The NCLT has sanctioned our scheme and the order calls it an amalgamation. The Assessing Officer says it is not an amalgamation for income-tax and has refused section 47 and section 72A. Can he do that?
Yes, he can. "Amalgamation" for the Income-tax Act is defined by s.2(1B) and by nothing else: the merger must be in such a manner that all the property and all the liabilities of the amalgamating company become those of the amalgamated company, and that shareholders holding not less than three-fourths in value of the shares of the amalgamating company — leaving out shares already held by the amalgamated company, its nominee or its subsidiary — become shareholders of the amalgamated company. A tribunal or court order sanctioning a scheme is what makes the merger effective as a matter of company law; it is not a finding that these three conditions are satisfied, and s.2(1B) nowhere requires such an order.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2025-04-01, reported as Income-tax Act, 1961, s.2(1B), as printed on the departmental Year 2025, Year 2024 (No. 1) and Year 2019 (No. 2) pages. It bears on section 2(1B), section 2(19AA), section 45, section 47, section 47(vi), section 47(vii), section 72A, section 72A(1) of the Income Tax Act 1961, in Capital Gains, Capital Gains Exemptions and How Tax Law Is Read matters.
This is the hinge on which the whole of the reorganisation relief turns, and it is the point at which the money is most often lost. Section 47(vi), (via) and (vii) all begin with the words "in a scheme of amalgamation", and s.72A(1) opens with "Where there has been an amalgamation of" — every one of them is parasitic on the s.2(1B) definition. Fail one condition and the transaction is not an amalgamation for the Act at all: the transfer of the undertaking is a transfer chargeable under s.45, the shareholders' exchange of shares is a transfer chargeable under s.45, and the accumulated loss and unabsorbed depreciation of the amalgamating company simply die with it. Three features of the clause repay close reading. First, the three-fourths test is by VALUE of shares, not by number of shareholders, and it is applied to the amalgamating company's shares. Second, the parenthesis excludes shares already held immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary — so in a parent-subsidiary merger the parent's own holding comes out of the denominator, which is what makes such mergers workable. Third, the closing words take the transaction outside the definition where the same result is reached "as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property" or by distribution on winding up — an asset purchase dressed as a merger is not an amalgamation however the scheme is drafted. Note also the contrast with s.2(19AA): the demerger definition expressly requires a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956, whereas s.2(1B) contains no such requirement at all. Reading a court-order requirement into s.2(1B), or reading the tax conditions out of it because there is a court order, are opposite errors and both are wrong.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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As printed on the Year 2025 departmental page, clause (1B) of section 2 reads: "amalgamation", in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that— (i) all the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation; (ii) all the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation; (iii) shareholders holding not less than three-fourths in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation, otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of the distribution of such property to the other company after the winding up of the first-mentioned company. The same words appear on the Year 2024 (No. 1) and Year 2019 (No. 2) pages.
For the purposes of the Income-tax Act, a merger is an "amalgamation" only if it satisfies all three conditions in s.2(1B) and does not fall within its closing exclusion. The clause requires no order of any court or tribunal, and conversely an order sanctioning a scheme does not supply the conditions. The shareholder condition is three-fourths in VALUE of the shares of the amalgamating company, computed after excluding shares already held immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary.
Not applicable — this is a statement of statutory text taken from departmental pages. No judicial reasoning is involved. The contrast drawn with s.2(19AA) is a comparison of the two clauses as printed on the same page.
shareholders holding not less than three-fourths in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation,
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Handle my notice → Ask a CA on WhatsAppYes, he can. "Amalgamation" for the Income-tax Act is defined by s.2(1B) and by nothing else: the merger must be in such a manner that all the property and all the liabilities of the amalgamating company become those of the amalgamated company, and that shareholders holding not less than three-fourths in value of the shares of the amalgamating company — leaving out shares already held by the amalgamated company, its nominee or its subsidiary — become shareholders of the amalgamated company. A tribunal or court order sanctioning a scheme is what makes the merger effective as a matter of company law; it is not a finding that these three conditions are satisfied, and s.2(1B) nowhere requires such an order. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 2(1B), section 2(19AA), section 45, section 47, section 47(vi), section 47(vii), section 72A, section 72A(1) of the Income Tax Act 1961. It is reported as Income-tax Act, 1961, s.2(1B), as printed on the departmental Year 2025, Year 2024 (No. 1) and Year 2019 (No. 2) pages. This is the hinge on which the whole of the reorganisation relief turns, and it is the point at which the money is most often lost. Section 47(vi), (via) and (vii) all begin with the words "in a scheme of amalgamation", and s.72A(1) opens with "Where there has been an amalgamation of" — every one of them is parasitic on the s.2(1B) definition. Fail one condition and the transaction is not an amalgamation for the Act at all: the transfer of the undertaking is a transfer chargeable under s.45, the shareholders' exchange of shares is a transfer chargeable under s.45, and the accumulated loss and unabsorbed depreciation of the amalgamating company simply die with it. Three features of the clause repay close reading. First, the three-fourths test is by VALUE of shares, not by number of shareholders, and it is applied to the amalgamating company's shares. Second, the parenthesis excludes shares already held immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary — so in a parent-subsidiary merger the parent's own holding comes out of the denominator, which is what makes such mergers workable. Third, the closing words take the transaction outside the definition where the same result is reached "as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property" or by distribution on winding up — an asset purchase dressed as a merger is not an amalgamation however the scheme is drafted. Note also the contrast with s.2(19AA): the demerger definition expressly requires a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956, whereas s.2(1B) contains no such requirement at all. Reading a court-order requirement into s.2(1B), or reading the tax conditions out of it because there is a court order, are opposite errors and both are wrong. If it applies to you, the first step is this: Construe the sanctioned scheme against s.2(1B), clause by clause, before you file the return, and keep that analysis on the file. Say in terms which instrument you are applying — the tax definition, not the company-law order.
As printed on the Year 2025 departmental page, clause (1B) of section 2 reads: "amalgamation", in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that— (i) all the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation; (ii) all the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation; (iii) shareholders holding not less than three-fourths in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation, otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of the distribution of such property to the other company after the winding up of the first-mentioned company. The same words appear on the Year 2024 (No. 1) and Year 2019 (No. 2) pages. The matter was decided on 2025-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. For the purposes of the Income-tax Act, a merger is an "amalgamation" only if it satisfies all three conditions in s.2(1B) and does not fall within its closing exclusion. The clause requires no order of any court or tribunal, and conversely an order sanctioning a scheme does not supply the conditions. The shareholder condition is three-fourths in VALUE of the shares of the amalgamating company, computed after excluding shares already held immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary.
Not applicable — this is a statement of statutory text taken from departmental pages. No judicial reasoning is involved. The contrast drawn with s.2(19AA) is a comparison of the two clauses as printed on the same page. In the words reproduced by the source cited on this page: "shareholders holding not less than three-fourths in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation,"
It was decided by the CBDT Circulars & Instructions on 2025-04-01 and is reported as Income-tax Act, 1961, s.2(1B), as printed on the departmental Year 2025, Year 2024 (No. 1) and Year 2019 (No. 2) pages. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 2(1B), section 2(19AA), section 45, section 47, section 47(vi), section 47(vii), section 72A, section 72A(1), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. For the purposes of the Income-tax Act, a merger is an "amalgamation" only if it satisfies all three conditions in s.2(1B) and does not fall within its closing exclusion. The clause requires no order of any court or tribunal, and conversely an order sanctioning a scheme does not supply the conditions. The shareholder condition is three-fourths in VALUE of the shares of the amalgamating company, computed after excluding shares already held immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary. It arises in Capital Gains, Capital Gains Exemptions and How Tax Law Is Read matters, on section 2(1B), section 2(19AA), section 45, section 47, section 47(vi), section 47(vii), section 72A, section 72A(1) of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Compute the three-fourths test in VALUE of the amalgamating company's shares, and strike out of the computation the shares held immediately before the amalgamation by the amalgamated company, its nominee or its subsidiary. Check that ALL the property and ALL the liabilities passed. A scheme that leaves a liability behind, or carves an asset out, fails conditions (i) and (ii) on its own terms. Check what the shareholders of the amalgamating company actually received. Shares of the amalgamated company satisfy condition (iii); consideration that leaves them as creditors rather than shareholders does not. If the arrangement is in substance a purchase of assets, or a distribution of property after winding up, expect the closing words of s.2(1B) to defeat the claim whatever the scheme says. If a condition is failed, price the consequence honestly at the planning stage: s.45 on the undertaking, s.45 on the shareholders' exchange, and the total loss of the accumulated loss and unabsorbed depreciation. There is no curative provision. Do not rely on the tribunal's sanction as evidence that the s.2(1B) conditions are met, and do not accept an Assessing Officer's assertion that the sanction alone establishes them either.
Still good law. Three departmental editions spanning 2019 to 2025 print clause (1B) identically, which is the best evidence obtainable on this pass that the clause is unchanged. That is not the same as reading the current Finance Act: no Finance Act text was retrieved this pass and no footnote naming an amending Act for this clause could be read. I did not carry out any check of judicial treatment of s.2(1B); this entry states the statutory text only. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The text of s.2(1B) above was transcribed this pass from three separate departmental pages, each of which printed the Act name "Income-tax Act, 1961" and the section heading "Definitions" alongside its "Year:" stamp: https://incometaxindia.gov.in/w/section-2-66 (Year: 2025), https://incometaxindia.gov.in/w/section-2-64 (Year: 2024 (No. 1)) and https://incometaxindia.gov.in/w/section-2-60 (Year: 2019 (No. 2)). All three print clause (1B) word for word identically, which is the strongest evidence available on this pass that the clause has not moved. I could NOT date the "three-fourths" figure: I asked the Year 2019 (No. 2) page directly for any footnote or amending-Act note attached to sub-clause (iii) and it reported none, so I make no statement about when the figure was set or what it replaced. A LATER PASS SHOULD NOT ASSUME the current page is the newest: I could not establish that a Year 2026 page for s.2 exists; https://incometaxindia.gov.in/w/section-2-69 returned s.1 of the Income-tax Act (Year 1961), not s.2. WRONG-INSTRUMENT WARNING, found this pass and not previously recorded in the brief: https://incometaxindia.gov.in/w/section-2 — the bare, unsuffixed URL — serves section 2 of the ACTUARIES ACT, 2006, with a Year stamp of 2006. Demanding the Act name is what caught it. Note finally that s.2(1B) as printed contains no reference to any Companies Act provision, in contrast to s.2(19AA), which opens with "pursuant to a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956"; the comparison in this entry is drawn from the two clauses as printed on the same Year 2025 page. 'decided_on' is the start of the assessment year for which the Year 2025 departmental edition speaks and is not a decision date; 'bench' and 'favours' are inapplicable to a statutory entry. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
For the purposes of the Income-tax Act, a merger is an "amalgamation" only if it satisfies all three conditions in s.2(1B) and does not fall within its closing exclusion. The clause requires no order of any court or tribunal, and conversely an order sanctioning a scheme does not supply the conditions. The shareholder condition is three-fourths in VALUE of the shares of the amalgamating company, computed after excluding shares already held immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary.
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