Amalgamation and demerger

Section 233 — AMALGAMATION AND DEMERGER

Section 233 of the Income-tax Act, 2025 corresponds to ss. 115VY and 115VZ of the Income-tax Act, 1961.

STATUTORY ARCHITECTURE

Section 233 governs how the tonnage tax scheme carries through an amalgamation or a demerger. In each case the scheme continues, as far as may be, in the hands of a successor that is a qualifying company, subject to the conditions in the section.

KEY ELEMENTS

• Sub-section (1): on amalgamation, the tonnage tax provisions apply, as far as may be, to the amalgamated company if it is a qualifying company, subject to the other provisions of the section.
• Sub-section (2): an amalgamated company that is not a tonnage tax company must exercise an option under s. 231(1) within three months from the date of the approval of the scheme of amalgamation.
• Sub-section (3): where the amalgamating companies are tonnage tax companies, this Part applies to the amalgamated company for as long as the option with the longest unexpired period remains in force.
• Sub-section (4): where one amalgamating company was a qualifying company as on the 1st October, 2004 and did not opt before the 1st January, 2005, this Part does not apply to the amalgamated company, whose income from operating qualifying ships is computed under the other provisions of the Act.
• Sub-section (5): where the demerged company transfers its business to the resulting company before the option expires, the scheme applies, as far as may be, to the resulting company for the unexpired period, if it is a qualifying company.
• Sub-section (6): the demerged company's option stays in force for the unexpired period if it continues to be a qualifying company.

CHANGES FROM THE 1961 ACT

Section 233 combines s. 115VY (amalgamation) and s. 115VZ (demerger) of the 1961 Act, with the provisos becoming separate sub-sections. The reference to s. 115VP(1) of the 1961 Act becomes s. 231(1), and "this Chapter" becomes "this Part". The one visible change of wording is in sub-section (4): the 1961 text referred to a company that had not opted "within the initial period", whereas the 2025 text states "before the 1st January, 2005". Otherwise the provisions are substantively the same.

PRACTITIONER NOTES

• When tonnage tax companies merge, the longest unexpired option fixes the period for the amalgamated company.
• Under sub-section (4), a single amalgamating company that was qualifying on the 1st October, 2004 but did not opt before the 1st January, 2005 takes the amalgamated company outside this Part.
• In a demerger, the resulting company and the demerged company must each be a qualifying company for the scheme to continue for it.

CROSS-REFERENCES

• s. 231(1) — the provision under which a qualifying company opts for the tonnage tax scheme; the option in sub-section (2) is exercised under it.
• s. 115VY and s. 115VZ of the 1961 Act — the corresponding provisions.
• s. 115VP(1) of the 1961 Act — the option provision referred to in s. 115VY of the 1961 Act.