TMI Blog1998 (6) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... 12-1992 declaring total income of Rs. 23.58 crores with the claim of carried-forward unabsorbed investment allowance of Rs. 2.72 crores pertaining to earlier years. Notice under section 143(2) dated 26-11-1993 was issued and the assessee later filed a revised return on 31-3-1994 declaring total loss of Rs. 152.12 crores. This loss comprised of Rs. 17.97 crores pertaining to M/s. SPL and Rs. 134.15 crores pertaining to M/s. OSL (amalgamating company). The aforesaid loss of M/s. OSL included - (i) unabsorbed business loss for earlier years, (ii) current year's business loss from 1-2-1992 to 31-3-1992, (iii) unabsorbed depreciation allowance for earlier years, and (iv) unabsorbed investment allowance for earlier years. In this revised return the assessee claimed that M/s. OSL being a sick company amalgamated with the assessee with effect from 1-2-1992 under the order dated 25-1-1994 passed by the Board for Industrial and Financial Reconstruction (in short BIFR) read with addendum order dated 17-3-1994 by BIFR and declaration by BIFR dated 17-3-1994 under section 72A(1) of the IT Act, 1961. The assessee also filed, on 8-8-1994, a certificate dated 15-6-1994 issued by BIFR under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 683 dated 8-6-1994 was binding on Assessing Officer, (iii) that the requirement of section 72A(2)(i) was not complied with inasmuch as the assessee, in fact, did not carry on the business of the amalgamating company (OSL) during the relevant previous year ended 31-3-1992 since the order of BIFR was passed only on 25-1-1994. The ld. CIT (Appeals) however disagreeing with the Assessing Officer held that the revised return filed on 31-3-1994 claiming the loss was valid and was not affected by the provisions of section 139(3)/80 since the original return showing profit was filed within time. He also held that the relief under section 72A could not be denied to the assessee on the ground that the certificate of BIFR under section 72A(2)(ii) was not filed with the return, since the filing of the said certificate along with the assessee's letter dated 6-8-1994 was a valid compliance. He also held that declaration by BIFR is by the Central Government under section 72A(1) in view of section 32(2) of Sick Industrial Company (Special Provisions) Act, 1985 (in short, SICA). 4. Similarly, the Assessing Officer also disallowed consultancy charges amounting to Rs. 5,26,000, in respect of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 1997 and till that period it is merely a provision or a contingent liability. As such the Assessing Officer disallowed the said premium on redemption of debentures as being contingent liability. On appeal, the ld. CIT (Appeals) confirmed the disallowance. 7. The Assessing Officer disallowed a sum of Rs. 1,24,443, out of employees' welfare expenses. The Assessing Officer observed that the said sum was spent by way of contribution to social organisations and clubs, etc. as detailed in para 5 on page 11 of assessment order. The Assessing Officer held that this was hit by section 40A(9) and disallowed the same. On appeal, the ld. CIT (Appeals) confirmed the disallowance. 8. The Assessing Officer disallowed a sum of Rs. 5.10 lacs under the head general charges. The assessee had claimed deduction in respect of Rs. 5 lacs paid to PHD Chamber of Commerce and Industries for construction of Lakshmipat Singhania Auditorium in PHD House, New Delhi, and Rs. I 0,000 paid for valuation of shares. The Assessing Officer disallowed both the sums as being expenditure on capital account, and not directly connected with the assessee's business. On appeal, the ld. CIT (Appeals) confirmed the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um to be added to the cost of plant and machinery for allowing depreciation. On appeal, the CIT (Appeals) confirmed the assessment order on this count. 10. The Assessing Officer disallowed a sum of Rs. 41,12,177 claimed as deduction for interest on borrowed fund for purchase of plant and machinery. The assessee had taken loans for installing balancing equipment in Lakshmi Cement Division and Magnetic Tape Division which are stated to have started commercial production in Oct. 82 and Feb. 89 respectively. During the previous year, the assessee incurred a sum of Rs. 41,12,177 by way of interest on such borrowed funds. The said interest was in respect of the period prior to plant and machinery being installed and put to use. Though the assessee had capitalised the said amount in the books of account, but claimed the same as revenue deduction. The Assessing Officer disallowed the assessee's claim for deduction of the said amount as revenue outgoing on the ground that the said interest was paid for acquiring capital asset and in view of Explanation 8 to section 43(1) the interest for the period prior to the user of the plant and machinery could only be added to the actual cost and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer observed that that the profit and gains derived from the new industrial undertaking within the meaning of section 80HH meant the profit and gain computed in accordance with the provisions of the Income-tax Act and forming part of the total income but the assessee computed the profit and gains of the new industrial undertaking without deducting therefrom the depreciation and investment allowance. On appeal, the ld. CIT (Appeals) confirmed the assessment. 15. The assessee had claimed Rs. 5,45,77,257 as deduction for investment allowance but the Assessing Officer restricted the said deduction to Rs.2,01,09,380. On appeal, the ld. CIT (Appeals) confirmed the assessment on this count. 16. The Assessing Officer charged interest under sub-sections 234B and 234C of the IT Act. On appeal the ld. CIT (Appeals) did not accept the plea of the assessee. 17. In the above circumstances the assessee, feeling aggrieved by the order of the ld. CIT (Appeals), has come up in appeal before the Tribunal. 18. ITA No. 1753(Cal.) of 1996 is the deptl. appeal. The Assessing Officer had rejected the assessee's claim under section 72A on several grounds. The ld. CIT (Appeals), though upheld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncomes and the balance loss should have been carried forward for set off in subsequent years. " As different parts and sub-parts of ground No. 2 are inter-related and concern the disallowance of appellant's claim under section 72A of the IT Act with respect to current and unabsorbed business loss, current and unabsorbed depreciation and also concern the unabsorbed investment allowance, all of M/s. OSL, so we are taking them up together. Similarly as ground No. 1 in deptl. appeal being ITA No. 1755 (Cal.) of 1996 is also related to the issue, comprised in the abovementioned grounds raised in the assessee's appeal, so we are taking up the said ground No. 1 of deptl. appeal also along with aforesaid grounds of the assessee's appeal. M/s. OSL being a sick company under section 3 (o) of SICA, and a reference under section 15 of SICA having been made by M/s. OSL to BIFR in August 1990, the operative agency (IDBI), appointed by BIFR, prepared a draft scheme for the amalgamation/merger of M/s.OSL with the assessee (formerly known as SPL). The BIFR passed order under section 18(4) of SICA on 25-1-1994 sanctioning scheme for rehabilitation-cum-amalgamation/merger of M/s. OSL with the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (43 of 1961), shall, subject to the modifications that the power of the Central Government under that section may be exercised by the Board without any recommendation by the specified authority referred to in that section, apply in relation to such amalgamation as they apply in relation to the amalgamation of a company owning an industrial undertaking with another company. The provisions of section 72A(1), (2) of the IT Act may, for convenience sake, be also quoted here, which are as under: "72A.(1) where there has been an amalgamation of a company owning an industrial undertaking or a ship with another company and the Central Government on the recommendation of the specified authority, is satisfied that the following conditions are fulfilled namely : (a) the amalgamating company was not immediately before such amalgamation, financially viable by reason of its liabilities, losses and other relevant factors; (b) the amalgamation was in the public interest; and (c) such other conditions as the Central Government may, by notification in the Official Gazette, specify, to ensure that the benefit under this section is restricted to amalgamations which would facilitate the reh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 72A(1) of IT Act read with section 32(2) of SICA on 17-3-1994 (placed on pages 71 to 74 of Paper book-I) is the declaration made in accordance with law. After the aforesaid declaration no other declaration by the Central Government as such is needed under law. 22. The authorities below have held that BIFR's order sanctioning the scheme having been passed on 25-1-1994 could not be operative during the previous year relevant to the assessment year 1992-1993 and that the amalgamation could not be operative with effect from 1-2-1992. The ld. A.R. of the assessee has contended that 1-2-1992 has been specified as effective date of amalgamation in the scheme that has been sanctioned by BIFR so the date specified in the sanctioned scheme is the effective date of amalgamation under law. In this regard he has drawn our attention to clause A(v) on internal page 15 of the scheme available on page 44 of the paper book-I, wherein it has been mentioned that 'transfer date' means the first date of February, 1992. He has also drawn our attention to the declaration made by BIFR under section 72A(1) of the IT Act on 17-3-1994 placed on pages 71 and 72 of the paper book-I which, in the end, spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company is deemed to carry on business for and on behalf of the amalgamated company as a trustee of the amalgamated company. He has cited Marshall Sons Co. (India) Ltd.'s case wherein it has been held that "the business carried on by the transferor-company (subsidiary company) should be deemed to have been carried on for and on behalf of the transferee-company. This is necessary and the logical consequence of the Court sanctioning scheme of amalgamation as presented to it". 24. As against this, the ld. D.R. of revenue has contended that the order of BIFR sanctioning the scheme was passed on 25-1-1994 and so the scheme cannot be operative for any period prior to 25-1-1994 ;and as such the sanctioned scheme cannot be operative from 1-2-1992. He has cited CIT v. Kamla Town Trust [1996] 217 ITR 699/84 Taxman 248 (SC) in his support. He has also contended that the fact that in view of section 32(2) of SICA the powers of the Central Government may be exercised by BIFR under section 72A of the IT Act does not, in any way, affect the overriding effect of section 72A of the IT Act. He has contended that sub-section (2) of section 72A makes two conditions enumerated thereunder to be ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is no evidence on record showing that the assessee had taken steps to rehabilitate/revive the business of the amalgamating company. The ld. D.R. has contended that Marshall Sons Co. India Ltd.'s case is not relevant/ applicable in the case in hand as in the cited case the date had been given/ specified by the Court. He has contended that the powers of Court cannot be conferred on other authorities, as the Court possess certain extraordinary powers is in exercise of which the Courts can direct the scheme to have retrospective effect, but same is not the position with other authorities. He has also contended that section 32(2) of SICA says that section 72A of the IT Act will prevail. In the said cited case as there is no discussion by the Hon'ble Supreme Court on section 72A of the IT Act so also the citation is not applicable in the matter under consideration. 26. The ld. D.R. has also contended that the amalgamation may be effective for other purposes but not for the purposes of section 72A of the IT Act. 27. In rejoinder the contention of the ld. A.R. of assessee, as mentioned in written submission, is that in this case the date has been fixed not by the parties but by B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T[1992 ] 42 ITD 546 (557-558) (Cal.) (c) ITO v. Mangal Metal Industries [1991] 36 ITD 161 (Ahd.) (d) D.K. Jain v. Dy. CIT[1994] 49 ITD 269 (Delhi) 29. 29. We have considered the rival contentions as also the materials placed on record together with cited decisions. 30. As regards the requirement regarding filing of certificate under section 72A(2)(ii) of the IT Act along with return the ld. CIT (Appeals) has decided the issue in assessee's favour and there is no appeal by the department on this count. Besides, apart from the fact that the said requirement appears to be directory in view of judicial pronouncements cited by the ld. A.R., suffice it to say that in view of provisions of section 32(1) of SICA the scheme made under SICA shall have effect notwithstanding anything inconsistent therewith contained in any other law including IT Act, and so sanctioned scheme will prevail and override the inconsistent provisions of IT Act. In the instant case BIFR has passed an order by way of addendum dated 17-3-1994, placed on page 68 of paper book-I whereby sub-clauses (a) and (e) have been added in para 4C of the scheme, relating to reliefs and concessions from Central Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that if the parties themselves decide a date as the transfer date or the date of amalgamation then authority empowered to sanction the scheme whether the High Court of BIFR may either modify that date or approve of the same date as being the date of transfer/amalgamation, or may itself specify before the date of amalgamation/transfer. In a situation whensuch competent authority specifies the date whether by modification of the date agreed upon between the parties or otherwise then that specified date will be the date of amalgamation. In case such competent authority does not prescribe any specific date but simply sanctions the scheme presented to it then the date of amalgamation/ transfer will be the date as specified/proposed in the scheme itself. In that view of the matter in the present case BIFR, being the authority competent to sanction the scheme, having sanctioned the scheme and having prescribed a specific date, being 1-2-1992, as the date of amalgamation then undeniably 1-2-1992 has to be treated as the date of amalgamation/transfer. This position also stands supported by the fact that the return of income of amalgamating company OSL for assessment year 1993-94 has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer regarding the rejection of assessee's claim under section 72A in respect of losses etc. of OSL on the ground that the revised return filed on 31-3-1994 was hit by section 139(3) read with section 80 of the IT Act, although the ld. CIT (Appeals) upheld the rejection of the assessee's said claim on other grounds as the Assessing Officer had rejected the assessee's claim under section 72A on other grounds. 33. The ld. D.R. of revenue has contended that return of loss may be filed within time prescribed under section 139(1) of IT Act, and if the same is filed beyond that time, then that is not a valid return of loss under section 139(1), so these can be no carry forward of loss. He has contended that the provisions may not be construed with reference to their reasonableness unless they are ambiguous of capable of two interpretations, if they are clear and, not admitting of two interpretations, then their plain meaning is to be given effect to. Referring to sections 139(3) and 80 of IT Act, the ld. D.R. has contended that the only benefit denied is regarding carrying forward of loss, and the legislature has not prohibited set off of determination of correct inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 139 of IT Act vide BIFR's order dated 17-3-1994 (page 68 of paper book-I), the revised return of loss filed by the assessee shall be treated to be valid returns of loss duly filed. In the aforesaid situation we do not consider it necessary to delve deep further in the other alternative contention raised by the ld. A.R. on the issue. As such considering all the facts and circumstances of the case we find the view taken by ld. CIT (Appeals) in his impugned order as mentioned in para 7.1 on page 12 of his order to be quite correct and justified in law. We, therefore, decline to interfere with the same. 35. The Assessing Officer has referred to CBDT's Circular No. 683 dated 8-6-1994 in para (4) on page 7 of assessment order and mentioned that the earlier circulars on this issue have been withdrawn thereby. In para (9) on page 8 of assessment order, the Assessing Officer has also mentioned that the assessee did not furnish any information regarding the date of consent by Central Government as required under section 19(2) of SICA. The ld. CIT (Appeals) has discussed the issue in paras 8,8.1 and 8.2 on pages 12 to 15 of his order. He has referred in para 8 of his order, the objection r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 1992-93. The ld. A.R. of the assessee has challenged the above findings of the authorities below. The contention of the ld. A.R. as advanced orally as also in his written submission has been that as the said circular No. 683 dated 8-6-1994 was issued after the scheme having been sanctioned on 25-1-1994, the same cannot apply in the matter. He has also contended that the circular is contradictory in itself and has no application in the cases scheme sanctioned under SICA. HQ has contended that in para I of the said circular that it is mentioned that the earlier circular Nos. 523 and 576 related to the procedure to be followed in respect of grant of consent by the Central Government in the cases involving financial assistance to be given under the Direct Tax Laws which, in fact, is incorrect. He has contended that the two circulars being Nos. 523 and 576 merely explain the legal effect of the provisions of section 32(1) of SICA and did not lay down any procedure at all and so the question of withdrawing these circulars does not and cannot arise. He has contentended that what legal effect of the statutory provision is, is to be determined upon examining such provisions and there cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds the consent of the Central Government the ld. A.R. of the assessee has contended that the question of the said consent does not arise in this case. He has contended that the only issue involved in the instant case is regarding the grant of relief under section 72A of the IT Act in view of amalgamation provided for by BIFR under sanctioned scheme. He has contended that under section 32(2) of SICA power of Central Government to make declaration under section 72A is conferred on BIFR and so the power of the Central Government being exercised by BIFR the question of seeking any consent does not arise. He has also contended that such power under section 72A of IT Act to make declaration is to be exercised by BIFR without any recommendation of the specified authority, and the specified authority appointed for the purpose is the committee which consists also of the Chairman of CBDT. He has also contended that since no such recommendation is necessary for BIFR to make the declaration the question of any reference to or consent of CBDT also does not arise. He has refer-red to Indian Shaving products Ltd.'s case . He has also contended that the department's contention is that Central Gove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) on page 11 of the scheme placed on page 40 of paper book-I and contended that from the perusal of the scheme also it would appear that the Central Government is to approve the merger with effect from 1-2-1992 but in the instant case the required sanction of the Central Government is not there. He has contended that in Indian Shaving Products Ltd.'s case referred to by the ld. A.R. the benefit of section 72A of IT Act was not given. In case however the benefit under section 72A is to be given then the notice to the Central Government/CBDT is necessary. 39. We have considered the rival contentions as also the materials placed on record and have gone through the cited decisions. Clause 4C(a) on page 11 of the scheme, page 40 of the paper book-I, is a term/condition contained in the scheme itself, and so the contention of the ld. A.R. that the scheme was prepared by operating agency who mentioned all these is no avail to the assessee. Whatsoever might have been proposed by the operating agency in the draft scheme, the BIFR, while sanctioning the scheme, ought to have amended/corrected the draft so as to depict the final scheme as sanctioned by the BIFR. Now the aforesaid clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of IT Act to be taken as fulfilled on sanction of scheme of amalgamation. 40. So far as the principles of 'judgment per incuriam or 'judgment sub silentio' as enunciated in Synthetics Chemicals Ltd's case are concerned, the same are quite correct in themselves as being exceptions carved out of the doctrine of precedent as embodied in Article 141 of the Constitution of India. There is no denying the legal proposition that the .quotable in law' is avoided and ignored if it is rendered 'in ignoratium of a statute or other binding authority', and that a conclusion of law which was neither raised nor preceded by any consideration cannot be considered as declaration of law. A decision passes sub-silentio, in the technical sense, when particular point of law involved in the decision is not perceived by the Court or present to its mind. The precedents sub-silentio without argument are of no moment, no doubt, but the main question is as to whether, in the instant case, the facts admit of the application of the said principle? In our opinion they do not. In S.R.E Ltd. case the provisions of section 32(2) of SICA have not been considered but that case deals with the tax concessions and sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t proceedings in view of non-fulfilment of some of the conditions/requirements prescribed as prerequisites for passing an order of sanctioning the scheme under SICA. The ld. A.R. of assessee has contended that the requirement of giving notice to the Central Government/CBDT and taking their consent, even if not complied with, at the most makes the scheme voidable and not void. He has contended that if the scheme were voidable, it still remains binding till it is got so declared and quashed or set aside by competent authority through appropriate proceedings. He has cited State Of Punjab v. Gurdev Singh Ashok Kumar 1992 SC 111 in his support. He has contended that the Central Government or CBDT did not take steps for getting the scheme reviewed under section 18(5) of SICA on that ground, nor did they file any appeal to the appellate authority under section 25 of SICA against the BIFR's order of sanction dated 25-1-1994 passed under section 18(4) of SICA. He has contended that nor even any objection or suggestion was made by them despite the scheme having been duly advertised as required under section 18(3) of SICA. The ld. A.R. has also contended that the scheme is sanctioned by BIF ..... X X X X Extracts X X X X X X X X Extracts X X X X
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