Page 311 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes company shall not be allowed any further deduction and the amalgamated company will
be subjected to the provisions of S. 35, as if sale or transfer of assets had taken place.
7. Expenditure on acquisition of patents, copyrights, know-how and expenditure on obtaining
license to operate telecommunication services.
In all these cases, where the amalgamating company sells or transfers the assets of an intangible
nature to the amalgamated company, the provisions will cease to apply to the amalgamating
companies, but they will apply to the amalgamated company, as if the transfer has not taken
place.

Notes Pros of Merger

Synergy in operating economies
Taxation benefi ts
No capital gains tax
Carry forward and set-off of losses
Consolidation of reserves without any tax impact
Indirect tax benefi ts

Growth in terms of size, scope, brand equity etc.
Consequences:
Time consuming process – Court approval
Taxation benefits subject to explicit conditions

Carry forward and set-off of losses available only in case of industrial undertaking

Self Assessment

State whether the following statement as true or false:
6. As per the Income Tax Act, the amalgamating companies are not liable to pay the capital
gain tax levied on them following their liquidation.
7. All expenses related to amalgamation are tax-deductible.

8. A consolidation is a combination of two or more companies into a new company.
9. Under Section 47(vi) capital gains arising from the transfer of assets by the amalgamating
companies to the Indian amalgamated company are exempt from tax.

10. Unabsorbed capital expenditure on scientific research of the amalgamating company
will not be allowed to be carried forward and set off in the hands of the amalgamated
company.
13.3 Demerger

The concept of demerger was introduced in the context of taxation by Finance Act, 1999. The
objective was to enable corporate undertakings to undertake business restructuring in a tax
neutral form.

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