Court-sanctioned amalgamation under the Income-tax Act applies when all assets and liabilities transfer and statutory conditions are met.

A court-sanctioned composite scheme can constitute an amalgamation under the Income-tax Act where the transferor company's remaining business, along with all assets and liabilities, is transferred to the transferee company and the statutory shareholding condition is met. The legal effect of such a sanctioned scheme is not displaced by a mere allegation of tax avoidance when no contrary finding shows that any asset or liability was left outside the transfer and the scheme records dissolution without winding up. On that basis, the tax consequences flowing from the amalgamation, including relief linked to transfer of assets and liabilities, follow the sanctioned arrangement.

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Issues: Whether the composite scheme sanctioned by the High Court, involving transfer of one division by slump sale and transfer of the remaining business to the assessee, constituted an amalgamation under the Income-tax Act and whether the tax consequences flowing from such amalgamation were to be accepted.

Analysis: The scheme provided for transfer of the rubber and plastics division of the subsidiary to another company and amalgamation of the remaining business with the assessee. The Court noted that the Companies Act does not contain a separate standalone provision for amalgamation and that sections dealing with compromise, arrangement and reconstruction govern such transactions. It further held that the definition of amalgamation in section 2(1B) of the Income-tax Act is satisfied where all assets and liabilities of the amalgamating company are taken over by the transferee company and the requisite shareholding condition is met. The High Court-sanctioned scheme expressly recorded transfer of the remaining business and dissolution of the transferor company without winding up, and there was no finding that any asset or liability had remained outside the transfer. The objection based on alleged tax avoidance was rejected because the scheme had already been sanctioned and no material was shown to displace its legal effect.

Conclusion: The composite transaction amounted to an amalgamation, and the assessee was entitled to the tax treatment flowing from that amalgamation, including the reliefs arising from the transfer of assets, liabilities and related consequences.

Final Conclusion: The Tribunal upheld the assessee's position on the central issue of amalgamation and the associated tax consequences under the sanctioned scheme.

Ratio Decidendi: A court-sanctioned scheme that results in the transfer of all assets and liabilities of the amalgamating company to the transferee company, with the statutory shareholding condition satisfied, constitutes an amalgamation under section 2(1B) of the Income-tax Act, and its legal effect cannot be disregarded on a mere allegation of tax motive absent a contrary finding in the scheme or the assessment record.

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