Section 2(1B) of Income Tax Act defines ‘

Amalgamation’ as merger of one or more companies with another company or merger of two or more
companies to from one company in such a manner that:-

All the property of the amalgamating company or companies immediately before the amalgamation
becomes the property of the amalgamated company by virtue of the amalgamation.

All the liabilities of the amalgamating company or companies immediately before the amalgamation
becomes the liabilities of the amalgamated company by virtue of the amalgamation.

Shareholders holding at least three-fourths in value of the shares in the amalgamating company or
companies (other than shares already held therein immediately before the amalgamated company or its
nominee) becomes the shareholders of the amalgamated company by virtue of the amalgamation.

Example: Say, X Ltd merges with Y Ltd in a scheme of amalgamation and immediately before the
amalgamation, Y Ltd held 20% of shares in X Ltd, the above mentioned condition will be satisfied if
shareholders holding not less than 75% in the value of remaining 80% of shares in X Ltd i.e. 60%
thereof, become shareholders in Y Ltd by virtue of amalgamation)

The motive of giving this definition is that the benefits/concession under Income Tax Act, 1961 shall be
available to both amalgamating company and amalgamated company only when all the conditions,
mentioned in the said section, are satisfied.

‘Amalgamating company’ means company which is merging and ‘amalgamated company’ means the
company with which it merges or the company which is formed after merger. However, acquisition of
property of one company by another is not ‘amalgamation’.

Income Tax Act defines ‘amalgamation’ as merger of one or more companies with another company or
merger of two or more companies to from one company.

Let us take an example of X Ltd and Y Ltd. Here following situations may emerge:- (a) X Ltd Merges
with Y Ltd. Thus X Ltd goes out of existence. Here X Ltd is Amalgamating Company and Y Ltd is
Amalgamated Company.
(b) X Ltd and Y Ltd both merges and form a new company say, Z Ltd. Thus both X Ltd and Y Ltd goes
out of existence and form a new company Z Ltd. Here X Ltd and Y Ltd are Amalgamated Company and
Z Ltd is Amalgamated Company.

Tax Relief’s and Benefits in case of Amalgamation If an amalgamation takes place within the meaning
of section 2(1B) of the Income Tax Act, 1961, the following tax reliefs and benefits shall available:-

1. Tax Relief to the Amalgamating Company: o Exemption from Capital Gains Tax [Sec. 47(vi)]:
Under section 47(vi) of the Income-tax Act, capital gain arising from the transfer of assets by the
amalgamating companies to the Indian Amalgamated Company is exempt from tax as such transfer will
not be regarded as a transfer for the purpose of Capital Gain. o Exemption from Capital Gains Tax in
case of International Restructuring [Sec. 47(via)]:

Under Section 47(via), in case of amalgamation of foreign companies, transfer of shares held in Indian
company by amalgamating foreign company to amalgamated foreign company is exempt from tax, if the
following two conditions are satisfied:

At least twenty-five per cent of the shareholders of the amalgamating foreign company continue to
remain shareholders of the amalgamated foreign company, and Such transfer does not attract tax on
capital gains in the country, in which the amalgamating company is incorporated

2. Tax Relief to the shareholders of an Amalgamating Company: Exemption from Capital Gains Tax
[Sec 47(vii)]: Under section 47(vii) of the Income-tax Act, capital gains arising from the transfer of
shares by a shareholder of the amalgamating companies are exempt from tax as such transactions will not
be regarded as a transfer for capital gain purpose, The transfer is made in consideration of the allotment
to him of shares in the amalgamated company; and Amalgamated company is an Indian company.

3. Tax Relief to the Amalgamated Company:

Carry Forward and Set Off of Accumulated loss and unabsorbed depreciation of the amalgamating
company [Sec. 72A]: Section 72A of the Income Tax Act, 1961 deals with the mergers of the sick
companies with healthy companies and to take advantage of the carry forward of accumulated losses and
unabsorbed depreciation of the amalgamating company.

But the benefits under this section with respect to unabsorbed depreciation and carry forward losses are
available only if the followings conditions are fulfilled:-
There should be an amalgamation of – (a) a company owning an industrial undertaking (Note 1) or ship
or a hotel with another company, or

(b) a banking company referred in section 5(c) of the Banking Regulation Act, 1949 with a specified
bank (Note 2), 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. [Note 1. The term
‘Industrial Undertaking’ shall mean any undertaking 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 (iv) mining, or
(v) the construction of ships, aircrafts or rail systems, or

(vi) the business of providing telecommunication services, whether basic or cellular, including radio
paging, domestic satellite service, network of trunking, broadband network and internet services. Note 2.
Specified bank means the State Bank of India constituted under the State Bank of India Act,