9911796707
TMI Blog1980 (3) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacturers of bicycles in India. According to the averments made in the writ petition, the petitioner promoted a subsidiary company known as Atlas Auto Cycles Ltd. The subsidiary company was incorporated in the year 1970, but it started manufacturing operations only in February, 1976. The said subsidiary company, however, did not make any profit. On the contrary, it has been suffering huge losses ever since it started manufacturing. Some time in the year 1977, the company sought expert advice of M/s. M. M. Suri and Associates Private Ltd. The said advisers prepared a comprehensive report on the potentialities of the project of the subsidiary company and made its recommendations. The said recommendations postulated huge investment being made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Gazette, specify, to ensure that the benefit under this section is restricted to amalgamations which would facilitate the rehabilitation or revival of the business of the amalgamating company..." The Govt. of India in pursuance of the provisions of s. 72A have also laid down certain guidelines. These guidelines were issued on 2nd February, 1978. These guidelines were laid down so that if the conditions mentioned therein were fulfilled the Government would grant approval of the amalgamation of the units. The said guidelines, inter alia, provided that the declaration under s. 72A would be given if the following conditions were fulfilled? " Size of sick industrial units: The amalgamating company should have employed at least 100 workm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified authority was of the opinion that the conditions laid down in s. 72A had not been fulfilled in view of the following: "(i) The amalgamating company commenced production only in September, 1976. It has not yet been able to stabilise production because the product faces some technical problems and requires adaptation to the local conditions. Any new unit is likely to face such problems which should be solved without benefits of section 72A of the Income-tax Act. (ii) The amalgamation does not fully satisfy the guidelines as evolved by the specified authority as the number of employees is less than 100 persons and the written down value of fixed assets (excluding land) is less than Rs. 50 lakhs. (iii) The amalgamation scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. It has no doubt been mentioned that the issuing of shares of the amalgamated company in the ratio of I : I is suggestive of the fact that the amalgamating company was financially viable. We are not able to agree with this contention. Merely because for every one share held by the member of the amalgamating company he is to get one share of the amalgamated company, it cannot possibly suggest that the amalgamating company was a viable unit. The financial viability of company or an undertaking has to be judged having regard to its profitability, its profit and loss account, balance-sheet and other relevant factors. It has not been controverted that the amalgamating company has been incurring huge losses ever since it started operation. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hs. If this be so, then the condition mentioned in the guidelines would be satisfied. Even otherwise, the guidelines provide that the general criteria of the amalgamating company employing at least 100 workers or having fixed assets of value of more than Rs. 50 lakhs can be relaxed if the conditions mentioned in the said circular are fulfilled. One of the conditions mentioned therein is if the sick industrial unit is engaged in the manufacture of mass-consumption goods. This aspect of the case has not been dealt with by the specified authority. Even if the specified authority comes to the conclusion that the fair market value of the assets are less than Rs. 50 lakhs, nevertheless the specified authority should apply its mind and take into c ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
