Rule 40BB of the Income Tax Rules deals with the determination of the amount received by an amalgamating company for shares issued by an amalgamated company under a scheme of amalgamation. It essentially outlines how to calculate the deemed amount received when a company merges and its shareholders receive shares in the new, merged entity.
Explanation:
When two companies amalgamate (merge), the shareholders of the original (amalgamating) company receive shares in the new (amalgamated) company. Rule 40BB comes into play to determine the amount considered as received by the amalgamating company for the shares its shareholders now hold in the amalgamated company.
Key Points:
- Amalgamating Company: The company that is being merged into another company.
- Amalgamated Company: The new company formed after the merger.
- Shares in Lieu: The new shares issued by the amalgamated company to the shareholders of the amalgamating company in exchange for their old shares.
- Deemed Amount Received: The amount calculated according to Rule 40BB, which is treated as the amount received by the amalgamating company for the shares.
In essence, the rule is used to compute the value of the shares of the amalgamating company for tax purposes when those shares are exchanged for shares of the amalgamated company in a merger. It provides a mechanism for determining the cost of acquisition for the shareholders in the context of the amalgamation.
