2016 (6) TMI 431 - HC - Income Tax

Liability arising out of the assessment after amalagamtion - Liability of the amalgamating and amalgamated company - Held that - On a plain reading of the definition of the expression of amalgamation , appearing in the Income Tax Act quoted above, the impression which one receives is that all the liabilities of the amalgamating company immediately before the amalgamation becomes become the liability of the amalgamated company. We are, in this case, concerned, with the assessment year 2002-03, i.e. to say pertaining to the financial year which ended on March 31, 2002, whereas the amalgamation took place with effect from November 2002. There is, as such, no dispute on fact that it is a liability of the amalgamating company which accrued prior to the amalgamation. The assessee maintained a studied silence and did not bring to the notice of the revenue, in particular the assessing officer, about the amalgamation sanctioned by the High Court at Mumbai on March 26, 2003. The assessee not only did not bring this fact to the notice of the assessing officer, the assessee also filed a return for the assessment year 2003-04. Therefore, the assessee itself did not act upon the amalgamation. Be that as it may, by reason of the amalgamation, the order passed on 31st March, 2005, pertaining to the assessment year 2002-2003 could not have become a nullity. The liability arising out of the assessment order became the liability of the amalgamated company Tribunal was not right in holding that the proceedings against the amalgamated company could not be initiated on account of the failure of the amalgamating company to distribute the statutory percentage of the accumulated profits, our answer is in favour of the Revenue and against the assessee.

Summary

Issues:
Assessment order validity in case of amalgamation.

Analysis:
The appeal challenged a judgment dismissing the revenue's appeal against an assessment order for the assessment year 2002-03. The primary contention was whether the assessment order was a nullity due to the merger of the assessee with another company. The merger was sanctioned by the High Court at Mumbai on March 26, 2003, after the assessment was completed. The CIT(Appeal) and the Tribunal ruled against the revenue, stating that the amalgamation did not render the assessment order a nullity. The definition of amalgamation under the Income Tax Act was crucial in understanding the liabilities of the amalgamating and amalgamated companies. The court highlighted that the liabilities of the amalgamating company became the liability of the amalgamated company post-merger, emphasizing that the assessment order remained valid despite the merger.

The court referred to a similar case decided by the Madras High Court to explain the legal principles regarding amalgamation and tax liabilities. The Madras High Court's ruling emphasized that the amalgamated company assumes the obligations of the amalgamating company post-merger, and the dissolution of the amalgamating company does not absolve the amalgamated company from fulfilling tax obligations. The court stressed the importance of harmonizing the Companies Act with the Income-tax Act to enforce tax liabilities even after amalgamation. The judgment highlighted that the amalgamated company cannot use the amalgamation as a shield to avoid tax liabilities and that the Revenue can enforce tax obligations against the amalgamated company post-merger.

In conclusion, the court held that the CIT(A) misapplied the law and the Tribunal did not consider the legal principles correctly. The court ruled in favor of the revenue, stating that the assessment order for the assessment year 2002-03 was not a nullity due to the subsequent merger. The appeal was allowed, and each party was directed to bear its own costs.