Compromise or Arrangement Includes `Demerger’
31 (1) For the purpose of Chapter XV of the Act, `demerger’ in relation to companies means transfer, pursuant to scheme of arrangement by a ‘demerged company’ of its one or more undertakings to any ‘resulting company’ in such a manner as provided in section 2(19AA) of the Income Tax Act, 1961, subject to fulfilling the conditions stipulated in section 2(19AA) of the Income Tax Act and shares have been allotted by the ‘resulting company’ to the share holders of the .demerged company’ against the transfer of assets and liabilities.
(2) For the purpose of the compromise in the nature of ‘demerger’ till the Accounting Standards is prescribed for the purpose of ‘demerger’, the Accounting Treatment shall be in accordance with the conditions stipulated in section 2(19AA) of the Income Tax Act, 1961 and
(i) in the books of the ‘demerged company’:-
(a) Assets and liabilities shall be transferred at the same value appearing in the books, without considering any revaluation or writing off of assets carried out during the preceding two financial years; and
(b) The difference between the value of assets and liabilities shall be credited to capital reserve or debited to good will.
(ii) In the books of ‘resulting company’:-
(a) Assets and liabilities of ‘demerged company’ transferred shall be recorded at the same value appearing in the books of the ‘demerged company’ without considering any revaluation or writing off of assets carried out during the preceding two financial years;
(b) Shares issued shall be credited to the share capital account; and
(c) The excess or deficit, if any, remaining after recording the aforesaid entries shall be credited to capital reserve or debited to good will as the case may be.
Provided that a certificate from a Chartered Accountant is submitted to the Tribunal to the effect that both ‘demerged company’ and ‘resulting company’ have complied with conditions as above and accounting treatment prescribed in this rule |