Question

Consider the given statements:
(I) Amalgamation is the merger of one or more companies with another company.
(II) Amalgamation may be the merger of two or more companies to form a new company.
(III) The amalgamating company integrates with amalgamated company and the former is dissolved without winding up.
Choose the correct answer from the Code given below:

• A. Only (I) and (II) are true.
• B. Only (II) and (III) are true.
• C. Only (I) and (III) are true.
• D. (I), (II) and (III) are true.
• A. There is transfer of capital assets from amalgamating company to amalgamated company and therefore capital gain can arise in the hands of the amalgamating company.
• B. There is transfer of capital assets from the amalgamating company to amalgamated company and hence capital gain can arise in the hands of the shareholders of the amalgamating company.
• C. Succession of capital assets of the amalgamating company by the amalgamated company does not result in transfer as defined in Section 47 of the Income Tax Act and hence no capital gain arises.
• D. All are incorrect.
• A. Amalgamated company can set off the losses of the amalgamating company, if conditions of Income Tax Act, 1961 are complied with.
• B. New company can claim depreciation on capital assets in the year of transfer on pro-rata basis.
• C. New company can carry forward unabsorbed depreciation.
• D. All are true.
• A. Both (I) and (II) are true.
• B. Only (I) is true.
• C. Only (II) is true.
• D. Both (I) and (II) are untrue.
• A. The accumulated loss of the amalgamating company shall be deemed to be the loss of the amalgamated company for the previous year in which the amalgamation was effected.
• B. The amalgamated company can claim all deductions under Section 80 of IncomeTax Act, 1961 including unit specific deductions.
• C. The accumulated loss of the amalgamating company shall not be deemed to be the loss of the amalgamated company
• D. All are incorrect
• A. Both (I) and (II) are true.
• B. Only (I) is true.
• C. Only (II) is true.
• D. Both (I) and (II) are untrue.

Answer 1

The Correct Option is D

To determine the correct interpretation of the statements about amalgamation, we analyze each statement individually:

• Statement (I): "Amalgamation is the merger of one or more companies with another company."
  This definition accurately describes amalgamation, as it involves either one or more entities merging with another existing company.
• Statement (II): "Amalgamation may be the merger of two or more companies to form a new company."
  This statement is also true. In some cases, amalgamation can result in a completely new entity forming from the merging companies.
• Statement (III): "The amalgamating company integrates with amalgamated company and the former is dissolved without winding up."
  This is a characteristic of amalgamation where the original companies cease to exist independently without undergoing formal winding-up procedures.

The question asks us to choose the combination of statements that are true. Given our analysis:

• All three statements (I), (II), and (III) accurately describe various aspects of amalgamation according to legal and business contexts.

Therefore, the correct choice is:

(I), (II) and (III) are true.

Answer 2

In the context of the Income Tax Act, 1961, particularly concerning the process of amalgamation of companies, it's essential to understand the treatment of capital assets and the potential implications for capital gains. Section 47 of the Act provides specific scenarios where certain transactions are not considered transfers, and hence, no capital gains tax is levied.

Upon the amalgamation of a company:

• The capital assets of the amalgamating company are succeeded by the amalgamated company.
• This succession does not equate to a transfer under Section 47 of the Income Tax Act.
• As a result, no capital gain arises during this succession process, ensuring that the transaction is tax-neutral from the perspective of capital gains.

The rationale for this provision is that the business, along with its rights, assets, and liabilities, continues uninterrupted under the new entity, aligning with tax principles that promote the continuity of enterprises. Therefore, the correct perspective is:

Succession of capital assets of the amalgamating company by the amalgamated company does not result in transfer as defined in Section 47 of the Income Tax Act and hence no capital gain arises.

Answer 3

Under the Income Tax Act, 1961, in the context of amalgamation, several provisions facilitate beneficial treatments to the amalgamated company, provided certain conditions are met. These provisions include:

1. Amalgamated company can set off the losses of the amalgamating company if compliance with the Income Tax Act, 1961, is ensured. This is because the losses incurred by the amalgamating company do not cease with amalgamation but are continued under the transferee.
2. The new company can claim depreciation on capital assets on a pro-rata basis for the year of transfer. This means that the depreciation calculation is proportional to the duration the company owning the assets remains operational after transfer within the fiscal year.
3. The new company can carry forward unabsorbed depreciation. Such unabsorbed depreciation doesn't become irrelevant post-amalgamation. Instead, it can be utilized by the new company as if it were incurred by itself.

According to the Supreme Court of India and the Income Tax Act, all these points are valid in the case of amalgamation, indicating that the amalgamated business, along with its rights and liabilities, continues seamlessly. Therefore, the correct answer is:

All are true.

Answer 4

The question involves understanding the rules related to amalgamation as per the Income Tax Act, 1961, and determining the truth of two statements regarding deductions and taxation of liabilities.

(I) The first statement claims that the transferee-company can claim a deduction for expenditures incurred during amalgamation. According to the Income Tax Act, during amalgamations, certain deductions related to business expenditures can be claimed by the transferee company. These include deductions related to expenses for the amalgamation process, as long as they are allowable under the Act. Hence, this statement is correct.

(II) The second statement asserts that any cessation of liability for the amalgamating company shall be taxed in the hands of the amalgamated company. The Act provides for the transfer of certain tax liabilities and obligations of the amalgamating company to the amalgamated company. This includes the liability to tax on cessation of liability. Hence, this statement is also correct.

Given the explanation, both statements are true according to the provisions of the Income Tax Act concerning amalgamation processes.

Correct Answer: Both (I) and (II) are true.

Answer 5

Upon analyzing the options provided regarding amalgamation under the Income Tax Act, 1961, we can determine which statement is true based on the Act's treatment of accumulated losses:

• Option 1: The accumulated loss of the amalgamating company shall be deemed to be the loss of the amalgamated company for the previous year in which the amalgamation was effected.
• Option 2: The amalgamated company can claim all deductions under Section 80 of IncomeTax Act, 1961 including unit specific deductions. This is incorrect because Section 80 deductions are unit-specific and may not apply after amalgamation.
• Option 3: The accumulated loss of the amalgamating company shall not be deemed to be the loss of the amalgamated company. This contradicts Section 72A of the Income Tax Act, which allows carry forward of losses under certain conditions.
• Option 4: All are incorrect. This option is invalid as Option 1 is true.

Based on the legal comprehension given, it supports that through deeming fiction and several provisions of the Act, the business of the amalgamating and amalgamated companies continue seamlessly. Hence, the correct statement is:

The accumulated loss of the amalgamating company shall be deemed to be the loss of the amalgamated company for the previous year in which the amalgamation was effected.

Answer 6

To determine the truthfulness of the given statements based on the legal understanding of amalgamation under the Income Tax Act, 1961, let's analyze each statement with regard to the information provided:

(I) On amalgamation, the business of the transferor company does not cease, but is deemed to continue. 

This statement aligns with the explanation given in the passage, which mentions that the business, rights, assets, and liabilities of the transferor company continue post-amalgamation. The enterprise is allowed to maintain its continuity despite the formal amalgamation process. Therefore, Statement I is true.

(II) Under various provisions of the Income Tax Act, the transferee is deemed to carry on the enterprise as that of the transferor.

The passage indicates that special provisions in the Income Tax Act create a legal fiction where the transferee is considered to continue the business of the transferor company. This is supported by the treatment of carry forward of losses and profits, among others, as specified in the Act. Thus, Statement II is also true.

Given this analysis, the correct answer is:

Both (I) and (II) are true.