2013 (10) TMI 228 - HC - Income Tax

Depreciation on imported cars - amalgamation / merger - depreciation in respect of a motor car manufactured outside India where such car was acquired by the assessee after 28th February, 1975 but before 1st April, 2001 - Held that - In terms of the order passed under Section 394 of the Companies Act, 1956, the respondent company acquired the imported motor cars. The cars were not acquired and the respondent assessee was not owner of the motor cars prior to the said date. On merger of the three concerns with the respondent assessee, shares were issued as consideration to the proprietors of the business concerns. The shares issued were consideration for the transfer of the assets. It is immaterial, according to us, whether there was transfer of an undertaking, including the block of assets, which also included the imported motor cars.ts. It is immaterial, whether there was transfer of an undertaking, including the block of assets, which also included the imported motor cars. Reliance has been placed upon the judgment in the case of Singer India Limited versus Chander Mohan Chadha 2004 (8) TMI 386 - SUPREME COURT OF INDIA , wherein it has been held that amalgamation is a blending of two or more existing undertakings into one undertaking, the shareholders of each blending company becoming substantially the shareholders in the company which is to carry on the blended undertakings. There may be amalgamation either by the transfer of two or more undertakings to a new company, or by the transfer of one or more undertakings to an existing company. Strictly amalgamation does not, it seems, cover the mere acquisition by a company of the share capital of other companies which remain in existence and continue their undertakings, but the context to which the term is used may show that it is intended to include such an acquisition. Respondent assessee had acquired the asset i.e. imported cars after the cut off date i.e. 1st April, 2001 and, therefore, is entitled to depreciation and the bar/prohibition in clause (a) to proviso to Section 32(1) would not apply Decided against the Revenue.

Issues Involved:
1. Entitlement to depreciation on imported cars.
2. Interpretation of the term "acquired" in the context of Section 32 of the Income Tax Act, 1961.
3. Applicability of Explanation 7 to Section 43(1) and Explanation 2(b) to Section 43(6) in cases of amalgamation.
4. Legal implications of merger or amalgamation as transfer.

Detailed Analysis:

1. Entitlement to Depreciation on Imported Cars:
The primary issue revolves around whether the respondent company is entitled to claim depreciation on imported motor cars under Section 32(1) of the Income Tax Act, 1961. The Revenue contends that the respondent company, Mira Exim Limited, is not entitled to depreciation on imported cars acquired by the merged entities between 1st March 1975 and 31st March 2001. The tribunal, however, ruled in favor of the respondent company, stating that the cars were acquired after 1st April 2001, making them eligible for depreciation.

2. Interpretation of the Term "Acquired":
The term "acquired" as used in the proviso to Section 32(1) is central to this case. The court emphasized that the dates of acquisition are the cornerstone of the provision. The respondent company acquired the imported motor cars through a scheme of arrangement and merger sanctioned by the Delhi High Court, effective from 1st April 2004. The court concluded that the respondent company acquired the cars after the cut-off date of 1st April 2001, thus making them eligible for depreciation.

3. Applicability of Explanation 7 to Section 43(1) and Explanation 2(b) to Section 43(6):
The tribunal referred to Explanation 7 to Section 43(1) and Explanation 2(b) to Section 43(6) while addressing the contentions raised by the Revenue. However, the Revenue's counsel did not rely on these provisions. The court examined these explanations, which relate to the computation of actual cost or written down value for depreciation in cases of amalgamation. The court found that these provisions do not define the term "acquired" but are relevant for computing the quantum of depreciation. The court held that these explanations indicate that the legislature treats amalgamation as a transfer, thus supporting the respondent's claim for depreciation.

4. Legal Implications of Merger or Amalgamation as Transfer:
The court discussed the concept of merger or amalgamation, stating that it involves the blending of two or more undertakings into one, resulting in the transfer of assets. The court cited several precedents, including Saraswati Industrial Syndicate Limited vs. Commissioner of Income Tax and Hindustan Lever vs. State of Maharashtra, to support the view that merger or amalgamation results in the transfer of assets. The court concluded that the respondent company acquired the imported motor cars through the merger, thus making them eligible for depreciation.

Conclusion:
The court ruled that the respondent company, Mira Exim Limited, is entitled to claim depreciation on the imported motor cars as they were acquired after the cut-off date of 1st April 2001. The tribunal's decision in favor of the respondent company was upheld, and the appeals by the Revenue were dismissed. The court's interpretation of the term "acquired" and the legal implications of merger or amalgamation as transfer were key factors in this judgment.

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