The term ‘resulting company’ finds significance from the term ‘demerger’ which is defined u/s 2(19AA) of the Income Tax Act, 1961, wherein one of the conditions for tax neutrality of demerger stipulates that the resulting company must issue its shares to the shareholders of the demerged company, in consideration of the demerger scheme.
Accordingly, as per Section 2(41A) of Income Tax Act, 1961, unless the context otherwise requires, the term “resulting company” means one or more companies (including a wholly owned subsidiary thereof) to which the undertaking of the demerged company is transferred in a demerger and, the resulting company in consideration of such transfer of undertaking, issues shares to the shareholders of the demerged company and includes any authority or body or local authority or public sector company or a company established, constituted or formed as a result of demerger.
It may be noted that capital gains arising under an amalgamation/ demerger scheme to the amalgamated/ resulting Indian Company are exempt due to ‘tax neutrality’ of such transactions subject to compliance with certain conditions. Besides, there are certain other benefits also available under Income Tax, like set-off and carry-forward of losses, etc.