Sakunjay Vyas
Published on: April 6, 2022 at 08:09 IST
The Two Judge Bench of Justice Uday Umesh Lalit and Justice S. Ravindra Bhat of the Supreme Court overturned the impugned judgment passed by the Delhi High Court bench, rejecting the appeal by the present appellant and affirming the order of the Income Tax Appellate Tribunal (ITAT) which quashed the assessment order against the assessee (i.e., the Respondent in this case).
The Supreme Court recently ruled that despite amalgamation, the business, enterprise, and undertaking of the transferee or amalgamated company- which ceases to exist after amalgamation, is treated as a continuing one, and any benefits, by way of carrying forward of losses (of the transferor company), depreciation, etc., are allowed to the transferee.
The Apex Court, by analyzing the facts and evidence of the present case, the Court came down to these findings:
1. that there are not less than 100 instances17 under the Income Tax Act, wherein the event of
amalgamation, the method of treatment of a particular subject matter is expressly indicated in the provisions of the Act.
2. That despite amalgamation, a company which ceases to exist, is treated as a continuing one.
3. The facts of the present case, however, can be distinguished from the facts in Spice and Maruti Suzuki, which have been relied upon by both the parties and subordinate courts, on the following bases:
3.1 the assessee had duly informed the authorities about the merger of companies, and yet the assessment order was passed in the name of amalgamating/non-existent company. It was not the same in the present case.
3.2 the amalgamated companies had participated in the proceedings before the department, and the courts held that the participation by the amalgamated company would not be regarded as an estoppel. It is not the same in the present case.
“The combined effect, therefore, of Section 394 (2) of the Companies Act, 1956, Section 2 (1A) and various other provisions of the Income Tax Act, is that despite amalgamation, the business, enterprise and undertaking of the transferee or amalgamated company- which ceases to exist, after amalgamation, is treate as a continuing one, and any benefits, by way of carry forward of losses (of the transferor company), depreciation, etc., are allowed to the transferee.” the Court said.
That the appellant submitted that:
1. the name of both the amalgamating and amalgamated companies were mentioned in the
assessment order, which is easily rectifiable under section 292B.
2. the transferor company was duly represented by the amalgamated company, and no prejudice was caused to any of the parties by the assessment order.
3. The facts of the Maruti Suzuki are distinguishable from the present case.
4. the assessee never revised its offer of the surrender of additional income nor brought it to the notice of the AO.
That the Respondent submitted that :
1. The notice issued in the name of MRPL, a non-existing entity, was invalid, and initiation of
proceedings against the nonexistent entity was void-ab-initio.
2. The amalgamated company that participated in the assessment proceedings would not operate as an estoppel.
3. The facts of the Maruti Suzuki are similar to the present case.
After hearing both the parties, the Apex Court further stated that assessing the extent of income accruing in the previous year in which the succession took place and the successor shall be evaluated in respect of income of the previous year in respect of the income of the previous year after the date of succession.
That Section 394 empowered the Court to approve schemes proposing amalgamation and oversee the various steps and procedures that had to be undertaken for that purpose.
In the case of amalgamation, the outer shell of the corporate entity is undoubtedly destroyed; it ceases to exist. Yet, in every other sense of the term, the corporate venture continues – enfolded within the new or the existing transferee entity.
The Apex Court further stated that the Respondent filed a return, appealed before Commissioner of Income Tax (CIT), cross-appeal before Income Tax Appellate Tribunal (ITAT), and surrendered specific amounts for the auditor’s report in the name of MRPL (as the assessee) – but represented by the transferee, MIPL.
With all these considerations in mind, this Court believes that the assessee’s conduct, beginning from the date of the search and in front of every forum, reflects that it consistently held itself out as the assessee in the facts of this case.
“ Having regard to all these reasons, this court is of the opinion that in the facts of this case, the conduct of the assessee, commencing from the date the search took place, and before all forums, reflects that it consistently held itself out as the assessee. “ the Court said.
As a result, the Apex court overturned the impugned judgment passed by the Delhi High Court bench by stating that the appeal of the revenue against the order of the CIT was not heard on merits. The matter is restored to the file of ITAT.
Also Read- What is Income Tax Appellate Tribunal?