2026 (2) TMI 393 - HC - Wealth-tax

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; ... Effect of sanction of scheme of demerger on asset vesting - attachment of property for tax liability of the demerged company - independent tax liability of resulting companies after demerger - competence to attach assets vested by a court-sanctioned scheme for the assessees' own tax liability - protection of assessee when appellate proceedings remain pending - Wealth Tax liability for Assessment Years 2011-12 to 2015-16 - HELD THAT:- A reading of the scheme of amalgamation makes it clear that two resulting companies, namely the petitioner (Resulting Company No.I) and M/s.Binny Mills Limited (Resulting Company No.II) have been vested with certain assets. Therefore, the assets vested with the resulting companies cannot be attached for the tax liability of the demerged company, namely M/s. Binny Limited. Therefore, the impugned attachment of the property which stood vested with the petitioner cannot be countenanced for the tax liability of M/s.Binny Limited (demerged). The impugned attachment order therefore is not sustainable. However, it is always open for the Income Tax Department to attach the property vested with the petitioner pursuant to the scheme of demerger sanctioned on 22.04.2010 independently for the tax liability of the petitioner for the said tax period under the Wealth Tax Act 1957 in accordance with law. Having concluded as above it is imperative that the petitioner cannot be penalized in case the statutory appeal filed under the Wealth Tax Act, 1957, has not been disposed by the Appellate Authority as they are not under the control of the petitioner. Accordingly, this Writ petition is partly allowed with the above liberty. 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.