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TMI Blog2016 (1) TMI 940X X X X Extracts X X X X X X X X Extracts X X X X ..... tive ground challenges disallowance of Rs. 10,28,028/- of preliminary expenditure u/s. 35D of the Act. This assessee is a company engaged in trading and transportation of natural gas, production of compressed natural gas and sale thereof. It amortized preliminary expenses of Rs. 10,28028/- u/s. 35D. The same comprised of a sum of Rs. 5 lacs @ 1/5 of Rs. 25 lacs incurred in AY 2005-06. The remaining figure of Rs. 5,28,028/- is @ 1/5 of Rs. 26,40,140/- similarly incurred earlier. Both these amounts represent ROC fees paid to increase authorized capital. The assessee's case was that its identical claims had already been allowed in AY 2007-08 u/s. 35D. The Assessing Officer inter alia was of the view that such a expenditure for increasing authorized was neither allowable u/s. 37 nor u/s. 35D(2) since not covered by the specific illustrations therein. This culminated in the impugned disallowance being made in assessment order dated 28-12-2010 which in turn stands affirmed in the lower appellate findings under challenge. 4. Heard both sides. Case records perused. Relevant facts qua the issue stated in preceding paragraphs are not repeated for the sake of brevity. Neither of the lowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of the same. We find that the hon'ble Delhi high court in CIT vs. Exxon Mobil Lubricant Pvt. Ltd (2010) 8 TAXMANN.COM 249 (DELHI) holds that if an assessee has shown prior period income and the Assessing Officer has not excluded it while working out current year taxable income, there is no reason to disallow only one part of the prior period adjustment i.e. the prior period expenditure. The Revenue fails in rebutting this proposition. We accordingly accept this alternative contention and direct the Assessing Officer to set off assessee's prior period expenditure and income as per law. He shall pass a consequential order accordingly. The assessee's third and fourth substantive grounds are accepted for statistical purposes. 7. The assessee's next three substantive grounds assail correctness of the lower appellate findings affirming Assessing Officer's action inter alia holding it as not entitled to set off MAT credits as per section 115JAA, TDS and advance taxes of Rs. 2,11,51,773/- thereby rejecting its plea that consequential interest u/s. 234B is liable to be charged accordingly. The CIT(A)'s findings under challenge are as follows:- "6. The grounds No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from activities pertaining to the company. But on the perusal of order u/s 143(3) and notice of demand u/s 156 of appellant company it seems that appellant company has not been allotted the any credit of TDS. The Ld. A.O has proceeded to estimate the demand payable without giving this credit of the taxes paid. Your goodselves may direct the Assessing officer to recalculate the demand payable on the assessed income of Rs. 9,35,26,842 instead of Rs. 10,04,39,172 after giving the credit of the above faxes. Further it would also be necessary to note that in terms of provisions of Section 199 of the Income Tax Act, 1961 any taxes paid by the tax deductor and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made and credit shall be given to him for the amount so deducted on the production of the certificate furnished under section 203 in the assessment made under this Act for the assessment year for which such income is assessable"., The tax has been duly deducted by the payer and has fulfilled his obligations under section 200 and that tax deduction certificates have been issued under section 203. Thus t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16/- and Rs. 9,09,73,050/- as against that shown earlier of Rs. 12,29,35,968/- declared at the demerged entity's behest in original return. The Revenue is also not alleging any claim of double relief of the impugned credits. There can hardly be any quarrel that a demerger scheme comes under sections 391 to 394 of the Companies Act, 1956. We proceed further and find that section 2(19AA) of the Income Tax Act defines a demerger to be an arrangement under the above stated provisions of the Companies law meaning transfer of all properties of the undertaking immediately before the demerger becoming properties of the resulting company followed by corresponding clauses pertaining to liabilities as well. 9. We come to the lower appellate findings now. The lower appellate authority holds that the Assessing Officer allowed the impugned credits only in the hands of M/s Adani Energy Ltd since the demerger scheme did not speak of any bifurcation thereof. We are unable to agree with this reasoning. We reiterate first of all the fact that the demerger scheme clauses already cover all assets and properties of the above stated gas distribution division. The same is followed by much more an ela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers, or all the members of the class, as the case may be, and also on the company, or, in the case of a company which is being wound-up, on the liquidator and contributories of the company: Provided that no order sanctioning any compromise or arrangement shall be made by the Court unless the Court is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the Court, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 251, and the like. (3) An order made by the Court under sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar." "Section 394. Provisions for facilitating reconstruction and amalgamation of companies.-(1) Where an application is made to the Court under section 391 for the sanctioning of a compromise or arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of its members or to public interest. (2) Where an order under this section provides for the transfer of any property or liabilities, then, by virtue of the order, that property shall be transferred to and vest in, and those liabilities shall be transferred to and become the liabilities of, the transferee company; and in the case of any property, if the order so directs, freed from any charge which is, by virtue of the compromise or arrangement, to cease to have effect. (3) Within thirty days after the making of an order under this section, every company in relation to which the order is made shall cause a certified copy thereof to be filed with the Registrar for registration. If default is made in complying with this sub-section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to fifty rupees. (4) In this section- (a)'property' includes property, rights and powers of every description; and 'liabilities' includes duties of every description; and (b)'transferee company' does not include any company, other than a company within the meaning of this Act; but 'transferor company' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anctioning the scheme, the Court may also provide for all or any of the matters specified in clauses (i) to (vi) of sub-section (1) of section 394. The two provisos appended to said sub-section provide for certain preconditions which too have to be observed by the Court. Subsection (2) provides that where the order sanctioning the amalgamation provides for any of the matters in clauses (i) to (vi) aforesaid, they shall take effect as provided in the order. (g)Within 30 days of the order sanctioning the amalgamation arrangement, the company concerned shall file a certified copy of the order before the Registrar for registration. This is made mandatory by the second limb of sub-section (3) of section 394. (h)The order sanctioning the scheme is required to be drawn up in accordance with Form Nos. 41 and 42 of the Companies [Court] Rules. 11. We may now refer to the scheme of amalgamation as passed at the meetings of the shareholders of both the holding and the subsidiary companies. 'Transferor company' is defined to mean the 'subsidiary company' and the expression 'transferee company' is defined to mean the 'holding company'. The expression 't ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company after the operative date, subject to the provisions of the Act. 7. The implementation of this scheme is conditional upon this scheme being sanctioned under section 391 of the Act and the appropriate orders for implementation of this Scheme being made under section 394 of the Act by the High Courts of Tamil Nadu and Calcutta. 8. The implementation of this Scheme is conditional also upon shareholders holding not less than nine-tenths in value of the shares in the transferor company (other than shares already held therein immediately before the amalgamation by the transferee company) becoming shareholders of the transferee company by virtue of the amalgamation." A reading of the above clauses of the scheme shows that according to the scheme, the entire undertaking of the subsidiary company shall be transferred to the holding company with effect from the transferred date and that the subsidiary company shall be amalgamated with the holding company with effect from the said date. Clause 6 states clearly that the implementation of the said scheme "is conditional upon the scheme being sanctioned under section 391 of the Act and the appropriate orders for the implementation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h date of amalgamation/transfer as it thinks appropriate in the facts and circumstances of the case. If the Court so specifies a date, there is little doubt that such date would be the date of amalgamation/date of transfer. But where the Court does not prescribe any specific date but merely sanctions the scheme presented to it - as has happened in this case - it should follow that the date of amalgamation/date of transfer is the date specified in the scheme as 'the transfer date'. It cannot be otherwise. It must be remembered that before applying to the Court under section 391(1), a scheme has to be framed and such scheme has to contain a date of amalgamation/transfer. The proceedings before the Court may take some time; indeed, they are bound to take some time because several steps provided by sections 391 to 394A and the relevant Rules have to be followed and complied with. During the period, the proceedings are pending before the Court, both the amalgamating units, i.e., the transferor company and transferee company may carry on business, as has happened in this case but normally provision is made for this aspect also in the scheme of amalgamation. In the scheme before u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable problem inasmuch as assessment can always be made, on the available material, even without a balance sheet. In certain cases, best-judgment assessment may also be resorted to. Be that as it may, we need not pursue this line of enquiry because it does not arise for consideration in these cases directly. 14. In the light of the view taken by us on the principal question, it is not necessary to consider the alternate submission urged by Shri Poddar." 11. We draw support from the above extracted judicial precedent to hold that once the demerged undertaking no more exists post facto the appointed date thereof coming to 01-01-2007 and the assessee being the resulting company, the former's MAT, TDS and advance tax credit are very much entitled to be considered in case of the latter assessee's entity since the former the demerged undertaking is deemed to have carried out its business, if any only on behalf of the assessee. The only rider that would flow our above stated discussion is that this entitlement of all these benefits would be confined to pro rata basis only i.e. qua those relating to the demerged undertaking. 12. The next judgment quoted before us is (2013) 217 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llow that the date of amalgamation/date of transfer is the date specified in the scheme as "the transfer date". It cannot be otherwise. It must be remembered that before applying to the Court under Section 391(1) a scheme has to be framed and such scheme has to contain a date of amalgamation/transfer. The proceedings before the Court may take sometime; indeed, they are bound to take some time because several steps provided by Sections 391 to 394-A and the relevant Rules have to be followed and complied with. During the period the proceedings are pending before the Court, both the amalgamating units, i.e., the Transferor Company and the Transferee Company may carry on business, as has happened in this case but normally provision is made for this aspect also in the scheme of amalgamation. In the scheme before us, clause 6(b) does expressly provide that with effect from the transfer date, the Transferor Company (Subsidiary Company) shall be deemed to have carried on the business for and on behalf of the Transferee Company (Holding Company) with all attendant consequences." In the case of Saraswati Industrial Syndicate Ltd. v. CIT AIR 1991 SC 70, the Apex Court on the question of ama ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of capital, it is possible to conceive that, at the end of the year, there will not be accrual of income by way of dividend despite a factual declaration. Similarly, if, by operation of law, the declaration of dividend becomes illegal, inoperative or invalid during the previous year itself, it is possible to conceive of a situation in which an assessee would be entitled to say that no income by way of dividend accrued to him during the previous year. What is important is that something factual or legal should have happened during the previous year in which the dividend is declared." Likewise, in the case of New Shorrock Spg. & Mfg. Co. Ltd. (supra), facts were that the assessee company had on 25.5.72 declared its dividend for the year 1971. One Mafatlal Gagalbhai and Co. Pvt. Ltd. case (supra) holding shares in the assessee company received dividend in respect of its holdings in the assessee company. On 27th October 1972, a proposal was initiated for amalgamation of Mafatlal Gagalbhai and Co. (P.) Ltd. case (supra) with the assessee company. Petitions for such purpose were filed before the Bombay High Court and the Gujarat High Court. By the orders passed on 24th September 1973 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been defined under section 2(23) of the Act. Upon the High Court sanctioning the scheme for amalgamation, the effective date of amalgamation would be the date mentioned in the scheme, namely, 1st June 1995. Such legal fall out must be given its full implication for all purposes including for the purposes of the Act. If, therefore, in eye of law from 1st June 1995, the transferor companies did not exist, and by virtue of the order of the High Court sanctioning the scheme relating back to the date envisaged in the scheme, ceased to have any legal existence, any transfer from the transferor to the transferee companies must be treated as branch transfer. This was also the view expressed by the Bombay High Court in the case of National Organic Chemicals Industries Ltd. (supra}. In the said case, this precisely was the issue presented before the High Court. A Division Bench of the High Court ruled that the Company loses its corporate personality from the date declared by the competent authority under the Companies Act. In case of amalgamation of a company, the High Court being the competent authority, when the High Court sanctions the scheme for amalgamation and declares the effective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idend or distribution or payment of any dividend whichever is earliest. Sub-section (1) of section 115-O of the Act thus is a charging section and pertains to collection of tax on declaration, distribution or payment of dividend by a domestic company. Subsection (3) does nothing beyond prescribing the date within which such tax must be credited to the Central Government. Neither of these two provisions or anything else contained in section 115-O of the Act, in our opinion, would change the position. In the present case, we are concerned with a situation under which after certain dividend was declared and tax thereon was actually paid, by virtue of the High Court sanctioning the amalgamation scheme, which took effect from a date anterior to the declaration of the dividend would change the very character of such payment and such payment ceased to enjoy the character of dividend. In that view of the matter, the petitioner was perfectly justified in seeking refund of the tax already paid. We may recall that in the return filed, the petitioner had filed a detailed note explaining such position. Claiming refund, a separate application was also filed which unfortunately came to be rejecte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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