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Monday, July 23, 2001

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Amalgamation and AA

Sadashiv Manjrekar, Mumbai

I AM a student of taxation. Under Chapter XX-C, a transfer of immovable property has to be routed through the Appropriate Authority (AA). My question is on amalgamation, that is, whether the amalgamating company has to notify the AA in the prescribed for m 37-I.

In Hindustan Lever Ltd vs Appropriate Authority (1994 207 ITR 772), the Kolkata High Court held that the Chapter XX-C dispensation is indeed applicable to amalgamation as well. Implicit in this verdict was the assumption that amalgamation amounts to sale or exchange of an immovable property. The court may be pleased to review its verdict because, as pointed out by the Mumbai High Court in Sadanand S. Virde vs State of Maharashtra (2001 115 Taxmann 407), amalgamation amounts to neither sale nor exchange, and the definition of `transfer' given in this chapter is comprehensive enough to treat only sale, exchange, long-term lease and transfer in terms of Section 53A of the Transfer of Property Act as transfer.

This definition clearly excludes amalgamation, which is not the same as sale or exchange because while the assets are admittedly transferred by the amalgamating company to the amalgamated company, the consideration therefor in the form of shares is issue d not to the amalgamating company but to the shareholders thereof. Moreover, an application to the AA has to be made at least within four months before the intended date of sale.

But in the case of amalgamation, the date of sale, assuming for a moment that amalgamation indeed is sale, is not known because amalgamation is sanctified by the High Court and it is not possible for any one to say when the court will cast its imprimatur on the scheme of amalgamation.

In view of the conflicting judicial perceptions and in order to foster certainty, it would be desirable if Parliament steps in to make it clear that any transfer of an immovable property on corporate restructuring, whether by way of merger or demerger, d oes not constitute `transfer' for the purposes of Chapter XX-C. The querist may note that, as it is, in terms of Section 47, transfer of assets on merger/demerger is not deemed to be a transfer and, therefore, does not give rise to any capital gains tax.

S. Murlidharan

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