Provisions relating to carry forward & set off of accumulated losses and unabsorbed depreciation in case of Amalgamation or Demerger etc. - [ Section 72A(1), (2) and (3) ] - Income Tax - Ready Reckoner - Income Tax

Provisions relating to carry forward set off of accumulated losses and unabsorbed depreciation in case of Amalgamation [ Section 72A(1), (2) and (3) ] Condition for set off and carry forward of loss and allowance for depreciation in case of amalgamation [ Section 72A(1) ] Where there has been an amalgamation of- (a) a company owning an industrial undertaking or a ship or a hotel with another company; or (b) a banking company referred to in section 5(c) of the Banking Regulation Act, 1949 with a specified bank; or Requirement of transfer of control referred to in sub-clause (b) of section 72A(1) may be carried out by the Central Government or the State Government or the public sector company or any two of them or all of them. (c) one or more public sector company or companies with one or more public sector company or companies; or (d) an erstwhile public sector company with one or more company or companies, if the share purchase agreement entered into under strategic disinvestment restricted immediate amalgamation of the said public sector company and the amalgamation is carried out within five year from the end of the previous year in which the restriction on amalgamation in the share purchase agreement ends, The accumulated loss and the unabsorbed depreciation of the amalgamating company, which is deemed to be the loss or, as the case may be, the allowance for unabsorbed depreciation of the amalgamated company, shall not be more than the accumulated loss and unabsorbed depreciation of the public sector company as on the date on which the public sector company ceases to be a public sector company as a result of strategic disinvestment. then , notwithstanding anything contained in any other provision of this Act , the accumulated loss and the unabsorbed depreciation of the amalgamating company shall be deemed to be the loss or, as the case may be, allowance for unabsorbed depreciation of the amalgamated company for the previous year in which the amalgamation was effected, and other provisions of this Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly. Other following condition required to be fullfill by the amalgamating and amalgamated company for set off and carry forward of loss and allowance for depreciation Notwithstanding anything contained in section 72A(1) , the accumulated loss shall not be set off or carried forward and the unabsorbed depreciation shall not be allowed in the assessment of the amalgamated company unless - ( a ) the amalgamating company - ( i ) has been engaged in the business, in which the accumulated loss occurred or depreciation remains unabsorbed, for three or more years; ( ii ) has held continuously as on the date of the amalgamation at least 3/4 of the book value of fixed assets held by it two years prior to the date of amalgamation; ( b ) the amalgamated company - ( i ) holds continuously for a minimum period of five years from the date of amalgamation at least 3/4 of the book value of fixed assets of the amalgamating company acquired in a scheme of amalgamation; ( ii ) continues the business of the amalgamating company for a minimum period of five years from the date of amalgamation; ( iii ) fulfils such other conditions as may be prescribed (under rule 9C) to ensure the revival of the business of the amalgamating company or to ensure that the amalgamation is for genuine business purpose. [ Section 72A(2) ] As per Rule 9C of Income tax Act - The conditions referred to in clause (iii) of sub-section 72A(2) shall be the following, namely :- (a) the amalgamated company, owning an industrial undertaking of the amalgamating company by way of amalgamation, shall achieve the level of production of at least 50% of the installed capacity of the said undertaking before the end of four years from the date of amalgamation and continue to maintain the said minimum level (i.e. 50%) of production till the end of five years from the date of amalgamation : Relaxation from Minimum level production - the Central Government, on an application made by the amalgamated company, may relax the condition of achieving the level of production or the period during which the same is to be achieved or both in suitable cases having regard to the genuine efforts made by the amalgamated company to attain the prescribed level of production and the circumstances preventing such efforts from achieving the same; (b) the amalgamated company shall furnish to the Assessing Officer a certificate in Form No. 62 , duly verified by an accountant , with reference to the books of account and other documents showing particulars of production, along with the return of income for the assessment year relevant to the previous year during which the prescribed level of production is achieved and for subsequent assessment years relevant to the previous years falling within five years from the date of amalgamation. In other words, Due date of Filling Form 62 If due date of submission of return of income is 31 October than Form 62 filling due date is 31 October 30 November then Form 62 filling due date is 30 November Chargeable for tax if condition laid down in section 72A(2) not complied The set off of loss or allowance of depreciation made in any previous year in the hands of the amalgamated company shall be deemed to be the income of the amalgamated company chargeable to tax for the year in which such conditions are not complied with. [ Section 72A(3) ] Meaning for the purpose of section 72A(1) (i) control shall have the same meaning as assigned to in section 2(27) of the Companies Act, 2013 control shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner; (ii) erstwhile public sector company means a company which was a public sector company in earlier previous years and ceases to be a public sector company by way of strategic disinvestment by the Government; (iii) strategic disinvestment means sale of shareholding by the Central Government or any State Government or a public sector company, in a public sector company or in a company, which results in (a) reduction of its shareholding to below fifty-one per cent.; and (b) transfer of control to the buyer: The condition laid down in sub-clause (a) shall apply only in a case where shareholding of the Central Government or the State Government or the public sector company was above fifty-one per cent. before such sale of shareholding: That requirement of transfer of control referred to in sub-clause (b) may be carried out by the Central Government or the State Government or the public sector company or any two of them or all of them . [ Clause iii of Explanation added by FA, 2023 ]