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TMI Blog2018 (3) TMI 473X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Rs. 4,86,02,986/- under the normal provisions of the Act. and Rs. 4,29,19,975/- u/s 115JB of the Act. Later a revised return of income was filed on 30.3.2013 declaring total income of Rs Nil after claiming set off of brought forward business losses and brought forward short term capital losses. The assessee company is a non-banking finance company (NBFC). During the year under consideration, by virtue of the order of the Hon'ble Calcutta High Court dated 6.10.2010 , the following six companies with unabsorbed capital and business losses as detailed below were merged with the assessee company w.e.f. 1.4.2010 :- The assessee vide its revised return claimed unabsorbed short term capital loss of Rs. 4,86,48,349/- and unabsorbed business loss of Rs. 4,95,893/- incurred by the amalgamating companies. The ld AO in the course of assessment denied the set-off and carry forward of losses by invoking the provisions of section 79 of the Act. In the course of appellate proceedings by the ld CITA, the assessee submitted that section 79 of the Act was not applicable to the assessee's ase. Reliance in this regard was placed on the decision of the Hon'ble Delhi High Court in the case of CIT v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies Act, 1956 were duly approved by the Hon'ble Calcutta High Court vide its order dated 6.10.2010 with effective date from 1.4.2010 and because of the said order, it is the argument of the ld AR that the order of the Hon'ble Calcutta High Court supercedes the provisions of the Act herein. For the sake of convenience, the relevant clause in the scheme of amalgamation is reproduced hereunder:- 10. CONDUCT OF ACTIVITIES TILL EFFECTIVE DATE : 10.1. With effect from the Appointed Date and up to the Effective Date : i. ......................... ii. ......................... iii. All profits or income accruing or arising to the Transferor Companies or expenditure or losses arising or incurred by the Transferor Companies including accumulated losses shall for all purposes be deemed to have accrued as the profits or income or expenditure or losses, as the case may be, of the Transferee Company. (Underlining provided by us) The ld AR placed reliance on the following decisions in support of his contentions:- a) Hon'ble Gujarat High Court in the case of Wood Polymer Ltd reported in 109 ITR 177 (Guj) b) Hon'ble Bombay High Court in the case of Casby CFS (P) Ltd reported in 231 Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g in mind the larger public interest, cannot be disturbed by the revenue merely because the assessee is not entitled for benefits u/s 72A of the Act. The expression 'Public interest' was discussed by the Hon'ble Gujarat High Court in the case of Wood Polymer Ltd reported in 109 ITR 177 (Guj) wherein the Hon'ble Court refused to sanction the scheme of amalgamation formulated solely for the purpose of avoiding taxes. It was held that : "The court is charged with a duty, before it finally permits dissolution of the transferor- company by dissolving it without winding up, to ascertain whether its affairs have been carried on, not only in a manner not prejudicial to its members but in even public interest. The expression "public interest" must take its colour and content from the context in which it is used. The context in which the expression "public interest" is used, enables the court to find out why the transferor company came into existence, for what purpose it was set up, who were its promoters, who were controlling it, what object was sought to be achieved through creation of the transferor company and why it was being dissolved by merging it with another company, That is the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion made to it under section 391 or 394 to the Central Government, and shall take into consideration the representations, if any, made to it by that Government before passing any order under any of these sections. Hence if there be any objections for the income tax department , they could raise the same at that stage i.e prior to sanction of scheme by the court. Once the scheme is approved, it implies that the same has been done after duly considering the representations from the Government / revenue. Similar view was expressed by the Co-ordinate bench of this Tribunal in the case of ITO vs Purbanchaal Power Co. Ltd in ITA No. 201/Kol/2010 dated 17.7.2014 wherein it was held that :- From the above provisions of section 394A of the Companies Act, 1956, legal position enunciated in the decisions of Hon'ble Gujarat High Court in the case of Wood Polymer Ltd ., in re and Bengal Hotels Pvt Ltd in re, supra and Vodafone Essar Gujarat Ltd., supra, evidently makes the purpose clear that if the revenue wants to object to the proposed scheme of amalgamation, it has to do so in the course of proceedings before the High Court but before the final order is passed. Whenever such objections ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd vs New Kaiser -I-Hind Spg.& Wvg.Co. reported in 1970 AIR 1041 (SC) dated 22.11.1968 had held : The Principle is that a scheme sanctioned by the court does not operate as a mere agreement between the parties ; it becomes binding on the company, the creditors and the shareholders and has statutory force , and therefore the joint-debtor could not invoke the principle of accord and satisfaction. By virtue of the provisions of sec. 391 of the Act, a scheme is statutorily binding even on creditors , and shareholders who dissented from or opposed to its being sanctioned. It has statutory force in that sense and therefore cannot be altered except with the sanction of the Court even if the shareholders and the creditors acquiesce in such alteration. (underlining provided by us) 4.5.2. We find that the aforesaid observations of the Hon'ble Supreme Court had been followed by the Hon'ble Bombay High Court in the case of Sadanand Varde and Others vs State of Maharashtra reported in 247 ITR 609 (Bom) wherein it was held that : "Once a scheme becomes sanctioned by the court, it ceases to operate as a mere agreement between the parties and becomes binding on the company, the creditors a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble Apex Court in the aforesaid case, the issue can be deemed to be heard and decided . Accordingly, the argument that the same cannot be agitated in appeal u/s 391(7) of the Companies Act, 1956 deserves attention and merit. The English Court of Chancery in case of Henderson vs Henderson reported in (1843-60) All ER Rep 378 while construing Explanation IV to Section 11 of Code of Civil Procedure quoted hereunder:- The plea of res judicata applies, except in special case (sic), not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a Judgement, but to every point which properly belonged to the subject of litigation and which the parties, exercising reasonable diligence, might have brought forward at the time". 4.7. It would be relevant to note tha the scheme of amalgamation was approved on 6.10.2010 and intimation to this effect was sent by the assessee to the income tax department in January 2011 (copies of letters enclosed in pages 33 to 37 of paper book) The same was acted upon by the assessee assuming acceptance from the income tax department since no appeal against the said judgement of the Hon'ble High Court was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Court held that "It appears to us all the appellants have accepted the scheme of amalgamation and now these companies against whom relief is sought for are no longer in existence and they cannot be reverted back to their earlier position as by this time third parties right have been created by reallocation or reallotment of shareholding for there may be fresh subscribing. In true sense there has been sea change in the shareholding pattern of these companies. Therefore we dismiss the appeal." 4.8. In view of the aforesaid observations and findings in the facts and circumstances of the case, we hold that the accumulated losses of amalgamating companies, comprising of unabsorbed short term capital loss of Rs. 10,26,44,123/- ; unabsorbed long term capital loss of Rs. 6,34,784/- and unabsorbed business loss of Rs. 6,63,574/- , would belong to the amalgamated company pursuant to clause in para 10(iii) of the scheme of amalgamation which was approved by the Hon'ble Calcutta High Court vide order dated 6.10.2010. Since the losses belonged to the amalgamated company i.e the assessee herein, the provisions of section 72 and section 74 of the Act would come into play with respect to set o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t extracts of Register of Shareholders showing the transfer of shares in favour of Malay Commercial Enterprises Ltd - Enclosed in pages 2 & 3 of PB. The ld AR argued that by submitting the aforesaid documents before the ld AO , the assessee had duly discharged its burden of proving the genuineness of the losses claimed by it in the return. The ld AO did not point out any discrepancy in the invoice or in the register of shareholders produced by the assessee. He further argued that there is no provision in the Income Tax Act to increase the consideration of assessee and hence the share sale consideration at Rs. 2 per share disclosed by the assessee should be accepted by the revenue. He placed reliance on the decision of the Hon'ble Supreme Court in the case of K.P.Varghese reported in 131 ITR 597 (SC) in this regard. In response to this, the ld DR vehemently relied on the orders of the lower authorities. We find that it is not in dispute that the 100797 shares of GK Sons Pvt Ltd were held by the assessee for a period of more than 12 months from the date of its purchase. The purchase consideration thereon is not disputed by the revenue. We find that the assessee had produced the requ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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