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

For purposes of section 314 of the Income-tax Act, 2025, a High Court order sanctions the demerger of Meru Ltd into two resulting companies, X Ltd (already existing) and Y Ltd (newly incorporated under the scheme). Which statement is correct?

Both X Ltd and Y Ltd are successors. Section 314 defines a successor as all resulting companies in a business reorganisation, whether or not the company existed before the reorganisation, so existing and newly formed resulting companies are both covered.

  1. AOnly X Ltd is the successor because it existed before the reorganisation
  2. BOnly Y Ltd is the successor because it was created by the scheme
  3. CBoth X Ltd and Y Ltd are successors, whether or not they existed before the reorganisationCorrect
  4. DNeither is a successor, as the demerged company Meru Ltd remains the only one to file

Explanation

Section 314(4)(c) defines successor as all resulting companies in a business reorganisation, whether or not the company was in existence prior to it. So both X Ltd and Y Ltd are successors. The options restricting the status to the existing or the new company add a condition the definition does not contain.

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