TMI Blog2007 (1) TMI 144X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal was right in holding that the irrecoverable interest was an allowable deduction, without noting the principle of mutuality and after holding that such interest was allowable in not noting the provisions of section 41(1) of the Act pertaining to cessation of liability in the hands of the erstwhile debtors? 4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that on an interpretation of clause of the objects contained in the memorandum of association of the first respondent, the first respondent was carrying on business activity of providing corporate guarantees with respect to loan contracted by third parties? 5. Whether, on the facts and in the circumstances of the case, the hon'ble Tribunal was right in holding that the corporate guarantee amounts devolved on the first respondent could be claimed without a fixed basis (neither on payment/nor on devolution), although the hon'ble Supreme Court in the case of Amalgamations (P) Ltd. has held differently? 6. Whether, on the facts and in the circumstances of the case, the hon'ble Tribunal had any material before it to conclude that the amounts paid on behalf of the various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal has committed a serious error in granting this allowance in favour of the assessee. He would say that allowance of the said amount is unsustainable in law. He would say that there is every chance of the assessee recovering the said guarantee amount, in which event the Department would be put to loss in terms of his submission. Similarly he would argue that consideration of legal expenses by the Tribunal also require our interference. Per contra, Sri Datar, learned senior counsel would argue that just because there exists merger that by itself would not automatically wipe out the debt in the case on hand. He would say that the debts did exist as on April 1, 1994, and the merger was given effect to by the company judge by way of an order only after April 1, 1994. He would say that in these circumstances, the assessee cannot be denied the benefit of section 36(1)(vii) in the case on hand. He would dispute the contention of the Revenue with reference to section 36 and also with reference to disallowance in the case on hand. He would also argue that section 41 provides for consideration of amount as profit for the purpose of taxation. He would further say that the same ya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellate Tribunal held that, upon amalgamation, the identity of ISGEC was lost and that the company was no longer in existence and, therefore, the appellant-company was not liable to tax on the sum of Rs. 58,735 under section 41(1). The High Court, on a reference, held that the appellant-company was a successor in interest of ISGEC and since the assets of both the companies merged and the two companies blended to form a new company, the liabilities attaching to ISGEC devolved on the appellant-company and, therefore, the latter was liable under section 41(1). On appeal to the Supreme Court ruled as under: "The High Court was in error in holding that, even after amalgamation of the two companies, the transferor-company did not become non-existent but 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 the corporate personality of the transferor-company but 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 dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de; (iii) any such debt or part of debt may be deducted if it has already been written off as irrecoverable in the accounts of an earlier previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year), but the Assessing Officer had not allowed it to be deducted on the ground that it had not been established to have become a bad debt in that year; (iv) where any such debt or part of debt is written off as irrecoverable in the accounts of the previous year being a previous year relevant to the assessment year commencing on the first day of April, 1988, or any earlier assessment year, and the Assessing Officer is satisfied that such debt or part became a bad debt in any earlier previous year not falling beyond a period of four previous years immediately preceding the previous year in which such debt or part is written off, the provisions of sub-section (6) of section 155 shall apply; (v) where such debt or part of debt relates to advances made by an assessee to which clause (viia) of sub-section (1) applies, no such deduction shall be allowed unless the assessee has debited the amount of such debt or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the High Court, that since the company court had not only sanctioned the scheme of amalgamation as presented to them, but had also not specified any other date as the date of transfer/amalgamation, it followed that the date of amalgamation/date of transfer was the date specified in the scheme as the transfer date. In such a situation, it would not be reasonable to say that the scheme of amalgamation took effect on and from the date of the order sanctioning the scheme. The business carried on by the subsidiary company should be deemed to have been carried on for and on behalf of the appellant-company. This was 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., might have all taken place subsequent to the date of amalgamation/transfer, yet the date of amalgamation in the circumstances of this case would be January 1, 1982. Therefore, the notices issued by the Income-tax Officer were not warranted in law." This judgment would show that judicial noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al. The order is based on the facts and we also answer this issue in favour of the assessee. Moreover, in similar circumstances, this court in Income-tax Appeal No. 12 of 1999 (Deputy CIT v. McDowell and Co. Ltd. [2007] 291 ITR 107) has accepted a similar issue in terms of the order dated September 15, 2006. Income-tax Appeal No. 24 of 2000 : This appeal is filed by the assessee aggrieved by the very order. It is unnecessary for us to refer to the facts in the light of the reference to the fact findings in the connected appeals. The assessee in Income-tax Appeal No. 24 of 2000 has raised the following questions of law: "1. Whether, on the facts and in the circumstances of the case, the value of the asset transferred during the relevant year as on April 1, 1981, determined by the assessing authority and upheld by the authority and upheld by the Tribunal was justified? 2. Whether the Tribunal was justified in ignoring the report of an approved valuer with regard to the value of the immovable property as on April 1, 1981, when the said value was determined by the approved valuer made in the scientific manner? 3. When there being no other report of an expert, whether the v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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