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Is it necessary.....!!!

29 December 2010

Hey, I was going through the conditions as laid in section 72A of the Income tax Act where losses can be set off of amalgamating company by the amalgamated company.

Now It is necessary the the company must be the Industrial Undertaking..? & what does the Industrial Undertaking means.

I am going through the pratical case where the one loss making company say A ltd is amalgamated with say B Ltd.

Both the company are engage in Business of Health & Spa center.

Now can the losses of A ltd can be set off by profit of B ltd after amalgamation..?

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4 Replies

sanjay (FCA) (322 Points)
Replied 29 December 2010

Hi Mayur

yes, losses of amalgamating co. would be losses of amalgamated company, subject to condition of subsection2 as laid below

Sub section (2) :- Notwithstanding anything contained in sub-section (1), the accumulated loss shall not be set off or carried forward and the unabsorbed depreciation shall not be allowed in the assessment of the amalgamated company unless the amalgamated company-

(i) holds continuously for a minimum period of five years from the date of amalgamation at least three-fourths in the book value of fixed assets of the amalgamating company acquired in a scheme of amalgamation;

(ii) continues the business of the amalgamating company for a minimum period of five years from the date of amalgamation;

(iii) fulfils such other conditions as may be prescribed to ensure the revival of the business of the amalgamating company or to ensure that the amalgamation is for genuine business purpose.

I think your query is resolved.

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CA Mayur Sojrani (CA) (318 Points)
Replied 30 December 2010

But then what about the "company must be an Industrial Undertaking"

as one of the condition to claim set off of losses as given in section 72A

And the Income tax had also provide the meaning of the Industrial Undertaking in which my client doesn't fit.

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 30 December 2010

In the absence of any definition provided under the Income Tax Act, it would be admissible to find out the scope of this expression by resorting to its meaning in common parlance as understood by common persons or its natural and grammatical manner. Law Lexicon, the Encyclopedia Law Dictionary (1997 Edition), provides the following meaning :-

“Industrial Undertaking –

To be an industrial undertaking, the work of manufacture or production should be carried on in one or more factories by person or authority including Government.”

Likewise,Wharton .s Law Lexicon (Dictionary)(15 th Edition) defines this expression as –

“any undertaking pertaining to a scheduled industry carried on in one or more factories by any company but does not include-

(i) An ancillary industrial undertaking as defined in clause (aa) of section 3 of the Industries (Development and Regulation) Act, 1951; and (ii) a small scale industrial undertaking as defined in clause (j) of the aforesaid section 3. [Sick Industrial Companies (Special Provision) Act, 1985 (1 of 1986), section 3(1)(f)] Means any undertaking pertaining to a scheduled industry and includes an undertaking engaged in any other industry, or in any trade, business or service which may be regulated by Parliament by law. [Central Industrial Security Force Act, 1968 (50 of 1968) section 2(1)(b)]. Means any undertaking pertaining to a scheduled industry carried on in one or more factories by any person or authority including Government. [Industrial (Development and Regulation) Act, 1951 (65 of 1951), section 3(d)].”