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Issues involved: Whether an order under section 104 of the Income-tax Act, 1961, can be made against the amalgamated company due to the failure of the amalgamating company to distribute the statutorily prescribed portion of undistributed profits.
Summary: The judgment addressed the issue of whether the amalgamated company could be held liable for the tax liability of the amalgamating company under section 104 of the Income-tax Act, 1961. The case involved T. V. Sundaram Iyengar and Sons Private Limited as the amalgamated company and Sundaram Motor Private Limited as the amalgamating company. The amalgamating company had failed to distribute the statutory percentage of distributable income for the assessment year 1970-71, leading to proceedings initiated under section 104 in 1975. The Commissioner of Income-tax (Appeals) and the Tribunal held that no proceedings could be initiated against the amalgamated company for the liability of a dissolved amalgamating company. The Tribunal's decision was based on the interpretation of section 104 and previous court rulings, including the Supreme Court's decision in M. M. Parikh, ITO v. Navanagar Transport and Industries Ltd. The court emphasized that the liability under section 104 arises only when an order is made in accordance with its requirements, not before. The Revenue argued that the tax liability on undistributed profits arises immediately upon failure to distribute, but the court disagreed, citing the Supreme Court's precedent. The court rejected the argument that the amalgamated company should not be liable for the tax of the amalgamating company, stating that the amalgamation did not absolve it of the tax obligation. The court highlighted that the amalgamated company had taken over all assets and liabilities of the amalgamating company, including tax liabilities. The court emphasized that an order of amalgamation does not exempt the entities from tax payment obligations. The judgment concluded that the amalgamated company could be held liable for the tax under section 104, even after the dissolution of the amalgamating company. The court emphasized that the amalgamated company, having taken over all obligations, was responsible for the tax liability. The court clarified that the amalgamating company's failure to distribute profits was the basis for the tax order, and the amalgamated company could not avoid this liability. The court held that the order under section 104 could be enforced against the amalgamated company, ruling in favor of the Revenue. In summary, the judgment clarified that an order under section 104 of the Income-tax Act could be enforced against the amalgamated company for the tax liability of the amalgamating company, even after amalgamation and dissolution, as the amalgamated company had taken over all obligations and liabilities of the amalgamating company as per the scheme of amalgamation.
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