The Amalgamation Exemption
Section 47(vi) exempts the transfer of a capital asset by the amalgamating company to the amalgamated company, provided the amalgamation satisfies the definition in Section 2(1B): all the property and liabilities of the amalgamating company become the property and liabilities of the amalgamated company; the shareholders of the amalgamating company become shareholders of the amalgamated company; and the amalgamated company carries on the amalgamating company’s business. The exemption is not available if any of the conditions is not met.
The Demerger Exemption
Section 47(vib) exempts the transfer of a capital asset in a demerger, provided the demerger satisfies Section 2(19AA): the whole business undertaking is transferred; the transfer is at book value; the resulting company issues shares to the demerged company’s shareholders on a proportionate basis; and at least three-fourths of the shareholders become shareholders of the resulting company.
The NCLT’s Role
The NCLT’s sanction is necessary but not sufficient for the Section 47 exemption. The scheme must be drafted to satisfy the tax definitions, and the tax authorities may examine the scheme’s terms to determine whether the conditions are met. The NCLT’s order does not bind the tax authorities on the tax characterisation.
The Documentation
The file should contain: the scheme’s tax clauses; the Section 47 analysis; the tax opinion; and the NCLT order. A scheme that relies on the NCLT sanction without the Section 47 analysis is exposed to a capital gains demand.
Call to Action: For Section 47 exemption analysis, scheme tax structuring, or capital gains assessment, contact office@anujdesaiassociates.com or 9619456656. Website: https://anujdesaiassociates.com. LinkedIn: linkedin.com/in/ca-anuj-desai-122547230.