Scheme of demerger asset vesting prevents attachment for demerged company's tax; attachment allowed only for resulting company's own liability

Assets vested in resulting companies under a court sanctioned demerger scheme cannot be attached to satisfy the tax liability of the demerged company; consequently the attachment of property vested in the petitioner is unsustainable. The Income Tax Department may, however, attach those vested assets independently to recover the petitioner's own Wealth Tax liability for the relevant assessment years, in accordance with law. The petitioner must not be penalised for delays in appellate disposal of statutory Wealth Tax appeals where such delays are beyond its control. Writ relief was partly granted, with liberty for tax attachment against the petitioner's own liability.

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Issues: (i) Whether an attachment order against immovable property vested in a resulting company under a court-sanctioned scheme of demerger can be sustained to recover the wealth tax liability of the demerged company.

Analysis: The property under challenge stood vested in a resulting company pursuant to a scheme of demerger sanctioned by the Court under Sections 391 to 394 of the Companies Act, 1956. A sanctioned scheme effects vesting of specific assets in the resulting companies, which thereafter have independent corporate identity and independent tax liabilities. The Wealth Tax Act, 1957 governs assessment and recovery of wealth tax for the relevant assessment years; attachment of property may be resorted to for recovery of tax due from the person legally liable. Where assets have been vested in a resulting company by a court-sanctioned demerger, those vested assets are not liable to satisfy the tax liability of the demerged company absent separate liability of the resulting company itself. The availability of departmental remedies (including attachment for the resulting company's own liability and cases where appeals are stayed subject to deposits) remains open in accordance with law.

Conclusion: The impugned attachment of property vested in the resulting company to recover the wealth tax liability of the demerged company is not sustainable; this conclusion is in favour of the assessee. The Revenue remains entitled to proceed, in accordance with law, against the property vested with the resulting company for any independent wealth tax liability of that resulting company.

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