Discuss the tax aspects on: (ii) Demerger.

(ii) Tax Aspects on Demerger Demerger is a corporate partition of a company into two or more undertakings, thereby retaining one undertaking with it and transfer- ring the other undertaking to the Resulting Company. Section 2(19AA) of the Income-tax Act, 1961 defines demerger and provides tax benefits, subject to fulfilment of certain conditions namely: The demerger satisfies all the conditions laid down in section 2 (19AA); and The resulting company is an Indian company. As per section 47 of the Income-tax Act, 1961 , following transfers will not be regarded as a transfer for the purpose of capital gains and hence not subject to income tax: where there is a transfer of any capital asset in a demerger by Demerged Company to Resulting, Company provided the Resulting Company is an Indian company Any transfer in a demerger, of a capital asset, being a share or shares held in an Indian company, by the demerged foreign company to the resulting foreign company, if— (a) the shareholders holding not less than three-fourths in value of the shares of the demerged foreign company continue to remain shareholders of the resulting foreign company; and (b) such transfer does not attract tax on capital gains in the country, in which the demerged foreign company is incorporated: Provided that the provisions of sections 391 to 394 of the Companies Act, 1956 shall not apply in case of demergers referred to in this clause; any transfer in a demerger, of a capital asset, being a share of a foreign company, referred to in the Explanation 5 to clause (i) of sub-section (1) of section 9, which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, held by the demerged foreign company to the resulting foreign company, if— (a) the shareholders, holding not less than three-fourths in value of the shares of the demerged foreign company, continue to remain shareholders of the resulting foreign company; and (b) such transfer does not attract tax on capital gains in the country in which the demerged foreign company is incorporated: Provided that the provisions of sections 391 to 394 of the Companies Act, 1956 (1 of 1956) shall not apply in case of demergers referred to in this clause; any transfer or issue of shares by the resulting company, in a scheme of demerger to the shareholders of the demerged company if the transfer or issue is made in consideration of demerger of the undertaking; Additional income tax benefits available in a scheme of demerger include: Expenditure for obtaining licence to operate telecommunication services [Section 35ABB] Expenditure for obtaining Spectrum to operate telecommunication services [Section 35ABA] Amortisation of certain preliminary expenses [Section 35D] Treatment of expenditure on prospecting, etc. of certain minerals [Section 35E(7A)] Treatment of bad debts (Section 36(1) (vii)] Amortisation of expenditure in case of amalgamation or demerger [Section 35DD] Carry forward and set off of business losses and unabsorbed depreciation of the demerged company [Section 72A (4)&(5)] Deduction available under section 80-1A(12) or 80-1B(12) Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings