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TMI Blog2002 (12) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... such amalgamation, the amalgamation was in the public interest and other conditions specified by the Central Government by notification in the Official Gazette intending to ensure that the benefit under the section was to be restricted to amalgamations which will facilitate the rehabilitation or revival by the amalgamated company, the Central Government was to make a declaration to that effect on an application by the amalgamated company. The amalgamated company, namely, the petitioner company, moved an application under section 72A(3) of the Income-tax Act, 1961 (in short, the "Act"), by submitting the proposed scheme of amalgamation to the specified authority praying that the scheme of amalgamation be recommended to the Central Government so that the grant of benefit under section 72A(1) of the Act could be considered by the Central Government. The authority concerned rejected the application. The amalgamated company, the petitioner, had made a further submission and had requested the specified authority to reconsider its decision. The scheme of amalgamation along with the detailed revival and rehabilitation package which had been submitted by the petitioner and the subsequent in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 72A(1) of the Act. It was, therefore, open to the Central Government to override the recommendations of the specified authority and to come to its own conclusion if it was satisfied that on the materials on record, the pre-conditions laid down in clauses (a) and (b) of section 72A(1) of the Act are satisfied in a given case. Their Lordships, therefore, held that it was only necessary to direct the Central Government to pass final orders on the application made by the petitioner under section 72A(1) of the Act by not only considering the recommendation made by the specified authority, but also all other relevant factors. Pursuant to this direction, the Central Government considered the application made by the petitioner and by order dated July 4, 1984, declined to grant a declaration under section 72A(1) of the Act as sought for by the petitioner. This order of the Central Government was challenged before this court. This court, by the judgment in Indian Metals and Ferro Alloys Ltd. v. Union of India [1992] 195 ITR 539 quashed the order of the Central Government on the ground that the contentions and submissions of the petitioner had not been dealt with by the Central Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on hand. It was noticed that a new business under a new licence was started by another company said to be a subsidiary of the amalgamated company and not by the amalgamated company itself. These reasons given by the Central Government are challenged by learned counsel for the petitioner at the time of arguments. In addition, learned counsel also challenged the validity of condition No. 7 laid down by the guidelines as being arbitrary, as having no nexus with the object sought to be achieved, and hence as violative of article 14 of the Constitution of India. These arguments require to be dealt with in the light of the directions contained in the order of remand passed by the Supreme Court. Learned counsel for the petitioner argued that for the purpose of section 72A(1) of the Act, the relevant previous year was 1978-79 and the assessment year was 1979-80. The amalgamation had come into effect with effect from January 1, 1979. The amalgamating company was manufacturing steel tubes. The amalgamated company, after the amalgamation, had continued the manufacture of steel tubes, the business that was being carried on by the amalgamating company. That business was stopped or the steel tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efer to the other guidelines or conditions specified by the Central Government in that behalf. The guidelines are annexed to the writ petition as annexure 3. Since the question whether the amalgamating company was not viable or not is not in issue at this stage, we are not referring to the guidelines in that behalf. But, regarding public interest to be served by amalgamation, the specified authority was to consider the following: (i) Amalgamation in the context of industrial policy in general, and in particular, policy for the industry to which the sick unit belongs. (ii) Basic viability of the sick unit. (iii) Need of tax benefit for revival of the sick unit. (iv) How effectively the resources generated through tax benefit under section 72A, as supplemented by other resources that may be required, are made available by the amalgamated company for revival of the business of the amalgamating company's undertaking. (v) How quickly and effectively the undertaking of the amalgamating company is proposed to be revived. (vi) Nature of the product manufactured by the sick unit. (vii) Employment given by the sick unit. (viii) Location of the sick unit. (ix) Consequence of closure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amalgamating company itself held a licence. Before proceeding to discuss the points argued one fact that has emerged and is found, requires to be noticed. It is the fact that the diversified industry is not started by the amalgamated company Indian Metals and Ferro Alloys Limited but it is started by another new company, Indian Charge Chrome Limited. It is stated in the written note submitted on behalf of the petitioner. "The new business was started by a wholly-owned subsidiary of the amalgamated company, Indian Metals and Ferro Alloys Limited, the petitioner herein. Besides, the letter of intent for the new charge chrome project was issued in the name of Indian Metals and Ferro Alloys Limited, the petitioner herein." The business of the amalgamating company has been closed down and though the letter of intent for the new industry was said to be issued in the name of the amalgamated company, the industry itself was started by a subsidiary of that amalgamated company and not by the amalgamated company. The subsidiary obviously would be an independent assessee under the Income-tax Act. Though a subsidiary, the said company would be an independent legal entity. In that situation can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The conditions to be fulfilled are that the amalgamating company, immediately before the amalgamation, was not financially viable by reason of its liabilities, losses and other relevant factors. This fact need not detain us in this case, since it is agreed on all hands that this condition is satisfied. The second condition is that the amalgamation must be in the public interest. The third is that the other conditions may be specified by the Central Government to ensure that the benefit under the section is restricted to amalgamations which would facilitate rehabilitation or revival of the business of the amalgamating company. The two elements, the element of public interest and the element of ensuring a rehabilitation of a sick business or industry of the amalgamating company are the important elements that would enable the amalgamated company to have the benefit of section 72A of the Act. It is not as if in every case of amalgamation, the amalgamated company is entitled to the special benefit of carry forward conferred by section 72A of the Act. That benefit is extended only in cases of such amalgamations where the amalgamation would facilitate the rehabilitation or revival of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case. The business of the amalgamating company had been stopped. The amalgamating company did not have a licence for the diversified industry. That licence was used by a company said to be a subsidiary of the amalgamated company though it is claimed that the licence was in the name of the amalgamated company. In any case it was not an industry that the amalgamating company could have started since it held no licence for the same and at the relevant time, a licence was required for it. One of the main contentions urged by learned senior counsel for the petitioner was that it was not as ff the industry run by the amalgamating company was closed down immediately. The amalgamation had taken effect from January 1, 1979, as ordered by the company court. The business of manufacturing steel tubes was continued in the calendar year 1980-81 and also in the calendar year 1982. In the year 1982, the industry of the amalgamating company was found to have made losses and hence with effect from 1983 the manufacture of steel tubes was closed down. Thereafter the employees of the amalgamating company were allowed to have the benefit of a voluntary retirement scheme. The fact that some of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. Here, the Central Government has taken note of the fact that even within the revival period, there was closure of the business of the amalgamating company and this was a material change that had to be taken note of. Considering the object of section 72A of the Act, the said approach cannot be considered to be incorrect, irrelevant or irrational. Even in the order passed under section 72A(3) of the Act originally, it had been held out that a recommendation to the Central Government could be made, unless there was any material change in the relevant facts. The closure of the sick unit altogether within the revival period, in the circumstances and in the context of the object sought to be achieved by the enactment, cannot be said to be an irrelevant fact. We, therefore, find that the said reason given by the Government for rejecting the claim under section 72A(1) of the Act is justified and in any event, cannot be said to be untenable. One of the reasons for the sickness of the amalgamating company was that its plant and machinery had become absolete. The scheme of amalgamation which was approved, envisaged an expenditure of Rs. 2.47 crores on modernisation program during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating company had not been utilised at all in the new project and it could not therefore be said that there was a revival or rehabilitation of a sick unit as a result of the new project, also seems to be correct on the facts admitted or otherwise established. None of the machinery of the amalgamating company was used. According to the amalgamated company, the machinery had become obsolete. We have already dealt with the challenge to condition No. 7 prescribed by the guidelines and the finding of the authority that condition No. 7 of the guidelines has not been fulfilled. We find that the finding in that behalf is justified. We must remember in this context that we are not sitting in appeal over the decision of the concerned authority. We are only exercising a certiorari jurisdiction. The reasons given by the authority concerned are not seen to be irrelevant in considering the question whether the amalgamated company is entitled to claim benefit under section 72A(1) of the Act. The argument of learned counsel for the petitioner that the reasons given by the authority may be relevant for considering the claim for the subsequent year under section 72A(2) and are not relevant for cons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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