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1983 (9) TMI 1 - SC - Income TaxApplication u/s 72A for the grant of relief of requisite declaration - whether recommendation of a statutory body and Central Government s decision based on it a matter of subjective satisfaction were open to judicial review & whether HC was justified in interfering - HC was right in holding that the impugned conclusion of the specified authority and the Central Govt. on the aspect of non-fulfillment of the condition specified in s. 72A (1) (a) being vitiated was liable to be set aside
Issues Involved:
1. Judicial review of the Central Government's decision based on the recommendation of a statutory body under Section 72A of the Income Tax Act, 1961. 2. Financial viability of the amalgamating company (ITCI) immediately before its amalgamation with M & M. 3. Whether the amalgamation was in the public interest. 4. Adequacy of steps taken by the amalgamated company (M & M) for the revival of the amalgamating company (ITCI). Detailed Analysis: 1. Judicial Review of the Central Government's Decision: The primary issue was whether the Central Government's decision, based on the recommendation of the specified authority under Section 72A of the Income Tax Act, 1961, was subject to judicial review. The court held that if the action or decision is perverse, or such that no reasonable body of persons, properly informed, could come to, or has been arrived at by the authority misdirecting itself by adopting a wrong approach, or has been influenced by irrelevant or extraneous matters, the court would be justified in interfering with the same. The court cited principles from Prof. de Smith's treatise on Judicial Review of Administrative Action, emphasizing that discretion must be exercised genuinely and not be influenced by irrelevant considerations. 2. Financial Viability of ITCI: The court scrutinized the Central Government's conclusion that ITCI was financially viable immediately before its amalgamation with M & M. The specified authority and the Central Government had concluded that ITCI's financial difficulties were temporary liquidity problems and not indicative of non-viability. However, the court found that this conclusion was based on a wrong approach and irrelevant considerations, such as the potential for financial assistance from M & M, which was legally and factually incorrect due to the limitations imposed by Sections 370 and 371 of the Companies Act, 1956. The court noted that ITCI was commercially insolvent, with significant losses, negative net worth, and strained liquidity ratios, indicating financial non-viability according to established business and financial criteria. 3. Public Interest: The court affirmed that the amalgamation was in the public interest. The amalgamation prevented the closure of ITCI, which would have resulted in social costs such as loss of production of essential commodities (tractors) and unemployment of over 2,000 workers. The specified authority had expressed that the test of public interest was met, and the Central Government's refusal of relief was solely based on the non-fulfillment of the financial non-viability condition. The court found that the amalgamation forestalled the necessity for the State Government to take over ITCI, thereby avoiding a heavy burden on the public exchequer. 4. Adequacy of Revival Steps by M & M: The court observed that M & M had taken adequate steps for the revival of ITCI, such as repaying liabilities and investing in maintenance and replacement of machinery, which enabled ITCI to earn a cash profit post-amalgamation. These steps demonstrated M & M's commitment to reviving ITCI's business, fulfilling the conditions under Section 72A(2)(ii) of the Act. Conclusion: The court upheld the High Court's decision to quash the impugned recommendation of the specified authority and the Central Government's order refusing relief under Section 72A. The Central Government and the specified authority were directed to reconsider M & M's application within three months in light of the court's judgment. The appeal was dismissed with costs in favor of M & M.
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