UNIT 5

 Tax planning with reference to 

1. setting up of new business
2. financial decisions
3. specific managerial decisions( own/ leases, make or buy, shut down or continue)
4. amalgamation, merger or business restructuring

1Q) Tax planning with reference to setting up of new business

         Tax planning for new businesses refers to a systematic financial procedure surrounding the tax provisions of the country. The primary goal of the business should be to implement it in such a way that maximum tax liability can be reduced or entirely eliminated.  According to this procedure, an entrepreneur will have to look at the multiple taxation options to properly determine when and in which way the business should be conducted in order to refrain from penalties, etc.

       When a person decides to set up a new business he has to consider a number of factors, namely the nature & size of the business, the location of the business, the amount of capital required & means to raise it, the risk-bearing capacity of the entrepreneur, the form of business organization from the point of view of stability, cost, legal requirements & ease of operation from the standpoint of management. 

    Apart from these considerations in the present era, high-income tax everybody has to consider tax effects of the following.
1. Nature & size of business
2. Location of business
3. Form of business organization.

1. Location, nature, and size of business:  The following tax benefits are available under the income tax Act.

• Agriculture income is fully exempt.
• Income from newly established units in SEZ is exempt for consecutive 15 assessment years up to specified limit.
• Deduction in respect of profits & gains from infrastructure development undertaking.
• Deduction in respect of profits & gains other than infrastructure development undertaking.
• deduction in respect of profits & gains from certain undertakings in certain special category states.
• Deduction in respect of profits & gains from specified business.
• Deduction in respect of profits & gains from housing projects.

Tax planning in respect of assesses engaged in certain businesses :

1. Tax planning for the tea, coffee, or rubber industry : 

Income from the manufacture of tea: 60% of income derived from the sale of tea grown and manufactured by the seller in India is deemed to be agricultural income the remaining 40% is taken as business income.

INCOME                                                                              Agricultural income           Business income

From the manufacturing of coffee grown & cured                    75%                                  25%  

Coffee grown, cured, roasted& grounded                                   60%                                   40%

Rubber                                                                                         65%                                   35%

2. Tax planning for hospitals:   If an assessee incurs capital expenditure in respect of the business of building & operating a new hospital anywhere in India with at least 10000 beds for patients, he will be entitled to deduct such expenditure from the income of such business.

3. Tax planning for hotels : 

 (A) An undertaking engaged in the business of a hotel located in northeastern states, if such hotel has started or starts functioning between 1/4/07 and 31/3/17, 100% of profits & gains derived from such business for 10 consecutive assessment years.

CONDITIONS FOR DEDUCTION :  

• It is not formed by splitting up or the reconstruction of a business already in existence.
• It is not formed by the transfer of machinery or plant previously used for any purpose.
• The assessee files an audit report in the prescribed form ( form no: 10 CC BB A ) electronically certifying that the deduction has been correctly claimed.

(B) If an assessee capital expenditure incurred in respect of the business of building &  operating a new hotel (>2 stars) anywhere in India, he will be entitled to deduct such expenditure from the income of a such business.

CONDITIONS FOR 2 & 3 ;

1. It should be a new business & not a splitting up or reconstruction of a business already in existence.

2. Such business should be commenced after 31/3/10

3. The capital expenditure is incurred prior to the commencement of operations

4. The amount is capitalized in the books of account on the date of commencement of its operations.

5. Capital expenditure shall not include expenditure incurred on the acquisition of land or goodwill or financial instrument.

6. The assessee shall get his accounts audited & furnished the report electronically.

4. Tax  planning for business of generation & distribution of power:    An undertaking which :

(a)Is set up in any part of India for generation or generation & distribution of power if it begins to generate power after 31/3/93 but before 1/4/17.

(b)Starts transmission or distribution by laying a network of new transmission or distribution lines after 31/3/99 but before 1/4/17.

(c)Undertakes substantial renovation & modernization of the existing network of transmission or distribution of lines after 31/3/04 but before 1/4/17.

NOTE: Substantial renovation & modernization means an increase in the P&M in the network of transmission or distribution lines by at least 50% of the book value of such P&M  on 1/4/04.

100% of such profits for 10 consecutive Assessment years will be allowed as a deduction.

CONDITIONS :    

• It is not formed by splitting up or the reconstruction of a business already in existence.
• It is not formed by the transfer of machinery or plant previously used for any purpose.
• NOTE: The assessee can claim depreciation on assets acquired after 31/3/1997 on the basis of actual cost instead of the WDV method.

5. Tax planning for the business of infrastructure  : 

A deduction will be allowed from gross total income to an assessee in respect of profits & gains derived from the business of,
(i) developing or
(ii)operating & maintaining or
(iii)developing, operating & maintaining any infrastructure facility which fulfills the following conditions :

1. It is owned by a company registered in India or by an authority 
2. It enters into an agreement with the central or state government or local authority for developing, operating & maintaining a new infrastructure facility.
3. It starts operating & maintaining the infrastructure facility on or after 1/4/1995.

6. Tax planning for the business of  Natural gas  : 
                     The deduction will be allowed if the central government( CG) has entered into an agreement with the assessee.
                 The assessee has before the end of the previous year deposited the amount :
(a) In a special account with the SBI, for the specified purposes in a scheme approved on this behalf by the govt. Of India in the Ministry of Petroleum & natural gas.
(b) In an account-site restoration account (SRA) for the purposes specified in a scheme framed by the ministry aforesaid.
1. A sum equal to the amount or the aggregate of the amount so deposited.
                                   ( OR )
2. 20%  of profits of such business before making any deduction under this section.
               
                         ( Whichever is lower )
(c) The accounts of the assessee must be audited for the previous year in which the deduction is claimed & the audit report must be furnished on demand in form no.3 AD.

 7. Tax planning for eligible assessee:    The provisions of section 44 AD are applicable to an eligible assessee who is engaged in an eligible business. The income from such business shall be presumed to be:
6% of total turnover or gross receipts which is received by an account payee cheque or before the due date of furnishing the return of income  u/s 139(1) in respect of that previous year.
   
              However, an eligible assessee may declare a sum higher than the aforesaid sum income actually earned from the eligible business.

8. Tax planning for the business of plying, hiring, or leasing goods carriages :  
         Tax provisions of section 44E are applicable to an assessee, who is engaged in the business of plying, hiring, or leasing of goods carriage(trucks) owning not more than 10 goods carriages at any time during the previous year.
    
             The income of such business shall be deemed to be the aggregate of the profits & gains from all the goods carriages owned by him in the previous year & will be computed as under :

             The profits & gains from each goods vehicle shall be rs.7,500 for every month or part of a month during which the goods vehicle is owned by the assessee in the previous year; However, an assessee may declare a sum higher than the aforesaid sum as income actually earned from such business.

Amendment w.e.f A.Y .2019- 20:    The presumed income from heavy goods vehicle shall be rs.1000 per ton of gross vehicle weight or unladen weight, as the case may be, for every month or part of a month during which the heavy goods vehicle is owned by the assessee in the previous year.
  " Heavy goods vehicle" means any goods carriage, the gross vehicle weight of which exceeds 12,000 kilograms.

9. Tax planning for shipping companies :  
1. An Indian company operating qualifying ship/ ships may at its option compute income from qualifying ship/ships on the basis of deemed income or under sections 28 to 43C.

2. Qualifying ship: A ship is qualifying if :
(a) It is a sea-going ship or vessel of fifteen net tonnages or more.
(b)It is a ship registered under the merchant shipping Act, 1958 or a ship registered outside India in respect of which a license has been issued by the director general of shipping; &
(c) a valid certificate in respect of such a ship indicating its net tonnage is in force.
3. Option. A company may opt for the same scheme by making an application to the joint commissioner (in form no.65) within 3 months of the date of its incorporation or the date on which it became a qualifying company.
     Once such an option is exercised there is a lock-in period of 10 years. If a company opts out, it is debarred from re-entry for 10 years.
4. Maintenance of accounts & audit: The business of operating qualifying ships is to be considered a separate business & separate books of account are to be maintained.
             The accounts of the qualifying company should be audited by a chartered accountant & the report should be furnished electronically.  


                           FORM   OF  BUSINESS  ORGANISATION 

A business can be either an individual or joint Hindu family (H.U.F) or a firm or a joint stock company. The best form of business organization from the tax point of view is one which attracts minimum tax liability.

1. INDIVIDUAL:  An individual pays tax on his total income at prescribed rates on the basis of the slab system. However, he is not entitled to the deduction, in computing business income, any remuneration for work done by him, and interest on capital or his own loan invested in the business.

2. Hindu Undivided Family (H. U. F ):  A joint Hindu family pays tax on its total income at prescribed rates on the basis of a slab system. The family can pay reasonable remuneration to the karta & other family members for their services to the business & it is allowed as a deduction in computing the business income. However, interest on capital contributed by the coparceners for the business is not deductible in computing business income. The member of the family, who has received the remuneration from the family will include it in his income under the head ' Salaries'.

3. Firm:  A firm will pay tax on its total income ( for the assessment year 2022-23), @ 30%. In computing the business income the following payments to the partners are deductible :
1. Interest on capital or loan given to the firm at the rate mentioned in the partnership deed but not exceeding 12% per annum.
2. Remuneration to working partners as mentioned in the partnership deed but not exceeding the following limits.
(i) on first Rs. 3,00,000 of the book profits @ 90%  or Rs.1,50,000 ( if 90% of book profits is less than Rs.1,50,000 or there is a loss), whichever is more;
(ii) on the balance of the book profits @ 60%.

4. Company:  A domestic company is liable to pay tax for the assessment year as under: 
(i)  Where the total turnover or the gross receipt in the previous year 2016-17  does not exceed 250 crore rupees ----@ 25 %
(ii)  In any other case -----@ 30 %

Surcharge. (i) @ 7 % if total income exceeds Rs. One crore but does not exceed Rs.10 crore; 
(ii) @ 12 % if total income exceeds Rs. 10 crores.

In computing the business income, the company can deduct the whole amount of interest paid on loans taken for business purposes & the remuneration paid to the managing director, directors & other staff. Further, a deduction under section 80 IB is available.



Tax planning : 
1. Where the deduction from gross total income is allowed for a certain number of assessment years, as far as possible the business should be commenced at the beginning of the year, so that the full advantage of the deduction may be available.
2. For availing the deduction under sections 80-IA, 80-IB, 80-IC, 80-IE, or 80- JJA, etc., the conditions laid down for the deduction must be complied with.
3. The rates of tax applicable to H. U. F. are the same as those applicable to an individual. Even then each case requires a careful analysis to avail the maximum tax benefit.
4. The firm should pay interest & remuneration to partners to the extent deductible under section 40(b) to reduce the incidence of tax.
5. A firm can pay interest to its partners on their capital contribution or loan subject to a maximum of 12 % per annum. If the rate of interest is more than 12 %, it is treated as a disallowed expense. To avoid this ceiling the partners may follow inter- deposit of funds scheme.
   Accordingly, partners of firm A may deposit their funds in firm B and vice-versa. Through this process, the tax liability of the firm & its partners can be reduced.

2Q)TAX PLANNING WITH REFERENCE TO  FINANCIAL DECISIONS

• CAPITAL STRUCTURE DECISIONS
• DIVIDEND DECISIONS
• INTER-CORPORATE DIVIDEND
• BONUS SHARES

3Q) Tax planning with reference to Specific managerial decisions(own/lease, make/buy, shutdown/continue):

                                 


1)   Tax planning in respect of own or lease :   

    A lease of property is a transfer of the right to enjoy such property, made at a certain time, in consideration of a price payable periodically to the transferor by the transferee.
      In other words, leasing is an arrangement that provides a person with use & control over an asset, for a price payable periodically, without having a title of ownership. In the case of a lease agreement, the owner of the asset is called the lessor & the user is called the lessee.
       When a person needs an asset for his business purpose, he has to decide whether the asset should be purchased/taken on lease. While taking this decision he should keep in mind the following factors :

1. Cash position
2. Depreciation
3. Obsolescence risk
4. Residual value
5. Profit margin
6. Consider PAT

1.  Cash Position  :   

(a) When a person has sufficient cash / he can borrow funds at a reasonable rate of interest to purchase an asset / can acquire the asset, under hire purchase/installment system, he may decide to buy it.

(b) The cost of own asset is not deductible in computing the income, but the interest on borrowed funds/under-hire purchase/installment system is deductible in computing income.

(c) If he neither has sufficient cash nor he can borrow due to stringent(strict) credit control, he has to take the asset on lease.

(d) The lease rent is deductible in computing the income.

2. Depreciation : 
(a)  When the asset is purchased/acquired under the hire purchased/acquired hire purchase/installment system, depreciation is allowed in computing income.

(b) When the asset is taken on lease the depreciation is not allowed to the lessee, because he is not the owner of the asset, but it is allowed to the lessor. Non- availability of depreciation to the lessee will increase his tax liability. 
          If the asset is such on which depreciation is not allowed, for example, land, the increase/ decrease in the value of the asset in the future must be considered. If the asset is such that an increase in value is expected, it may be purchased otherwise it may be taken on lease.

3. Obsolescence risk:   When a plant or machinery is purchased & becomes obsolete earlier than its expected working life, it has to be replaced. The replacement cost can be met partly out of depreciation fund & partly by arranging further cash.
             In the case of a lease, the asset will be replaced by the lessor. However, the lessor will also keep in mind the risk of obsolescence & increase the lease rent to offset such a loss.

4. Residual value:    When a person purchases an asset, he has full rights to the value of the asset at the end of any given period. In the case of an asset with a larger residual value, it is better to purchase it rather than take it on lease.

5. Profit  margin : 

(a)  When the profit margin is low, it is better to purchase the asset. If the asset has been purchased by borrowed funds the cash outflow would be equal to loan installment, interest payment& slightly higher tax.

(b)  In the case of leasing the lease rent would be equal to the part of the cost of the asset to the lessor, interest on investment & profit to the lessor.

(c)  The cash outflow will be equal to lease rent less nominal tax saving.

(d)  In the case of a lease, the profit of the lessor will be the loss to the lessee.

6. Consider profit after tax  : 

(a) It is an important consideration in tax planning.
(b) The assessee should follow such a method for obtaining an asset that reduces his tax liability & the profits after tax is greater.
(c) For this purpose some people suggest that own funds should not be used in the purchase of an asset because interest on own funds is not deductible in computing the income.
(d) Whereas, interest on borrowed funds is deductible.

Advantages of acquiring capital assets on lease:

1. Alternative Use of Funds:

A lease agreement makes available an asset to use without making any huge investments. The firm is obliged to make periodic rental payments only. Thus, the firm may make alternative use of the funds saved due to the lease agreement.

2. Beneficial for Small Firms:

As small firms do suffer from a paucity of funds, they can acquire assets on a lease agreement. Thus, leasing becomes a boon especially for small firms to use the most required and costly assets and, thus immensely benefited.

3. Flexibility and Convenience: The lease agreement can be tailor-made with respect to the lease period and lease rentals according to the convenience and requirements of all lessees.

4. Free from Restrictive Covenants:

While lending financial institutions impose several restrictive covenants on the borrowers like management, debt-equity norms, dividend declaration, etc. But, there are no such restrictions while financing through a lease agreement. That is the way a lease agreement arranges cheaper and faster credit to the borrower, i.e. lessee.

5. Tax Shielding:

When a tax-paying lessor enters into a lease agreement, he generally passes a part of the tax benefit to the lessee also by charging lower rental rates. As a result of this, the real cost of the assets to the lessee works out to be lower than what it would have been if he were the owner of the asset.

6. Improvement in Liquidity: Leasing enables the lessee to improve their liquidity position by adopting the sale and leaseback technique.

   Theoretically, thus, leasing has been accepted as a better alternative to financing business operations because of the benefits it offers to the parties involved in the transaction.

Disadvantages:

However, leasing is not an unmixed blessing also. That is, leasing suffers from some disadvantages also.

Some of the important disadvantages of leasing agreements are listed as follows:

1. Leasing deprives of ownership of the asset.

2. In the case of default in the payments of lease rents, the leased assets are deprived, thus, causing a great inconvenience to the lessee.

3. No protection is allowed against the lessee against the supplier’s warranties. In other words, the lessee is not entitled to any protection in case the supplier of the leased asset commits a breach of warranties.

Conclusion:  As far as possible the asset should be purchased & not taken on a lease because the cost of use of the purchase is less than the cost of lease rent.

     However, where the assessee is suffering from a liquidity crunch & cannot invest in an asset nor can avail substantial credit from the suppliers/money lenders, he should take an asset on lease.

Q) MAKE OR BUY :

                  

When a business concern requires a product / any part/component of the product for its existing unit, it has to decide whether it should make the product, part, or component or buy it from other manufacturers. There are many costing and non-costing considerations guiding the decision to make or buy it. some of the important factors affecting such decisions are:

1. whether for manufacture infrastructural facilities are available

2. whether the present capacity of the undertaking is. fully utilized. if not, it can be utilized in making the required product.

3. if an additional unit is required for manufacturing the required product, the concern possesses adequate funds for establishing the unit, and the whole production of the unit will be consumed by the concern or there is a market for the sale of extra production

4. whether the product is available in the market easily and at reasonable terms

5. if the cost of manufacture of a product/ component is lower than the cost of purchase, it may be manufactured.

6. if the product is not manufactured it has to be imported then import trade control regulations and foreign exchange control regulations have also a role.

7. if there is a change in technology in the production of that product, the concern will be in a position to acquire the new technology without much difficulty. if the product has to be imported, if not manufactured, and such product may tell upon the security of the country, it must be manufactured in the country, whatever the cost of manufacture may be. 

Tax  Considerations  : 

1. If a concern has a surplus capacity & even decides to buy a product it may require to sell a part of its plant & machinery. In such a case it may be liable to capital gains tax.

2. If a new industrial undertaking (unit) is established to make the product, which fulfills the conditions laid down in sec 80-IB / sec 80- IC of the act, a deduction will be allowed in computing the income of the undertaking for tax purposes.

3. If the product, either manufactured/ purchased, is a capital asset, its cost will not be allowed as a deduction in computing the income. However, if the asset is such on which depreciation is allowed, it will be allowed in both cases, that is, manufactured/purchased.

4. If the product is a consumable one, raw material is required to replace a worn-out part at the time of repair, its cost will be treated as revenue expenditure& deductible in computing the income.

        

Q) SHUT DOWN OR CONTINUE:

         Loss co-exists with profit in a business. A business may suffer a loss due to one / more of the following reasons : 
1. Fall in demand
2. financial problems
3. Change in technology
4. High rates of taxes
5. Miss management

1. Fall in demand:   The demand for the product may fall due to the availability of new products in the market, change in fashion/increase in the number of producers/ competitors.

2. Financial problems:  A firm may not have sufficient finance of its own nor further credit is available from banks/ financial institutions due to government restrictions.

3. Change in technology:  Where the growth of technology is rapid & if it is not possible to keep pace with it the net result may be a loss of profit.

4. High rates of taxes:   High rates of taxes - import duty, excise, sales tax, octroi, etc, increase the price of the product. Due to this demand for the product may fall and the business may suffer losses.

5. Mismanagement:      Efficient management is an important factor for the success of the business. If it is lax, the result may be disastrous. 

                            When a business suffers loss continuously, whatever the reason for the loss may be, the management has to decide whether the business should be shut down/ continue. While taking this decision, the impact of income tax provisions should not be overlooked.
1. Treatment  of losses & unabsorbed depreciation:    When a business as a whole is discontinued/ closed down, the brought forward business losses & unabsorbed depreciation shall be dealt with as under: 
Business loss:  If the business /profession has been discontinued loss can be carried forward & set off against profits & gains of the business or profession.

Unabsorbed depreciation: If the business/profession has been discontinued, unabsorbed depreciation :
1. Can be set off against income from business or profession or income under any head.
2. Can be carried forward & set off for an indefinite period, whether the business is carried or discontinued.

2. Withdrawal of certain deductions:  The benefit of deductions u/s 33 AB (Tea development a/c or coffee a/c or rubber development a/c) &115 VT  (Reserve for shipping business) may be withdrawn & liable to tax for the year in which the business is discontinued. 

3. Deemed  Income:  If the business is discontinued & the assets used for scientific research & family planning are sold, the selling price to the extent of deduction claimed shall be deemed as a profit of the previous year in which such assets are sold.

4. Sale of depreciable assets:  The assets on which the assessee has claimed depreciation, are sold in the event of discontinuance of business, the difference between the net consideration & W.D.V. shall be treated as short-term capital gain or loss. If there is a gain it will be liable to tax. In case of loss, it can be set off only against capital gains, if any.

5. Sale of other assets:  When other assets ( except those mentioned in 3&4 ) are sold,  there may be long-term or Short term capital gain or loss, as the case may be. Such gain is liable to tax. In case of loss, it can be set off only against capital gains, if any.

TAX PLANNING :
         If a person is running more than one business the loss-making business should not be discontinued but operated at a low key for  Some time to claim the following losses  & expenses against the income of the profit-making business.

1. Retrenchment compensation to staff. If the business is closed & retrenchment compensation is paid, the expenditure would be disallowed as not incurred for 'carrying on business'.

2. Interest on borrowed funds & bad debts in relation to discontinued business.

3. In the case of a closely-held company it may be taken care that there may not be a change in the shareholding exceeding 49% of the shareholding if there is a change in shareholding exceeding 49%,& the transferors & transferees are relatives, they may transfer some % of shares as a gift rather than sale so that the conditions for set off of losses are complied with.

4. If the assessee is a company, it may amalgamate/demerge with another company after satisfying the conditions laid down in sec 72 A.

4Q) . Amalgamation, merger, or business restructuring

 INTRODUCTION  

 

“Amalgamation”, in relation to companies, means the

1.         Merger of one or more companies with another company; or

2.         The merger of two or more companies to form one company.

What is an amalgamating company: The company or companies which merge are referred to as the amalgamating company i.e. the company which is going out of existence is an Amalgamating company. (an old company)

What is an amalgamated company: Companies and the company with which they merge or which is formed as a result of the merger, are the amalgamated company. (a new company)

 

The merger is a process through which amalgamation takes place

 

     SECTION 2(1B):  

As per section 2(IB), the amalgamation should take place in such a manner that:

(i)         All the property of the amalgamating company(s) immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation.

(ii)        All the liabilities of the amalgamating company(s) immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation;

(iii)       Shareholders (Equity + Preference Shares) holding not less than 75% in value of the shares in the amalgamating company(s) (other than shares already held therein immediately before the amalgamation, or by a nominee for the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation.

E.g. 1: A Ltd. + B Ltd. = B Ltd. B Ltd. along with its subsidiary held 20% of shares in A Ltd. immediately before the amalgamation. The remaining 80% of shares in A Ltd. are held by 10 shareholders. As per section 2(1 B)(iü) at least 75% of 80% = 60% of shares held by such 10 shareholders should become shareholders of B Ltd. The remaining 20% of shares can be held by new shareholders.

 WHEN AN AMALGAMA1ION IS NOT TREATED AS AMALGAMATION U/S  2(1B)

1. Where amalgamation is 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

2.         Where amalgamation is a result of the distribution of such property to the other company after the winding up of the first mentioned company.

 

WHAT  IF  CONDIT1ONS OF SECTION - 2(1B)  IS COMPLIED WITH

If the conditions mentioned u/s 2(1B) is satisfied then tax incentives are available to the following assessee:

 

 TAX INCENTIVES — FOR AMALGAMATING THE COMPANY

I.        Amalgamating Company.

2.      Amalgamated Company.

3.      Shareholders of the amalgamating company.

 

Section 35ABB: There is no tax liability on the transfer of a license to operate telecommunication services by the amalgamating company to the amalgamated company.

Section 42: There is no tax liability on the transfer of a business of prospecting for or extraction or production of petroleum and natural gas by the amalgamating company if the amalgamated company is an Indian company.

Section 47(vi): There shall be no capital gain arising from amalgamating the company consequent to the transfer of capital assets to the Indian amalgamated company.

Section 47(via): Any transfer, in a scheme of amalgamation, of a capital asset being a share(s) held in an Indian company, by the amalgamating foreign company to the amalgamated foreign company, if

1. At least 25% of shareholders of amalgamating company foreign company Continue to remain shareholders of the amalgamated foreign company.

2. Such transfer does not attract tax on the capital gain in the country in which the amalgamating company is incorporated.

In such cases, the capital gain is not chargeable to tax.

 

** TAX INCENTIVES — FOR AMALGAMATED COMPANY

Section 35(5): Where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers to the amalgamated company (being an Indian company) any asset representing an expenditure of a capital nature on scientific research, the provisions of this section shall, as far as may be, apply to the amalgamated company as they would have applied to the amalgamating company if the latter had not so sold or otherwise transferred the asset.

 

Section 35ABB: The amalgamated Indian company can claim the full deduction in respect of the remaining installments of expenditure to obtain a license to operate telecommunication services.

Section 35D(5): The amalgamated Indian company can claim the remaining installments of preliminary expenses.

Section 35DD: The amalgamated Indian company can claim amalgamation expenses in 5 equal installments from the year beginning with the previous year in which amalgamation take place.

Section 35DDA(2): The amalgamated Indian company can claim the remaining deduction on account of expenses incurred in respect of the voluntary retirement scheme which is incurred by the amalgamating company.

Section 35E(7): The amalgamated Indian company can claim the remaining deduction on account of expenses incurred in respect of prospecting for, or extraction or production of certain minerals and also the unabsorbed amount of such installments.

Section 36(I)(ix): The amalgamated Indian company can claim the remaining deduction on account of expenses incurred in respect of capital expenditure incurred for the purpose of promoting family planning among its employees.

Section 42: The amalgamated Indian company can claim the remaining deduction on account of expenses incurred in respect of prospecting for, or extraction or production of petroleum and natural gas.

Bad debts: Where a part of the debts taken over by the amalgamated company from the amalgamating company becomes bad subsequently, such bad debt is allowed as a deduction in computing the income of the amalgamated company.

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Deduction u/s 80IA. 80IB & 80IC are allowed from gross total income to amalgamated company if certain conditions are complied with.

Exemption u/s 10A & 10B shall be allowed to the amalgamated company for the expired period.

Section 115VT: Where there is an amalgamation of a qualifying company with another company, the provisions relating to the tonnage tax scheme shall apply to the amalgamated company if it is a qualifying company.

Where the amalgamated company is not a qualifying company, it can exercise an option within 3 months from the date of the approval of the scheme of amalgamation.

 

TAX INCENTIVES — FOR SHAREHOLDERS OF AMALGAMATING COMPANY

 

Section 2(42A)(C): The period of holding of shares shall be from the period the shares were held in the amalgamating company.

Section 47(vii). There shall be no capital gain arising to the shareholders of amalgamating company, where shareholders transfer shares of the amalgamating company in lieu of allotment of shares in the Indian amalgamating company.