previous years beginning with the previous year in which Notes
the amalgamation or demerger takes place.
6. Treatment of capital expenditure on family planning Section 36(1)(ix): Where the asset
representing the capital expenditure on family planning is transferred by the amalgamating
company to the Indian amalgamated company, in a scheme of amalgamation, the provisions
of section 36(a)(ix) to the amalgamating company shall become applicable in the same
manner, the amalgamated company. Consequently
(a) Such transfer shall not be regarded as transfer by the amalgamating company
(b) The capital expenditure on family planning not yet written off shall be allowable to
the amalgamated company in the same number of balance instalments
(c) Where such assets are sold by amalgamated company, the treatment of the defi ciency
or surplus will be same as would have been in the case of amalgamating company
7. Treatment of bad debts Section 36(1)(vii): Where due to amalgamation, the debts of
amalgamating company have been taken over by the amalgamated company and
subsequently such debt or part of the debt becomes bad, such bad debt will be allowed a
deduction to the amalgamated company
8. Deduction available under section 80-1A or 801B: Where an undertaking which is entitled
to deduction under section 801A/80-1B is transferred in the scheme of amalgamation
before the expiry of the period of deduction under section 80-1A or 80-1B then:
(a) No deduction under section 80-1A or 80-1B shall be available to the amalgamating
company for the previous year in which amalgamation takes place and
(b) The provisions of section 80-1A or 80-1B shall apply to the amalgamated company in
such manner in which they would have applied to the amalgamating company

Similarly, the provisions of 41(1) shall be applied for the amalgamated company.
Moreover the Income-tax Act is strewn with innumerable provisions which are related to or

consequent on amalgamation. These are briefly referred to below:
1. In determining the period for which a capital asset is held by an assessee, the period for
which the shares were held in the amalgamating company shall be considered. This benefi ts
the shareholders of the amalgamating company.

2. Where an undertaking entitled to deduction under these two sections is transferred to
another company in a scheme of amalgamation, no further deduction will be allowable to
the amalgamating companies and the provisions will apply to the amalgamated company,
as they would have to the amalgamating companies.
3. The aggregate deduction in respect of depreciation shall not exceed the deduction at the
prescribed rates, as if the amalgamation has not taken place, and such deduction will be
apportioned between the amalgamating and amalgamated companies in the ratio of the
number of days for which the assets were used by them.
4. The term ‘sale’ does not include a transfer in a scheme of amalgamation.
5. Where in a scheme of amalgamation, the amalgamating company sells or transfers any
assets on which investment allowance has been allowed, the amalgamated company

should continue to fulfil the conditions in respect of the reserve created. If any balance of
investment allowance is outstanding to the amalgamated company, it shall be allowed to
the amalgamated company.
6. Where the amalgamating company sells or transfers to the amalgamated company any

assets representing expenditure of a capital nature on scientific research, the amalgamating

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