Reverse merger CS executiveProfessional Programme Tax Notes
It means that the profit making company merges into the sickcompany thereby becoming eligible to carry forward of losses etc. without theaid of section 72S of the act.
The profit making or healthy company becomesextinct loosing its name and the surviving sick company retains its name. Thereverse merger is a device, which by passes the requirements under section 72Aof the act. Soon after the merger or after a year or so, the name of thecompany is changed to correspond with that of the profit making amalgamatingcompany.
Reverse merger has 2 advantages:
a) Losses, which otherwise could not have been c/f and setoff, are c/f and set off, and
b) Goodwill consisting in the name of the profit makingamalgamating company is also retained.