Approved amalgamation and reassessment jurisdiction: revaluation surplus was not taxable, and notice to a non-existent company failed.

Approved amalgamation does not trigger tax on the difference between book value and realisable value of stock-in-trade or work-in-progress where the business continues and is not terminated on the closing date; the revaluation surplus was therefore not taxable in the hands of the amalgamating companies. Reassessment under section 147(a) also failed because the Assessing Officer already knew of the amalgamation, the assessee had disclosed the sanctioned scheme, and omission of the valuation report did not amount to suppression of primary facts. A notice issued to a company that had ceased to exist after amalgamation was jurisdictionally void and could not be cured.

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Issues: (i) Whether the difference between the book value and the realisable value of stock-in-trade/work-in-progress transferred on amalgamation could be brought to tax in the hands of the amalgamating companies. (ii) Whether reassessment under section 147(a) was valid when the reassessment notice was issued to amalgamating companies that had already merged, and whether there was failure to disclose fully and truly all material facts.

Issue (i): Whether the difference between the book value and the realisable value of stock-in-trade/work-in-progress transferred on amalgamation could be brought to tax in the hands of the amalgamating companies.

Analysis: The business had not been discontinued on the relevant closing date, and the amalgamation was sanctioned by the High Court with appointed dates fixed under the scheme. The Court distinguished dissolution cases and held that the principle of valuing closing stock at market value on termination of business did not apply to a continuing business under an approved amalgamation. It further held that the introduction of section 43C of the Income-tax Act, 1961 supported the position that the earlier law did not authorise taxation of the revaluation difference in the hands of the amalgamating company. The approved amalgamation could not be treated as a tax-avoidance device merely on that account.

Conclusion: The revaluation surplus was not taxable in the hands of the amalgamating companies.

Issue (ii): Whether reassessment under section 147(a) was valid when the reassessment notice was issued to amalgamating companies that had already merged, and whether there was failure to disclose fully and truly all material facts.

Analysis: The Court found that the Assessing Officer was aware of the amalgamation and had even made the original assessment on the amalgamated company as successor. The assessee had informed the Assessing Officer of the amalgamation and enclosed the sanctioned scheme. Non-filing of the valuation report did not amount to suppression of primary facts because the report was only an estimate of market value and did not itself create income. A notice issued in the name of a company that had ceased to exist after amalgamation went to the root of jurisdiction and was not a curable defect. The reopening under section 147(a) therefore lacked valid foundation.

Conclusion: The reassessment proceedings were invalid and the notices were without jurisdiction.

Final Conclusion: The assessee succeeded on the merits of taxability and on the jurisdictional challenge to reopening, while the departmental appeal failed.

Ratio Decidendi: In an approved amalgamation where the business continues and the Assessing Officer is aware of the amalgamation, the difference between book value and realisable value of stock-in-trade is not taxable in the hands of the amalgamating company, and reassessment cannot be sustained under section 147(a) absent failure to disclose primary facts; a notice issued to a non-existent amalgamating company is jurisdictionally void.

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