TMI Blog1991 (3) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... tiations were going on between the assessee-company and the jute company for amalgamation. Eventually, on September 16, 1968, both the assessee-company and the jute company presented applications in this court for approval and sanction of the scheme of amalgamation of the jute company with the assesseecompany. On September 20, 1968, the court directed both parties to convene a meeting of their shareholders and obtain their approval with the requisite majority. Both the assessee and the jute company held separate meetings of their shareholders on November 4, 1968, and obtained from them the necessary approval. A final petition for the amalgamation was filed by both thereafter and, on January 6, 1969, the court passed its order sanctioning the amalgamation as proposed and agreed to by the parties. Under the orders of this court, the amalgamation was to take effect from April 1, 1968. As regards the period from April 1, 1968, till the date of the sanction of the court for amalgamation or until the amalgamation was complete, the jute company was deemed to have carried on business in trust for the assessee-company. There is no dispute that the profit and loss account and the balancesh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e position in law on and from April 1, 1968, is to be taken as if the jute company had become non-existing company and the assessee-company had naturally ceased to be a shareholder of such a company after April 1, 1968, though factually, on September 2, 1968, the jute company was in existence and the assesseecompany did receive from it the amount in dispute as dividend. We have heard learned counsel on both sides at great length. In sum, the case of the assessee is that the legal effect of the order of amalgamation with effect from April 1, 1968, is that the jute company was not in existence as a separate legal entity from that day and that the assesseecompany was not, or rather could not be, a shareholder of such a non-existent company thereafter and that the amount of Rs. 2,14,250 apparently received by the assessee as dividend from that company was, in fact, and in law, a receipt of its own money. To put it differently, it was a receipt by the left hand from the right hand and could not, thus, constitute an income assessable in its hands. The case of the Department, on the other hand, was that the jute company was in existence on September 2, 1968, when it declared and distrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, a complicated situation has arisen in this case. Factually, the amount in dispute was received as dividend. Legally, it could not be so as that is the legal effect of the order of amalgamation. The question is what is the legal position in such a case. For this purpose, we consider it desirable to refer to the following provisions which have some bearing on the question before us. The company court, it may be stated, passed an order sanctioning the scheme of amalgamation under section 394(1) on the application made under section 391 of the Companies Act. While sanctioning the scheme, the court has power to make provision for all or any of the six matters mentioned in subsection (1) of section 394. Clause (vi) of sub-section (1) of section 394 refers to "(vi) such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out." For this purpose, it is necessary to bear in mind that there are six heads of income as provided in section 14 of the Income-tax Act. One such head is "Income from other sources". That head of income is dealt with in section 56 of the Act. Sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r which meant that provision for the distribution of dividend in the hands of the jute company became a provision for dividend in the hands of the assessee company as on April 1, 1968. This also meant that the assessee ceased to be a shareholder of the jute company as on that day, as it is inconceivable that a company holds its own shares. Thus, the legal position was that neither could the jute company declare nor could the assessee-company receive dividend from the jute company after April 1, 1968. If, factually, any such thing happened as it did happen in this case, the legal effect of the order of sanction for amalgamation was that all that became impermissible and illegal. It is for this reason we are inclined to accept Shri Dwarkadas' submission that the amount of Rs. 2,14,250 could not be taxed in the hands of the assessee as income by way of dividend received from the jute company. It was the assessee's own money which it received and it could not certainly be of income nature. The same view, it may be stated, was taken by our court in the case of CIT v. Swastik Rubber Products Ltd. [1983] 140 ITR 304. In that case, sanction of the High Court for amalgamation with effect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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