Provisions relating to unabsorbed depreciation allowance in amalgamation or demerger etc.

Where there's been a blending of:-

(a) a business that co-owns a ship, an industrial project, or a hotel with another business; alternatively

(b) a banking corporation with a specific bank that is mentioned in Section 5(c) of the Banking Regulation Act of 1949 (10 of 1949); or

(c) one or more public sector company(s) that operate aeroplanes, together with one or even more public sector company(s) that operate in a related industry,

then, the accumulated loss and unconsumed depreciation of the amalgamating company will then be considered to be the loss or, as the case may be, an additional amount for unconsumed depreciation of the amalgamated company for the prior year in which the amalgamation was accomplished, disregarding anything else contained in any other provision of this Act.

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The cumulative loss cannot be offset or carried forward, and unabsorbed depreciation cannot be taken into account in the combined company's assessment, unless:-

(i) the amalgamating company-

     (a) has been operating the business where the cumulative loss or unabsorbed depreciation happened for three years or more;

     (b) has consistently held, as of the merger date, at least three-fourths of the such book value of the fixed assets it had two years before;

(ii) the amalgamated company-

     (a) holds consistently for a minimum of five years after the date of the merger at least three-fourths of the such book value of the fixed assets of the merging firm acquired via a merger plan;

     (b) continues the operations of the merging firm for a minimum of five years after the merger;

     (c) fulfils any additional requirements that may be established 47 in order to guarantee the expansion of the merging company's operations or the validity of the merger as a legitimate business move.

If any of the requirements outlined in the aforementioned subsection are not met, the set-off of a loss or allowance for depreciation made in a prior year in the hands of the combined business would be regarded to constitute the combined company's income subject to taxation for the year in question.

There is a tax exemption under 80g of the income tax act.

For the purposes of this Act, the Central Government may establish any criteria it deems appropriate to ensure that the demerger is for legitimate commercial objectives by publishing a notification in the Official Gazette.

Get more details at section 80g.