1982 (11) TMI 66 - AT - Income Tax

Issues Involved:
1. Legality of the Commissioner's order under section 263 of the Income-tax Act, 1961.
2. Interpretation of 'amalgamation' versus 'succession' under the Income-tax Act.
3. Applicability of section 72 and section 32(2) regarding the carry forward of business loss and unabsorbed depreciation.
4. Relevance of sub-section (2) of section 78 to the case of amalgamation.
5. Validity of the assessee's claim for the carry forward of losses and depreciation.

Issue-wise Detailed Analysis:

1. Legality of the Commissioner's Order under Section 263 of the Income-tax Act, 1961:
The Commissioner held that the order of the Income Tax Officer (ITO) allowing the carry forward of business loss and unabsorbed depreciation of Rs. 1,15,126 to the assessee-company was erroneous and prejudicial to the interests of the revenue. The Commissioner directed the ITO to withdraw the said benefit and increase the total income of the assessee for the assessment year 1977-78 by the corresponding amount, resulting in an assessed income of Rs. 1,70,274.

2. Interpretation of 'Amalgamation' versus 'Succession' under the Income-tax Act:
The Commissioner misunderstood 'amalgamation' to mean 'succession.' The assessee argued that amalgamation is not the same as succession. Amalgamation involves the merger of two companies, where the amalgamating company ceases to exist, and the amalgamated company continues with all assets and liabilities, including losses. In contrast, succession implies a takeover where both entities continue to exist.

3. Applicability of Section 72 and Section 32(2) Regarding the Carry Forward of Business Loss and Unabsorbed Depreciation:
The Commissioner referred to section 78(2) of the Act, which states that where any person carrying on any business or profession has been succeeded by another person otherwise than by inheritance, the carry forward and set off of losses are not allowed. The Commissioner concluded that the assessee-company, being a different entity from the amalgamating company, could not carry forward the losses and depreciation.

The assessee contended that the business loss and unabsorbed depreciation were rightly allowed under section 72 of the Act. They argued that the amalgamation resulted in the transfer of all assets and liabilities, including losses, to the amalgamated company, making it eligible for the carry forward of losses.

4. Relevance of Sub-section (2) of Section 78 to the Case of Amalgamation:
The Commissioner relied on sub-section (2) of section 78, which deals with succession and not amalgamation. The assessee argued that this provision did not apply to amalgamation cases. They emphasized that amalgamation results in the merger of two entities, with the amalgamating company ceasing to exist, unlike succession where both entities continue.

5. Validity of the Assessee's Claim for the Carry Forward of Losses and Depreciation:
The Tribunal examined the definitions and provisions related to amalgamation and succession under the Income-tax Act. They noted that amalgamation implies the merger of companies, resulting in a new or existing entity continuing with all assets and liabilities. The Tribunal highlighted that for tax purposes, each corporate entity is assessed separately, and benefits such as carry forward of losses and depreciation are not transferable unless explicitly provided by law.

The Tribunal referred to specific provisions in sections 32A, 33, and 33A, which allow the carry forward of certain allowances in cases of amalgamation. However, similar provisions were not incorporated in sections 32(2) and 72 for unabsorbed depreciation and business losses. The Tribunal concluded that in the absence of specific provisions allowing the carry forward of losses and depreciation in amalgamation cases, the general principles of sections 32(2) and 72 apply, restricting the carry forward to the same assessee.

Conclusion:
The Tribunal upheld the Commissioner's order, rejecting the assessee's appeal. They emphasized that the carry forward of unabsorbed depreciation and business losses is governed by the specific provisions of sections 32(2) and 72, which do not allow the transfer of such benefits to another entity in cases of amalgamation. The Tribunal also acknowledged the views of legal commentators, supporting their interpretation of the law.

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