TaxTMI 
TaxTMI 
2009 (4) TMI 212
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....ion of Hon'ble Madras High Court vide order dated 23-3-2004. Certain claim was also made on the basis of this amalgamation for which reliance was also placed on the decision of the Hon'ble Supreme Court in the case of Marshall & Sons Co. India Ltd. v. ITO [1997] 223 ITR 8091 as well as Board's Circular No. 5P dated 9-10-1967. The Assessing Officer denied the claim of the assessee by observing as under :- "The decision relied upon by the assessee in the above case is applicable only in the scheme of amalgamation of companies in the instant case as can be seen from the composite scheme of arrangement filed by LAC Limited. AA/s Sundaram Auto Components Limited and TVS(M) Limited before the Hon'ble High Court - Para 12 - approval of the so called amalgamation, it is very clear that it is only a scheme of arrangement under section 391 to 394 under Companies Act, 1956 and not a true amalgamation in the real sense of the word. The amalgamation contemplates a complete take over of one company by the other company with all its assets and liabilities. Whereas in the instant case, Sundaram Auto Components Limited which is a subsidiary of LAC has transferred its business of rubber and plast....
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....in section 2(1B) has held that remaining business of LAC consisting of Engine Component and investment stood amalgamated with the assessee-company. In the light of these findings, he held that (i) capital reserve received from LAC could not be taxed as deemed dividend; (ii) depreciation was allowable on the block of assets which were taken over from LAC; (iii) credit for dividend tax paid by LAC was to be allowed and (iv) assets pertaining to Rubber and Plastic Division etc., which have been hived off vide arrangement scheme to assessee were to be excluded from the block of assets. 13. Both parties made arguments in detail and filed written submissions. The principle submissions of the ld. Departmental Representative are as under :- (1) The ld. Departmental Representative supported the order of Assessing Officer where he has held that scheme of arrangement sanctioned by the High Court under sections 391 to 394 of the Companies Act, 1956 cannot be called amalgamation in the real sense and as per the definition of amalgamation given in the I.T. Act under section 2(1B). Accordingly, therefore, Circular of the Board as well as the decision of the Hon'ble Suprem....
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....refore, the approval of majority of the shareholders of the scheme was mere formality. The control and management remained the same before and after the arrangement. No specific purpose for this composite arrangement has been spelt out on enquiry and, therefore, only purpose or main purpose was to avoid tax. Reliance was placed on the decision of the Hon'ble Gujarat High Court in the case of Wood Polymer Ltd., In re [1977] 109 ITR 177 wherein it was held that judicial machinery could not be used to effect tax. 14. On the other hand, the principle submissions of the learned counsel for the assessee are as under :- "(1) LAC was a subsidiary of the assessee-company and the assessee-company was holding 67.07 per cent of share capital of the LAC. (2) The assessee-company along with LAC and SAC formulated a scheme of arrangement whereby; (a) rubber and plastic business of LAC was to be transferred to SAC as going concern with effect from 1-4-2003 and (b) the remaining business of LAC after the transfer of rubber and plastic division of the assessee was to be amalgamated with the assessee-company with effect from 2-4-2003. This scheme has been sanctioned by the High Court. (3)....
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....the Act since this was transfer of a business as a going concern and the same cannot be considered as income from other sources. It was further argued that the shares issued by the assessee-company could not be considered as distribution of retained profits and as deemed dividend under section 2(22)(a) of the Act in view of the Board's Circular No. 5P. (supra). (10) Since all the remaining assets of LAC after hiving off of the rubber and plastic division have been taken over by the assessee- company in the scheme of amalgamation with effect from 2-4-2003 and profit of that business from 2-4-2003 to 31-3-2004 has been assessed in the hands of the assessee-company the depreciation claimed on such assets should be allowed accordingly. Such transfer is even recognized by section 43 Explanation 7. (11) Since the business of LAC was merged with the assessee- company with effect from 2-4-2003 even though the Court order was delivered later on LAC ceased to exist from 2-4-2003. All the transactions of LAC with effect from 2-4-2003 till the order of the Court was pronounced were for and on behalf of the assessee- company. Consequently the entire profit of LAC was assessed in the hands....
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....which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that- (i) all the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation; (ii) all the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation; (iii) shareholders holding not less than [three-fourths] in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation, otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of the distribution of such property to the other....
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....the payment of Income-tax in respect of business acquired from the subsidiary company. 18. The Hon'ble Allahabad High Court in the case of Sadanand S. Varde (supra) has observed at page 633 as under :- "We are of the view that the amalgamation, which has become final and binding, cannot be permitted to be challenged by the petitioners, without locus standi, in a collateral proceeding in the present writ petition. An amalgamation order can only be challenged under the Companies Act by an appeal under section 391(7) by any one of the parties, but no such appeal was ever filed." 19. It was seriously argued by the ld. Departmental Representative that it was not a simple case of amalgamation but there could be other motives namely tax avoidance. Reliance was placed on the decision of Hon'ble Gujarat High Court in the case of Wood Polymere Ltd. (supra). We are unable to agree with these submissions also. As pointed out by the learned counsel for the assessee, there is no such finding that amalgamation was proposed for tax avoidance in the Assessment Order. Further, as pointed out by the learned counsel for the assessee when proper legal steps have been taken they cannot be ignor....
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....nbsp; (i) Engine components business. (ii) Investment in the equity shares of SAC including the equity shares allotted in consideration of the transfer of rubber and plastics businesses to SAC pursuant to this Scheme. (iii) Other investments in listed and unlisted entities.' Part III of Composite Scheme reads as under:- 'Transfer of Rubber and Plastic Businesses of LAC under the scheme to SAC: On and from the appointed date (1), namely 1st April, 2003, the entire Rubber and Plastics businesses of LAC shall stand transferred and vested to/in SAC, in the manner described hereunder, as a going concern together with its assets both movable and immovable and liabilities, rights, duties and obligations, etc. of every description of slump value of Rs. 12.25 crores upon the coming into effect of the Scheme'." We further find that ultimately the shares were issued to the outside shareholders by the assessee-company in terms of the scheme sanctioned by the Hon'ble High Court. The allotment of shares was done on the basis of valuation report submitted by Deloitte Haskin & Sells. We also find that the Hon'ble High Court in the ....