Compulsory acquisition of an undertaking does not create successor tax liability under sections 281 or 170.
A compulsory statutory acquisition of a textile undertaking did not amount to a transfer or succession that could fasten the predecessor company's income-tax arrears on the acquiring entity. Section 281 could not be used to challenge a valid legislative acquisition or to treat the transaction as a fraudulent transfer, and the acquisition statute preserved prior liabilities with the original owner. Section 170 also did not apply because there was no real succession from the company to the petitioner for income-tax purposes. The acquiring entity was therefore protected from recovery of the predecessor's tax, interest, and penalty liabilities for the pre-acquisition period.
Issues: (i) Whether the acquisition of the textile undertaking under the special acquisition statute could be treated as a transfer attracting section 281 of the Income-tax Act, 1961, so as to render the petitioner liable for the predecessor company's tax arrears. (ii) Whether the petitioner could be treated as a successor to the business of the acquired company within the meaning of section 170 of the Income-tax Act, 1961, and thereby made liable for its pre-acquisition tax liabilities.
Issue (i): Whether the acquisition of the textile undertaking under the special acquisition statute could be treated as a transfer attracting section 281 of the Income-tax Act, 1961, so as to render the petitioner liable for the predecessor company's tax arrears.
Analysis: The acquisition statute expressly transferred the undertaking to the Government and then to the petitioner while preserving the liabilities of the original owner for pre-appointed-day periods. Its non-obstante clause operated only to override inconsistent laws within its own field and could not amend or override the Income-tax Act, over which the local legislature had no competence. Section 281 was designed to prevent fraudulent transfers by an assessee, not to invalidate compulsory acquisition under a valid law or to authorise the Assessing Officer to question the legislative act itself.
Conclusion: Section 281 could not be invoked against the petitioner, and the acquisition did not make the petitioner liable for the predecessor company's tax arrears.
Issue (ii): Whether the petitioner could be treated as a successor to the business of the acquired company within the meaning of section 170 of the Income-tax Act, 1961, and thereby made liable for its pre-acquisition tax liabilities.
Analysis: Succession under section 170 requires a real succession to the business of the assessee, with change of ownership and continuity of the same business. In the present case, the Government acquired the undertaking under statute, did not itself carry on the business as successor, and the petitioner received the undertaking from the Government and not from the company. The statutory acquisition, compensation structure, and transfer mechanism negatived any direct succession from the company to the petitioner for income-tax purposes.
Conclusion: The petitioner was not a successor within section 170 and was not liable for the company's arrears for the relevant period.
Final Conclusion: The petitioner was entitled to protection against recovery proceedings for income-tax, interest, or penalty relating to the predecessor company's liabilities for the period before 24 December 1985.
Ratio Decidendi: A compulsory statutory acquisition of an undertaking, accompanied by an express provision leaving prior liabilities with the original owner, does not constitute a transfer or succession that can fasten the predecessor's income-tax arrears on the acquiring entity under sections 281 or 170 of the Income-tax Act, 1961.