Liability in case of amalgamation or merger of companies.

Section 87(1)

When two or more companies are amalgamated or merged in pursuance of an order of court or of Tribunal or otherwise and the order is to take effect from a date earlier to the date of the order and any two or more of such companies have supplied or received any goods or services or both to or from each other during the period commencing on the date from which the order takes effect till the date of the order, then such transactions of supply and receipt shall be included in the turnover of supply or receipt of the respective companies and they shall be liable to pay tax accordingly.

AI Explanation

Section 87(1) of the law comes into play when a court or tribunal order directs the amalgamation or merger of two or more companies. If this order takes effect from a date earlier than the date of the order itself, and during the period between these two dates, the involved companies have engaged in transactions involving the supply or receipt of goods or services, these transactions are significant.

In simpler terms, any exchanges of goods or services between the merging companies during this period will be considered part of their respective turnovers. Consequently, the companies involved will be liable to pay taxes based on these transactions. This ensures that the tax obligations are appropriately addressed in the context of business transfers.

Section 87(2)

Notwithstanding anything contained in the said order, for the purposes of this Act, the said two or more companies shall be treated as distinct companies for the period up to the date of the said order and the registration certificates of the said companies shall be cancelled with effect from the date of the said order.

AI Explanation

When a business undergoes a transfer, it's essential to consider the liabilities involved. Section 87(2) of the relevant legal framework addresses this aspect. Let's break down what this section entails.

Distinct Treatment of Companies Regardless of the details outlined in the order, Section 87(2) specifies that, according to the law, two or more companies involved in the transfer should be treated as separate entities. This distinction is valid for the duration leading up to the order's date.

Registration Certificate Cancellation One significant consequence of this treatment is the cancellation of the registration certificates of these companies. This cancellation comes into effect as of the date of the order. It's crucial to understand the legal implications of such actions and ensure compliance with the stipulated regulations.