Implecations of Sec 72A(4) of Income tax act demerger

PRAGYA ROHATGI (Querist) 16 February 2009 This query is : Resolved
Sir ,

Section 72A(4) of Income tax Act 1961 defines as under :

Not withstanding any thing contained in any other provisions of this Act , in case of a demerger , the accumulated loss and the allowance for unabsorbed depreciation of demerged company shall

A) where such loss or unabsorbed depreciation is directly relatable to the undertaking transfered to the resulting company ,be allowed to be carried forward and set off in hands of the resulting company

B) where such loss or unabsorbed depreciation is not directly relateable to the undertaking transfered to the resulting company be apportioned between the demerged company and the resulting in the same proportion in which the assets of the undertaking have been retained by the demerged company and transfered to the resulting company and be allowed to be carried forward and set off in the hands of the demerged company or resulting company as the case may be .

A company plans to move application for demerge of business under above section . As the section in it self is silent regarding continuation of demerged business.

A) Whether the resulting company has to carry the demerged business in next years to avail tax benefits .

B) If yes to what extent the income shall of demerged business constitute the total income

In case any one can refer any decided case laws on above subject.

With regards

Sandeep

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Manish Singh (Expert) 16 February 2009
Dear Mr. Rohatgi,
under the IT Act, if we go for demerger then theres no necessity to carry on the business under any circumstances since under sub section (5)no such direction or notification has been issued so far by the govt.