TMI Blog2016 (1) TMI 940X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Member These two assessee's appeals for assessment year 2008-09, arise from two separate orders of the CIT(A)-VI, Ahmedabad dated 28-06-2011 and 02-08-2011 in appeal nos CIT(A)-VI-Cir-1/332/10-11 and CIT(A)-VI-Cir-1/289/10-11, in proceedings under section 154 and 143(3) of the Income Tax Act, 1961; in short the Act ; respectively. 2. The assessee submits at the outset that its former appeal ITA 2241/Ahd/2011 arises from section 154 rectification proceedings on issues already forming subject matter of latter appeal ITA 2516/Ahd/2011 preferred in quantum assessment. The Revenue is fair enough not to dispute this factual position. The former appeal ITA 2241/Ahd/2011 is accordingly dismissed as not pressed. 3. We proceed with the latter appeal. The assessee submits a tabulation chart summarizing its pleadings. Its first substantive ground challenges disallowance of ₹ 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 ₹ 10,28028/- u/s. 35D. The same comprised of a sum of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and property tax; all forming gross sum of ₹ 15,25,764/- in question relating to assessment year 2006-07. Its arguments throughout claim that the relevant previous year is the year of crystallization. There is no evidence of such crystallization forthcoming from the case file. Both the lower authorities hold accordingly that the assessee has failed in proving crystallization of the impugned expenditure. Therefore, we do not find any merit in this crystallization plea based in the course of arguments before us. This second substantive ground fails. At this stage, the assessee raises an alternative argument that it is entitled to set off prior period income of ₹ 7,55,575/- against the above stated prior period expenditure. The relevant grounds pleaded are third and fourth before us. Its case is that when the department had taxed its prior period income, it is entitled for set off 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit available for set off is ₹ 90.29 lacs as claimed in the Return of Income. In the event the additions as made under the assessment order are confirmed Your goodselves may direct the Assessing Officer accordingly. Credit of Taxed paid: The Ld. A.O has proceeded to estimate the demand payable of ₹ 4,54,05,211 on the assessed income of ₹ 9,35,26,842 without giving credit of the taxes paid. Details of TDS, Advance Tax, and other prepaid taxes which had been paid while filling return of income are as under: Sr. No. Tax Paid Date of Payment Amount (Rs) 1. TDS -- 36,57,863 2. Advance Tax 15-09-2007 50,00,000 15-03-2008 85,00,000 3. Self-Assessment Tax 30-04-2008 40,00,000 4. Total 2, 11,57,863 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nergy Ltd since the demerger scheme approved by the High Court does not speak of bifurcations of various tax credits. In the absence of any direction for such bifurcations of taxes, assessing officer is justified in giving credit of taxes and mat in the hands of Adani energy Ltd. These grounds are accordingly dismissed. 8. We have heard rival arguments. There is no dispute that gas distribution division undertaking of M/s Adani Energy Ltd. demerged with M/s. Adani Energy Ltd (UP Pvt Ltd) later on changing its name to its present avatar M/s Adani Gas Ltd (assessee). The relevant scheme of arrangement is u/ss. 391 to 394 r.w.ss. 100 to 104 of the Companies Act, 1956. This scheme was presented before the hon'ble jurisdictional high court in company petition no. 205 of 2009 resulting in its approval vide order dated 19-11-2009. The appointed date therein is 01-01-2007. This demerger arrangement forms of the paper book at pages 14 to 44. It transpires that the same covers all assets and properties of the demerged undertaking followed by all of its debts, liabilities, duties and obligations of the gas division in question. This general expression is further clarified in writing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sted under article 226 of the Constitution of India. Hon'ble apex court elaborated effect of amalgamation under Companies Act as follows:- 8. Let us first examine the position obtaining in this behalf under the Companies Act. Sub-sections (1), (2) and (3) of section 391 (relevant for our purpose) and section 394 read: Section 391. Power of compromise or make arrangements with creditors and members.- (I) Where a compromise or arrangement is proposed - (a) between a company and its creditors or any class of them; or (b) between a company and its members or any class of them ; the Court may, on the application of the company or of any creditor or member of the company, or, in the case of a company which is being wound-up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the Court directs. (2) If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members, as the case may be, present and voting either in person or, where proxies are allowed under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... like interest in that company which, under the compromise or arrangement, are to be allotted or appropriated by the company to or for any person; (iii)the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company; (iv)the dissolution, without winding-up, of any transferor company; (v)the provision to be made for any persons who, within such time and in such manner as the Court directs, dissent from the compromise or arrangement; and (vi)such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out: Provided that no compromise or arrangement proposed for die purpose of, or in connection with, a scheme or the amalgamation of a company, which is being winding-up, with any other company or companies, shall be sanctioned by the Court unless the Court has received a report from the Company Law Board or the Registrar that the affairs of the company have not been conducted in a manner prejudicial to the interest of its members or to public interest. Provided further that no order for the dissoluti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies is proposed, an application has to be made to the Court for the purpose. Thereupon, the Court may call the meeting of members of the companies concerned. The order of the Court shall be in Form No. 3 5 prescribed by the Rules. (b)Such notice of the meeting has to be sent individually to all the members. (The notice and the explanatory statement under section 393 are settled by the officer of the Court.) (c)Apart from individual notices, the notice of the meeting has also to be published in such newspapers as may be directed by the Court. (d)Only when a majority of the members representing three fourths of the value of the members present and voting, either in person or by proxy, approves the scheme, would the Court proceed to sanction the amalgamation arrangement. Such an order shall bind all concerned. Of course, the Court shall not sanction any such arrangement unless it is satisfied that the applicants have disclosed all material facts fully and truly. (e)The application for confirmation made under sections 391(2) and 394 is also required to be advertised in the same newspapers in which the notice of the meeting was advertised and the notice is also r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The undertaking of the transferor company shall, with effect from and including the transfer date and without further act or deed, be transferred to the transferee company pursuant to sections 391(2) and 394(2) of the Act and vest in the transferee company with all the estate and interest of the transferor company but subject, nevertheless, to all charges affecting the same and on the said date, the transferor company shall be amalgamated with the transferee company. (2) to (5)******* 6.(a) The excess of the value of the net assets of the transferor company, based on the balance sheet of the transferor company as at the date immediately preceding the transfer date over its subscribed and paid-up capital shall, to the extent of the amount appearing as Development Rebate Reserve, Investment Allowance Reserve and Investment Allowance Reserve (Utilised) in such balance sheet of the transferor company, be the Development Rebate Reserve, Investment Allowance Reserve and Investment Allowance Reserve (Utilised) to the transferee company. (b) The transferor company shall, with effect from the transfer date, be deemed to have carried on its business for and on behalf of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - for the reason that on the said date neither the company nor their shareholders had even thought of amalgamation and that it has no legal significance. According to the High Court, therefore, the date on which the amalgamation should be deemed to have come into being is not 1-1-1982 but 20-1-1984/24-2-1984, on which dates the Madras and Calcutta High Courts respectively approved the scheme. In other words, the High Court has taken the view that in the absence of any date being specified in the order of the High Court as the date of amalgamation, the date of the order of the High Court [Company Courts] shall be taken as the date of amalgamation. For arriving at the said view, the High Court followed an earlier Full Bench decision of that Court in Sahayanidhi (Virudhunagar) Ltd. v. AR.S. Subrahmanya Nadar [1950] 20 Comp. Cas. 214. The High Court also opined that the decision of the Bombay High Court in Swastik Rubber Products Ltd's case (supra) is of no assistance to the appellant. On this basis, the High Court has upheld the validity of the notices issued by the ITO, which nonces were impugned in the writ petition, and dismissed the writ petition. The question is whether the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd on behalf of the transferee company. This is the necessary and the logical consequence of the Court sanctioning the scheme of amalgamation as presented to it. The order of the Court sanctioning the scheme, the filing of the certified copies of the orders of the Court before the Registrar of Companies, the allotment of shares, etc., may have all taken place subsequent to the date of amalgamation/transfer, yet the date of amalgamation in the circumstances of this case would be 1-1-1982. This is also the ratio of the decision of the Privey Council in Raghubar Dayal v. Bank of Upper India Ltd. AIR 1919 PC 9. 13. The counsel for the revenue contended that if the aforesaid view is adopted, then several complications will ensue in case the Court refuses to sanction the scheme of amalgamation. We do not see any basis for this apprehension. Firstly, an assessment can always be made and is supposed to be made on the transferee company taking into account the income of both the transferor and transferee companies. Secondly, and probably the more advisable course from the point of view of the revenue would be to make one assessment on the transferee company taking into account the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Pvt. Ltd., Torrent Ltd. and Torrent Leasing and Finance Ltd. Torrent Power Ltd., Torrent Ltd. and Torrent Leasing and Finance Ltd. merged in Torrent Investment Ltd. with effect from 1st August 1999 under a scheme for amalgamation sanctioned by the Gujarat High Court by order dated 20th June 2000. In the return of income filed by the transferee company, a detailed note to this effect was filed pointing out that distribution dividend tax was already paid which, by virtue of such merger of companies, was required to be refunded. 14. By now it is well settled that a merger or amalgamation scheme once sanctioned by the competent court would take effect from the date of the order envisaged in the scheme itself unless, of course, the court sanctioning such scheme otherwise provides. In the case of Marshall Sons and Co. (India) Ltd. (supra), the Apex Court observed as under: Every scheme of amalgamation has to necessarily provide a date with effect from which the amalgamation transfer shall take place. The scheme concerned herein does so provide viz. January 1, 1982. It is true that while sanctioning the scheme it is open to the Court to modify the said date and prescribe such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividend to its own self. In the case of Mafatlal Gagalbhai Co. (P.) Ltd. (supra), the facts were that the assessee company had declared dividend and paid to another company which was a major shareholder of the assessee company. Even before declaration of dividend, negotiations were going on for amalgamation of both the companies. Both the companies, therefore, presented a scheme for amalgamation before the High Court. The High Court sanctioned the scheme under an order dated 6th January 1969. Under the order of the Court, amalgamation was to take effect from 1st April 1968. In this context, the High Court considered the question whether the Tribunal erred in holding that a sum of ₹ 2,14,000/- declared as dividend on 2nd September 1968 was liable to be taxed as income in the hands of the assessee company. In this context, the High Court observed that the assessee company ceased to be a shareholder of the jute company with effect from 1st April 1968. It is trite kw that a company cannot hold shares of its own company. As a natural corollary, it cannot receive dividend out of its own profits. The High Court eventually held as under : Evidently, dividend is made taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Apex Court was distinguished. 15. Before us, the situation is very similar. Certain dividend was declared and paid by one of the companies which ultimately merged with the assessee company along with other companies. Before the date of declaration and payment of dividend, scheme for amalgamation was framed. By virtue of the decision of the High Court, such scheme was sanctioned with no variation in the effective date. Thus, the date of amalgamation which actually took effect was prior to the date on which dividend was declared and paid. In that view of the matter, we have no hesitation in holding that by virtue of such subsequent developments, the payment of dividend could no longer retain the character of dividend paid by Torrent Power Ltd since there cannot be payment of dividend by one company to its own self. 16. Our attention was also drawn to a decision of Division Bench of this Court dated 13/16th July 2012 in Special Civil Application No.9980 of 2001 in case of Cadila Healthcare Ltd. In the said case, question of payment of sales tax on the sales made by the transferor company to the transferee company between effective date as envisaged in the amalgamation sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or distributed or is so declared and further that once a company declares its dividend, it cannot alter the character of credit by passing subsequent resolutions. Such observations were made in the context of the facts of the assessee having once declared dividend subsequently passed a resolution to treat such amount as credit in the accounts of the shareholders. In the present case, however, situation is substantially different. It was not the Company s own volition by which it desired to change the character of payment of dividend to any other nature. It was because of the subsequent developments, which however, had the effect from the date anterior to the date of payment of dividend and by virtue of which such payment ceased to retain the character of dividend. Any other view would effectively nullify the effective date of amalgamation of companies. 18. Counsel for the Revenue, we may recall, placed reliance on the provisions of section 115-O of the Act. It is undoubtedly true that sub-section (1) of section 115-O starts with a non-obstante clause and provides that notwithstanding anything contained in any other provisions of the Act, in addition to the income chargeable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall refund to the petitioner a sum of ₹ 5,92,96,881/- with statutory interest as applicable. This shall be done preferably within a period of three months from the date of receipt of a copy of this order. Rule is made absolute accordingly. 13. The Revenue fails to point out any distinction on facts or law. We conclude accordingly that once the demerged gas distribution undertaking no more exists w.e.f. 01-01-2007 coming to be the appointed day, the assessee-resulting company is entitled for all the pro rata adjustments of TDS, advance tax and MAT credits as per law; to be utilized in former's account. The net result of our above discussion is that assessee's arguments in principle are accepted in view of clauses of the above stated demerger scheme, sections 391 to 394 of the Companies Act, Section 2(19AA) of the Income Tax Act and the case law discussed hereinabove. We direct the Assessing Officer to compute pro rata quantification of the demerged undertaking MAT, TDS and advance tax credits as per law after affording adequate opportunity of hearing. The relevant grounds 5 to 7 are treated as allowed for statistical purposes. ITA 2516/Ahd/2011 is partly accepte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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