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TMI Blog2022 (4) TMI 347X X X X Extracts X X X X X X X X Extracts X X X X ..... as "MRPL", "the amalgamating company" or the transferor company"), was engaged in development of real estate and had executed one residential project under the name "Mahagun Maestro" located in Noida, Uttar Pradesh. MRPL amalgamated with Mahagun India Private Limited (herein after 'MIPL') by virtue of an order In Company Petition No. 133/2007 c/w Company Application (M) No. 41/2007 of the High Court (dated 10.09.2007). In terms of the order and provisions of the Companies Act, 1956, the amalgamation was with effect from 01.04.2006. 3. On 20.03.2007 survey proceedings were conducted in respect of MRPL during the course of which, some discrepancies in its books of account were noticed. On 27.08.2008, a search and seizure operation was carried out in the Mahagun group of companies, including MRPL and MIPL. During those operations, the statements of common directors of these companies were recorded, in the course of which admissions about not reflecting the true income of the said entities was made; these statements were duly recorded under provisions of the Income Tax Act, 1961 (hereafter "the Act"). On 02.03.2009, the revenue issued notice to MAPL to file Return of Income (ROI) for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble Delhi High* Court in the case of CIT v Dimension Apparel Pvt. Ltd 370 ITR 288. On the last decision Hon'ble Delhi High Court has considered the whole issue from all the angles and therefore, respectfully following the decision of Hon'ble Delhi High Court, we are of the view that the order of the Id AO is unsustainable." 6. The revenue appealed to the High Court. The High Court, relying upon a judgment of this court, in Principal Commissioner of Income Tax v. Maruti Suzuki India Limited 2019 SCCOnline SC 928 (hereafter 'Maruti Suzuki'), dismissed the appeal. The revenue has, therefore, appealed against that judgment. Submissions 7. The revenue, represented by the Additional Solicitor General, Mr. N. Venkataraman, urged that the name of both the amalgamating and amalgamated companies were mentioned in the assessment order. According to him such mistakes, defects or omissions are curable under Section 292B when the assessment is in substance and effect, in conformity with or according to the intent and purpose of the Act. 8. It was contended that the amalgamating or transferor company was duly represented by the amalgamated company and no prejudice was cause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led in the High Court. The assessee MRPL surrendered amounts for which it was unable to account. Other entities which merged with MIPL too likewise surrendered amounts. Throughout the proceedings, the assessee never revised its offer of surrender of additional income nor brought it to the notice of the AO. Further, on 20.03.2007, the assessee issued postdated cheques in the name of MRPL. After merger, they were neither taken back nor fresh cheques were submitted from the amalgamated company MIPL. 11. It was submitted that in these circumstances, when assessment proceedings were effectively resisted, during which the AO was appraised of the amalgamation, which was duly given effect to in the assessee's description, the question of the assessment and further proceedings being a nullity cannot arise. It was pointed out that in the appeal to CIT, as well as the cross objections to ITAT, the assessee's description was as Mahagun Relators Private Ltd, represented by Mahagun India Private Ltd., In these circumstances, the assessment order, in reality and substance, was in relation to the new or transferee company, i.e., MIPL. 12. On behalf of the respondent, it was contended by Ms. Kavi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter in this section being referred to as the predecessor) has been succeeded therein by any other person (hereinafter in this section referred to as the successor) who continues to carry on that business or profession,- (a) the predecessor shall be assessed in respect of the income of the previous year in which the succession took place up to the date of succession; (b) the successor shall be assessed in respect of the income of the previous year after the date of succession. (2) Notwithstanding anything contained in sub- section (1), when the predecessor cannot be found, the assessment of the income of the previous year in which the succession took place up to the date of succession and of the previous year preceding that year shall be made on the successor in like manner and to the same extent as it would have been made on the predecessor, and all the provisions of this Act shall, so far as may be, apply accordingly. (3) When any sum payable under this section in respect of the income of such business or profession for the previous year in which the succession took place up to the date of succession or for the previous year preceding that year, assessed on the predecessor, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidence, i.e., the transferee company. It is, therefore, essential to look beyond the mere concept of destruction of corporate entity which brings to an end or terminates any assessment proceedings. There are analogies in civil law and procedure where upon amalgamation, the cause of action or the complaint does not per se cease - depending of course, upon the structure and objective of enactment. Broadly, the quest of legal systems and courts has been to locate if a successor or representative exists in relation to the particular cause or action, upon whom the assets might have devolved or upon whom the liability in the event it is adjudicated, would fall. 19. This court, in Commissioner of Income Tax, v. Hukamchand Mohanlal 1972 (1) SCR 786 noticed that Section 159 of the Act related to a legal representative's tax liability. It casts liability upon a legal representative in the event of death of her or his predecessor, to pay tax, in effect saying that where a person dies his legal representative shall be liable to pay any sum which the deceased would have been liable to pay if he had not died. The corresponding provision in the old Income Tax Act (of 1922) was Section 24B. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore undertakings to an existing company. Strictly 'amalgamation' does not cover the mere acquisition by a company of the share capital of other company which remains in existence and continues its undertaking but the context in which the term is used may show that it is intended to include such an acquisition. See: Halsbury's Laws of England, 4th Edition Vol. 7 Para 1539. Two companies may join to form a new company, but there may be absorption or blend- ing of one by the other, both amount to amalgamation. When two companies are merged and are so joined, as to form a third company or one is absorbed into one or blended with another, the amalgamating company loses its entity. In M/s General Radio and Appliances Co Ltd v M.A.. Khader (dead) by Lrs., [1986] 2 S.C.C. 656, the effect of amalgamation of two companies was considered. M/s. General Radio and Appliances Co. Ltd. was tenant of a premises under an agreement providing that the tenant shall not sub-let the premises or any portion thereof to anyone without the consent of the landlord. M/s. General Radio and Appliances Co. Ltd. was amalgamated with M/s. National Ekco Radio and Engineering Co. Ltd. under a scheme of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble 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 of liabilities are determined under scheme of amalgamation but the corporate entity of the transferor company ceases to exist with effect from the date the amalgamation is made effective." 21. Saraswati Syndicate (supra) noticeably was decided in relation to assessment issues when amalgamation was not separately defined under the Income Tax Act. By an amendment of 1967, this term was for the first time defined in the form of Section 2(1A). That provision reads as follows: "(1A) "amalgamation", in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that- (i) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied with. During the period the proceedings are pending before the Court, both the amalgamation units, i.e., the Transferor Company and the Transferee Company may carry on business, as has happened in this case but normally provision is made for this aspect also in the scheme of amalgamation. In the present scheme, Clause 6(b) does expressly provide that with effect from the transfer date, the Transferor Company (Subsidiary Company) shall be deemed to have carried on the business for and on behalf of the Transferee Company (Holding Company) with all attendant consequences. It is equally relevant to notice that the Courts have not only sanctioned the scheme in this case but have also not specified any other date as the date of transfer/amalgamation. In such a situation, it would not be reasonable to say that the scheme of amalgamation takes effect on and from the date of the order sanctioning the scheme. We are, therefore, of the opinion that the notices issued by the Income Tax Officer (impugned in the writ petition) were not warranted in law. The business carried on by the Transferor Company (Subsidiary Company) should be deemed to have been carried on for and on behalf of the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany, without framing the order in the name of the transferee company is fatal: "10. Section 481 of the Companies Act provides for dissolution of the company. The Company Judge in the High Court can order dissolution of a company on the grounds stated therein. The effect of the dissolution is that the company no more survives. The dissolution puts an end to the existence of the company. It is held in M.H. Smith (Plant Hire) Ltd. v. D.L. Mainwaring (T/A Inshore), 1986 BCLC 342 (CA) that "once a company is dissolved it becomes a non-existent party and therefore no action can be brought in its name. Thus an insurance company which was subrogated to the rights of another insured company was held not to be entitled to maintain an action in the name of the company after the latter had been dissolved". 11. After the sanction of the scheme on 11th April, 2004, the Spice ceases to exit w.e.f. 1st July, 2003. Even if Spice had filed the returns, it became incumbent upon the Income tax authorities to substitute the successor in place of the said 'dead person'. When notice under Section 143(2) was sent, the appellant/amalgamated company appeared and brought this fact to the knowledge of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been filed by the transferor company. This was not allowed by the revenue. The assessee moved the High Court. This court endorsed the view of the single judge, holding that the revenue had not objected to the amalgamation schemes duly and that Sections 139(5) and 119(2)(b) of the Act and Circular No. 9/2015 issued by the CBDT were inapplicable to a case where a revised ROI was filed pursuant to a Scheme of Arrangement and Amalgamation, approved and sanctioned by the National Company Law Tribunal. 27. In another recent decision, McDowell and Company Ltd. v. Commissioner of Income Tax, Karnataka Central (2017) 13 SCC 799 this court had occasion to consider the effect of amalgamation of two companies, and the rights and liabilities in relation to claim for depreciation, under the Act. The assessee had taken over a sick company-HPL - by amalgamation; HPL ceased to have any identity after amalgamation. The relative rights, however, were determined in terms of the scheme of amalgamation. The benefit of interest accrued after the company ceased to exist was availed of by the assessee (the successor) company. The assessee was allowed to set off the amalgamated losses of the company amalga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, but continue as that of the transferor company; (b) by deeming fiction-through several provisions of the Act, the treatment of various issues, is such that the transferee is deemed to carry on the enterprise as that of the transferor. 29. In Bhagwan Dass Chopra v. United Bank of India 1988 (1) SCR 1088 it was held that in every case of transfer, devolution, merger or scheme of amalgamation, in which rights and liabilities of one company are transferred or devolved upon another company, the successor-in-interest becomes entitled to the liabilities and assets of the transferor company subject to the terms and conditions of contract of transfer or merger, as it were. Later, in Singer India Ltd v. Chander Mohan Chadha [2004] Supp (3) SCR 535 this court held as follows: "8. ..there can be no doubt that when two companies amalgamate and merge into one, the transferor company loses its identity as it ceases to have its business. However, their respective rights and liabilities are determined under the scheme of amalgamation, but the corporate identity of transferor company ceases to exist with effect from the date the amalgamation is made effective." 30. The combined effect, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation to the respondent for AY 2011-12 must, in our view be adopted in respect of the present appeal which relates to AY 2012-13. Not doing so will only result in uncertainty and displacement of settled expectations. There is a significant value which must attach to observing the requirement of consistency and certainty. Individual affairs are conducted and business decisions are made in the expectation of consistency, uniformity and certainty. To detract from those principles is neither expedient nor desirable." 32. The court, undoubtedly noticed Saraswati Syndicate. Further, the judgment in Spice (supra) and other line of decisions, culminating in this court's order, approving those judgments, was also noticed. Yet, the legislative change, by way of introduction of Section 2 (1A), defining "amalgamation" was not taken into account. Further, the tax treatment in the various provisions of the Act were not brought to the notice of this court, in the previous decisions. 33. There is no doubt that MRPL amalgamated with MIPL and ceased to exist thereafter; this is an established fact and not in contention. The respondent has relied upon Spice and Maruti Suzuki (supra) to contend tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon amalgamation. 37. In the present case, the terms of the amalgamation have been set out in the order sanctioning it, by the Delhi High Court, by its order dated 10.09.2007. The court, by its order directed the amalgamation of Mahagun Developers Ltd., Mahagun Realtors Pvt. Ltd., Universal Advertising Pvt. Ltd., ADR Home Décor Pvt. Ltd. under Section 394 of the Companies Act, 1956 with Mahagun (India) Pvt. Ltd. (MIPL) the transferee Company. The operative order of the Delhi High Court under Section 394 of the Companies Act, 1956 inter alia stated as follows: "THIS COURT DOTH HEREBY SANCTION THE SCHEME OF AMALGAMATION setforth in Schedule -I annexed hereto and DOTH HEREBY DECLARE the same to be binding on all the shareholders and creditors of the Transferor and Transferee Companies and all concerned and Doth approve the said scheme of amalgamation with effect from the appointed date i.e., 1.04.2006. AND THIS COURT DOTH FURTHER ORDER: 1. That all the property, rights and powers of the Transferor Companies specified in the First, Second and Third parts of the Schedule-II hereto and all other property, right and powers of the Transferor Companies be transferred without f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 589 crores as per the following details for A.Y. 2007-08: (i) Mahagun Realtors Pvt. Ltd. Rs. 5.072 crores (ii) Mahagun Developers Ltd. Rs. 4.952 crores (iii) Mahagun India Pvt. Ltd. Rs. 6.934 crores For easy reference relevant portion of the statement is quoted as under: Q. 18 Please further elaborate on the sale proceed as mentioned on pages 2 to 18 of the said diary, in the light of the fact that in reply to Q No. 15 it has been stated that the said sale proceeds are not reflected in the book of A/c. The said sale figures denote the month-wise sale proceeds pertaining to F.Y. 2006-07 in respect of the projects under the construction at various sites as mentioned above, which are not reflected in our books of A/c are not reflected in our sales of MRPT, MDL, MIPL as on 20.03.2007. Q.19 What is the total quantum of sale proceeds in the three companies, namely, 'MRPL, MDL, and MIPL' which has not been declared in the F.Y. 06-07 in your books of A/c as admitted by you in your replay to the above relevant question. A. As per the said diary, the following sale proceeds not declared in our books of a/c of F.Y. 06-07 in respect of MRPL, MDL and MIPL are as under: a) Maha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the main person of the group in answer to question 15 of the statement recorded u/s. 132 (4) on 27-08-2008 admitted as under: "As stated number of times above, I am not able to explain the case entries/receipts appearing in the ledgers marked as annexure A-20, A-21, A-22, A-23 & A-24. Therefore, I offer Rs. 30 crores as additional income on account of case receipts/entries in the above annexures in the hands of M/s. Mahagun India (P) Ltd. The additional income declared is over and above the regular income to be declared." 6.3 Admissions of additional income or receipts were examined in the light of the returns of income filed by the respective companies. In so far as accounting of the income of 16.95 crores admitted during the course of survey proceedings is concerned it is found to have been accounted for in the respective years for which it was offered. Here, it is important to note that Shri Amit Jain whose statement was recorded qua the surrender of additional income of 30 crores has nowhere stated as to which particular year the income surrendered is attributable to. Careful scrutiny of the returns revealed that in so far as admitted additional income of 30 crores as v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reply filed by the assessee has been considered. The assessee as such does not dispute the extrapolation done but has just asked for discounting the extrapolated rate suitably and spread it over to the entire projects period. Before considering whether the reply as filed by the assessee company is acceptable or not it is considered necessary to re-iterate certain facts of the case at a glance. During the currency of the block or 7 years as relevant to the search & seizure operations as carried out in the hands of the assessee group following projects are found to have been either started or completed as per the following details; Name of the Project Entity to which project belongs Date of commencement Date of completion Plot No. 14 Shalimar Garden Mahagun India P. Ltd. F.Y. 2002-2003 F.Y. 2002-2003 Flot No. 26 Shalimar Garden Mahagun India P. Ltd. F. Y. 2002-2003 F.Y. 2002-2003 A-10 Shalimar Garden Mahagun India P. Ltd. F. Y. 2002-2003 F.Y. 2003-2004 Mahagun Villa Mahagun India P. Ltd. F.Y. 2003-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,235 -do- 2006-07 5,54,20,982 6,41,96,022 Mahagun India P. Ltd. 2004-05 -do- 2005-06 1,79,63,669 2,08,07,939 -do- 2006-07 13,33,88,185 15,44,27,160 -do- 2007-08 2,09,41,931 2,42,57,786 -do- 2008-09 35,58,411 41,21,842 -do- 2009-10 12,60,57,575 14,60,16,941 Total 42,98,06,439 49,78,59,943 8.3 Before parting with this issue it is considered necessary to pin point that assessee group ought to have offered the income in the hands of the entities which had earned the aforesaid incomes detected during survey and search action. Under the Income-Tax act, 1961 as explained by the Supreme Court in CIT vs. Ch. Atchaiah (218 ITR 241 SC) the income is required to be taxed in the correct year, under the correct heads and in the correct hands/entities. In the context of the assessee group, the suppressed receipts, irrespective of what treatment the assessee group are required to be taxed in the hands of the entities/companies which executed the aforesaid projects. Accordingly, disregarding the treatment given by the assessee group, the aforesaid unaccounted receipts totaling to 49.78 crores are brought to tax in the hands of entitles to whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 010. Before that, on two dates, i.e., 22/27.07.2010, letters were written on behalf of MRPL, intimating about the amalgamation, but this was for AY 2007-08 (for which separate proceedings had been initiated under Section 153A) and not for AY 2006-07. 6. The return specifically suppressed - and did not disclose the amalgamation (with MIPL) - as the response to Query 27(b) was "N.A". 7. The return - apart from specifically being furnished in the name of MRPL, also contained its PAN number. 8. During the assessment proceedings, there was full participation - on behalf of all transferor companies, and MIPL. A special audit was directed (which is possible only after issuing notice under Section 142). Objections to the special audit were filed in respect of portions relatable to MRPL. 9. After fully participating in the proceedings which were specifically in respect of the business of the erstwhile MRPL for the year ending 31.03.2006, in the cross-objection before the ITAT, for the first time (in the appeal preferred by the Revenue), an additional ground was urged that the assessment order was a nullity because MRPL was not in existence. 10. Assessment order was issued - undoub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efund were due, as to whether MIPL would then say that it is not entitled to it, because the refund order would be issued in favour of a non-existing company (MRPL). Having regard to all these reasons, this court is of the opinion that in the facts of this case, the conduct of the assessee, commencing from the date the search took place, and before all forums, reflects that it consistently held itself out as the assessee. The approach and order of the AO is, in this court's opinion in consonance with the decision in Marshall & Sons (supra), which had held that: "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 Company." 42. Before concluding, this Court notes and holds that whether corporate death of an entity upon amalgamation per se invalidates an assessment order ordinarily cannot be determined on a bare application of Section 481 of the Companies Act, 1956 (and its equivalent in the 2013 Act), but would depend on the terms of the amalgamation and the facts of each case. 43. In view of the foregoing discussion and having regard to the facts of this case, this court is of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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