Under section 116 of the Income-tax Act, 2025, the accumulated loss and unabsorbed depreciation of an…

Section 116 of the Income-tax Act, 2025 (formerly s.72A of the Income-tax Act, 1961, introduced in 1977 to facilitate the revival of sick units through amalgamation with healthy companies) provides that where a company owning an industrial undertaking, a ship or a hotel is amalgamated with another company, the accumulated loss and unabsorbed depreciation of the amalgamating company are deemed to be the loss or unabsorbed depreciation of the amalgamated company for the tax year in which the amalgamation was effected. Under section 116(4), this benefit is available only if the amalgamating company has been engaged for three or more years in the business in which the loss occurred and has held continuously, as on the date of amalgamation, at least three-fourths of the book value of the fixed assets it held two years before the date of amalgamation, and the amalgamated company (i) holds at least three-fourths of the book value of the fixed assets acquired in the amalgamation continuously for a minimum of five years, (ii) continues the business of the amalgamating company for a minimum of five years from the date of amalgamation, and (iii) fulfils such other conditions as may be prescribed to ensure the revival of the business of the amalgamating company or that the amalgamation is for a genuine business purpose. If a condition is not complied with, the set-off allowed is deemed to be the income of the amalgamated company for the year of non-compliance (s.116(5)). The other options state periods or proportions that the section does not lay down, and the amalgamated company need not itself have incurred losses.