Reverse merger- sick company absorbing healthy company
In reverse mergers where the sick company takes over healthy companies, it can carry forward its accumulated losses to be set off against the future profits of the resulting company to reduce tax liability. Here specific provision in the scheme for such set off of loss was not required because the loss suffering company continues to exist. This tax savings route without calling for any approval was of the main incentives for reverse mergers.
However, with effect from 1st April, 2000 the old Section 72A of the IT Act was replaced by another provision removing the condition for approval of the BIFR or specified authority for such set off and carry of losses and setting down the conditions to be fulfilled for availing of such tax concessions by the amalgamating and amalgamated companies.
