Section 72A and amalgamation: loss carry-forward rules do not by themselves block a sanctioned merger.

Section 72A of the Income-tax Act regulates the post-amalgamation treatment of accumulated losses and unabsorbed depreciation, including the conditions for carry forward and set-off in the hands of the amalgamated company. It does not, by itself, bar amalgamation merely because the transaction may affect revenue or create loss utilisation benefits. The provision operates after amalgamation and any possible tax consequence to the Revenue is not a legal ground to refuse sanction. A request to reopen a long-settled amalgamation order was also declined because of the delay and the prejudice that would result to the amalgamated company.

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Issues: Whether Section 72A of the Income-tax Act, 1961 bars amalgamation of companies merely because the amalgamation may result in carry forward and set-off of losses and possible tax consequence to the Revenue, and whether the earlier order sanctioning amalgamation should be recalled.

Analysis: Section 72A creates a legal fiction governing the treatment of accumulated loss and unabsorbed depreciation after amalgamation. It regulates the availability of carry forward and set-off benefits in the hands of the amalgamated company and specifies the conditions for denial of such benefit, but it does not prohibit amalgamation itself. The provision operates in the post-amalgamation field and the potential loss of revenue is not, by itself, a legal bar to sanctioning amalgamation. In addition, the request to reopen the amalgamation order came after a substantial lapse of time, and unsettling the sanction already granted would cause prejudice to the amalgamated company.

Conclusion: Section 72A does not forbid amalgamation on the ground of losses, and the recall of the amalgamation order was rightly refused.

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