Section 72A of Income Tax Act "Provisions relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in amalgamation or demerger, etc"
72A. (1) Where there has been an amalgamation of-
(a) a company owning an industrial undertaking or a ship or
a hotel with another company; or
(b) a banking company referred to in clause (c) of section 5
of the Banking Regulation Act, 1949 (10 of 1949) with a
specified bank; or
(c) one or more public sector company or companies engaged
in the business of operation of aircraft with one or more
public sector company or companies engaged in similar
business,
then, notwithstanding anything contained in any other
provision of this Act, the accumulated loss and the
unabsorbed depreciation of the amalgamating company shall be
deemed to be the loss or, as the case may be, allowance for
unabsorbed depreciation of the amalgamated company for the
previous year in which the amalgamation was effected, and
other provisions of this Act relating to set off and carry
forward of loss and allowance for depreciation shall apply
accordingly.
(2) Notwithstanding anything contained in sub-section
(1), the accumulated loss shall not be set off or carried
forward and the unabsorbed depreciation shall not be allowed
in the assessment of the amalgamated company unless-
(a) the amalgamating company-
(i) has been engaged in the business, in which the
accumulated loss occurred or depreciation remains
unabsorbed, for three or more years;
(ii) has held continuously as on the date of the
amalgamation at least three-fourths of the book value of
fixed assets held by it two years prior to the date of
amalgamation;
(b) the amalgamated company-
(i) holds continuously for a minimum period of five years
from the date of amalgamation at least three-fourths of the
book value of fixed assets of the amalgamating company
acquired in a scheme of amalgamation;
(ii) continues the business of the amalgamating company for
a minimum period of five years from the date of
amalgamation;
(iii) fulfils such other conditions as may be prescribed to
ensure the revival of the business of the amalgamating
company or to ensure that the amalgamation is for genuine
business purpose.
(3) In a case where any of the conditions laid down in
sub-section (2) are not complied with, the set off of loss
or allowance of depreciation made in any previous year in
the hands of the amalgamated company shall be deemed to be
the income of the amalgamated company chargeable to tax for
the year in which such conditions are not complied with.
(4) Notwithstanding anything contained in any other
provisions of this Act, in the case of a demerger, the
accumulated loss and the allowance for unabsorbed
depreciation of the demerged company shall-
(a) where such loss or unabsorbed depreciation is directly
relatable to the undertakings transferred to the resulting
company, be allowed to be carried forward and set off in the
hands of the resulting company;
(b) where such loss or unabsorbed depreciation is not
directly relatable to the undertakings transferred to the
resulting company, be apportioned between the demerged
company and the resulting company in the same proportion in
which the assets of the undertakings have been retained by
the demerged company and transferred to the resulting
company, and be allowed to be carried forward and set off in
the hands of the demerged company or the resulting company,
as the case may be.
(5) The Central Government may, for the purposes of this
Act, by notification in the Official Gazette, specify such
conditions as it considers necessary to ensure that the
demerger is for genuine business purposes.
(6) Where there has been reorganisation of business,
whereby, a firm is succeeded by a company fulfilling the
conditions laid down in clause (xiii) of section 47 or a
proprietary concern is succeeded by a company fulfilling the
conditions laid down in clause (xiv) of section 47, then,
notwithstanding anything contained in any other provision of
this Act, the accumulated loss and the unabsorbed
depreciation of the predecessor firm or the proprietary
concern, as the case may be, shall be deemed to be the loss
or allowance for depreciation of the successor company for
the purpose of previous year in which business
reorganisation was effected and other provisions of this Act
relating to set off and carry forward of loss and allowance
for depreciation shall apply accordingly :
Provided that if any of the conditions laid down in the
proviso to clause (xiii) or the proviso to clause (xiv) to
section 47 are not complied with, the set off of loss or
allowance of depreciation made in any previous year in the
hands of the successor company, shall be deemed to be the
income of the company chargeable to tax in the year in which
such conditions are not complied with.
(6A) Where there has been reorganisation of business whereby
a private company or unlisted public company is succeeded by
a limited liability partnership fulfilling the conditions
laid down in the proviso to clause (xiiib) of section 47,
then, notwithstanding anything contained in any other
provision of this Act, the accumulated loss and the
unabsorbed depreciation of the predecessor company, shall be
deemed to be the loss or allowance for depreciation of the
successor limited liability partnership for the purpose of
the previous year in which business reorganisation was
effected and other provisions of this Act relating to set
off and carry forward of loss and allowance for depreciation
shall apply accordingly :
Provided that if any of the conditions laid down in the
proviso to clause (xiiib) of section 47 are not complied
with, the set off of loss or allowance of depreciation made
in any previous year in the hands of the successor limited
liability partnership, shall be deemed to be the income of
the limited liability partnership chargeable to tax in the
year in which such conditions are not complied with.
(7) For the purposes of this section,-
(a) "accumulated loss" means so much of the loss of the
predecessor firm or the proprietary concern or the private
company or unlisted public company before conversion into
limited liability partnership or the amalgamating company or
the demerged company, as the case may be, under the head
"Profits and gains of business or profession" (not being a
loss sustained in a speculation business) which such
predecessor firm or the proprietary concern or the company
or amalgamating company or demerged company, would have been
entitled to carry forward and set off under the provisions
of section 72 if the reorganisation of business or
conversion or amalgamation or demerger had not taken place;
(aa) "industrial undertaking" means any undertaking which is
engaged in-
(i) the manufacture or processing of goods; or
(ii) the manufacture of computer software; or
(iii) the business of generation or distribution of
electricity or any other form of power; or
(iiia) the business of providing telecommunication services,
whether basic or cellular, including radio paging, domestic
satellite service, network of trunking, broadband network
and internet services; or
(iv) mining; or
(v) the construction of ships, aircrafts or rail systems;
(b) "unabsorbed depreciation" means so much of the allowance
for depreciation of the predecessor firm or the proprietary
concern or the private company or unlisted public company
before conversion into limited liability partnership or the
amalgamating company or the demerged company, as the case
may be, which remains to be allowed and which would have
been allowed to the predecessor firm or the proprietary
concern or the company or amalgamating company or demerged
company, as the case may be, under the provisions of this
Act, if the reorganisation of business or conversion or
amalgamation or demerger had not taken place;
(c) "specified bank" means the State Bank of India
constituted under the State Bank of India Act, 1955 (23 of
1955) or a subsidiary bank as defined in the State Bank of
India (Subsidiary Banks) Act, 1959 (38 of 1959) or a
corresponding new bank constituted under section 3 of the
Banking Companies (Acquisition and Transfer of Undertakings)
Act, 1970 (5 of 1970) or under section 3 of the Banking
Companies (Acquisition and Transfer of Undertakings) Act,
1980 (40 of 1980).