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 the 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 Income Tax 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

Step 1: Understanding the concept of amalgamation.
As per the general corporate law understanding and provisions under the Income Tax Act, amalgamation can take two forms:
1. The merger of one or more companies with an existing company.
2. The merger of two or more companies to form a new company.
Step 2: Dissolution without winding up.
In amalgamation, the amalgamating (transferor) company ceases to exist, but it is not wound up through the usual liquidation process — it merges into the amalgamated (transferee) company.
Step 3: Verification of statements.
- Statement (I): Correct — describes amalgamation into an existing company.
- Statement (II): Correct — describes amalgamation forming a new entity.
- Statement (III): Correct — dissolution occurs without winding up.
Step 4: Conclusion.
All three statements correctly describe amalgamation.
\[ \boxed{\text{D}} \]

Answer 2

Step 1: Understanding Section 47 of the Income Tax Act, 1961.
Section 47 provides certain transactions that are not regarded as “transfer” for the purpose of capital gains taxation. One such case is the transfer of capital assets in an amalgamation, provided specific conditions are met.
Step 2: Application to amalgamation.
When an amalgamating company’s capital assets are succeeded by the amalgamated company, such succession is not treated as a transfer, hence no capital gains tax is levied.
Step 3: Elimination of incorrect options.
- (A) Incorrect — law specifically exempts this transaction from capital gains tax.
- (B) Incorrect — shareholders are not taxed on capital gains merely due to succession under the prescribed conditions.
- (D) Incorrect — because option (C) is correct.
\[ \boxed{\text{C}} \]

Answer 3

Step 1: Loss set-off.
Section 72A of the Income Tax Act allows the amalgamated company to carry forward and set off the accumulated losses and unabsorbed depreciation of the amalgamating company, provided specified conditions are met (continuity of business, holding of assets, etc.).
Step 2: Depreciation claim.
The new company (amalgamated) can claim depreciation for the year of transfer on a pro-rata basis — part for the amalgamating company (up to the date of amalgamation) and part for the amalgamated company (from the date of amalgamation).
Step 3: Carry forward of unabsorbed depreciation.
The law also permits the amalgamated company to carry forward any unabsorbed depreciation of the amalgamating company without time limits, subject to conditions.
Step 4: Conclusion.
Since all the three specific benefits (loss set-off, pro-rata depreciation, and carry-forward of unabsorbed depreciation) are correct, option (D) is correct. \[ \boxed{\text{D}} \]

Answer 4

Step 1: Deduction for amalgamation expenditure.
As per Section 35DD of the Income Tax Act, the amalgamated company can claim a deduction for expenditure incurred wholly and exclusively for the purpose of amalgamation, spread equally over five successive years.
Step 2: Tax on cessation of liability.
Under Section 41(1), if any liability of the amalgamating company ceases after amalgamation, the benefit is deemed income in the hands of the amalgamated company, since it inherits the rights and liabilities.
Step 3: Verification of statements.
- Statement (I) is correct — deduction is allowed.
- Statement (II) is correct — cessation of liability is taxed to the successor company.
Step 4: Conclusion.
Both statements are correct; hence, option (A) is correct. \[ \boxed{\text{A}} \]

Answer 5

Step 1: Understanding the tax treatment of accumulated losses in amalgamation.
Under the Income Tax Act, 1961, in case of a qualifying amalgamation (as per Section 2(1B)), the accumulated loss and unabsorbed depreciation of the amalgamating company can be carried forward and set off in the hands of the amalgamated company, provided prescribed conditions are met.
Step 2: Relevant provision.
Section 72A of the Act explicitly states that the accumulated loss of the amalgamating company shall be deemed to be the loss of the amalgamated company for the year in which amalgamation takes place.
Step 3: Eliminating incorrect options.
- (B) is incorrect because Section 80 deductions have specific restrictions and are not automatically transferred; unit-specific deductions may not be claimable by the amalgamated company unless otherwise provided.
- (C) is directly contrary to Section 72A, so it is incorrect.
- (D) is incorrect because (A) is correct.
\[ \boxed{\text{A}} \]

Answer 6

Step 1: Business continuity in amalgamation.
In a statutory amalgamation, the transferor company’s business is treated as continuing in the hands of the transferee. This means that even though the legal entity of the transferor ceases to exist, its business operations are deemed to continue seamlessly under the transferee.
Step 2: Treatment under the Income Tax Act.
Various provisions — including those for carry forward of losses, depreciation, and other benefits — treat the transferee company as if it were carrying on the business of the transferor. This ensures tax neutrality and continuity for genuine amalgamations.
Step 3: Conclusion.
Both (I) and (II) reflect statutory provisions and judicial interpretation; hence, they are true. \[ \boxed{\text{A}} \]