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Tax liability after amalgamation

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Income tax assessment of a company which takes overasick unit with liabilities was examined by the Supreme Court in its recent judgment in the case, Mc dowell Co vs CIT. The sick company, Hindustan Polymers Ltd (HPL), was amalgamated with Mcdowell. HPL owed alot of money to banks and financial institutions.However, they waived interest on them.The interest was shown as expenditure by HPL. Mcdowell claimed benefit on that account, invoking Section 72A of the Income Tax Act. According to that provision, the company which takes over the sick company is allowed to set off losses of the amalgamated company as its own losses, subject to certain conditions.The assessing officer treated the income at the hands of the company and adjusted it from the accumulated losses.Mcdowell challenged it before the tribunal which ruled in its favour, stating income was that of HPL, which was a different entity.But the Karnataka High Court held that the tribunal was wrong in treating the waiver of interest as not income of Mcdowell.The company´s appeal was dismissed.

Business Standard New Delhi, 01st May 2017

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