2020 (9) TMI 1018 - HC - Income Tax

Allowing set off of losses of amalgamating company against the profits of assessee amalgamated company - HELD THAT - In order to claim benefit of set off, of accumulated loss, the amalgamated company has to satisfy the conditions laid down in 72A(2)(a)(b) and (c). It is pertinent to note that Sub-Section (2) starts with a non obstante clause. In other words, it shall have effect notwithstanding other provisions of the Act. Thus, the compliance with the conditions prescribed in Section 72A(2) of the Act is mandatory. Tribunal has not adverted to the aforesaid aspect of the issue and has not satisfied itself whether the assessee has complied with the conditions laid down in Section 72A(2) of the Act is sine qua non, to enable the assessee to claim the benefit of the set off under Section 72A of the Act. Since, the aforesaid aspect requires factual adjudication, therefore, we deem it appropriate to remit the matter to the Tribunal afresh for adjudication. In view of preceding analysis, it is not necessary to answer the substantial questions of law framed by this court.

Issues:
- Interpretation of Section 72A of the Income Tax Act, 1961 regarding set off of losses in the case of amalgamation.
- Compliance with the conditions prescribed in Section 72A(2) for claiming the benefit of set off.
- Determination of the effective date of amalgamation and its impact on the set off of losses.

Analysis:

1. Interpretation of Section 72A:
The appeal pertained to the interpretation of Section 72A of the Income Tax Act, 1961, specifically regarding the set off of losses in the case of amalgamation. The primary issue was whether the Appellate Authorities were correct in allowing the set off of losses of the amalgamating company against the profits of the amalgamated company, amounting to a significant sum. The crux of the matter was whether the assessee had substantiated the genuine business purpose of the amalgamation, especially considering the specific conditions laid down in Section 72A(2) of the Act.

2. Compliance with Section 72A(2) Conditions:
The Assessing Officer disallowed the claim of set off of losses of the amalgamating company under Section 72A of the Act, citing non-compliance with the conditions prescribed in Section 72A(2)(b)(iii). The Commissioner of Income Tax (Appeals) and the Tribunal, however, held that the effective date of amalgamation was crucial, and the amalgamation was deemed to have been effected on 31.03.2008. The Tribunal dismissed the revenue's appeal, emphasizing that the conditions for set off were met. The crux of the issue revolved around whether the assessee had fulfilled the mandatory requirements of Section 72A(2) for claiming the benefit of set off.

3. Effective Date of Amalgamation:
The key contention between the revenue and the assessee was the determination of the effective date of amalgamation. The revenue argued that the only purpose of amalgamation was to evade tax payments and that the amalgamation was not for genuine business purposes. On the other hand, the assessee maintained that the date of amalgamation was indeed 31.03.2008, supported by the minutes of the Board of Directors' meeting and information provided to stock exchanges. The Tribunal's decision to consider the appointed date in the scheme of amalgamation as the date of amalgamation was pivotal in allowing the set off of losses.

In conclusion, the High Court remitted the matter to the Tribunal for fresh adjudication, emphasizing the mandatory compliance with the conditions of Section 72A(2) for claiming the set off of losses. The judgment highlighted the significance of factual adjudication in determining compliance with statutory provisions, ultimately impacting the allowance of set off in cases of amalgamation under the Income Tax Act, 1961.

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