³[57A. Set off of business loss consequent to amalgamation.—⁴[(1) The assessed loss (excluding capital loss) for the tax year, other than brought forward and capital loss, of the amalgamating company or companies shall be set off against business profits and gains of the amalgamated company, and vice versa, in the year of amalgamation and where the loss is not adjusted against the profits and gains for the tax year the unadjusted loss shall be carried forward for adjustment upto a period of six tax years succeeding the year of amalgamation.]

 (2) The provisions of sub-section (4) and (5) of section 57 shall, mutatis mutandis, apply for the purposes of allowing unabsorbed depreciation of amalgamating company or companies in the assessment of amalgamated company ⁵[and vice versa]6 [:]

⁷[Provided that the losses referred to in sub-section (1) and unabsorbed depreciation referred to in sub-section (2) shall be allowed set off subject to the condition that the amalgamated company continues the business of the amalgamating company for a minimum period of five years from the date of amalgamation.]

⁸[(2A).In case of amalgamation of Banking Company or Non-banking Finance Company, modarabas or insurance company, the accumulated loss under the head “Income from Business” (not being speculation business losses) of an amalgamating company or companies shall be set off or carried forward against the business profits and gains of the amalgamated company and vice versa, up to a period of six tax years immediately succeeding the tax year in which the loss was first computed in the case of amalgamated company or amalgamating company or companies:

Provided that the provisions of this sub-section shall in the case of Banking companies be applicable from July 1, 2007.]

(3) Where any of the conditions as laid down by the State Bank of Pakistan or the Securities and Exchange Commission of Pakistan 1 [or any court], as the case may be, in the scheme of amalgamation, are not fulfilled, the set off of loss or allowance for depreciation made in any tax year of the amalgamated company ²[or the amalgamating company or companies] shall be deemed to be the income of that amalgamated company 3 [or the amalgamating company or companies, as the case may be,] for the year in which such default is discovered by the Commissioner or taxation officer, and all the provisions of this Ordinance shall apply accordingly.]

*Explanation

In amalgamation process the amalgamated company (entity) is not allowed to adjust the carried forward business losses and capital losses (losses from amalgamating entities before amalgamation process) but the amalgamated company can adjust the following losses:

1. Unabsorbed Depreciation under section 22 of the Income Tax Ordinance, 2001. 
2. Initial Allowance under section 23 of the Income Tax Ordinance, 2001.
3. Accelerated depreciation to alternate energy projects under section 23B of the Income Tax Ordinance, 2001.
4. Amortization on the intangibles as per the guidance of the section 24 of the Income Tax Ordinance, 2001.

• The loss attributable to deductions allowed under sections 22, 23, 4[ ] 23B and 24 that has not been set off against income, the loss not set off shall be set off against fifty percent of the person’s balance income chargeable under the head “income from business” after setting off loss under sub-section (1) of the section 57, in the following tax year and so on until completely set off:

• Provided that such loss shall be set off against hundred percent of the said balance income if the taxable income for the year is less than ten million Rupees.”]

• In determining whether a person’s deductions under sections 22, 23, ¹[ ²[ ] 23B] and 24 have been set off against income, the deductions allowed under those sections shall be taken into account last.

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