Important ruling of Mumbai Tribunal on conditions relating to amalgamation

---------- Forwarded message ----------

From: Nandkishore Hegde <hegdenandkishore@yahoo.com>
Date: Sun, Feb 24, 2013 at 2:17 PM

 

Dear colleagues,

 

Please find a summary of an important ruling of the Mumbai Tribunal relating to section 72A.

 

Facts

·         Pursuant to a scheme of amalgamation, Bayer TPU Pvt. Ltd. ('BTPU') and Bayer Specialty Products Pvt. Ltd. ('BSPPL') amalgamated with Bayer material Science Pvt. Ltd ('BMSPL / taxpayer').

 

·         The taxpayer claimed a set off of loss (pertaining to BTPU only) u/s 72A of the Income tax Act, 1961 ('the Act') in AY 2004-05. 

 

  Conditions required to be fulfilled by the amalgamated company u/s72A of the Act are:

 

a)       Hold atleast 75% of book value of fixed assets of amalgamating company for a period of 5 years;

b)       Continue the business of amalgamating company for a period of 5 years;

c)       Achieve 50% of installed capacity of such undertaking before the end of 4 years and continue to maintain the said minimum level till the end of 5 years from the date of amalgamation; and

d)       Furnish certificate in Form 62 showing particulars of production on achieving 50% installed capacity and for subsequent years falling within the period of 5 years from the date of amalgamation.

 

 

 

·         The Assessing officer disallowed the set off of brought forward loss of BTPU in the hands of taxpayer on the contention that the taxpayer did not fulfill conditions stipulated u/s 72A of the Act as it:

a)       Disposed off assets of the amalgamating company above the prescribed threshold in the first year of

amalgamation;

b)       Was unable to demonstrate that amalgamation was with a view to revive the business of amalgamating

company and for a genuine business purpose;

 

 

 

c)       Did not achieve production capacity of at least 50% of the installed capacity of the amalgamating company before end of 4 years from the date of amalgamation; and

d)       Failed to furnish certificate in Form 62 for availing the benefit u/s72A of the Act.

 

 

Observations and Ruling of Mumbai Tribunal

 

·         On facts, the taxpayer claimed set off of brought forward loss of BTPU only. Disposal of assets pertaining to BTPU accounted for only 10% of total assets of BTPU.

·         The limit for disposal of 25% of assets should be restricted only to disposal of assets relating to BTPU i.e. with respect to each amalgamating company whose loss is sought to be carried forward for set off.

·         Condition of achieving 50% of installed capacity of amalgamating company to be seen only at the end of prescribed period of four years. The period of 4 years had not completed as on the date of the order. Hence the Assessing officer was not required to examine this aspect.

·         On achieving desired level of production, the condition of ensuring revival of business automatically gets satisfied.

·         Certificate in Form No. 62 needs to be furnished only on attaining the 50% capacity;

·         Tribunal held that taxpayer was not in default in the year under consideration

 

This ruling provides useful guidance  on the   availability of  claim of  set off of losses by the amalgamated company in a scenario where multiple companies amalgamate into a single company, especially with reference to the conditions that are required to be satisfied under section 72A(2) of the I.T.Act..

 

Source: ITA Nos. 6666 & 6667/MUM/2009 dated 13 February 2013

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