By TIOL News Service

KOLKATA, JUNE 28, 2016: THE issue is - Whether when the assessee, an amalgamating company, itself chose not to inform the Revenue about the amalgamation sanctioned by the High Court and preferred to file its return in its own capacity, the assessment order passed by the AO can still be held as nullity. NO is the verdict.

Facts of the case

The assessee had filed their return declaring total income at Rs.7,17,54,000/-. Consequently, notice u/s 142(1) was served on the assessee, and the General Manager(Finance) and other officers of the assessee company duly appeared. The case was discussed and thereafter the assessment was completed u/s 143(3) after making additions. The AO also initiated proceedings u/s 271. The contention of the assessee was that the assessment order was a nullity because the assessee had merged with Maharashtra Distilleries Ltd. pursuant to an order passed by the High Court at Mumbai. On appeal, the CIT(A) as well as the Tribunal reversed the order of the AO.

Having heard the parties, the High Court held that,

++ on a plain reading of the definition of the expression of "amalgamation", appearing in the Income Tax Act, the impression which one receives is that all the liabilities of the amalgamating company immediately before the amalgamation become the liability of the amalgamated company. We are, in this case, concerned, with the A.Y 2002-03, whereas the amalgamation took place with effect from November 2002. There is, as such, no dispute on fact that it is a liability of the amalgamating company which accrued prior to the amalgamation. The assessee maintained a studied silence and did not bring to the notice of the AO about the amalgamation sanctioned by the High Court at Mumbai. The assessee not only did not bring this fact to the notice of the AO, but also filed a return for the A.Y 2003-04. Therefore, the assessee itself did not act upon the amalgamation. Be that as it may, by reason of the amalgamation, the order passed pertaining to the A.Y 2002-2003 could not have become a nullity. The liability arising out of the assessment order became the liability of the amalgamated company;

++ the CIT(A) has misapplied the law laid down by the Madras High Court in the case of CIT Vs. T.V.Sundaram Iyengar & Sons Pvt. Ltd. and the Tribunal did not apply its mind. In the aforesaid case what had happened was that proceedings u/s 104 of the Income Tax Act was started in A.Y 1970-71 and the notice was sent to the amalgamated company which resisted the same on the ground that the amalgamating company was no longer in existence. The contention was upheld up to the tribunal. In an appeal preferred by the revenue the Madras High Court held that: "....One of the consequences of amalgamation was that the amalgamating company became incapable of having the benefit of section 105. Had it continued to exist, it would have had the option of distributing the undistributed profits, thereby avoiding the liability to tax u/s 104. That circumstance, however, cannot be used as a shield by the amalgamated company to avoid payment of the tax. The Revenue is in no way responsible for the amalgamating company’s act of being a party to the scheme of amalgamation and thereby rendering itself incapable of taking the benefit of section 105...." The High Court therefore held that the Tribunal was not right in holding that the proceedings against the amalgamated company could not be initiated on account of the failure of the amalgamating company to distribute the statutory percentage of the accumulated profits. For the aforesaid reasons, the question formulated above is answered in the negative and in favour of the revenue;

++ the question formulated is answered in the negative and in favour of the revenue.

(See 2016-TIOL-1228-HC-KOL-IT)