1978 (12) TMI 16 - HC - Income Tax

Summary

Issues:
1. Interpretation of Section 104 of the Income Tax Act, 1961 regarding the obligation to declare dividends.
2. Impact of merger on the obligation to declare dividends and liability under Section 104.
3. Continuation of proceedings under Section 104 post-merger.
4. Application of legal principles from previous court decisions to the current case.

Analysis:
1. The case involved the interpretation of Section 104 of the Income Tax Act, 1961, which mandates the declaration of dividends by companies. The assessee, a company, failed to declare the required dividend, leading to proceedings initiated by the Income Tax Officer (ITO) under Sections 105 and 104 of the Act.

2. The merger of the assessee company with its parent company raised questions about the impact on the obligation to declare dividends and the liability under Section 104. The Appellate Authority Commissioner (AAC) held that the merger created a legal disability for the assessee to comply with the notice issued under Section 105, absolving it from penalties under Section 104.

3. The Income Tax Appellate Tribunal considered the terms of the merger and concluded that all liabilities of the assessee were transferred to the parent company, which remained liable for compliance with dividend declarations. The Tribunal held that statutory obligations and liabilities were not extinguished by the merger, and the parent company was obligated to declare dividends.

4. Legal arguments referenced previous court decisions, such as the Madras High Court case of T. V. Sundaram Iyengar & Sons (P.) Ltd. v. CWT, to support contentions regarding the survival of liabilities post-merger. The Supreme Court decision in CIT v. J. K. Commercial Corporation Ltd. was cited to establish the continuity of assessment proceedings despite amalgamations, reinforcing the position taken by the Tribunal.

5. The High Court upheld the revenue's contentions, emphasizing that the liability to declare dividends and the proceedings under Section 104 were ongoing at the time of the merger. The court found that the amalgamation did not absolve the assessee from its obligations, as the scheme of the Act and the merger did not support such an exemption.

6. Ultimately, the High Court ruled in favor of the revenue, affirming the correctness of invoking Section 104 in the case of the assessee company for the relevant assessment year. The judgment highlighted the continuity of liabilities post-merger and the importance of upholding statutory obligations despite corporate restructurings.

Judges:
- DIPAK KUMAR SEN J.
- BIMAL CHANDRA BASAK J.