TMI Blog2014 (12) TMI 937X X X X Extracts X X X X X X X X Extracts X X X X ..... hout really blending of one or more existing companies into the transferee/amalgamated company - all assets of the transferor/amalgamating company need not be transferred to the new or other company - The purpose and objective behind sub-section (6) to Section 32A is to facilitate reconstruction and amalgamation and not to obstruct genuine transactions of such nature - The emphasis in sub-section (6) to Section 32A is on sale or transfer of the ship, aircraft, machinery or plant, subject matter of investment allowance in connection with amalgamation or reconstruction - There is also reference to reserves - The emphasis in sub-section (6) is not upon the blending or merger of the existing company, which has availed of benefit under Section 32A into another or new company - At the same time, appropriate and required conditions have been incorporated in sub-section (6) to Section 32A to ensure that there is no abuse of the conditions applicable to the amalgamating company, both with regard to the reserve and the time stipulation on sale or “otherwise transfer” of assets is applied and adhered to - Violation would cause and result in negative and penal consequences. 9 out of 13 unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it Madan, Sr. Standing Counsel. For the Respondent : Mr. S. Ganesh, Sr. Advocate with Mr. V. P. Gupta Mr. Anunav Kumar, Advocates. ORDER Sanjiv Khanna, J. This appeal by the Revenue under Section 260A of the Income Tax Act, 1961 (Act, for short) stands admitted for adjudication on the following substantial question of law:- Whether the Tribunal was right in holding that there was no transfer within the meaning of S.32A(5) of the Act under the Scheme of Arrangement of the assessee company and, therefore, the Assessing Officer erred in withdrawing the investment allowance granted earlier under Section 155 (4A) of the Act? 2. The respondent-assessee is a company and during the period 1983-84 to 1990-91 had availed of and was granted benefit of investment allowance or carried forward of investment allowance under Section 32A of the Act. 3. Under a scheme of arrangement under Sections 391 and 394 of the Companies Act, 1956 which came into effect on 1st April, 1990, 9 out of 13 industrial units held by the respondent company were transferred to three newly formed companies, namely, M/s DCM Shriram Industries Limited, M/s DCM Shriram Consolidated Limited an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied in sub-section (8B), this sub-section shall have effect as if for the words twenty-five per cent , the words twenty per cent had been substituted : Provided further that no deduction shall be allowed under this section in respect of (a) any machinery or plant installed in any office premises or any residential accommodation, including any accommodation in the nature of a guest house; (b) any office appliances or road transport vehicles; (c) any ship, machinery or plant in respect of which the deduction by way of development rebate is allowable under section 33; and (d) any machinery of plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head Profits and gains of business or profession of any previous year. Explanation : For the purposes of this sub-section, actual cost means the actual cost of the ship, aircraft, machinery or plant to the assessee as reduced by that part of such cost which has been met out of the amount released to the assessee under sub-section (6) of section 32AB. xxx (5) Any allowance made under this section in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be sold or otherwise transferred and in default of any of these conditions, the provisions of sub-section (4A) of section 155 shall apply to the amalgamated company as they would have applied to the amalgamating company had it committed the default; and (b) the balance of investment allowance, if any, still outstanding to the amalgamating company in respect of such ship, aircraft, machinery or plant, shall be allowed to the amalgamated company in accordance with the provisions of sub-section (3), so, however, that the total period for which the balance of investment allowance shall be carried forward in the assessments of the amalgamating company and the amalgamated company shall not exceed the period of eight years, specified in sub-section (3) and the amalgamated company shall be treated as the assessee in respect of such ship, aircraft, machinery or plant for the purposes of this section. (7) Where a firm is succeeded to by a company in the business carried on by it as a result of which the firm sells or otherwise transfers to the company any ship, aircraft, machinery or plant, the provisions of clauses (a) and (b) of sub-section (6) shall, so far as may be, apply to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vered by the expression otherwise transferred in sub-section (5). We do not think by adopting purposive or applying the said principle of interpretation, it can be held that the scheme did not result in transfer of the assets. The decision of the Tribunal to this extent should not be accepted. If the reasoning given by the Tribunal is to be accepted, then sub-section (6) to Section 35A of the Act would become redundant and otiose. It will stand erased. The said sub-section carves out an exception to sub-section (5) and states that sub-section (5) would not apply to cases of amalgamation provided the two conditions stipulated therein are satisfied. On reading of sub-section (6), it is clear that scheme of amalgamation is treated and would constitute transfer under sub-section (5) of Section 32A of the Act. The two provisions have to be read harmoniously. Any other interpretation would be clearly contrary to the express language and stipulations of the Section itself and, therefore, would be unacceptable. 7. The word transfer and its purport was examined by the Supreme Court in the Commissioner of Income Tax, Lucknow versus Narang Dairy Products, Lucknow, [1996] 219 ITR 478 (S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of Maharashtra, (2004) 9 SCC 438 expounding on the concept of amalgamation and whether it amounts to transfer, it was held as under:- 9. Section 394 provides that application and order of amalgamation under Section 394 is based on compromise or arrangement which has been proposed for the purpose of amalgamation of two or more companies. The amalgamation scheme, which is an agreement between the companies is presented before the court and the court passes an appropriate order sanctioning the compromise or arrangement. The foundation or the basis for passing an order of amalgamation is agreement between two or more companies. Under the scheme of amalgamation, the whole or any part of the undertaking, properties or liability of any company concerned in the scheme is to be transferred to the other company. The company whose property is transferred would be the transferor company and the company to whom property is transferred would be considered as the transferee company. The scheme of amalgamation has its genesis in an agreement between the prescribed majority of shareholders and creditors of the transferor company with the prescribed majority of shareholders and creditors of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the Delhi Rent Control Act, 1958 did not make any exception in favour of a lessee, who may have adopted a course of action of amalgamation. Similar view has been taken in Speedline Agencies versus T. Stanes Company Limited, (2010) 6 SCC 257. 13. In Commissioner of Income Tax versus Mrs. Grace Collis, (2001) 248 ITR 323 (SC) pursuant to scheme of arrangement, assets and liabilities of the amalgamating company became assets and liabilities of the amalgamated company. Shareholders of amalgamating company were issued shares of amalgamated company in lieu of the shares held by them in amalgamating company. The assessee had sold the shares of the amalgamated company and the question related to the purchase cost of the shares of the amalgamated company. The question raised was whether there was transfer within the meaning of Section 2(47), when an assessee acquired shares in the amalgamated company. It was observed by the Supreme Court that the definition of transfer in Section 2(47) was wider and broader than even its ordinary, common and natural meaning. The word transfer as defined in Section 2(47) includes extinguishment of any right and it was further observed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rated a saving and ameliorative provision in the form of sub-section (6) to Section 32A of the Act. Reliance placed on certain judgments under Chapter XX-C of the Act is not apposite as the said Chapter related to an entirely different concept of pre-emptive purchase to curtail black money menace in sale and purchase of immovable properties. In Mustafa Umar versus Appropriate Authority, [2001] 248 ITR 436 (Ker) the transfer was made by the owner to its 100% subsidiary company. 11. No doubt that Section 32A(5) of the Act is a negative provision, which may be penal, but when the legislative intention and requirement is clear in the form of sub-section (6), it would be difficult to ignore the legislative mandate and hold that amalgamation or merger would not result and constitute transfer within the expression otherwise transfer used in sub-section (5) to Section 32A of the Act. 12. However, the assessee, we feel is entitled to succeed on their alternative submission that the aforesaid arrangement is protected being covered under sub-section (6) to Section 32A. We may record that after arguments were heard on 2nd September, 2014, the appeal was re-listed for hearing on the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of demerger. In the present case, as noticed above, the arrangement had been implemented and applied a decade earlier, as it was effective from 1st April, 1990. It can be argued with some merit and conviction that the Act did not move with the time to accommodate and deal with amalgamation of the nature which were taking place in the corporate world. However, we would not like to base our decision on the said submission/argument, albeit we have used the said argument to interpret sub-section (6) to Section 32A of the Act. 15. We have referred to the definition clause 2(1B) of the Act, which defines the term amalgamation in relation to companies to mean merger of one or more companies into another or merger of two or more companies into one. Section 2(1B), therefore, postulates extinction of the company upon merger with the amalgamated company. Clause (i) to Section 2(1B) states that all properties of an amalgamating company immediately before amalgamation should become properties of the amalgamated company and similarly the liabilities of the amalgamating company should become liabilities of the amalgamated company. There should be complete and absolute merger and integration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of the subject or context in which the word has been used and that will be giving effect to the opening sentence in the definition section, namely, unless there is anything repugnant in the subject or context . In view of this qualification, the court has not only to look at the words but also to look at the context, the collocation and the object of such words relating to such matter and interpret the meaning intended to be conveyed by the use of the words under the circumstances. 17. G.P. Singh in Principles of Statutory Interpretation, 13th Edition, 2012, at page 191 has discussed definition clauses and the effect of the reference to the context in the following words:- And as recently stated by Lord Lowry: If Parliament in a statutory enactment defines its terms (whether by enlarging or by restricting the ordinary meaning of a word or expression), it must intend that, in the absence of a clear indication to the contrary, those terms as defined shall govern what is proposed, authorised or done under or by reference to that enactment. But where the context makes the definition given in the interpretation clause inapplicable, a defined word when used in the bod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or purchase and installation of the said assets. Sub-section (6) refers to scheme of amalgamation and states that if the amalgamating company sells or otherwise transfers to the amalgamated company, ship, aircraft, machinery or plant in respect of which investment allowance has been allowed to the amalgamating company, then the amalgamated company shall continue to fulfil the conditions mentioned in sub-section (4) in respect of unexpired lock-in period of sale/transfer or the reserve created by the amalgamating company and provisions of Section 4A of Section 155 shall apply to the amalgamated company as would have applied to the amalgamating company if it would have committed the default. The sub-section (6), therefore, talks of sale or otherwise transfer by the amalgamating to the amalgamated company of a ship, aircraft, machinery or plant. It does not speak and refer to any stipulation with regard to transfer of all properties or assets or liabilities of the amalgamating company being transferred to the amalgamated company. It does not speak of complete merger, extinction or absorption of the amalgamating company into the amalgamated company. Clause (b) of sub-section (6) stipul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... timulus to growth and modernization and reduced dependence of an assessee on financial institutions. 21. The purpose and object of providing limited umbrella protection under sub-sections (6) and (7) of Section 32A, shows the flexible and realistic approach in cases of business reorganization which normally are treated as tax neutral, unless there is ulterior motive of tax evasion, abusive tax avoidance or possibly even tax arbitrage. Thus, cases of business reorganization in the nature of amalgamation or conversion of partnership firm into a company stand excluded from the effect of sub-section (5) to Section 32A of the Act, provided the conditions of the relevant sub-sections are satisfied. 22. The expression amalgamation does mean amalgamation of two or more companies which are merged into one. It has the effect of an arrangement by which one of the companies involved absorbs the business, all assets and liabilities of another with the latter being dissolved or in alternative two or more companies being absorbed into one company, formed for that purpose. (Refer Heavy Head Co. versus Ropre Holding Ltd., 1952 CH 154). Therefore, the term amalgamation contemplates a sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere a company transfers its assets to a new company with substantially the same shareholding. Both, a reconstruction and amalgamation are permissible under the Companies law. Section 391 read with Section 394 state that a scheme may take a form of arrangement or reconstruction . They are akin and would broadly fall and treated as amalgamation. 23. Thus, amalgamation as a term can include transfer of one or more undertakings to another company without really blending of one or more existing companies into the transferee/amalgamated company. All assets of the transferor/amalgamating company need not be transferred to the new or other company. The purpose and objective behind sub-section (6) to Section 32A is to facilitate reconstruction and amalgamation and not to obstruct genuine transactions of such nature. The emphasis in sub-section (6) to Section 32A is on sale or transfer of the ship, aircraft, machinery or plant, subject matter of investment allowance in connection with amalgamation or reconstruction. There is also reference to reserves. The emphasis in sub-section (6) is not upon the blending or merger of the existing company, which has availed of benefit under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that work. The writer thereby lays upon himself the duty of using the word only in that sense, and tacitly promises to do so, and tacitly prophesies that he will do so. But sometimes a writer does not use the word only in the sense he has stipulated. 26. In NWL Limited versus Woods, (1979) 1 WLR 294, Lord Scarman had observed:- It is wrong to attempt to construe any section or subsection of these Acts without reference to their legislative purpose. And it is also necessary to have regard to the history of the statute law and the case law since 1906 for a full understanding of them. This history I would summarise as a shifting pattern of Parliamentary assertions and judicial responses, a legal point counterpoint which has been more productive of excitement than of harmony. The judges have been, understandably, reluctant to abandon common law and equitable principles, unless unambiguously told to do so by statue. Parliament has created ambiguity not through any lack of drafting skill but by its own changes of mind. The words are not deployed in vacuum, but in the context of their setting and to help the interpreter to arrive at the meaning intended. 27. There is anothe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fy or help us differentiate between tax avoidance and abusive tax avoidance. Any attempt to minimize or eliminate tax liability would not make the choice of the tax payer abusive tax avoidance. The foundation of the said principle is that the tax code by its nature differentiates between different types of actions, transactions, arrangements and activities and then identifies and stipulates the consequences. The tax code, i.e. the Income Tax Act, 1961 is rule based and complex. The Act is not entirely principle based. The provisions are read and applied. Principle of purposive interpretation both in favour of Revenue or assessed can be applied but within four corners of law. In fact, in some cases, the assessed may find themselves taxed at a higher liability for failure to choose a more tax friendly event. But the right of choice is hedged with one significant condition. The event selected, as noticed above and subsequently, should be real and not a colourable device, sham and deceit. 28. The submission of the Revenue that the assessee was not covered by Section 2(1B), we feel in the context of Section 32A and specially sub-section (6) thereof, should not be accepted because it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its own time, is nevertheless to be construed in accordance with the need to treat it as current law. In the comments that follow it is pointed out that an ongoing Act is taken to be always speaking. It is also, further, stated thus (pp. 618-19): In construing an ongoing Act, the interpreter is to presume that Parliament intended the Act to be applied at any future time in such a way as to give effect to the true original intention. Accordingly the interpreter is to make allowances for any relevant changes that have occurred, since the Act s passing, in law, social conditions, technology, the meaning of words, and other matters. Just as the US Constitution is regarded as a living Constitution , so an ongoing British Act is regarded as a living Act . That today s construction involves the supposition that Parliament was catering long ago for a state of affairs that did not then exist is no argument against that construction. Parliament, in the wording of an enactment, is expected to anticipate temporal developments. The drafter will try to foresee the future, and allow for it in the wording. An enactment of former days is thus to be read today, in the light of dynamic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ille Wadia, (2008) SCC 279, para 51) 31. The Supreme Court in K.P. Verghese versus ITO [1981] 131 ITR 597 while adjudicating on the scope of Section 52(2) of the Act relating under-statement of consideration received on transfer a capital asset elaborated on purposive construction in the following words:- The task of interpretation of a statutory enactment is not a mechanical task. It is more than a mere reading of mathematical formulae because few words possess the precision of mathematical symbols. It is an attempt to discover the intent of the Legislature from the language used by it and it must always be remembered that language is at best an imperfect instrument for the expression of human thought and, as pointed out by Lord Denning, it would be idle to expect every statutory provision to be drafted with divine prescience and perfect clarity . We can do no better than repeat the famous words of judge Learned Hand when he said: it is true that the words used, even in their literal sense, are the primary and ordinarily the most reliable source of interpreting the meaning of any writing: be it a statute, a contract or anything else. But it is one of the surest inde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to Francis Bennion and observed that contrary intention may apply to part of the definition and not the whole. When we apply purposive interpretation for the benefit of the respondent-assessee, it is equally important to ensure that the assessee complies and does not negate the purpose of the Legislation, be it in the form of conditions stipulated in Section 2(1B) and specific stipulations of Section 32A sub-section (6). Conformity and fulfilment of conditions when applicable to cases of amalgamation have to be satisfied. Thus, the assessee should be able to show and establish that the liabilities associated with the plant, machinery, ship or aircraft were transferred to the amalgamated company by virtue of amalgamation (Clause (ii) of Section 2(1B) of the Act) as also the condition that the shareholders not holding less than nine-tenth in value of the shares (Clause (iii) of Section 2(1B) of the Act) was satisfied. Similarly, the stipulations of sub-section (6) to Section 32A must be met and satisfied. As these aspects have not been examined, we pass an order of remit to the Tribunal to examine the said aspects. We would request the Tribunal to go into the said aspects an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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