Tax Implications of Amalgamation, Mergers and Reverse Mergers
TAX IMPLICATIONS OF AMALGAMATION, DEMERGER AND REVERSE MERGER
Prachi Mathur
Roll No. 747
IX Semester, Business Law Honors
INTRODUCTION
The terms ‘Amalgamation’ or ‘Merger’ and ‘De-merger’ are not defined in the Companies Act, 1956. Chapter V of Part VI of Companies Act comprising sections 390 to 396A contain provisions regarding Compromises, Arrangement and Reconstructions. In the Companies Bill which has been passed by the Rajya Sabha on August 8, 2012, Chapter XV lays down provisions for the same.
In simple terms, a merger may be regarded as the fusion or absorption of one thing or right into another. A merger has been defined as an arrangement whereby the assets, liabilities and businesses of two (or more) companies become vested in, or under the control of one company (which may or may not be the original two companies), which has as its shareholders, all or substantially all the shareholders of the two companies. In merger, one of the two existing companies merges its identity into another existing company or one or more existing companies may form a new company and merge their identities into the new company by transferring their business and undertakings including all other assets and liabilities to the new company (herein after known as the “merged company”).
In India, in legal sense, a merger is known as “amalgamation”. The amalgamating companies loose their identity and the shareholders of the amalgamating companies become shareholders of the amalgamated company.
However, the Income-Tax Act, 1961 says that “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 in such a manner that certain conditions are satisfied, they are:
* All property as well as liabilities of amalgamating company becomes property of amalgamated company immediately after amalgamation * Shareholders holding not less than 3/4th of the share capital of the
Prachi Mathur
Roll No. 747
IX Semester, Business Law Honors
INTRODUCTION
The terms ‘Amalgamation’ or ‘Merger’ and ‘De-merger’ are not defined in the Companies Act, 1956. Chapter V of Part VI of Companies Act comprising sections 390 to 396A contain provisions regarding Compromises, Arrangement and Reconstructions. In the Companies Bill which has been passed by the Rajya Sabha on August 8, 2012, Chapter XV lays down provisions for the same.
In simple terms, a merger may be regarded as the fusion or absorption of one thing or right into another. A merger has been defined as an arrangement whereby the assets, liabilities and businesses of two (or more) companies become vested in, or under the control of one company (which may or may not be the original two companies), which has as its shareholders, all or substantially all the shareholders of the two companies. In merger, one of the two existing companies merges its identity into another existing company or one or more existing companies may form a new company and merge their identities into the new company by transferring their business and undertakings including all other assets and liabilities to the new company (herein after known as the “merged company”).
In India, in legal sense, a merger is known as “amalgamation”. The amalgamating companies loose their identity and the shareholders of the amalgamating companies become shareholders of the amalgamated company.
However, the Income-Tax Act, 1961 says that “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 in such a manner that certain conditions are satisfied, they are:
* All property as well as liabilities of amalgamating company becomes property of amalgamated company immediately after amalgamation * Shareholders holding not less than 3/4th of the share capital of the