1998 (3) TMI 97 - HC - Income Tax

Issues Involved:
1. Whether the Central Government's refusal to make a declaration under section 72A(1) of the Income-tax Act was justified.
2. Whether the amalgamation was in the public interest.
3. Whether the specified authority's recommendation was appropriately considered.
4. Whether the petitioner's compliance with the statutory requirements was adequate.
5. Whether the principles of natural justice were followed.

Issue-wise Detailed Analysis:

1. Justification of Central Government's Refusal:
The Central Government's refusal to make a declaration under section 72A(1) was based on several findings. Firstly, the scheme of amalgamation submitted by the petitioner contemplated a revival period from 1979 to 1984, but the sick unit (Kalinga Tubes Ltd.) was closed in 1982. This material change in relevant facts was proximal to the date of amalgamation and had to be considered. Secondly, the scheme approved by the specified authority envisaged an expenditure of Rs. 2.97 crores for modernization, but only Rs. 17 lakhs was actually spent, leading to the closure of the sick unit. Thirdly, the specified authority held that the purpose of revival was not achieved as the sick unit was closed during the revival period, thus the amalgamation was not in public interest.

2. Public Interest Consideration:
The Central Government found that the amalgamation was not in public interest for several reasons. Although the petitioner claimed that starting a new manufacturing unit for charge chrome achieved the basic purpose of revival, the Central Government did not accept this. The new business was started by a new limited company and not the petitioner. Additionally, out of 696 employees, 123 took voluntary retirement, and only 73 were retained by the new company, indicating that the majority of workers were retrenched. The machinery used for manufacturing steel tubes had become obsolete and was discarded, with new machinery being used for the new project. Moreover, the sick unit did not have an industrial license for manufacturing charge chrome, and the specified authority had not approved the modification in the scheme.

3. Consideration of Specified Authority's Recommendation:
The specified authority had re-examined the matter and declined to recommend the case under section 72A(1) on the ground that the purpose of revival of Kalinga Tubes Ltd. was not achieved. The Central Government considered this non-recommendation and found that the sick unit was closed during the revival period, thus the amalgamation was not in public interest. The Central Government's decision was consistent with the guidelines provided by the court in previous judgments.

4. Compliance with Statutory Requirements:
The petitioner argued that the operation of section 72A(1) is not dependent on section 72A(3), and that an application under section 72A(1) can be made without fulfilling section 72A(3). However, the Central Government found that the petitioner did not fulfill the statutory requirements as the sick unit was closed and a new project was started. The specified authority's approval was not obtained for the modification in the scheme, and the sick unit did not have an industrial license for the new product line.

5. Principles of Natural Justice:
The Central Government afforded full opportunity to the petitioner before passing the impugned order. The petitioner was given a hearing before the specified authority, and the matter was reconsidered in light of the court's observations. The allegations that the principles of natural justice were not complied with were found to be baseless.

Conclusion:
The court found that the Central Government's refusal to make a declaration under section 72A(1) was justified and did not suffer from any infirmity, irregularity, or illegality. The amalgamation did not fulfill the statutory requirements, and the decision was consistent with the guidelines provided by the court. The writ petition was dismissed, and the impugned decision was upheld.

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