TMI Blog2017 (4) TMI 1037X X X X Extracts X X X X X X X X Extracts X X X X ..... us, agree with the High Court in its analysis of Section 41(1) along with Section 72A of the Act held that:- in order to facilitate the merger of sick industrial units with sound ones and as and by way of offering an incentive in that behalf section 72A was introduced, whereunder, by a deeming fiction, the accumulated loss or unabsorbed depreciation of the amalgamating company is treated to be a loss or, as the case may be. The Revenue before the first appellate authority emphasized the application of section 72A of the Act, to the facts of the case. The first appellate authority and also the Tribunal failed to consider the scope and object of section 72A of the Act. Thus, the Tribunal committed an error in treating the waiver of interest as not income of the assessee - CIVIL APPEAL NO. 3893 OF 2006 - - - Dated:- 9-3-2017 - A.K. SIKRI AND ASHOK BHUSHAN, JJ. For The Appellant : Mr. Jaideep Gupta, Sr. Adv., Mr. Kunal Chatterji, Adv., Ms. Maitrayee Banerjee, Adv. For The Respondent : Mr. Y. P. Adhyaru, Sr. Adv., Mr. Rupesh Kumar, Adv., Mr. S. A. Haseeb, Adv., Mrs. Anil Katiyar, Adv. JUDGMENT A. K. SIKRI, J. This appeal is preferred against judgment dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting the benefit of the said provision to the assessee. Under the scheme of amalgamation that was approved by the High Court, after following the procedure in terms of Sections 391 and 392 of the Companies Act, which includes the consent of the secured creditors as well, the banks which had advanced loans to HPL agreed to waive off the interest which had accrued prior to 01.04.1977. As already stated above, this interest was claimed as expenditure by HPL in its returns. On the waiver of this interest, it became income in terms of Section 41(1) of the Act. In the return filed by the assessee for the Assessment Year 1983-1984, the assessee claimed set off of the accumulated loses which it had taken over from HPL by virtue of the provisions contained in section 72A of the Act. This was allowed. However, later on, it came to the notice of the Assessing Officer that while allowing the aforesaid benefit to the assessee, the income which had accrued under section 41(1) of the Act had not been set off against the accumulated loses. It so happened that on certain grounds, the assessment was reopened by the Assessing Officer and while undertaking the exercise of reassessment, the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry right of the appellant-assessee which became available to it by virtue of the declaration given by the Central Government under the aforesaid provisions. On the other hand, submitted the learned counsel, that insofar as Section 41(1) is concerned, language thereof makes it abundantly clear that the income has to be treated at the hands of first mentioned person which is HPL in the instant case. This HPL was a distinct entity in law and was also a different assessee. Therefore, any such income earned by the HPL could not have been treated as income of the assessee herein. Mr. Gupta submitted that this is, in fact, the ratio of the judgment of this Court in ' Saraswati Industrial Syndicate' (supra) wherein section 41(1) of the Act is interpreted in the following manner: Section 41(1) has been enacted for charging tax on profits made by an assessee, but it applies to the assessee to whom the trading liability may have been allowed in the previous year. If the assessee to whom the trading liability may have been allowed as a business expenditure in the previous year ceases to be in existence or if the assessee is changed on account of the death of the earlier asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sferor company did not become non-existent instead it continued its entity in a blended form with the appellant company. The High Court's view that on amalgamation there is no complete destruction of corporate personality of the transferor company instead there is a blending of the corporate personality of one with another corporate body and it continues as such with the other is not sustainable in law. The true effect and character of the amalgamation largely depends on the terms of the scheme of merger. But there cannot be any doubt that when two companies amalgamate and merge into one the transferor company loses its entity as it ceases to have its business. However, their respective rights or liabilities are determined under the scheme of amalgamation but the corporate entity of the transferor company ceases to exist with effect from the date the amalgamation is made effective. The aforesaid arguments appear to be attractive in the first blush, but a little deeper scrutiny thereof in the light of the situation prevailing in the instant case would reflect that these arguments need to be rejected. In fact, same arguments were advanced before the High Court as well which d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulated loses, the benefit whereof is to be extended to the assessee. We, thus, agree with the High Court in its analysis of Section 41(1) along with Section 72A of the Act, which is to the following effect: 10. Though the ITO proposed to treat the waiver of interest portion as revenue receipt in the hands of assessee's company under Section 41(1) of the Act, the same is to be read with Section 72A of the Act. The Finance Minister in his Budget speech while introducing Section 72A of the Act stated that the sickness among industrial undertaking was regarded as a matter of grave national concern inasmuch as closure of any sizable manufacturing unit industry entailed social costs in terms of production loss and unemployment as also waste of valuable capital assets, and experience had shown that taking over of such sick units by Governments was not always a satisfactory or economical solution; it was felt that a more effective method would be to facilitate amalgamation of sick industrial units with sound ones by providing incentives and removing impediments in the way of such amalgamation which would not merely relieve the Government of un-economical burden of taking over and r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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