PAYMENT OF ADVANCE TAX BY A COMPANY IN CASE OF AMALGAMATION

Payment of Advance tax

Section 207 of the Income Tax Act, 1961 (‘Act’ for short) provides for the payment of advance tax by the assessee on the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year.  Section 208 of the Act provides that if the tax payable by the assessee in respect of a financial year, the assessee shall pay the advance tax in four instalments as detailed below-

• On or before 15^th July - Not less than 15% of such advance tax;
• On or before 15^th September - Not less than 45% of such advance tax, as reduced by the amount, if any, paid in the earlier instalment.
• On or before 15^th December - Not less than 75% of such advance tax, as reduced by the amount or amounts, if any, paid in the earlier instalment or instalments.
• On or before 15^th March - The whole amount of such advance tax, as reduced by the amount or amounts, if any, paid in the earlier instalment or instalments.

Issue

The issue to be discussed in this article is as to whether a company going for amalgamation during the financial year is liable to pay advance tax on the current income with reference to decide case laws.

Amalgamation

The Act defines amalgamation somewhat broadly as ‘the merger of one or more companies with another company or the merger of two or more companies to form one company. The newly formed company, as a result of the merger, is called as ‘the amalgamated company’.

Case laws

In Marshall Sons And Company (India) Limited Versus Income-Tax Officer - 1996 (11) TMI 6 - Supreme Court, the Supreme Court held that the scheme of amalgamation took effect on and from the date of sanctioning the scheme.  When two companies are merged and so joined as to form a third company or one is absorbed into one or blended with another, the amalgamating company losses its entity. 

In GE India Industrial Private Limited, Versus Assistant Commissioner Of Income-Tax Circle - 3 (1) (2), Koramangala - 2021 (4) TMI 1101 - KARNATAKA HIGH COURT, the petitioner is a private limited company engaged in the business of export.  The petitioner entered into a scheme of amalgamation amalgamating the petitioner and GE India Technology Centre Private Limited with GE Indian Private Limited under a scheme of amalgamation which was to become effective from 1-04-2016. 

A petition for amalgamation has been filed before the Delhi High Court.  After the formation of the National Company Law Tribunal the case was transferred to the Tribunal.  The Tribunal sanctioned the scheme of amalgamation dated 01.04.2016, on 20.03.2017.  The petitioner was on the hope that the company was not in existence from 01.04.2016 and therefore it was not required to pay advance tax for the entire financial year.  But the Department issued notices on 16.06.2016 and 30.01.2017 in regard to nonpayment of advance tax for the first quarter and the second quarter.  The petitioner filed replies to these two notices contending that it was not liable to pay advance tax since the same was amalgamated with effect from 01.04.2016 and therefore it was not in existence.

The Department was not satisfied with the reply given by the petitioner.  The Department raised a demand note to the tune of Rs.35.66 crores on 20.03.2017 under Section 210(3) and (4) of the Act directing the petitioner to make payment.  Against this demand notice the petitioner filed the present writ petition before the High Court.  The petitioner contended that that the petitioner is not liable to pay any advance tax for the period demanded by the revenue as the petitioner was no longer in existence.  The scheme of amalgamation was already effective with effect from 01.04.2016 and any demand made in the interregnum would be contrary to law.  The Revenue contended the following before the High Court-

• the petitioner cannot escape payment of advance tax for two quarters under Sections 207, 208 and 211 of the Act. 
• The amalgamation was approved by an order of the Tribunal only on 20-03-2017.
• Between the dates 01.04.2016 and 20.03.2017 the petitioner was still an independent company though a scheme of amalgamation the petitioner had been amalgamated to the aforesaid companies. 
• For three quarters from 15^th June to 15^th December, the petitioner cannot escape liability of payment of advance tax. 
• No fault can be found with the Assessing Officer demanding advance tax in terms of the impugned order.

The High Court considered the submissions of the petitioner and the Department.  The High Court considered the issue that arised for its consideration is as to whether the petitioner Company is obliged under the Act to pay advance tax between 01.04.2016 and 20.03.2017 for the assessment year 2017-18.

The High Court observed that the petitioner company and two other companies were amalgamated under the scheme of amalgamation before High Court of Delhi.  After the formation of National Company Law Tribunal, the same was transferred to the National Company Law Tribunal. The Tribunal on receipt of the scheme from the hands of the Government of India on 17.12.2016 approved the same on 20.03.2017. The stamp of approval of the scheme of amalgamation, which in terms of law happened on 20.03.2017, albeit with retrospective effect i.e., from the date on which they had entered into such a scheme i.e., 01.04.2016.  In regard to the liability of making advance payment by the petitioner from 01.04.2016 the High Court analysed the provisions of Sections 207, 208, 209 and 211 of the Act, relating to advance tax payments. 

The High Court observed that Section 211 of the Act depicts quarters of payment of advance tax. The first instalment/quarter is on or before 15th June, the next instalment is on or before 15th September and the third instalment is on or before 15th December. Therefore, the petitioner’s claim of amalgamation having been accepted by the Tribunal on 20.03.2017 was obliged to pay advance tax for the said three quarters/three instalments. The petitioner, on the ground that it did not exist with effect from 01.04.2016, cannot escape the liability of payment of advance tax for the said three quarters. On and from the date of acceptance by the Tribunal i.e., 20.03.2017, the last instalment for the assessment year 2017-18 advance tax need not be paid.  For the interregnum period, as held by the revenue, the petitioner cannot escape payment of advance tax as under Section 207 of the Act advance tax depends upon the current income. The income as declared is current income not as an amalgamated company but as an individual company. Therefore, the High Court held that the advance tax is liable to be paid by the petitioner.