INCOME TAX--Corporate Taxation

Demerger and Income Tax

V.K. Subramani

Business reorganization is inevitable for any entity if it wants to continue and prosper. Such re-organization can be a re-orientation to adopt the changes taking place in external environment which impacts its internal functions or any other business reasons. In the context of income tax, one of the types of reorganization is 'demerger'.

The term 'demerger' is defined in section 2(19AA) as ' transfer, pursuant to a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956, by a demerged company of its one or more undertaking to any resulting company in such a manner that ' all the properties and liabilities of the undertaking immediately before demerger, become the properties and liabilities of the resulting company by virtue of demerger. The said properties and liabilities of the undertaking are transferred at values appearing in the books of account immediately before demerger. However, there is one exception to this rule viz., transfer at values not as per the values appearing in the books of account in the case of demerged company who is IND-AS compliant.