2022 (2) TMI 529 - HC - Income Tax

Addition u/s 68 - Tribunal upholding the order of CIT (Appeals) deleting the addition on the ground that the assessee company is different juristic entity cannot be taxed by applying Section 68 of the Act for the share capital and premium which these 14 amalgamating companies have shown their respective books from Financial Year 2008-09 onwards - whether after the process of amalgamation the remission/cessation of trading liability can be taxed in the hands of the assessee company? - HELD THAT - More appropriately the decision of the High Court of Delhi in Commissioner of Income Tax Delhi-VI vs. Usha Stud Agricultural Farms Ltd. 2008 (3) TMI 91 - DELHI HIGH COURT can be referred to as the facts in the said case would match with that of the facts in the case on hand. As in the case of the assessee before us in Usha Stud Agricultural Farms Ltd. the CIT(A) had recorded a finding of fact that the credit balance appearing in the accounts of the assessee does not pertain to the year under consideration and accordingly held that the assessing officer was not justified in making the addition under Section 68 of the Act. We have not only gone through the order passed by the Tribunal but also the order passed by the CIT(A) dated 15th June 2017. The CIT(A) as well as the Tribunal not only took note of the legal position but also the factual position. The Tribunal held that the legal effect after amalgamation of the 14 companies with the assessee company is that the amalgamating companies loses its identity and since the assessee company is different juristic entity cannot be taxed by applying Section 68 of the Act for the share capital and premium which these 14 amalgamating companies have shown in their respective books from financial year 2008-09 onwards. Furthermore the Tribunal as well as the CIT(A) noted that the assessee company being a different corporate entity cannot be saddled with the share capital introduced by 14 different amalgamating companies in the financial year 2008-09. That apart the Tribunal also considering the legal position namely the decision in Saraswati Industrial Syndicate vs. Commissioner of Income Tax 1990 (9) TMI 1 - SUPREME COURT in the case of Hukumchand Mohanlal 1971 (9) TMI 5 - SUPREME COURT and Usha Stud Agricultural Farms Ltd. 2008 (3) TMI 91 - DELHI HIGH COURT dismissed the appeal filed by the revenue. We find that there is no error committed by the Tribunal in affirming the decision of the CIT(A). - Decided against revenue.

Summary

Issues:
1. Application of Section 68 vs. Section 69 of the Income Tax Act, 1961.
2. Taxability of remission/cessation of trading liability post-amalgamation.

Analysis:
1. Application of Section 68 vs. Section 69:
The appeal raised substantial questions of law regarding the application of Section 68 and Section 69 of the Income Tax Act, 1961. The primary issue was whether the Tribunal was correct in upholding the order of the Commissioner of Income Tax (Appeals) in deleting the addition made under Section 69 of the Act. The Tribunal dismissed the appeal of the revenue, emphasizing that the addition was made on account of unexplained investment in share capital, falling under Section 69, rather than Section 68. The legal contention revolved around the interpretation of the sections and the nature of the addition made by the Assessing Officer.

2. Taxability post-amalgamation:
The core legal issue addressed was whether the remission/cessation of trading liability post-amalgamation could be taxed in the hands of the assessee company. The Court referred to the decision of the Supreme Court in Saraswati Industrial Syndicate Ltd. vs. Commissioner of Income Tax, highlighting the concept of amalgamation where two or more companies are fused into one entity. The Court also referenced previous judgments to support its analysis, including Commissioner of Income Tax vs. Hukumchand Mohanlal and Usha Stud Agricultural Farms Ltd. The Tribunal and CIT(A) concluded that after amalgamation, the amalgamating companies lose their identity, and the assessee company, being a different juristic entity, cannot be taxed for the share capital introduced by the amalgamating companies.

In conclusion, the Court found no error in the Tribunal's decision to affirm the order of the CIT(A), dismissing the appeal filed by the revenue. The judgment answered the substantial questions of law against the revenue, highlighting the legal and factual considerations that led to the decision. The application for stay was also dismissed in light of the judgment's outcome.