2020 (12) TMI 949 - HC - VAT / Sales Tax

Non-issuance of Form-D - approval of the scheme of amalgamation by the Hon'ble High Court of Delhi - Section 391 and 394 of the Companies Act - infringement of exemptions granted by the State Government vide notification dated 03.03.2016 - merger and amalgamation done under Section 391 and 394 of the Indian Companies Act - HELD THAT - The action of respondents in not issuing Form D in favour of Revisionist in pursuance of order dated 26.2.2016 is unjustified and arbitrary as the stock transferred on merger of Company has been treated to be sold by the transferor Company without there being any evidence with the Department to substantiate such claim - The action of respondents in not issuing Form D in favour of the revisionist also ignores the exemption granted by the State Government by notification dated 3.3.2016. The Tribunal as well as Assessing Authority and the Appellate Authority failed to appreciate that by virtue of merger and amalgamation having been done under Sections 391 and 394 of Indian Companies Act, tax benefits and exemptions that were available to Transferor Company would also enure to the Transferee Company i.e. Revisionist. The Hon'ble Supreme Court in M/s Dalmia Power Ltd. and another vs. Assistant Commissioner of Income Tax Circle 1, Trichy, 2019 (12) TMI 991 - SUPREME COURT has considered the consequences of merger of two Companies on the basis of an approved Amalgamation Scheme - The Supreme Court made these observations in a case where revised Income Tax Returns were rejected by the Department on merger of the transferor and transferee Company. The Supreme Court relied upon its observations in MARSHALL SONS AND COMPANY (INDIA) LIMITED VERSUS INCOME-TAX OFFICER 1996 (11) TMI 6 - SUPREME COURT to observe that pursuant to the Scheme of Arrangement and Amalgamation, the assessment of the transferee Company must take into account the income of both the transferor and transferee Companies - It was observed that filing of revised returns by the transferee Company was not because of any omission or wrong statement contained in the original returns but because delay occurred on account of time taken to obtain sanction of the Scheme of Amalgamation. In the present case the predecessor Company/transferor Company have been succeeded by the Revisionist/ transferee Company who had taken over its business along with assets, liabilities, profits and losses etc. The stock transferred as a result of amalgamation was not a sale requiring issuance of certificate by M/s. Ritesh Vyaapar Ltd. in favour of the Revisionist as per the Exemption Notification of 2016. The questions on which the Revision was initially admitted are answered in favour of the Revisionist - Revision allowed.

Summary

Issues Involved:
1. Delay in filing the revision.
2. Refusal of Assessing Officer to issue Form D.
3. Exemption from Entry Tax under notification dated 3.3.2016.
4. Impact of amalgamation on tax exemptions and benefits.
5. Misunderstanding of amalgamation by tax authorities.

Detailed Analysis:

1. Delay in Filing the Revision:
The revision was filed late but the delay was condoned by the court on 13.11.2019. The court admitted the revision on 20.11.2019, framing three questions of law.

2. Refusal of Assessing Officer to Issue Form D:
The case revolves around the refusal of the Assessing Officer to accept the application dated 27.2.2018 by the Revisionist for issuance of Form D, necessary for claiming tax exemption under the notification dated 3.3.2016. The Assessing Authority rejected the application on the ground that the Revisionist could not prove that the sugar acquired from M/s. Ritesh Vyaapar Ltd. was exempted under the said notification.

3. Exemption from Entry Tax under Notification Dated 3.3.2016:
The notification dated 3.3.2016 exempted sugar manufactured during the Crushing Season 2015-16 from Entry Tax, subject to certain conditions. The Revisionist argued that the sugar stock acquired from M/s. Ritesh Vyaapar Ltd. was exempted as per this notification and that Form K had been issued to M/s. Ritesh Vyaapar Ltd. by the department, certifying the exemption.

4. Impact of Amalgamation on Tax Exemptions and Benefits:
The Revisionist acquired the business of M/s. Ritesh Vyaapar Ltd. under a Scheme of Amalgamation approved by the Delhi High Court on 26.2.2016. The entire undertaking, including properties and rights, was transferred to the Revisionist. The Revisionist argued that the exemption benefits available to M/s. Ritesh Vyaapar Ltd. should also apply to it post-amalgamation.

5. Misunderstanding of Amalgamation by Tax Authorities:
The Tribunal and the Assessing Authority misunderstood the implications of the amalgamation. They treated the Revisionist as a subsequent purchaser rather than recognizing the transfer of stock due to amalgamation. The authorities failed to appreciate that the stock transferred was not a sale but a result of the merger.

Court's Findings:

- The court noted that the documentary evidence, including Form K and the Delhi High Court's order, supported the Revisionist's claim.
- The court observed that the tax authorities ignored the evidence and the implications of the High Court's order.
- The court held that the action of the respondents in not issuing Form D was unjustified and arbitrary, ignoring the exemption granted by the notification dated 3.3.2016.
- The court referenced the Supreme Court's decision in M/s Dalmia Power Ltd. and another vs. Assistant Commissioner of Income Tax, emphasizing that tax benefits available to the transferor company should also apply to the transferee company post-amalgamation.

Conclusion:
The court answered the questions of law in favor of the Revisionist, set aside the impugned orders, and allowed the revision, directing the consequences to follow.