TaxTMI 
TaxTMI 
1996 (11) TMI 6
X X X X Extracts X X X X
X X X X Extracts X X X X
....ounting year of the subsidiary company was the calendar year. On December 1, 1982, two letters were addressed by the subsidiary company to the Income-tax Officer stating that the company is desirous of effecting a change in the accounting year. They stated that they would wish to close their accounts on June 30, 1983, for the eighteen months' period (January 1, 1982, to June 30, 1983) instead of closing the accounts on December 31, 1982. It was also stated that since the accounting year of the holding company ends on June 30, they too would like to follow the same practice. In response to the said letters, the Income-tax Officer asked for certain particulars which were supplied. On February 3, 1983, the Income-tax Officer permitted the subsidiary company to change the accounting year from December 31, 1982, to June 30, 1983, subject to the conditions mentioned therein, viz. : " As a consequence to the change, the income of the period of 18 months from January 1, 1982 to June 30, 1983, will be assessed for the assessment year 1984-85. Any relief that may be withdrawn in the future legislation with effect from the assessment year 1984-85 will be made applicable to the entire incom....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... not necessary to mention at this stage. Ultimately, the Income-tax Officer issued a notice under section 142(1) asking for compliance with it by February 7, 1986. At that stage, the appellant-company filed writ petitions in the Madras High Court questioning the aforesaid notices. In the writ petitions filed by the appellant, the main ground urged was that inasmuch as the amalgamation has taken effect on and from January 1, 1982, the Income-tax Officer had no authority to call upon the subsidiary company to file a return for any period subsequent thereto. It was submitted that the scheme of amalgamation has been sanctioned by the company courts at Madras and Calcutta and that, therefore, any business which may have been carried on by the subsidiary company subsequent to January 1, 1982, was as an agent of the holding company and not on its own account. It was submitted that the subsidiary company had no income of its own---indeed no existence of its own in law on or after January 1, 1982. In the counter-affidavit filed by the Income-tax Officer, he submitted that the amalgamation became effective only when it was sanctioned by the court and after certified copies of the orders o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation as January 1, 1982, has no relevance or meaning. The amalgamation becomes effective only when the court approves the scheme of amalgamation and not at any earlier point of time. In other words, the operative dates would be January 20, 1984, and February 24, 1984, on which dates the Madras and Calcutta High Courts approved the scheme. There is nothing in the orders of the courts to show that the said orders were to be effective from January 1, 1982. (2) From the counter-affidavit, it appears that the subsidiary company was borne on the Register of Companies up to January 21, 1986. This shows that the company was in existence till that date and that it did not cease to exist, as a fact, on January 1, 1982. (3) In view of the aforesaid findings, it is not necessary to go into or express any opinion on the plea of the Income-tax Officer that the said amalgamation was merely a device to evade the payment of taxes legitimately due on the income of the subsidiary company. For the same reason, no opinion need be expressed on the objection of the Income-tax Officer with respect to the maintainability of the writ petition. Sri N. K. Poddar, learned counsel for the appellant, u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eetings were held). Both these dates are prior to June 30, 1983---the last day of the accounting year (as sanctioned by the Income-tax Officer); since the income of the company can be said to accrue only at the end of the year when the accounts are made up---and not from day to day---it must be held that no income accrued to the subsidiary company at the end of the said accounting year (January 1, 1982, to June 30, 1983); the income accrued only on June 30, 1983, and it accrued only to the holding company. On the other hand, Dr. R. R. Mishra, learned counsel for the Revenue, supported the reasoning and conclusion of the High Court. Learned counsel further submitted that the scheme of amalgamation was a mere device to evade the payment of taxes lawfully due according to law and that this is a good ground on which the income-tax authorities can ignore the alleged amalgamation, even if for any reason it can be held that it is effective from January 1, 1982. Counsel also submitted that the writ petition filed by the appellant ought to have been dismissed summarily on the ground that it was premature and that the appellant should have been directed to pursue the remedies provided by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... certified copy of the order has been filed with the Registrar. Section 394. Provisions for facilitating reconstruction and amalgamation of companies.---(1) Where an application is made to the court under section 391 for the sanctioning of a compromise or arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the court--- (a) that the compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of any company or companies or the amalgamation of any two or more companies; and (b) that under the scheme the whole or any part of the undertaking, property or liabilities of any company concerned in the scheme (in this section referred to as a 'transferor company') is to be transferred to another company (in this section referred to as 'the transferee company'); the court may, either by the order sanctioning the compromise or arrangement or by a subsequent order, make provision for all or any of the following matters :--- (i) the transfer to the transferee company of the whole or any part of the undertaking property or liabilities of any transferor company; ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....default, shall be punishable with fine which may extend to fifty rupees. (4) In this section--- (a) 'property' includes property, rights and powers of every description; and 'liabilities' includes duties of every description; and (b) 'transferee company' does not include any company, other than a company within the meaning of this Act; but 'transferor company' includes any body corporate, whether a company within the meaning of this Act or not. " Section 394A provides that on every application under section 391 or section 394, the court shall give notice of such application to the Central Government and shall take into consideration the representations, if any, made to it by that Government before passing any order under any of the said sections. Rules 67 to 87 of the Companies (Court) Rules, 1959, deal with matters provided by sections 391 to 394. The form in which several notices contemplated by sections 391 and 394 and rules 67 to 87 are to be issued are prescribed in Forms Nos. 33 to 42 appended to the Companies (Court) Rules. The effect and scheme of the above provisions, in so far as it is relevant to the facts of the case before us, may be summarised thus : ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....panies (Court) Rules. We may now refer to the scheme of amalgamation as passed at the meetings of the shareholders of both the holding and the subsidiary companies. " Transferor company " is defined to mean the " subsidiary company " and the expression " transferee company " is defined to mean the " holding company ". The expression " this scheme " is defined to mean " this scheme in the present form or with any modifications approved or imposed by the High Court of Judicature at Tamil Nadu and/or by the High Court of Judicature at Calcutta ". The expression " the transfer date " is defined to mean " January 1, 1982 " and the expression " the operative date " means the date on which the certified copies of the orders of the High Courts of Tamil Nadu and Calcutta under section 391(2)/394(2) of the Act shall have been filed with the Registrars of Companies in Tamil Nadu and Calcutta, respectively. The expression " terminal date " is defined to mean the date immediately preceding the operative date. The scheme refers to the capital structure of the transferor and the transferee companies, the object of the scheme underlying the agreement between the parties and then states : " 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ransfer date and that the subsidiary company shall be amalgamated with the holding company with effect from the said date. Clause 6 states clearly that the implementation of the said scheme " is conditional upon the scheme being sanctioned under section 391 of the Act and the appropriate orders for the implementation of this scheme being made under section 394 of the Act by the High Courts of Tamil Nadu and Calcutta ". Clause 8 further provides that the implementation of the said scheme " is conditional also upon the shareholders holding not less than nine-tenths in value of the shares in the subsidiary company becoming shareholders of the holding company by virtue of the amalgamation ". It is on the basis of the language of clauses 7 and 8 that the High Court has opined that the scheme takes effect only on and from the date it was sanctioned by the High Courts of Madras and Calcutta coupled with the date on which the shareholders of the subsidiary company become the shareholders of the holding company as provided in the sub-clauses. The High Court has opined that the transfer date mentioned in the scheme, viz., January 1, 1982, is " totally artificial and arbitrary " (for the reas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tions 391 to 394A and the relevant rules have to be followed and complied with. During the period the proceedings are pending before the court, both the amalgamating units, i.e., the transferor company and the transferee company may carry on business, as has happened in this case, but normally provision is made for this aspect also in the scheme of amalgamation. In the scheme before us, clause 6(b) does expressly provide that with effect from the transfer date, the transferor company (subsidiary company) shall be deemed to have carried on the business for and on behalf of the transferee company (holding company) with all attendant consequences. It is equally relevant to notice that the courts have not only sanctioned the scheme in this case, but have also not specified any other date as the date of transfer/amalgamation. In such a situation, it would not be reasonable to say that the scheme of amalgamation takes effect on and from the date of the order sanctioning the scheme. We are, therefore, of the opinion that the notices issued by the Income-tax Officer (impugned in the writ petition) were not warranted in law. The business carried on by the transferor company (subsidiary comp....