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

Amalgamation, for tax purposes, is defined in Section 2(1B) of the Income Tax Act, 1961 as the merger of one or more companies with another company, or the merger of two or more companies to form one new company, in such a manner that the properties and liabilities of the amalgamating company become those of the amalgamated company. Measuring statements (I) to (III) against this statutory definition, rather than against general commercial usage, tests whether each is legally accurate.

1. Statement (I): The definition expressly covers merger of one or more companies with another company, an existing entity absorbing the transferor. This matches statement (I) exactly, so it is true.
2. Statement (II): The same definition equally covers merger of two or more companies to form a new company, the alternative route the Act contemplates. Statement (II) is therefore true as well.
3. Statement (III): The Act requires that the properties and liabilities of the amalgamating company vest in the amalgamated company; the amalgamating company loses its separate corporate identity but this occurs through the amalgamation process itself, not through the liquidation or winding-up procedure under company law. That is exactly what statement (III) describes, making it true.

Because the statutory definition of amalgamation independently confirms each of the three statements, merger into an existing company, merger to form a new company, and dissolution without winding up, none of them can be excluded.

Hence, the correct answer is Option D, since (I), (II) and (III) are all true.

Answer 3

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 4

Tax law generally tries not to tax a mere change in the form of a business where there is no real realisation of gain by anyone, this policy of tax-neutral reorganisation is what Section 47 of the Income Tax Act, 1961 gives effect to for amalgamations. Testing each option against that underlying policy, rather than merely restating the section, shows which statement fits.

1. Option A: If succession by amalgamation were treated as a transfer attracting capital gains in the amalgamating company's hands, every genuine business reorganisation would trigger an immediate tax charge even though nothing has actually been realised or converted to cash, this runs against the policy of neutrality, so this option is incorrect.
2. Option B: Shareholders of the amalgamating company typically receive shares of the amalgamated company in exchange for their existing shareholding, which is itself excluded from the definition of transfer under the Act, subject to conditions; taxing them on capital gains at this stage would similarly defeat the purpose of enabling smooth corporate restructuring, so this option is incorrect.
3. Option C: Because the Act specifically carves out the succession of capital assets on amalgamation from the definition of "transfer", there is no transfer event to trigger capital gains tax at all, consistent with the policy of not taxing a reorganisation where ownership continues in substance. This is exactly what the option states.
4. Option D: Since option C independently holds up under both the statutory text and the underlying tax-neutrality rationale, it cannot be true that all the options are incorrect.

The policy of exempting genuine business reorganisations from immediate taxation is precisely what the law codifies for amalgamations, and that is captured accurately only by the statement that succession is not a transfer and therefore attracts no capital gains.

Hence, the correct answer is Option C.

Answer 5

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 6

The common thread linking loss set-off, pro-rata depreciation and carry-forward of unabsorbed depreciation on amalgamation is that the law treats the amalgamated company as a continuation of the amalgamating company's business, rather than as an entirely fresh entity starting with a clean slate. Testing each statement against that continuity principle shows whether it holds.

1. Option A: If the amalgamated company were treated as a wholly new business unconnected to its predecessor, the predecessor's accumulated losses would simply lapse on amalgamation. Instead, the law allows those losses to be carried forward and set off by the amalgamated company precisely because the underlying business is treated as continuing, subject to conditions such as retaining the amalgamating company's fixed assets and continuing its business for the prescribed period. This statement is therefore true.
2. Option B: Depreciation is an allowance tied to the use of an asset during a period; since the amalgamating company owned the asset for part of the year and the amalgamated company for the remainder, dividing the depreciation claim between them on a pro-rata basis for the year of transfer reflects actual usage rather than granting either company a windfall. This statement is true.
3. Option C: Unabsorbed depreciation, like accumulated losses, is treated as if it belonged to the amalgamated company going forward, consistent with the continuity rationale, the amalgamated company is not starting depreciation computation afresh but inheriting the position of its predecessor. This statement is true.
4. Option D: Since all three benefits flow from the same continuity principle recognised for a genuine amalgamation meeting the prescribed conditions, none of them can be excluded.

Each of the three statements is simply a different application of the same underlying rule, that a qualifying amalgamation preserves business continuity for tax purposes, so all of them are correct together.

Hence, the correct answer is Option D.

Answer 7

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 8

Both statements can be tested by asking a simple question about each: does the law allow recovery of a cost genuinely incurred for the amalgamation, and does the law tax a benefit that arises when a liability simply disappears? Working through the logic behind each rule, rather than citing the provisions first, shows whether the two statements hold.

1. Statement (I): Expenses incurred wholly and exclusively to bring about an amalgamation, such as professional fees, stamp duty and related costs, are a genuine cost of restructuring the business, and because their benefit accrues over several years rather than in one go, the law allows the amalgamated company to deduct them, spread in equal instalments over five years rather than all at once. This matches statement (I), which is therefore true.
2. Statement (II): When the amalgamated company steps into the shoes of the amalgamating company and later obtains the benefit of a liability of the amalgamating company simply ceasing to exist, that benefit is treated as income in the hands of whoever obtains it, which after amalgamation is the amalgamated company. This is consistent with the general principle that a windfall from the extinguishment of a business liability is taxable income for the party that gains from it, making statement (II) true as well.

Since both the deduction for genuine amalgamation expenditure and the taxation of a benefit from a liability ceasing are simply applications of ordinary tax principles to the amalgamated company as successor, both statements hold true together.

Hence, the correct answer is Option A, since both (I) and (II) are true.

Answer 9

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 10

Two different tax concepts are being tested here, loss carry-forward and deduction eligibility, and they are not treated the same way on amalgamation. Separating them clarifies which option is accurate.

1. Option A: Loss carry-forward is a general relief attached to the business itself rather than to any particular unit, so when that business is taken over intact through a qualifying amalgamation, the accumulated loss travels with it and is treated as the amalgamated company's own loss for the year of amalgamation, subject to the prescribed conditions being met. This matches the statutory position and is true.
2. Option B: Deductions tied to a specific undertaking, such as an area-based or unit-specific incentive, are granted because of features unique to that particular unit, not to the company as a legal person; on amalgamation, such unit-specific benefits generally do not pass through automatically in the same unrestricted way the amalgamated company enjoys for its general reliefs. Claiming that "all" such deductions carry over overstates the position, so this option is incorrect.
3. Option C: This is the direct opposite of the actual rule, since accumulated loss is exactly what the law deems to be the amalgamated company's loss, so this option is incorrect.
4. Option D: Cannot be correct, since option A is an accurate statement of the law.

The distinction between a general relief that travels with the business, which does transfer, and a unit-specific incentive that does not automatically transfer explains why only the first statement is accurate.

Hence, the correct answer is Option A.

Answer 11

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. \[ \boxed{\text{A}} \]

Answer 12

These two statements mirror language used in judicial discussion of how the Income Tax Act treats amalgamation, so the most direct way to test them is to check each one against the substance of that reasoning rather than general principle alone.

1. Statement (I): Courts examining the Act's amalgamation provisions have observed that the business, along with the rights, assets and liabilities of the transferor company, does not come to an end on amalgamation but continues in the hands of the transferee. That is exactly what this statement asserts, so it is true.
2. Statement (II): The same reasoning notes that through several deeming provisions scattered across the Act, relating to losses, depreciation, deductions and similar reliefs, the transferee company is treated in law as though it were carrying on the very same enterprise that the transferor carried on before amalgamation. This statement captures that deeming mechanism precisely, so it is also true.

Both statements describe the same underlying legal technique from two angles, statement (I) addressing continuity of the business itself and statement (II) addressing how the statute achieves that continuity through deeming fictions, and both hold up as accurate.

Hence, the correct answer is Option A, since both (I) and (II) are true.