2010 (10) TMI 192 - HC - Income Tax

Set off and carry forward of loss - Amalgamation of sick industrial company with assessee Effect of special provisions Act once the scheme is framed by virtue of section 32 sub-section (1) of SICA the same overrides all other provisions of law including the Income-tax Act 1961 and also other instrument or document having effect by virtue of any law. The Board derives authority under section 120(6) of said Act which itself is overridden.It appears that the text of the said circular dated June 8, 1994 relied on by the Assessing Officer is clearly inconsistent with the provision of the said section 32(2). Neither the civil court nor any other authority including the quasi-judicial authority can pass any order which would impede the operation of the said scheme. In other words, the scheme can be set at naught only by the BIFR or the AAIFR under the said Act itself and not otherwise except by the constitutional provision. - provisions of the said Act which is a special one the income-tax authority cannot have any jurisdiction to render the operation of the said scheme nugatory. Claim u/s 72A - the Tribunal was correct in law in holding that the sanctioned scheme shall be conclusive evidence of fulfilling of requirements regarding consent of the Central Government/Central Board of Direct Taxes Circular No. 683 dated June 8, 1994.

Issues Involved:

1. Validity of the revised return filed by the assessee.
2. Requirement of Central Government's declaration under section 72A(1).
3. Retrospective operation of the amalgamation.
4. Compliance with section 72A(2)(i) regarding the business of the amalgamating company.
5. Filing of the certificate under section 72A(2)(ii) with the return.
6. Necessity of Central Government's consent as per CBDT Circular No. 683.
7. Disallowance of various expenses by the Assessing Officer.
8. Overriding effect of the sanctioned scheme under SICA over other laws.

Detailed Analysis:

1. Validity of the Revised Return Filed by the Assessee:

The assessee filed a revised return on March 31, 1994, claiming a total loss of Rs. 152.12 crores, which included losses from the amalgamated company, OSL. The Assessing Officer disallowed this claim on the ground that the revised return was filed beyond the stipulated time under section 139(1). However, the first appellate authority held that the revised return was valid and not affected by the provisions of section 80, as the original return showing profit was filed within time. The Tribunal upheld this view, considering the BIFR's order exempting the assessee from the applicability of sections 80 and 139 of the Income-tax Act.

2. Requirement of Central Government's Declaration under Section 72A(1):

The Assessing Officer disallowed the claim for set off and carry forward of unabsorbed losses on the ground that there was no declaration by the Central Government under section 72A(1). The first appellate authority and the Tribunal, however, held that the declaration by the BIFR was valid and sufficient under section 32(2) of the SICA, which overrides the need for a separate declaration by the Central Government.

3. Retrospective Operation of the Amalgamation:

The Assessing Officer contended that the amalgamation could not be made operative retrospectively from February 1, 1992, as the scheme was sanctioned on January 25, 1994. The first appellate authority agreed, but the Tribunal held that the scheme's retrospective effect, as sanctioned by the BIFR, was valid. The High Court supported the Tribunal's view, citing the Supreme Court's decision in Marshall Sons and Co. (India) Ltd. v. ITO, which affirmed that the date specified in the scheme as the transfer date is binding.

4. Compliance with Section 72A(2)(i) Regarding the Business of the Amalgamating Company:

The Assessing Officer disallowed the claim, stating that the business of the amalgamating company was not carried on by the amalgamated company during the relevant period. The first appellate authority upheld this view, but the Tribunal disagreed, holding that the requirements of section 72A(2)(i) were met. The High Court agreed with the Tribunal, emphasizing that the scheme's provisions, as sanctioned by the BIFR, were binding.

5. Filing of the Certificate under Section 72A(2)(ii) with the Return:

The Assessing Officer disallowed the claim because the certificate under section 72A(2)(ii) was not filed with the return. The first appellate authority and the Tribunal held that the certificate, filed before the assessment was completed, was valid. The High Court supported this view, noting that the BIFR's order exempted the assessee from the requirement of filing the certificate with the return.

6. Necessity of Central Government's Consent as per CBDT Circular No. 683:

The Assessing Officer disallowed the claim, citing the lack of Central Government consent as required by CBDT Circular No. 683. The first appellate authority upheld this view, but the Tribunal held that the BIFR's consent was sufficient under section 32(2) of the SICA. The High Court agreed with the Tribunal, stating that the BIFR's consent, as authorized by Parliament, was conclusive and binding.

7. Disallowance of Various Expenses by the Assessing Officer:

The Assessing Officer disallowed several expenses, including payments to PHD Chamber of Commerce, Price Waterhouse and Co., roll-over charges for foreign currency loans, and interest on funds borrowed for plant and machinery. The first appellate authority affirmed these disallowances. However, the Tribunal allowed the claims, and the High Court upheld the Tribunal's decision, recognizing the validity of the expenses as per the sanctioned scheme.

8. Overriding Effect of the Sanctioned Scheme under SICA over Other Laws:

The High Court emphasized the overriding effect of the SICA and the schemes made thereunder, citing section 32(1) of the SICA. The court noted that the provisions of the SICA and the schemes made under it have effect notwithstanding anything inconsistent in any other law, except the FERA and the ULCRA. The court concluded that the BIFR's sanctioned scheme had an overriding effect over the Income-tax Act and other laws, and the income-tax authorities could not render the scheme nugatory.

Conclusion:

The High Court upheld the Tribunal's decision, recognizing the validity of the BIFR's sanctioned scheme and its overriding effect over other laws. The court directed the Tribunal to take appropriate measures to finalize the matter in accordance with the sanctioned scheme.

← Previous Next →