2020 (11) TMI 117 - HC - Income Tax

Non-availment of the alternate statutory appeal remedy - income tax implications - transaction is not a demerger? - HELD THAT - Rule of exclusion of writ jurisdiction by availability of an alternative remedy, is a rule of discretion and not one of compulsion and there could be contingencies in which the jurisdiction under article 226 of the Constitution of India could be exercised in spite of availability of an alternative remedy. The question to be decided is relating to the jurisdiction, manner of exercise of power by the Assessing Officer and the correctness and propriety of the decision making process and whether principles of natural justice was adhered. Therefore, it is held that the Writ Petitions are maintainable and cannot be rejected solely on the ground that as against the impugned assessment orders, the statute provides for alternate remedy. Accordingly, issue No.1 is decided in favour of the petitioner. The grounds raised in the present writ petitions are some ofthe exceptions cited in the aforesaid decision for maintaining a writ petition without availing the alternate remedy and hence, the petitioner can maintain the writ petitions without availing the statutory appeal remedy. 'Demerger' under Section 2(19AA) of the Income Tax Act - Whether transaction is not a demerger and that the income tax implications referred to in the statement under Section 393 of the Companies Act will not form a part of the Scheme of Arrangement ? - whether the statement under Section 393 of the Companies Act, 1956 would form a part of the Scheme of Arrangement and if so, whether the proceedings for sanctioning of the Scheme under Sections 391 to 394 would be a proceeding in rem? - AO disallowed the depreciation claim made by the petitioner and treated the Scheme as one of 'demerger' under Section 2(19AA), thereby restricting the claim for depreciation, only on the Written Down Value (WDV) of the assets being transferred from PSCL to PEL - HELD THAT - Scheme of Arrangement between PSCL and PEL, which expressly states that the Scheme is not a Demerger, within the meaning of Income Tax Act, has attained finality and statutory force not only inter se PSCL or PEL but also in rem . Accordingly, the Scheme, that includes the Income Tax implications given in the statement and which explanatory statements are in conformity with the scope of the terms of arrangement, would be binding on the Tax Department. On a conjecture that the Scheme is one of Demerger under Section 2(19AA), the Assessing Officer had disallowed the depreciation claim made by the petitioner and thereby restricted the claim for depreciation only on the WDV of the assets transferred from PSCL to PEL. The Company Court, while considering the petition for sanction under the Companies Act, had approved the Scheme of Demerger and the statement under Section 393 of the Companies Act. As held in the preceding paragraphs, the statements, being in conformity with the scope of the terms of the Scheme of Arrangement, becomes an integral part of the Scheme, which was sanctioned by the Company Court, and thus, the transfer of the undertakings will not be considered to be one of the Demerger within the meaning of Section 2(19AA) of the IT Act. As such, the basis of the impugned proceedings itself is fallacious and the further proceedings thereon, cannot be sustained. Accordingly, the impugned proceedings are quashed. The concerned Assessing Authority shall taken into consideration of the findings of this Court that the Scheme of Arrangement is not a Demerger, within the meaning of Section 2 (19AA) and take further course of proceedings, in accordance with law. WP allowed.

Issues Involved:
1. Maintainability of writ petitions due to non-availment of alternate statutory appeal remedy.
2. Whether the statement under Section 393 of the Companies Act, 1956 forms part of the Scheme of Arrangement.
3. Whether the Scheme of Arrangement is binding on statutory authorities and operates as a judgment in rem.
4. Classification of the Scheme of Arrangement as a 'demerger' under Section 2(19AA) of the Income Tax Act and its implications on depreciation claims.

Issue-wise Detailed Analysis:

1. Maintainability of Writ Petitions:
The respondent contended that the writ petitions were not maintainable due to the availability of an alternate statutory appeal remedy. However, the court referenced several Supreme Court decisions, including the case of Nokia India Private Ltd. Vs Deputy Commissioner (CT)-IV, which held that the presence of an alternate remedy is not an absolute bar to entertaining a writ petition. The court concluded that the grounds raised in the writ petitions, such as violation of natural justice and jurisdictional issues, fell within the exceptions that allow for the maintainability of writ petitions without availing the alternate remedy. Thus, the writ petitions were deemed maintainable.

2. Statement under Section 393 of the Companies Act:
The core issue was whether the statement under Section 393 forms part of the Scheme of Arrangement. The court analyzed the statutory provisions and judicial precedents, concluding that the statement under Section 393, which explains the terms and effects of the Scheme to creditors and members, is integral to the Scheme of Arrangement. The court held that the statement under Section 393 merges with the Scheme and forms part of the court's order sanctioning the Scheme. This was supported by the legal principle that the Scheme of Arrangement under Sections 391 to 394 of the Companies Act is a code by itself.

3. Binding Nature and Judgment in Rem:
The court referred to various judicial precedents, including Marshall Sons & Co. (India) Ltd. Vs Income Tax Officer and Dalmia Power Ltd. Vs Assistant Commissioner of Income Tax, to establish that the sanction of a Scheme of Arrangement by the Company Court is binding on all concerned, including statutory authorities, and operates as a judgment in rem. The court reiterated that once a Scheme is sanctioned, it attains statutory force and is binding not only inter se the parties involved but also on third parties, including tax authorities.

4. Classification as 'Demerger' and Depreciation Claims:
The Assessing Officer had disallowed the depreciation claims by treating the Scheme as a 'demerger' under Section 2(19AA) of the Income Tax Act, thereby restricting the depreciation to the Written Down Value (WDV) of the transferred assets. However, the court noted that the Company Court, while sanctioning the Scheme, had explicitly stated that the Scheme was not a 'demerger' within the meaning of the Income Tax Act. The court held that the Scheme, including the income tax implications explained in the statement under Section 393, was binding on the tax authorities. Consequently, the basis for the Assessing Officer's disallowance of depreciation was found to be fallacious. The court quashed the impugned proceedings and directed the Assessing Authority to proceed in accordance with the findings that the Scheme is not a 'demerger'.

Conclusion:
The writ petitions were allowed, and the impugned assessment orders and notices were quashed. The court directed the Assessing Authority to consider the Scheme of Arrangement as not being a 'demerger' under Section 2(19AA) of the Income Tax Act and to proceed accordingly. The connected miscellaneous petitions were closed, and no costs were awarded.

← Previous Next →