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CMA Final · Direct Tax Laws and International Taxation · Assessment of Companies

A High Court order sanctions a demerger in which Alpha Ltd's undertaking is transferred to two resulting companies, Beta Ltd (already existing) and Gamma Ltd (newly incorporated after the demerger date). Alpha Ltd had already filed returns for the tax year to which the order applies. Under section 314 of the Income-tax Act, 2025, who must furnish the modified return?

Both Beta Ltd and Gamma Ltd must furnish modified returns. Section 314 defines successor as all resulting companies, whether or not they existed before the reorganisation, so the newly incorporated Gamma Ltd is covered along with Beta Ltd.

  1. AOnly Beta Ltd, since it existed earlier
  2. BOnly Alpha Ltd, the demerged company
  3. CBoth Beta Ltd and Gamma Ltd, as successorsCorrect
  4. DNeither, as a modified return is voluntary

Explanation

Section 314(4)(c) defines successor as all resulting companies in a business reorganisation, whether or not in existence before the reorganisation. So both Beta and Gamma are successors and must file the modified return within six months from the end of the month of the order. Limiting it to Beta ignores the definition.

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