Court quashes tax order, directs refund. Legal impact of amalgamation schemes clarified.

The court allowed the petition, quashing the impugned order by the Commissioner of Income Tax and directing the respondent to refund the amount of Rs.5,92,96,881/- with statutory interest to the petitioner. The decision emphasized the legal effect of amalgamation schemes on financial transactions and clarified the scope of revision petitions under section 264 of the Income Tax Act.

---

---

Issues Involved:
1. Maintainability of the revision petition under section 264 of the Income Tax Act.
2. Refund of the dividend distribution tax paid by the petitioner.
3. Legal implications of the amalgamation scheme on the declared dividend.
4. Interpretation of section 115-O of the Income Tax Act.

Detailed Analysis:

1. Maintainability of the Revision Petition under Section 264 of the Income Tax Act:
The Commissioner of Income Tax initially held that the revision petition was not maintainable, arguing that the petition was not filed against a formal order passed by the Assessing Officer but was based on mere correspondence. However, the court found this reasoning flawed. The court clarified that the petitioner had indeed moved an application seeking a refund of the dividend distribution tax and that the Assessing Officer had issued a detailed speaking order rejecting this application. Therefore, this order was amenable to revision under section 264 of the Act. The court criticized the Commissioner for simultaneously holding the petition as non-maintainable and deciding on its merits, terming it self-contradictory.

2. Refund of the Dividend Distribution Tax Paid by the Petitioner:
The petitioner sought a refund of Rs.5,92,96,875/- paid as dividend distribution tax, arguing that due to the amalgamation of the companies, the dividend declared ceased to be a dividend. The court noted that by the time the dividend was declared and paid, the scheme for amalgamation was already framed and was later sanctioned by the Gujarat High Court with effect from 1st August 1999. The court emphasized that once the amalgamation was sanctioned, it took effect from the date specified in the scheme, rendering the distribution of dividend to the amalgamated companies as non-dividend since a company cannot pay a dividend to itself.

3. Legal Implications of the Amalgamation Scheme on the Declared Dividend:
The court referred to the legal principle that an amalgamation scheme, once sanctioned by the court, takes effect from the date mentioned in the scheme unless otherwise specified by the court. Citing the Supreme Court's decision in Marshall Sons and Co. (India) Ltd. v. Income Tax Officer, the court held that the effective date of amalgamation relates back to the date specified in the scheme. Consequently, any dividend declared after this date but before the court's sanction would lose its character as a dividend. The court also cited relevant judgments from the Bombay High Court, which supported the view that a company cannot pay a dividend to itself post-amalgamation.

4. Interpretation of Section 115-O of the Income Tax Act:
The court examined section 115-O, which mandates the payment of tax on any amount declared, distributed, or paid by way of dividend by a domestic company. The Revenue argued that the liability to pay tax crystallized the moment the dividend was declared or paid, and subsequent events could not extinguish this liability. However, the court distinguished the present case from the precedent of Kishinchand Chellaram, stating that the change in the character of the dividend was due to the legal effect of the amalgamation scheme, which took effect from a date anterior to the dividend declaration. Thus, the payment ceased to retain its character as a dividend, and the petitioner was justified in seeking a refund.

Conclusion:
The court allowed the petition, quashing the impugned order dated 26.3.2004 by the Commissioner of Income Tax and directing the respondent to refund the amount of Rs.5,92,96,881/- with statutory interest to the petitioner. This decision emphasized the legal effect of amalgamation schemes on financial transactions and clarified the scope of revision petitions under section 264 of the Income Tax Act.

---