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AMALGAMATION AND DEMERGER |
DEFINITIONS
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All the
property/liability of the amalgamating company/companies becomes the
property/liability of amalgamated company.
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Shareholders holding
minimum 75% of the value of shares become shareholders of the
amalgamated company.
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All the
property/liability of the undertaking becomes the property/liability of
the resulting company.
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All the
property/liabilities are transferred at book value (excluding increase
in value due to revaluation).
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The resulting company
issues shares to the shareholders of demerged company on a proportionate
basis.
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Shareholders holding
minimum 75% of the value of shares become shareholders of the resulting
company.
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The transfer of an
undertaking is on a going concern basis.
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The demerger is in
accordance with the conditions notified under Section 72A(5).
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Undertaking :
includes any part of an undertaking or a unit or division of an undertaking
or a business activity taken as a whole, but excludes individual assets or
liabilities or combination of both not constituting a business activity.
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Demerged Company :
means the company whose undertaking is transferred to a resulting company
pursuant to a demerger.
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Resulting Company :
means one or more companies (including wholly owned subsidiary thereof) to
which the undertaking of the demerged company is transferred in a demerger
and the resulting company in consideration of such transfer of undertaking,
issues shares to shareholders of the demerged company and includes any
authority or body or local authority or public sector company or a company
established, constituted or formed as a result of demerger.
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Provisions applicable to
Company — Amalgamation/Demerger
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it continuously holds 3/4th value of the
assets acquired in a scheme of amalgamation for at least five years from
the date of amalgamation
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it continues to carry on business of
amalgamating company for at least five years from the date of
amalgamation and the amalgamating company
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was engaged in business in which the
accumulated loss has occurred or the unabsorbed depreciation remains
unabsorbed for three or more years.
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has continuously held 3/4th of the
value of assets held by it two years prior to amalgamation.
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Where it is directly
relatable to undertaking transferred, it should be such relatable
amount.
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Where it is not
directly relatable to the undertaking transferred, it should be
apportioned in the ratio of assets retained by the demerged company and
transferred to resulting company.
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In a Scheme of amalgamation
sanctioned and brought in force by the Central Government u/s. 45(7) of the
Banking Regulation Act, 149, the accumulated loss and unabsorbed
depreciation of the banking company shall be deemed to be loss or
depreciation of the banking institution for the previous year in which the
Scheme of Amalgamation is brought in force and other provisions relating to
set-off and carry forward of loss and allowance of depreciation shall apply
accordingly with effect from Assessment Year 2005-06. (S. 72AA)
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WDV in the hands of
amalgamated company shall be the WDV of the block of assets in the hands of
the amalgamating company less depreciation allowed in the year of
amalgamation.
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WDV in the hands of the
resulting company shall be the WDV of transferred assets as per books of the
demerged company immediately before demerger.
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WDV in the hands of the
demerged company shall be the WDV of the block of assets before demerger
less book value of assets transferred to the resulting company.
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Deduction claimed under
Section 33AC (Reserve for shipping business) would not be withdrawn on sale
or transfer of a ship in any scheme of demerger.
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Transfer of patent rights
or copyrights (S. 35A) or transfer of licence to operate telecommunication
services (S. 35ABB) or transfer of business for prospecting etc. mineral oil
(S. 42) in a scheme of amalgamation/demerger will not be treated as either
sale or transfer.
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The deductions hitherto
granted to amalgamating/demerged company relating to patent rights and
copyrights (S. 35A) / Expenditure on know-how (S.35AB) / Licence fees to
operate telecommunication services (S. 35ABB) / Preliminary expenses (S.
35D) / expenditure for prospecting etc., for certain minerals (S. 35E) /
business for prospecting etc., for mineral oil (S. 42) would be available
for balance period to the amalgamated/resulting company.
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Gains arising on transfer
of shares of amalgamating company in exchange of shares of amalgamated
company, being an Indian Company is exempt.
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Acquisition of shares of
the resulting company by the shareholders in demerger will not be taxed
either as capital gain or deemed dividend.
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Cost of acquisition of
shares of:
— the amalgamated company
will be the cost incurred for acquiring shares of amalgamating company.
— the resulting company will be the :
— Original cost of
shares of demerged company X net book value of assets transferred to
resulting company/net worth of the demerged company before demerger (net
worth is equal to Paid-up Share Capital + General Reserve as per books.)
— the demerged company
will be the original cost of shares of demerged company – cost of shares
of the resulting company as computed above.
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