Meaning and Features of amalgamation as defined of the income Tax Act, 1961

Meaning of Amalgamation

As per Section 2(1B) of the Income Tax Act, 1961, "Amalgamation" means the merger of one or more companies with another company, or the merger of two or more companies to form a new company, in such a way that all the assets and liabilities of the amalgamating company or companies become the assets and liabilities of the amalgamated company.

The features of amalgamation are as follows:

1. Transfer of assets and liabilities: In an amalgamation, all the assets and liabilities of the amalgamating company or companies become the assets and liabilities of the amalgamated company.
2. Continuity of business: The business of the amalgamating company continues in the amalgamated company, which can either be an existing company or a new company.
3. No consideration for shareholders: In case of an amalgamation, the shareholders of the amalgamating company receive shares of the amalgamated company in lieu of their shares in the amalgamating company, without any consideration.
4. Transfer of employees: The employees of the amalgamating company become the employees of the amalgamated company.

In terms of taxation, the Income Tax Act provides for the taxation of both the amalgamating and the amalgamated companies as follows:

1. Amalgamating company: In the case of an amalgamation, the amalgamating company can claim a deduction for any accumulated loss and unabsorbed depreciation, subject to certain conditions.
2. Amalgamated company: In the case of an amalgamation, the amalgamated company is entitled to carry forward and set off any accumulated loss and unabsorbed depreciation of the amalgamating company, subject to certain conditions.

Further, any transfer of capital assets or stock-in-trade by the amalgamating company to the amalgamated company is exempt from capital gains tax, subject to certain conditions.

In addition, any shareholder of the amalgamating company who receives shares of the amalgamated company in lieu of their shares in the amalgamating company is not liable to pay capital gains tax on the transfer of shares, subject to certain conditions.

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