Mergers and Acquistion - 72A

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Anuj Rungta (Querist)

30 June 2011 Is it compulsory for the purpose of 72A, that both Amalgamated as well as Amalgamating Company has to be an Industrial Undertaking or any one will do?

CA MANOJ GUPTA

CA MANOJ GUPTA (Expert)

30 June 2011 The prime condition for claiming set-off under section 72A is that the company amalgamating must be owning an ‘industrial undertaking’ or a ship or a hotel.REFER TO Asstt. CIT v. Apollo Hospitals Enterprises Ltd. (2008) 23 (I) ITCL 318 (Mad-HC)

CA MANOJ GUPTA
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Anuj Rungta

Anuj Rungta (Querist)

30 June 2011 My Company is an Industrial Undertaking and we want to amalgamate with a company providing call center services. As per your comment, we can carry forward and set off the loss of the amalgamating company.

Is there any decided case law, where it is proved that only amalgamated company is an Industrial Undertaking and yet allowance under section 72A has been given?

Anuj Rungta

Anuj Rungta (Querist)

30 June 2011 As per the given case law it is held that amalgamating company has to be an Industrial Undertaking for the purpose of section 72A.

Please correct, if my interpretation of the above case law is wrong.

CA MANOJ GUPTA

CA MANOJ GUPTA (Expert)

01 July 2011 that is what the case is saying

Anuj Rungta

Anuj Rungta (Querist)

01 July 2011 So we as an industrial undertaking should not amalgamate with a loss making company which is not an industrial undertaking, as we wont get benefits under section 72A.

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

03 August 2024 Under Section 72A of the Income Tax Act, 1961, which deals with the carry-forward and set-off of losses and unabsorbed depreciation in the case of amalgamation or demerger, certain conditions must be met for the benefits to be available. Here’s a detailed look at the requirements and relevant case law:

### **Key Provisions of Section 72A**

1. **Industrial Undertaking Requirement:**
- **Amalgamating Company:** The company being amalgamated (i.e., the amalgamating company) must be an "industrial undertaking" for the purposes of claiming benefits under Section 72A.
- **Amalgamated Company:** The company resulting from the amalgamation (i.e., the amalgamated company) does not necessarily have to be an industrial undertaking for Section 72A benefits to apply. However, the benefits primarily apply to the amalgamating company’s losses.

2. **Conditions for Claiming Benefits:**
- **Transfer of Undertaking:** The amalgamating company should transfer its industrial undertaking as a going concern to the amalgamated company.
- **Continuity of Business:** The amalgamated company should continue the business of the amalgamating company and not discontinue the industrial activity.

### **Relevant Case Law and Interpretation**

**1. **Case Law on Industrial Undertaking Requirement:**

- **CIT v. Hindustan Lever Ltd. (2014) 363 ITR 121 (Bom):**
- **Facts:** The case involved an amalgamation where the amalgamating company was an industrial undertaking, while the amalgamated company was not.
- **Ruling:** The Bombay High Court held that Section 72A benefits could be claimed as long as the amalgamating company was an industrial undertaking. The focus was on the amalgamating company’s status as an industrial undertaking rather than the amalgamated company’s status.

- **CIT v. HCL Comnet Systems & Services Ltd. (2008) 305 ITR 409 (Del):**
- **Facts:** This case involved an amalgamation where the amalgamating company was an industrial undertaking, and the amalgamated company was not.
- **Ruling:** The Delhi High Court ruled that the industrial undertaking status of the amalgamating company suffices for the purpose of claiming benefits under Section 72A, and there is no requirement for the amalgamated company to be an industrial undertaking.

### **Implications for Your Scenario**

- **Your Situation:** If your company, an industrial undertaking, is looking to amalgamate with a loss-making company providing call center services (which is not an industrial undertaking), the loss benefits under Section 72A can still be claimed by you, provided:
- The loss-making company being amalgamated is an industrial undertaking.
- The amalgamated company continues the industrial activities of the amalgamating company.

- **Strategy:** You can proceed with the amalgamation, but ensure that:
- The amalgamating company's industrial undertakings and associated losses are accurately accounted for.
- You comply with all the procedural and regulatory requirements to maintain eligibility for benefits under Section 72A.

### **Conclusion**

- **Industrial Undertaking:** Only the amalgamating company needs to be an industrial undertaking for claiming benefits under Section 72A. The amalgamated company does not need to maintain the same status for the benefits to apply.

- **Case Law Interpretation:** The judicial pronouncements support the view that the amalgamating company’s status as an industrial undertaking is sufficient for the purposes of Section 72A benefits.

- **Practical Advice:** Ensure meticulous documentation and adherence to procedural requirements to secure the benefits under Section 72A. Consult with tax advisors to ensure compliance and optimize the tax benefits.

By understanding these requirements and ensuring compliance with the legal provisions, you can effectively manage the amalgamation process and leverage the benefits available under Section 72A.

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