Section 72A relief must follow merger sanction when financial non-viability and public interest are already accepted.

Sanction of a rehabilitation-cum-merger scheme under the Sick Industrial Companies (Special Provisions) Act, 1985 required the same substantive satisfaction needed for relief under section 72A of the Income-tax Act, namely financial non-viability of the amalgamating company and public interest in the amalgamation. Once the Board approved the scheme on that basis, it could not later refuse the corresponding declaration under section 32(2) read with section 72A merely because the companies were profit-making or closely held. The refusal to extend section 72A benefit was therefore unsustainable, and the assessee was entitled to the declaration.

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Issues: Whether, on sanction of a rehabilitation-cum-merger scheme under the Sick Industrial Companies (Special Provisions) Act, 1985, the Board could decline to make the declaration necessary for extending the benefit of section 72A of the Income-tax Act, 1961.

Analysis: The statutory scheme links the grant of relief under section 72A of the Income-tax Act, 1961 with a finding that the amalgamating company was financially non-viable and that the amalgamation was in public interest. Under the Sick Industrial Companies (Special Provisions) Act, 1985, the Board, while dealing with sickness, rehabilitation and amalgamation, is required to reach the same substantive satisfaction in relation to financial viability and public interest before sanctioning a merger scheme. Once the Board sanctioned the amalgamation scheme on that basis, it could not consistently refuse the corresponding declaration under section 32(2) read with section 72A merely by treating the profit-making or closely held nature of the companies as decisive.

Conclusion: The refusal to extend the benefit under section 72A was unsustainable and the assessee was entitled to the declaration.

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