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TMI Blog2017 (4) TMI 1037X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of the facts which have led to the present appeal may be taken note of at this stage. There was a company known as M/s. Hindustan Polymers Limited (HPL) which had become a sick industrial company. Proceedings in respect of the said company were pending before the Board for Industrial and Financial Reconstruction (BIFR) under Sick Industrial Companies Act (SICA). At that stage, petitions under Section 391 and 392 of the Companies Act, 1956, were filed in the High Court of Bombay and Madras for amalgamation of HPL with the assessee-appellant herein i.e., M/s. McDowell and Company Limited. Both the High Courts approved the scheme of amalgamation as a result of which, w.e.f. 01.04.1977, HPL stood amalgamated with the assessee/appellant-company. As mentioned above, HPL, which was an industrial undertaking, had become a sick company and it owed a lot of money to banks and financial institutions. In its books of accounts, the interest which had accrued on the loans given by such financial companies were shown as the money payable on account of interest to the said banking companies and was reflected as expenditure on that count. As the interest payable was treated as expenditure, bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner of Income Tax (Appeals), which was dismissed. However, in further appeal before the ITAT, the assessee succeeded inasmuch as the ITAT held that the aforesaid income under Section 41(1) of the Act was not at the hands of the assessee herein but it may be treated as income of the HPL and since HPL was a different assessee and a different entity, the assessee herein was not liable to pay any taxes on the said income. Feeling aggrieved thereby, the Revenue sought reference under Section 256 of the Act and ultimately, the reference was made on the following questions of law: "Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in upholding that the over due interest waived by the financial institutions amounting to Rs. 25.02 lakhs is not assessable in the hands of the assessee?" This question of law has been decided in favour of Revenue by the impugned judgment. It is argued by Mr. Jaideep Gupta, learned senior counsel appearing for the assessee-appellant, that the High Court has not appreciated the provisions of the Act, viz., Section 72A or Section 41(1) in their proper perspective and has also committed error in not properly understand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a successor in a business or the legal representatives of an assessee to whom the allowance may have been already granted liable to tax under Section 41(1) in respect of the amount remitted on receipt by the successor or by the legal representative. In that case the wife of the assessee on the death of her husband succeeded to the business carried on by him. Another firm which had recovered certain amounts towards the sales tax from the assessee's husband succeeded in an appeal against its sales tax assessment and thereupon the firm refunded that amount to the assessee which was received during the relevant acounting period. The question arose whether the amount so received by the assessee could be assessed in her hands as a deemed profit under Section 41(1) of the Act. This Court held that Section 41 did not apply because the assessee sought to be taxed was not the assessee as contemplated by Section 41(1) as the husband of the assessee had died, therefore the revenue could not take advantage of the provisions of Section 41(1) of the Act. He also drew attention of this Court to the discussion contained in paragraph 6 of the said judgment in support of his submission that sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee company was allowed to set off the amalgamated losses of the company amalgamated with it, i.e., HPL. This was the benefit which accrued to the assessee under the provisions of section 72A of the Act. When the assessee is allowed the benefit of the accumulated loses, while computing those loses, the income which accrued to it had to be adjusted and only thereafter net losses could have been allowed to be set off by the assessee company. Calculations to this effect are given by the Assessing Officer in his assessment order and there is no dispute about the same. Judgment of this Court in Saraswathi Industrial Syndicate Ltd. (supra) deals with the provisions of Section 41(1) of the Act per se. Section 72A of the Act was not the subject matter of the said decision. Therefore, the principle laid down in the said case may not be applicable in the instant case inasmuch as the position would be totally different in those cases where the income has accrued to an amalgamated company under Section 41(1) of the Act and, obviously, that cannot be treated as income at the hands of the company which has taken over the amalgamated company. However, in the instant case, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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