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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Corporate Tax Planning

Under section 116 of the Income-tax Act, 2025, what is the consequence if the amalgamated company fails to continue the amalgamating company's business for the minimum five years after amalgamation?

The set off of loss or allowance of depreciation already made in the hands of the amalgamated company is deemed to be its income chargeable to tax in the year in which the non-compliance occurs. Earlier relief is clawed back, not merely denied for the future.

  1. AThe set off of loss or depreciation already made is deemed to be income of the amalgamated company for the year in which the non-compliance occursCorrect
  2. BThe amalgamation is treated as void from the start
  3. CThe loss is deemed income of the amalgamating company for the year of amalgamation
  4. DOnly future set off is barred and no earlier set off is reversed

Explanation

Section 116(5) provides that where a condition in sub-section (4) is not complied with, the set off of loss or depreciation made in any tax year in the hands of the amalgamated company is deemed to be its income chargeable to tax for the year in which the non-compliance occurs. Earlier set off is therefore reversed, not merely future set off.

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