2005 (1) TMI 335 - AT - Income Tax

Summary

Issues Involved:
1. Deduction under Section 80HHC of the Income Tax Act, 1961.
2. Effective date of amalgamation.
3. Computation of total turnover for deduction purposes.

Detailed Analysis:

1. Deduction under Section 80HHC of the Income Tax Act, 1961:
The primary grievance of the Department was that the deduction under Section 80HHC was allowed based on the accounts of M/s AESPL only, despite the amalgamation being effective from 1st April 1995. The Assessing Officer (AO) contended that since the three companies amalgamated into Aimil Ltd. effective from 1st April 1995, the deduction under Section 80HHC should have been computed based on the consolidated final accounts. The AO recomputed the deduction, resulting in a negative profit on the export of traded goods and denied the deduction claimed by the assessee.

2. Effective Date of Amalgamation:
The CIT(A) distinguished between the "appointed date" (1st April 1995) and the "effective date" (3rd April 1996) of the amalgamation. The CIT(A) held that the transferor companies were to carry on their business activities in trust for the transferee company until the effective date. The CIT(A) concluded that the assets and benefits vested in the transferee company from the appointed date, but the transferor companies remained the legal owners until the effective date. Thus, the benefit under Section 80HHC was rightly claimed based on the results of the transferor company.

3. Computation of Total Turnover for Deduction Purposes:
The Departmental Representative argued that the companies stood amalgamated from 1st April 1995, as confirmed by the auditors and the High Court order. The learned counsel for the assessee contended that the effective date was relevant for the transferor companies to cease to exist, and until then, they held the assets in trust for the transferee company. The counsel also argued that the AO should not have included sales to AESPL in the total turnover as there cannot be sales to self.

Judgment Analysis:
The Tribunal first considered the relevant clauses in the scheme of amalgamation. Clause 2(a) indicated that the transfer of assets was to take effect from 1st April 1995, the "appointed date." Clause 4 stated that the scheme, though effective from the appointed date, would be operative from the "effective date," which was the date on which certified copies of the Court order were filed with the Registrar of Companies (ROC). The Tribunal referred to the Supreme Court judgment in the case of Marshall Sons & Co. (India) Ltd. vs. ITO, which held that the date of amalgamation is the date specified in the scheme unless the Court specifies another date. The Supreme Court emphasized that the business carried on by the transferor company should be deemed to have been carried on for and on behalf of the transferee company from the appointed date.

Applying this principle, the Tribunal concluded that the effective date of amalgamation in the present case was 1st April 1995, not 3rd April 1996. Consequently, the claim of the assessee to claim deduction under Section 80HHC based on the results of AESPL was rejected. However, the Tribunal directed the AO to examine the alternate claim regarding the correct figure of total turnover and decide it in accordance with the law.

Conclusion:
The appeal of the Department was allowed, and the Tribunal held that the effective date of amalgamation was 1st April 1995. The assessee's claim for deduction under Section 80HHC based on the results of AESPL was rejected, and the AO was directed to re-examine the total turnover computation.