Tax Tax Tax....
This query is : Resolved
05 June 2009
There are two pvt companies under a same management.
One of them is a loss making co. lets say A Co. and one is in profit say B co.
now i want to absorb the losses of the A co. which of the following ways is the best way to do so from income tax point of view i.e no litigation is invited?
1) Amalgamte The A co with B co.
2) Make A co. a subsidary of B co by aquiring shares of A co.
3) or if we expect profit in A co in some years down the line so let it work as it is but it will be cover by section 115JB (MAT)?
or if you feel any other way to absorb the losses of A co. plz tell me?
Thanks & Regards.
One of them is a loss making co. lets say A Co. and one is in profit say B co.
now i want to absorb the losses of the A co. which of the following ways is the best way to do so from income tax point of view i.e no litigation is invited?
1) Amalgamte The A co with B co.
2) Make A co. a subsidary of B co by aquiring shares of A co.
3) or if we expect profit in A co in some years down the line so let it work as it is but it will be cover by section 115JB (MAT)?
or if you feel any other way to absorb the losses of A co. plz tell me?
Thanks & Regards.
05 June 2009
in my point of veiw amalgamation subject to nature of business of the co. which is specified by section 72A and 72AA is better way to absorb the losses of the company as it is cheaper way in all of the above and involving less formalities.
08 June 2009
.
26 July 2025
Great question! Managing losses between companies under common management can be tricky in India due to tax laws. Here’s a breakdown of the options you mentioned and their tax implications:
---
### 1) **Amalgamate A Co with B Co**
* **Pros:**
* Losses of A Co (business losses and unabsorbed depreciation) can be set off against profits of B Co post-amalgamation, subject to conditions.
* This is a straightforward way to utilize losses and reduce tax outgo.
* **Cons:**
* Amalgamation must meet **Section 2(1B)** and **Section 72A** conditions for carry forward and set off of losses.
* Losses can be carried forward and set off only if the amalgamation is approved by the Tribunal and done as per the prescribed procedure.
* This is a **long process** and requires compliance with the Companies Act and Income Tax Act.
* Risk of scrutiny by tax authorities if conditions are not strictly followed.
---
### 2) **Make A Co a Subsidiary of B Co (Share Acquisition)**
* Simply acquiring shares of A Co by B Co will **not** allow B Co to set off losses of A Co against its own profits because losses are company-specific.
* **However, losses will remain with A Co** and can be set off against A Co’s own profits in future years.
* No direct benefit in terms of immediate loss absorption, but may be useful if you expect A Co to become profitable.
---
### 3) **Let A Co Work as It Is; Cover under Section 115JB (MAT)**
* Under **Minimum Alternate Tax (MAT) u/s 115JB**, companies pay tax on book profits if regular tax is less than MAT.
* Losses won’t help reduce MAT because MAT is computed on book profits, which generally do not account for tax losses.
* So losses of A Co **cannot reduce tax liability under MAT** directly.
---
### Other Possible Ways:
* **Inter-Corporate Loans or Dividend Stripping**: Risky and often disallowed by tax authorities.
* **Group Relief Scheme**: India currently does **not allow group relief** (loss transfer between companies under the same management) except in case of amalgamation or demerger.
---
### Summary & Recommendation:
* **Amalgamation** is the most legitimate and tax-friendly way to absorb losses of A Co in B Co, but it requires compliance with legal procedures.
* Simply acquiring shares will not help absorb losses.
* Letting A Co run separately might be better if you expect profits later, but losses won’t reduce MAT.
* **Always consult with a tax expert and a company law professional** before proceeding.
---
If you want, I can provide you more details on the **amalgamation process** or help draft how to comply with Section 72A loss set-off rules. Would that help?
---
### 1) **Amalgamate A Co with B Co**
* **Pros:**
* Losses of A Co (business losses and unabsorbed depreciation) can be set off against profits of B Co post-amalgamation, subject to conditions.
* This is a straightforward way to utilize losses and reduce tax outgo.
* **Cons:**
* Amalgamation must meet **Section 2(1B)** and **Section 72A** conditions for carry forward and set off of losses.
* Losses can be carried forward and set off only if the amalgamation is approved by the Tribunal and done as per the prescribed procedure.
* This is a **long process** and requires compliance with the Companies Act and Income Tax Act.
* Risk of scrutiny by tax authorities if conditions are not strictly followed.
---
### 2) **Make A Co a Subsidiary of B Co (Share Acquisition)**
* Simply acquiring shares of A Co by B Co will **not** allow B Co to set off losses of A Co against its own profits because losses are company-specific.
* **However, losses will remain with A Co** and can be set off against A Co’s own profits in future years.
* No direct benefit in terms of immediate loss absorption, but may be useful if you expect A Co to become profitable.
---
### 3) **Let A Co Work as It Is; Cover under Section 115JB (MAT)**
* Under **Minimum Alternate Tax (MAT) u/s 115JB**, companies pay tax on book profits if regular tax is less than MAT.
* Losses won’t help reduce MAT because MAT is computed on book profits, which generally do not account for tax losses.
* So losses of A Co **cannot reduce tax liability under MAT** directly.
---
### Other Possible Ways:
* **Inter-Corporate Loans or Dividend Stripping**: Risky and often disallowed by tax authorities.
* **Group Relief Scheme**: India currently does **not allow group relief** (loss transfer between companies under the same management) except in case of amalgamation or demerger.
---
### Summary & Recommendation:
* **Amalgamation** is the most legitimate and tax-friendly way to absorb losses of A Co in B Co, but it requires compliance with legal procedures.
* Simply acquiring shares will not help absorb losses.
* Letting A Co run separately might be better if you expect profits later, but losses won’t reduce MAT.
* **Always consult with a tax expert and a company law professional** before proceeding.
---
If you want, I can provide you more details on the **amalgamation process** or help draft how to comply with Section 72A loss set-off rules. Would that help?
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