Demerger

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Rupa Sharma (Querist)
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03 March 2010 An investment company wants to hive off its investment to another company. Can it do so pursuant to scheme of Demerger as envisaged u/s 391 to 394 of the Companies Act, 1956. Whether such hiving off will qualify for treatment as demerger u/s 2(19AA) of Income tax Act?

Rasesh

Rasesh (Expert)
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03 March 2010 Yes. Demerger of investment arm is possible provided the company is able to satisfy all the conditions as stated in Sec 2(19AA) of the IT Act.

The Company will also have to prove that the investment is an "undertaking" for the Company. In simple words, you would have to show employees, expenses and income from this undertaking. This would be in addition to the requirements of Sec 2(19AA). Only hiving off the investments would not qualify for a demerger.

Rupa Sharma

Rupa Sharma (Querist)
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05 March 2010 Further to my query on the subject, i would like to ask what happens if the company wants to hive off a portion of its investments relating to particular activity. All investment made by the company are shown under the heading "Investment" in the Balance Sheet

Rasesh

Rasesh (Expert)
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05 March 2010 If it is only the investments which are to be hived off, then it would not qualify for a demerger.

To qualify as demerger, you will need to have an undertaking.

Otherwise, create an SPV (100% subsidiary) and transfer the investments in this company.

If you share your objective, I can think further.

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