2019 (7) TMI 1523 - HC - Income Tax

Appellant's Right to Challenge Revised Returns under Income Tax Act upheld by Court

The Assistant Commissioner of Income-tax Circle 1, Tiruchirapalli Versus M/s Dalmia Power Limited,

The Appellant is not obligated to accept the revised returns without requiring an application to condone delay under the Income Tax Act. The NCLT's ... Revised returns acceptance without insisting upon the filing of an application to condone delay u/s 119 (2) (b) - order sanctioning the Scheme of Arrangement not to be construed as an order granting exemption - NCLT's supervisory jurisdiction - whether upon the sanction of the scheme by the National Company Law Tribunal(NCLT), it becomes obligatory for the Appellant to accept the revised returns for the respective assessment years without insisting on the filing of an application under Section 119 (2) (b)? - Schemes of Arrangement between the respective Respondent and its shareholders, wherein the respective Respondent herein is the Transferee Company, provided expressly for the filing of revised returns beyond the specified time - whether the Scheme of Arrangement is binding on statutory authorities and, if so, in what manner and to what extent HELD THAT:- The NCLT exercises supervisory jurisdiction and not appellate jurisdiction while considering the sanction of schemes of arrangement or compromise. In exercise of supervisory jurisdiction, the NCLT examines whether the scheme concerned has been approved by the requisite majority of shareholders and/or creditors, as the case may be, and whether the scheme is fair, reasonable and not opposed to public policy or law. In effect, it examines whether the scheme is a lawful contract. For the above purpose, it does not examine the scheme minutely with a tooth comb. Appellant was notified about the Appointed Date and the fact that the Transferee Company concerned has taken over the assets and affairs of the Transferor companies concerned with effect from such date. In addition, the Appellant has been notified that the Scheme of Arrangement enables the Amalgamated Company and Transferee Company to file returns and revised returns before the relevant tax authorities, including the income tax authority. However, it cannot be said that the Appellant consented to waive the procedures or statutory requirements prescribed in the Income Tax Act for the above purposes. In this regard, it is also relevant to bear in mind that the Order of the NCLT whereby the Scheme of Arrangement was sanctioned also mandated that necessary permissions should be obtained and compliances fulfilled. Consequently, the impugned common order is liable to be and is hereby set aside. Hence, the respective Respondent herein is required to comply with the procedure for filing a revised return belatedly. Nevertheless, upon the filing of such application, the Appellant shall consider the same by bearing in mind the principles laid down herein and in the judgments discussed herein. Issues Involved:1. Whether the Appellant is bound to accept the revised returns filed by the Respondent without insisting on an application to condone delay under Section 119 (2) (b) of the Income Tax Act, 1961.2. Whether the Scheme of Arrangement sanctioned by the NCLT is binding on statutory authorities, such as the Appellant, in respect of procedural and statutory requirements under the Income Tax Act.Issue-wise Detailed Analysis:Issue 1: Acceptance of Revised Returns Without Application to Condon DelayThe central issue in these Writ Appeals is whether the Appellant is obligated to accept the revised returns filed by the Respondent for the Assessment Years 2015-16 and 2016-17 without requiring an application to condone delay under Section 119 (2) (b) of the Income Tax Act, 1961, read with Circular No. 9/2015 of the CBDT. The Respondent argued that the Schemes of Arrangement sanctioned by the NCLT expressly allowed for the filing of revised returns beyond the specified time, and thus, the Appellant should accept these returns without requiring a delay condonation application. The Appellant contended that the NCLT order required all necessary permissions and compliances, including filing an application to condone delay.Issue 2: Binding Nature of the Scheme of Arrangement on Statutory AuthoritiesThe judgment delves into whether the Scheme of Arrangement is binding on statutory authorities like the Appellant. The Respondent argued that the Scheme, once sanctioned by the NCLT, acquires statutory force and is binding on all parties, including statutory authorities. The Appellant countered that statutory authorities are not bound by the Scheme in respect of statutory functions and procedural requirements under other statutes.Analysis and Conclusion:1. Nature and Scope of Jurisdiction of NCLT:- The NCLT exercises supervisory jurisdiction and not appellate jurisdiction while sanctioning schemes of arrangement or compromise. This supervisory role ensures that the scheme is fair, reasonable, and not in violation of public policy or law, as elucidated in the Hindustan Lever and Miheer Mafatlal cases.- The NCLT does not scrutinize the scheme minutely but ensures it is a lawful contract approved by the requisite majority of shareholders and/or creditors.2. Binding Nature of the Scheme:- The scheme is binding on shareholders, creditors, and employees but not necessarily on statutory authorities in respect of statutory functions.- Statutory authorities notified under Section 230 (5) of the Companies Act, 2013, are required to consider returns or revised returns filed pursuant to the scheme but must do so in compliance with statutory procedures.3. Specific Judgments Considered:- The Marshall case supports the Respondent’s right to file returns but does not exempt compliance with procedural requirements under the Income Tax Act.- The JK Bombay case established that the scheme is binding on dissenting shareholders and creditors but did not extend this binding nature to statutory authorities.- The Pentamedia Graphics ITO case emphasized that procedural requirements under the Income Tax Act must still be adhered to.4. Clause 64 of the Scheme:- Clause 64(c) of the Scheme of Arrangement allows the Amalgamated Company and Transferee Company to file revised returns even after the prescribed time limit. However, this clause is enabling and does not exempt the Respondent from complying with procedural requirements under the Income Tax Act.- Paragraph 12 of the NCLT order clarified that the Scheme does not grant exemptions from statutory permissions and compliances.Conclusion:The Appellant is not bound to accept the revised returns without an application to condone delay. The NCLT’s sanction of the Scheme of Arrangement does not override the procedural requirements of the Income Tax Act. The Respondent must file an application to condone delay, which the Appellant should consider in light of the principles laid down in this judgment. The impugned common order is set aside, and the Writ Appeals are allowed without costs.