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EFFECTS OF MERGERS AND ACQUISITIONS ON THE COMPANIES TAX LIABILITIES.

CO-PRESENTED BY SANDIP BHOSALE (B.S.L. LL.B, DCL, LL.M 1ST YEAR) RGNUL, PUNJAB sandeepbhosalebsl@gmail.com +91 9814173436 And ANKUSH BHARAGAVA (B.A. LL.B, PGDCA, LL.M 2ND YEAR) RGNUL, PUNJAB ankush.bhargava2002@gmail.com +91 9501399694

INTRODUCTION
Merger,

acquisition and amalgamation are different modes of evolution of a corporate entity. An acquisition usually refers to the purchase of the assets of a company. In case of merger, two separate companies combine and only one of them survives.

AMALGAMATION

AMALGAMATION "blending together of two or more undertakings into one undertaking, the shareholders of each blending company, becoming, substantially, the shareholders of the blended undertakings. There may be amalgamations, either by transfer of two or more undertakings to a new company, or to the transfer of one or more companies to an existing company.
Example

X X

Y Y

Z X

MERGER

" MERGER " its an arrangement, whereby the assets of two companies become vested in, or under the control of, one company (which may or may not be one of the original two companies), which has as its shareholders all, or substantially all, the shareholders of the two companies .

Procedure for Amalgamation / Merger


Check MoA (change accordingly). Draft Scheme of Arrangement ( Amalgamation / Merger). Consider it in Board Meeting. Apply to Court direction to call General Meeting. Sent copy of application made to High Court to Central Gov. Send notices of General Meeting to with scheme
Notice Period shall not be less than 21 days Notice can be way of Advertisement also

Continued

A t General Meeting approve scheme, increase authorized share capital and to issue further shares, as required F orward promptly notice and proceedings of meeting to SEs R eport the result of the meeting to Court M ove Court for approval of the scheme by filing petition in 7 days in Form 40 A dvertise the date of hearing fixed by the court O n receipt of Order from High Court, file it with RoC. P roceed on effecting the scheme amalgamation / merger as approved by High Court

REASON AND TYPES OF MERGER AND ACQUISITION


REASONS

to get a market share to eliminate competition to reduce tax liabilities To acquire competence to set off accumulated losses of one entity against the profits of other entity.

KINDS OF MERGERS

AMALGAMATION UNDER INCOME TAX ACT


Meaning In

relation to companies means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that-

PROVISION RELATING TO CARRY FORWARD AND SET OFF OF ACCUMULATED LOSSES, ETC. IN AMALGAMATION
A

company owing an industrial undertaking or ship or hotel with another company, or A banking company with a specified bank, or 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 the similar business.

Condition to be satisfied by amalgamating company

Condition to be satisfied by amalgamated company

CONSEQUENCES IF THE ABOVE CONDITIONS ARE NOT SATISFIED


The

set off of loss or allowance of depreciation made in any previous year in the hand of the amalgamated company shall be deemed to be the income of the amalgamated company chargeable to tax for the year in which such condition are not complied with. Further, the balance accumulated loss and unabsorbed depreciation not yet set off shall not be allowed to be carried forward and set off.

TAX CONCESSIONS/INCENTIVES IN CASE OF AMALGAMATION


TAX

CONCESSION AMALGAMATING COMPANY

TO

TAX CONCESSION TO THE SHAREHOLDER OF AN AMALGAMATING COMPANY

TAX CONCESSIONS TO THE AMALGAMATED COMPANY

The amalgamated company shall be eligible for the tax concessions only if the following conditions are satisfied: The amalgamation satisfies all the three conditions laid down in Section 2 (1B); and The amalgamated company is an Indian company.

conclusion
Mergers

and acquisitions are powerful indicators of a robust and growing economy. The legal framework for such corporate restructuring must be easy and facilitative and not restrictive and mired in bureaucratic and regulatory hurdles. The biggest obstacle in the way of completing a merger or an amalgamation remains the often long drawn out court procedure required for the sanction of a scheme of arrangement.