Understanding Section 115JD of the Income Tax Act: Carry-Forward and Set-Off of Accumulated Losses and Unabsorbed Depreciation

Introduction:

Section 115JD of the Income Tax Act, 1961 is a provision that deals with the carry-forward and set-off of accumulated losses and unabsorbed depreciation of a company that has undergone a scheme of amalgamation or demerger. In this blog, we will discuss the provisions of Section 115JD in detail.

What is Section 115JD of the Income Tax Act?

Section 115JD of the Income Tax Act provides for the carry-forward and set-off of accumulated losses and unabsorbed depreciation of a company that has undergone a scheme of amalgamation or demerger. The section applies to companies that have been amalgamated or demerged and specifies the manner in which the accumulated losses and unabsorbed depreciation of the amalgamating or demerged company can be carried forward and set off against the income of the amalgamated or resulting company.

Carry-Forward of Accumulated Losses:

Under Section 115JD, any accumulated loss of the amalgamating or demerged company can be carried forward and set off against the income of the amalgamated or resulting company, subject to certain conditions. The conditions are:

1. The amalgamated or resulting company should continue to carry on the same business as the amalgamating or demerged company for at least five years from the date of the amalgamation or demerger.
2. The amalgamating or demerged company should not have been formed for the purpose of availing tax benefits.
3. The amalgamated or resulting company should continue to hold the same assets and liabilities as the amalgamating or demerged company.

Set-Off of Unabsorbed Depreciation:

Section 115JD also provides for the set-off of unabsorbed depreciation of the amalgamating or demerged company against the income of the amalgamated or resulting company. The conditions for set-off of unabsorbed depreciation are the same as those for the carry-forward of accumulated losses.

Method of Carry-Forward and Set-Off:

The carry-forward of accumulated losses and set-off of unabsorbed depreciation shall be done in the following manner:

1. The accumulated losses and unabsorbed depreciation of the amalgamating or demerged company shall be deemed to be the accumulated losses and unabsorbed depreciation of the amalgamated or resulting company.
2. The accumulated losses and unabsorbed depreciation can be carried forward and set off against the income of the amalgamated or resulting company for a period of eight assessment years immediately succeeding the assessment year in which the amalgamation or demerger takes place.

Benefits of Section 115JD:

The provisions of Section 115JD have several benefits for companies that have undergone a scheme of amalgamation or demerger. Some of the benefits are:

1. Continuity of Business: The provisions of Section 115JD ensure that the continuity of the business is not affected due to the amalgamation or demerger. The accumulated losses and unabsorbed depreciation can be carried forward and set off against the income of the amalgamated or resulting company, which helps in reducing the tax liability.
2. No Loss of Tax Benefits: The provision ensures that the tax benefits available to the amalgamating or demerged company are not lost due to the amalgamation or demerger. The accumulated losses and unabsorbed depreciation can be carried forward and set off against the income of the amalgamated or resulting company, which helps in availing the tax benefits.
3. Reduction in Tax Liability: The provision helps in reducing the tax liability of the amalgamated or resulting company. The accumulated losses and unabsorbed depreciation can be carried forward and set off against the income of the amalgamated or resulting company, which helps in reducing the taxable income and thereby reducing the tax liability.
4. Encourages Amalgamation and Demerger: The provisions of Section 115JD encourage companies to undergo amalgamation or demerger as it provides relief from the tax liability of accumulated losses and unabsorbed depreciation.

Some additional points to note about Section 115JD of the Income Tax Act are:

1. The provision applies to both domestic and foreign companies that have undergone amalgamation or demerger in India.
2. The accumulated losses and unabsorbed depreciation of the amalgamating or demerged company can be carried forward and set off against the income of the amalgamated or resulting company only if the amalgamation or demerger is approved by the High Court.
3. The provisions of Section 115JD do not apply to companies that have undergone a scheme of reconstruction or revival.
4. The provisions of Section 115JD override the provisions of Section 72A, which deals with the carry-forward and set-off of losses in case of a change in the shareholding of a company.
5. The provisions of Section 115JD are applicable even if the amalgamating or demerged company has not filed its income tax return for the previous year.
6. The provisions of Section 115JD do not apply to losses or unabsorbed depreciation of a company that is liquidated or wound up.
7. The provisions of Section 115JD do not apply to losses or unabsorbed depreciation of a company that is amalgamated or demerged with a company that has a different business.

Conclusion:

Section 115JD of the Income Tax Act, 1961 provides for the carry-forward and set-off of accumulated losses and unabsorbed depreciation of a company that has undergone a scheme of amalgamation or demerger. The section lays down certain conditions that need to be satisfied for the carry-forward and set-off of such losses and depreciation. The provision aims to provide relief to companies that have undergone amalgamation or demerger and to ensure that their losses and unabsorbed depreciation are not lost in the process.

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Frequently Asked Questions (FAQs)

1. What is Section 115JD of the Income Tax Act?

Section 115JD of the Income Tax Act provides for the carry-forward and set-off of accumulated losses and unabsorbed depreciation of a company that has undergone a scheme of amalgamation or demerger.

2. What is the objective of Section 115JD of the Income Tax Act?
The objective of Section 115JD is to ensure that the accumulated losses and unabsorbed depreciation of the amalgamating or demerged company are not lost and can be carried forward and set off against the income of the amalgamated or resulting company.

3. Does Section 115JD apply to foreign companies?
Yes, Section 115JD applies to both domestic and foreign companies that have undergone amalgamation or demerger in India.

4. What is the process for availing the benefits of Section 115JD?
The benefits of Section 115JD can be availed only if the scheme of amalgamation or demerger is approved by the High Court.

5. What happens if the amalgamating or demerged company has not filed its income tax return for the previous year?
The provisions of Section 115JD are applicable even if the amalgamating or demerged company has not filed its income tax return for the previous year.

6. Does Section 115JD apply to losses or unabsorbed depreciation of a company that is liquidated or wound up?
No, the provisions of Section 115JD do not apply to losses or unabsorbed depreciation of a company that is liquidated or wound up.

7. Does Section 115JD apply to companies that have undergone a scheme of reconstruction or revival?
No, the provisions of Section 115JD do not apply to companies that have undergone a scheme of reconstruction or revival.

8. Does Section 115JD apply to losses or unabsorbed depreciation of a company that is amalgamated or demerged with a company that has a different business?
No, the provisions of Section 115JD do not apply to losses or unabsorbed depreciation of a company that is amalgamated or demerged with a company that has a different business.

9. Can the benefits of Section 115JD be availed even if the amalgamation or demerger is not approved by the High Court?
No, the benefits of Section 115JD can be availed only if the scheme of amalgamation or demerger is approved by the High Court.

10. Does Section 115JD override any other provision of the Income Tax Act?
Yes, the provisions of Section 115JD override the provisions of Section 72A, which deals with the carry-forward and set-off of losses in case of a change in the shareholding of a company.