Income Tax constitutes the biggest transaction cost in M&A transactions. Therefore, planning restructuring exercise from the Income Tax angle makes a lot of sense.

Section 2(1B) of the Income Tax Act defines amalgamation

Amalgamation as defined in section 2 (1B) of the Income Tax Act, 1961 means the merger of one or more companies with another company or the merger of two or more companies to form one company in such a manner that the following conditions are satisfied:

i. the property of the amalgamating company/s before the amalgamation becomes the property of the amalgamated company after the merger.

ii. All the liabilities of the amalgamating company before the amalgamation become the liabilities of the amalgamated company

iii. 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) agree to become the shareholders of the amalgamated company.

The definitions give rise to many questions

Do all liabilities also include contingent liabilities?

Which date is relevant to assess the assets and liabilities before amalgamation?

Which type of an assessee can be covered under the definition of amalgamation?

What if the assesses other than company like Partnership Firms, AOP-BOI, Trust, proprietary concerns, etc wants to amalgamate?

Whether there can be more than one transferor Company?

Whether there can be more than one transferee Company?

Whether transferor Company/companies can exist post amalgamation?

Which date would be considered for deciding the compliance with the condition of the 3/4th shareholders in value to be transferred condition?

Whether the words ‘Company or Companies’ as mentioned in the definition includes branches of foreign company located in India?

Does the definition of amalgamation even include a transaction comprising of mere exchange of shares of two companies between 2 or more persons. Further, in case of relinquishment of shares by two or more shareholders having interest in two or more companies be considered under the definition of amalgamation?

Capital Gains Liability in the hands of Shareholders

Procedural compliances for transferor and transferee company

Benefit of exemption

How to calculate the holding period for calculating capital gains on the new shares received in the course of merger?

How to compute the cost of acquisition in case of the new shares received in the course of merger?