Set-off and Carry-forward of Amalgamation Losses

Business losses and unabsorbed depreciation of an amalgamating company can be set off against the income of the amalgamated company if the amalgamation is within the meaning of section 72A/72AA of the Income-tax Act. If the amalgamation is not of the nature specified in section 72A/72AA, the business loss and unabsorbed depreciation of the amalgamating company cannot be carried forward by the amalgamated company. Similarly, business losses and unabsorbed depreciation of an amalgamating co-operative bank can be set off against the income of successor co-operative bank i.e. the amalgamated co-operative bank, if the amalgamation is within the meaning of section 72AB.

If the following conditions are satisfied, then the accumulated business loss and the unabsorbed depreciation of the amalgamating company shall be deemed to be business loss/depreciation of the amalgamated company for the previous year in which the amalgamation is effected:

1. There has been:
   • An amalgamation of a company owning an industrial undertaking or a ship or a hotel with another company; or
   • An amalgamation of a banking company with SBI or any subsidiary of SBI; or
   • An amalgamation of a public sector airlines with another public sector airlines.
2. The amalgamating company has been engaged in the business in which the accumulated loss occurred or depreciation remains unabsorbed for 3 years or more years.
3. The amalgamating company 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.
4. The amalgamated company continues to hold at least three-fourths in the book value of fixed assets of the amalgamating company which it has acquired as a result of amalgamation for five years from the effective date of amalgamation.
5. The amalgamated company continues the business of the amalgamating company for a minimum period of 5 years.
6. The amalgamated company, which has acquired an industrial undertaking of the amalgamating company by way of amalgamation, shall achieve the level of production of at least 50 per cent of the installed capacity of the said undertaking before the end of 4 years from the date of amalgamation and continue to maintain the said minimum level of production till the end of 5 years from the date of amalgamation. However, the Central Government, on an application made by the amalgamated company, may relax the condition.
7. The amalgamated company shall electronically furnish to the Assessing Officer a certificate in Form No. 62, from a chartered accountant, with reference to the books of account and other documents showing particulars of production. This certificate should be submitted along with the return of income for the assessment year relevant to the previous year during which the prescribed level of production is achieved and for subsequent assessment years relevant to the previous years falling within 5 years from the date of amalgamation.

If the above conditions are satisfied, then accumulated business loss and unabsorbed depreciation (including unabsorbed capital expenditure on scientific research/family planning) of the amalgamating company shall be deemed to be loss and depreciation of the amalgamated company for the previous year in which amalgamation is effected.