Amalgamation- The income tax act uses the words Amalgamating Company for Transferor

Company and Amalgamating Company for Transferee Company. According to section 2(1B),
Amalgamation in relation to companies MEANS:
a) The merger of one or more companies With another
b) The merger of two or more companies to form a NEW company
In such a manner (by virtue ofamalgamation) that
1) All the property and liability ofamalgamating company becomes the property /liability
ofamalgamated company;
2) Shareholders holding 75% or more in value of the shares become shareholders of the
amalgamated company.
This definition is significant since certain concessions are provided in case of amalgamation under
some of provisions of the Incometax Act. For instance, the loss of amalgamating company shall be
allowed to be set off and carried forward by the amalgamatedcompany by virtue of Sec.72A
(Reverse Merger). The INCOME of the amalgamating company from EFFECTIVE date of transfer shall
be assessed as the income of the amalgamated company and shall be assessed accordingly.
Demerger The income Tax act uses the words Demerged Company for Transferor Company and
Resulting Company for Transferee Company. Even this definition is significant because the income
tax act recognizes demerger for exemption from capital gains and for other concessions. The
relevant provisions as under:
According to 2(19AA) demerger in relation to companies, MEANS the transfer, pursuant to a
SCHEME of arrangement u/s. 391 to 394 of the companies Act, 1956, by a demerged company of its
one or more undertakings to any resulting company in such a manner that,
a) All the property and liability of the undertaking, being transferred by the demerged company
immediately before the demerger, becomes the property /liability of the resulting company by
virtue of the demerger;
b) The property and liability of the undertakings are transferred at values appearing in the books
(Without regard to revaluation)
c) The resulting company issue shares to the shareholders of the demerged company on a
proportionate basis.
d) Shareholders holding 75% or more in value of the shares in the demerged company shall become
shareholders of the resulting company
e) The transfer of the undertaking on a going concern basis.
f) The demerger is in accordance with the conditions, ifany notified u/s. 72A(5) by the central
government.

In the following cases the deductions are allowed if by a scheme of amalgamation or demerger it is
provided, that the amalgamated company/resulting company would be entitled to get the same
deduction as that could have been availed by the amalgamating company/demerged company had it
continued to exist.
The DEDUCTIONS include,
1) Weighted deduction of 100/125/150% in respect of scientific RESEARCH expenditure u/s.35 can
be claimed by the amalgamated company (if it is an Indian company).
2) Expenditure for obtaining license to operate TELECOMMUNICATION u/s. 35ABB shall be allowed
in equal instalments during the years of license postamalgamation or demerger.
3) Amortization of preliminary expenditure u/s. 35D over a period of 5 years, (the unexpired period)
can be availed post amalgamation or demerger.
4) Amortization of expenditure in case of amalgamation or demerger u/s. 35DD, where an Indian
company incurs any expenditure wholly & exclusively for the purposes of amalgamation or
demerger, the expenditure shall be allowed as a deduction over a period of 5 years in equal
installments from the previous from the previous year of amalgamation or demerger.