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TMI Blog1982 (11) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... sed resolutions. The scheme formulated for amalgamation between the two companies was ultimately put up for the approval of the Hon'ble High Court of Calcutta who vide their order dated 21-12-1976 approved the scheme of amalgamation as proposed. The scheme in question was held by their Lordships to be binding with effect from 1-1-1976. The relevant part of the High Court's order may be extracted at this stage for ready reference as follows : "1. That all the properties, rights and powers of the said transferor company specified in the first, second and third parts of the Schedule B hereto and all the other properties, rights and powers of the said transferor company be transferred without further act or deed to the said transferee company and, accordingly, the same shall pursuant to section 394(2) of the Companies Act, 1956, be transferred to and vest in the transferee company for all the estate and interest of the transferor company but subject nevertheless to all charges now affecting the same and 2. That all the liabilities and duties of the said transferor company be transferred without further act or deed to the said transferee company and, accordingly, the same shall pursua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tea Co. Ltd. for the earlier years is set off against the income of the current year arising in the hands of the Eastern Dooars Tea Co. Ltd." The loss pertaining to the aforesaid amalgamating company was Rs. 1,15,126. 4. Subsequently, the Commissioner called for the records of the assessee-company and after noting the aforesaid action of the ITO he felt that the said order was erroneous and prejudicial to the interests of the revenue as the unabsorbed loss and depreciation to the extent of Rs. 1,15,126 had been wrongly allowed in the assessment of the assessee-company. . . .'. According to the Commissioner, the assessee-company was a different entity from the amalgamating company and, therefore, the unabsorbed loss and unabsorbed depreciation could not be brought forward in its hands and given benefit thereof to it. A notice under section 263 was, therefore, given by the Commissioner to the assessee-company which opposed the proposed action of the Commissioner and pleaded before him that the business loss and unabsorbed depreciation to the extent of Rs. 1,15,126 had been rightly allowed in the hands of the assessee-company under the provisions of section 72 of the Act. It was al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the event the Commissioner held 'that the assessment order is erroneous and prejudicial to the interests of the revenue to the extent, it was held that there should be carry forward business loss and unabsorbed depreciation of Rs. 1,15,126. This set off will be withdrawn and the total income would be increased by this amount and would be determined at Rs. 1,70,274. 6. The aforesaid order of the Commissioner has been assailed before us by the learned counsel for the assessee who pointed out that the Commissioner had apparently misunderstood 'amalgamation' to mean 'succession'. In his opinion, amalgamation was not the same thing as succession and as a result of amalgamation, as the very name suggests, the two companies merge with each other and it is not as if one company comes to an end and another company gets born. The notion of 'succession' was altogether different from that of 'amalgamation'. Whereas amalgamation was a peculiar feature of the company law, succession was known to the income-tax law and as per section 170 of the Act, succession always implied a successor and a predecessor, both subsisting together. But under amalgamation, the amalgamated company disappears al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany taking over the assets of the merged company at a value higher than the written down value, since Explanation 2A to section 43(6) provides that the written down value to the Indian transferee company of the capital assets in such cases should be taken to be the same as it would have been in the case of the merged company. On the other hand, the right to carry forward unabsorbed development rebate is available to the transferee company in cases of amalgamation falling within section 2(1A) . . . ." 8. In rejoinder the learned counsel for the assessee submitted that the opinion of a commentator could not be equated with the opinion of a Court and, therefore, it was not binding on the appellate authorities. The entire case, according to him, should be examined in the perspective of the peculiar notion of 'amalgamation' known to the company law which was certainly different from what the concept of 'succession' implied wherein by definition the business undertaking of one person was acquired by another person. 9. We have carefully examined the facts on record and the rival submissions. 'Amalgamation' as been defined under clause (1A) of section 2 of the Act reads as follows : "( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies merge with it leaving their assets and liabilities with the amalgamated companies. In either condition, the amalgamated company is an independent corporate entity different from the corporate entities of the amalgamating companies. 10. For the purpose of assessment of income-tax, each corporate entity will have separate existence and will be subjected to tax in terms of section 4 of the Act separately. The various benefits with regard to the allowances, exemptions, etc., will be allowed to it in its own assessment. Such benefits and exemptions may not be transferable to another entity except through a specific provision of law. Under section 28 of the Act, it is the profits and gains of business or profession carried on by an assessee during the previous year, which have to be determined. Under section 32 of the Act depreciation is allowable to an assessee carrying on business, provided it can be shown that the buildings, machinery, plant or furniture, in respect of which depreciation was claimed by the assessee, were used by it for the purposes of business or profession during the previous year and further that the same were owned by the assessee during the previous year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany in accordance with the provisions of sub-section (3). . . .' 12. (i) It will be seen from the aforesaid provisions of sub-section (6) of section 32A that it expands the scope of allowance of investment allowance ; and the unabsorbed investment allowance, if any, could be carried forward, not only in the case of the assessee itself but, if it is a case of amalgamation, the unabsorbed investment allowance of the amalgamating company could be carried forward to the assessment of the amalgamated company in the same manner as if it belonged to the amalgamated company ; (ii) it is, however, worth notice that the benefit of sub-section (6) will be available not to every amalgamated company but only to such amalgamated company as matches the definition of amalgamation as given in section 2(1A), particularly the condition (iii) laid down in the sub-clause. If the list of the shareholders of the amalgamated company does not include nine-tenths of the shareholders of the amalgamating company or companies, it would not be a case of amalgamation for the purpose of the Act, even though it may be a perfectly valid amalgamation under the Companies Act, 1956, and the benefit of sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsorbed investment allowance, development rebate or development allowance of a firm could never have been carried forward in the assessments of succeeding companies. 16. The provisions dealing with the carry forward of business loss are contained in section 72. Here again, carry forward is to be allowed to an assessee provided it carries on business or profession in the previous year to which the carry forward is done. The relevant part of sub-section (1) of section 72 reads as follows : "Where for any assessment year, the net result of the computation under the head 'Profits and gains of business or profession' is a loss to the assessee, . . . and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off . . . . shall, . . . . be carried forward to the following assessment year, and --- (i) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year : Provided that the business or profession for which the loss was originally computed continued to be carried on by him in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be shown that the business up to the moment of succession belonged to one entity and after the moment of succession it belonged to another entity. That the transferor or the predecessor should subsist ad infinitum after the moment of succession is not the sine qua non of succession. The predecessor may subsist or may not subsist. Sub-section (2) of section 170 in fact visualizes the situation 'when the predecessor cannot be found . . .'. This aspect of 'succession' is, in our opinion, common to the process of 'amalgamation' also. Up to the moment of amalgamation, the amalgamating company subsists independently of the amalgamated company and the assets and liabilities belonging to the amalgamating company are, by definition, transferred to the amalgamated company to bring to fruition the process of amalgamation. The order of the Hon'ble High Court in the present case illustrates this point. It refers to the 'transferor company', the 'transferee company' and to the 'transfer' of assets and liabilities of the transferor company to the transferee company. The transferee company would subsist, even after the High Court's order and the transfer of its assets and liabilities to the t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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