TaxTMI 
TaxTMI 
1996 (1) TMI 375
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.... amalgamation of a company owning an industrial undertaking with another company and the Central Government, on the recommendation of the specified authority, is satisfied that the following conditions are fulfilled, namely :---- (a) the amalgamating company was not, immediately before such amalgamation, financially viable by reason of its liabilities, losses and other relevant factors ; (b) the amalgamation was in the public interest ; and (c) such other conditions as the Central Government may, by notification in the Official Gazette, specify, to ensure that the benefit under this section is restricted to amalgamations which would facilitate the rehabilitation or revival of the business of the amalgamating company, then, the Central Government may make a declaration to that effect and, thereupon, notwithstanding anything contained in any other provision of this Act, the accumulated loss and the unabsorbed depreciation of the amalgamating company shall be deemed to be the loss or, as the case may be, allowance for depreciation of the amalgamated company for the previous year in which the amalgamation was effected, and the other provisions of this Act relating to set-of....
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....ced upon receipt by the BIFR of a reference. Section 17 so far as is relevant reads thus : "17. Powers of Board to make suitable order on the completion of inquiry.---(1) If after making an inquiry under section 16, the Board is satisfied that a company has become a sick industrial company, the Board shall, after considering all the relevant facts and circumstances of the case, decide, as soon as may be by order in writing, whether it is practicable for the company to make its net worth exceed the accumulated losses within a reasonable time. (2) If the Board decides under sub-section (1) that it is practicable for a sick industrial company to make its net worth exceed the accumulated losses within a reasonable time, the Board, shall, by order in writing and subject to such restrictions or conditions as may be specified in the order, give such time to the company as it may deem fit to make its net worth exceed the accumulated losses. (3) If the Board decides under sub-section (1) that it is not practicable for a sick industrial company to make its net worth exceed the accumulated losses within a reasonable time and that it is necessary or expedient in the public interest to....
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....ssions made to it, the BIFR noted that it was not possible for Sharp Edge to make its net worth positive on its own and it was in the public interest to take such measures as might be feasible for its rehabilitation. Accordingly, in exercise of the powers under section 17(3) of the said Act, ICICI was appointed as the operating agency with the task of examining the viability of Sharp Edge and for preparing a scheme to rehabilitate it. On November 13, 1991, the BIFR observed that Sharp Edge's performance had significantly improved during the last two years mainly because of the management and financial support from the appellant and its net worth had become positive. The appellant was also doing quite well and had the necessary financial strength to rehabilitate its closely held subsidiary (Sharp Edge) without further financial reliefs and concessions. The BIFR then said : "In view of the consensus among the concerned parties for the long-term benefits to the sick company flowing from its merger with the parent company, the Bench acceded to the request of the company to allow the amalgamation of the two companies but without granting any benefits under section 72A of the Income-tax ....
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.... and solvency. It has been shown above that the sick company had generated cash profits in the preceding two years prior to the date of amalgamation, i.e., prior to April 1, 1991, and thus was in a stage of incipient sickness and potentially financially viable. This was thus the basis for the acceptance and sanction of the rehabilitation scheme. 27. Public interest has to be judged from a different standpoint. It has to be examined whether, if this income-tax benefit were not to be granted, the rehabilitation-cum-merger scheme would succeed or fail and if, in the event of the latter, the economic and social costs to the community would be such as to warrant the grant of the benefit. On the facts of the case, with both the companies having generated cash profits immediately preceding amalgamation, it can be safely said that the rehabilitation scheme would certainly go through, even without the grant of this benefit and that such a grant, if made, would be at the cost of the public exchequer and be thus altogether unwarranted and undeserved. It was not the intention of the Legislature while conferring this discretionary power on the BIFR/AAIFR, that it should be used so as to gran....
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....overnment from social costs in terms of loss of production and unemployment. With such objective in view, in order to facilitate the merger of sick industrial units with sound ones and as and by way of offering an incentive in that behalf, section 72A was introduced in the Act, whereunder, by a deeming fiction, the accumulated loss or unabsorbed depreciation of the amalgamating company is treated to be a loss or, as the case may be, allowance for depreciation of the amalgamated company in the previous year in which the amalgamation was effected; but the amalgamated company, although a successor-in-interest, would be entitled to carry forward and set-off the accumulated loss and unabsorbed depreciation of the amalgamating company only where the amalgamating company was not, immediately before such amalgamation, financially viable and the amalgamation was in public interest. The expression 'financial non-viability' has not been defined in the Act, but the Finance Minister's speech, the Notes on Clauses of the Bill and the Memorandum explaining the provisions thereof make it clear that the financial non-viability of an undertaking has been equated with the 'sickness' of such undertaki....