Amalgamation
The details about Amalgamation are explained here.
“amalgamation”, in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that—
- All the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the Amalgamation;
- All the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation
- Shareholders holding not less than 17[three-fourths] in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation,
Otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of the distribution of such property to the other company after the winding up of the first mentioned Company.
Tax Benefits in Amalgamation
Mergers and acquisitions are an important tool of economic development and every effort should be made to incentivize the merger process in the country. Fiscal statutes form an important means of economic development by providing benefits to the concerned businesses. Large scale mergers are occurring at a fast pace within and outside the country. In this regard the income tax legislation in India is quite development oriented for domestic companies going in for merger or amalgamation and acquisition.
In India, the Income Tax Act, 1961 is the primary legislation dealing with taxability of income arising in the hands of an individual or business entity. An important question that arises here is: What are the benefits available under the Income Tax Act, 1961, to companies going in for merger or acquisition. These benefits are available in the form of allowable deductions from the income in the hands of an individual or companies. They apply equally to companies going in for merger or acquisition in India. The focus of the present paper is to highlight the deductions available to companies going in for mergers. A firm can achieve growth in several ways. It can grow internally or externally. Internal Growth can be achieved if a firm expands its existing activities by up scaling capacities or establishing new firm with fresh investments in existing product markets. Where a firm grows internally, it can face problems with regard to the size of the existing market or product, no growth potential in future or government restriction on capacity enhancement. The income tax legislation acts as an aid to external growth by providing deductions under its provisions. Fiscal statutes are a significant source of economic development and create space for growth of industrial activities within the country. Therefore a legal metamorphosis occurs when a merger takes place.
The Income Tax Act, 1961 contains special provisions so as to minimize the ambiguities in ascertaining the tax liabilities of the merged entity. In India, the primary fiscal legislation dealing with mergers is concerned solely with the amalgamation of companies and does not refer to amalgamation between other forms of legal entities like partnership firms or sole proprietorship. The following type of mergers is envisaged: merger of one or more company with some other company and the merger of two or more companies form a new company.
Though the income tax deductions stand discontinued at any time, but being part of legislations point towards their recurring nature and availability at any time for a company.
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