TaxTMI 
TaxTMI 
TaxTMI 
2025 (3) TMI 465
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....king permission to carry forward all losses of the companies that had amalgamated with the petitioner, for an extended period of three years. The said application was rejected by the impugned order. The petitioner had, thereafter, requested for reconsideration of the petitioner's request for relaxation, which was also rejected and the same was communicated to the petitioner by the impugned communication dated 30.06.2021. Thus, essentially, the petitioner seeks to assail the impugned order dated 25.10.2019 rejecting the petitioner's requests for relaxation of the conditions as prescribed under Rule 9C of the Rules. 3. The only controversy that requires to be considered is whether the impugned order rejecting the petitioner's request for relaxation of the conditions under Rule 9C of the Rules is arbitrary, unreasonable, and contrary to law. FACTUAL CONTEXT 4. This court had, by an order dated 13.08.2008 in Company Petition No.139/2008, sanctioned a scheme of arrangement (hereafter the Scheme) under Section 391-394 of the Companies Act, 1956 involving the petitioner. In terms of the Scheme, four separate companies, namely, (i) Cargill Foods India Ltd. (CFIL); ....
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....on. Further, it requires that the said minimum level of production be maintained at least for a year, that is, till the end of five years from the date of amalgamation. 10. In the petitioner's case, the said 50% of the installed capacity was achieved by three of the amalgamating companies, namely, (i) GOFL (ii) DFIPL and (iii) CMFPL. However, the industrial undertaking of CFIL located at Kurkumbh did not achieve the prescribed level of production. In the given circumstances, by the aforementioned letter dated 29.03.2011, the petitioner sought extension of three years for achieving the prescribed level of production. 11. The petitioner was called upon to approach the respondent after filing of the return for the financial year (FY) ending 31.03.2012. 12. Thereafter, the respondent sent a letter dated 20.01.2014 seeking (i) details of the production achieved for FYs 2011-12 and 2012-13; and, (ii) efforts taken for achieving the production level of 50% of the installed capacity and the circumstances under which the same was not achieved. The said communication was sent, in the context of the petitioner's request, for extension of three years, that is, upto 3....
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....the genuine efforts made by the amalgamated company to achieve the prescribed the level of production, and the circumstances which prevented the achieving of such prescribed level. He submitted that in the present case, the petitioner had submitted overwhelming material to establish that it had made genuine efforts to achieve the prescribed production capacity. He submitted that the petitioner had invested a sum of Rs. 176.95 crores in CFIL, which was twice the amount of the likely incentive considering that the brought forward loss and unabsorbed depreciation of CFIL was only Rs. 87 crores. He submitted that the said investment also exceeded 100% of the gross block of CFIL. He stated that the investments made were for increasing the overall efficiency and productivity and to remove bottlenecks, which were set out in detail in the communications sent by the petitioner. Further, he submitted that the petitioner had also provided sufficient material to establish that it was prevented from achieving the stipulated minimum level of capacity utilization due to various circumstances such as shortage of water, deteriorating power condition in the region, scarcity of primary fuel (sugarcan....
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....pplication but had only sought reconsideration of its application, which was rejected by the impugned order. He submitted that although there was no requirement for the competent authority to consider the same, nonetheless, the competent authority had considered and rejected the same. He contended that the letter dated 30.06.2021 merely conveyed the response of the Revenue to the petitioner's request for reconsideration of its application which was already rejected in terms of the impugned order. RELEVANT STATUTORY PROVISIONS 21. At the outset, it is relevant to refer to the relevant provisions of Section 72A of the Act as were in force at the material time. Reference to Section 72A of the Act in this order, unless the context indicates otherwise, is to the said Section as was in force on 01.04.2007 (the Appointed Date under the Scheme). Section 72A of the Act was amended by virtue of Act 14 of 2010, but the said amendments are not material to the controversy. The said Section was amended thereafter by the Finance Act 2023, (Act 8 of 2023). But the said amendments are inapplicable to the present case. 22. Section 72A of the Act allows set off and carry forward of losses of....
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....omplied with " [emphasis added] 23. The conditions as are required to be fulfilled in terms of sub- clause (iii) of Section 72A (2) (b) of the Act are prescribed under Rule 9C of the Rules. The said Rule is set out below: "9C. Conditions for carrying forward or set-off of accumulated loss and unabsorbed depreciation allowance in case of amalgamation. The conditions referred to in clause (iii) of sub-section (2) of section 72A shall be the following, namely:- (a) the amalgamated company, owning an industrial undertaking of the amalgamating company by way of amalgamation, shall achieve the level of production of at least fifty per cent of the installed capacity of the said undertaking before the end of four years from the date of amalgamation and continue to maintain the said minimum level of production till the end of five years from the date of amalgamation: Provided that the Central Government, on an application made by the amalgamated company, may relax the condition of achieving the level of production or the period during which the same is to be achieved or both in suitable cases having regard to the genuine efforts made by the am....
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....tion. PROVISO TO RULE 9C (a) - POWER TO RELAX 27. However, in terms of proviso to Rule 9C (a) of the Rules, the Central Government may, on an application, relax the said condition of achieving the level of production, or the period during which the same is to be achieved, or both in suitable cases having regard to the genuine efforts made by the amalgamated company to attain the prescribed level of production and the circumstances preventing such efforts from achieving the same. 28. As is apparent from the above, the proviso to Rule 9C (a) of the Rules is an enabling provision that empowers the Central Government to relax the stipulated conditions. This power is not unbridled but its exercise is guided by the considerations as set out in the proviso - (i) genuine efforts made by the amalgamated company to attain the prescribed level of production; and, (ii) the circumstances preventing such efforts from achieving the same. 29. As contended by the learned counsel appearing for the Revenue, the Central Government has a wide discretion in considering whether the conditions as stipulated under Rule 9C (a) of the Rule ought to be relaxed. However, it is also necessary to bea....
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....r 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 off and carry forward of loss and allowance for depreciation shall apply accordingly. (2) Notwithstanding anything contained in sub-section (1), the accumulated loss shall not be set off or carry forward and the unabsorbed depreciation shall not be allowed in the assessment of the amalgamated company unless the following conditions are fulfilled, namely:- (i) during the previous year relevant to the assessment year for which such set off or allowance is claimed, the business of the amalgamating company is carried on by the amalgamated company without any modification or reorganisation or with such modification or reorganisation as may be appr....
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....ailable only in the cases where such amalgamation would facilitate the rehabilitation and revival of the business. 34. Section 72A of the Act was substituted with effect from 01.04.2000. The scope of industrial undertaking was expanded to also include undertakings carrying on the business of telecommunication services, manufacturing computer software as well as generation and distribution of electricity and other forms of power. The benefit was also extended to a company owning hotel as well as to a banking company. However, the condition that the benefit be restricted only for revival of the business of amalgamating company, continued to be the substratal theme. The benefit was restricted to those cases where the amalgamated company fulfilled the condition, as may be prescribed; (i) to ensure revival of business of the amalgamating company; and (ii) to ensure that the amalgamation is for a genuine purpose. 35. Sub-section (2) of Section 72A of the Act, as substituted with effect from 01.04.2000, continues to read the same as in force at the material time [(that is prior to the Finance Act, 2025 coming into force)]. There were other amendments to Section 72A....
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....ed 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 undertaking and obviously in the context of its revival by a sound undertaking the sickness must be of a temporary character and not any basic or permanent sickness. An undertaking which is basically or potentially non-viable will ordinarily be incapable of revival and would face a closure; in other words, the financial non-viability spoken of by t....
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....how clause 12 in any manner restricts the Central Government's power to fix a uniform retention price for all the units specified in the Schedule to the Order, even though different prices were specified in the Schedule as initially enacted. The Central Government's power to refix the price can be exercised 'having regard to any change in any of the factors relevant for determination of price of cement'. The meaning of the expression 'having regard to' is well settled. It indicates that in exercising the power, regard must be had also to the factors enumerated together with all factors relevant for exercise of that power. One such factor specified in clause 12 is "such as an increase or decrease in the cost of production or distribution". Admittedly, the fixation of the uniform retention price at Rs 100 per tonne was made on the industry's demand for revision of the price as a result of increase in the cost of production, the only dispute between the industry and the Central Government being with regard to the extent of increase and not to the effect of increase or the mode of increase by fixation of a uniform price. It is, therefore, difficult to appreciate the support....
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....g the extended period of three years as was sought by the petitioner. 44. According to the petitioner, the said decision is vitiated by illegality as it disregards the relevant considerations as set out in the proviso to Rule 9C (a) of the Rules, namely, the efforts made by the petitioner to achieve the reasonable capacity utilization and the reasons that prevented the petitioner from achieving the same. 45. Whilst the contentions advanced on behalf of the petitioner appear to be attractive at the first blush, a closer examination of the same would indicate that the same are unmerited. This is so because in the first instance, the petitioner had sought for relaxation of the requisite Rule by citing various reasons to buttress its claim that it had made genuine efforts for revival of the industrial undertaking of the amalgamating company but was prevented by mitigating circumstances. But, the condition as specified - that is, achieving production equivalent to at least 50% of the installed capacity of the undertaking of the amalgamating company - was not satisfied even if the extended time for satisfying the same was taken into account. Thus, the impugned order/decision to den....
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....h essentially were in the nature of business vagaries. It is also material to note that petitioner's application dated 29.03.2011 was filed with the CBDT on 30.03.2011, that is, one day prior to the expiry of period of four years during which threshold capacity was required to be achieved. 50. The petitioner's application was rejected on the ground that it had failed to achieve the production level even after considering the extended period of three years as sought by the petitioner. Thus, the contention that the Central Government had rendered a decision in disregard of the relevant factors, namely, the efforts made by the petitioner to achieve the requisite level of production capacity and the circumstances that prevented it from doing so is clearly unmerited. The impugned order is premised on the basis that even if the conditions as mentioned by the petitioner are accepted, it had failed to achieve the requisite level of production capacity. The impugned order does not indicate that the two factors as stated above were disregarded. The impugned order was passed after the extended period of three years - the relaxation as sought by the petitioner - had expired. The concerned a....
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.... to achieve revival of the unviable industrial undertakings. 56. Mr. Sawhney, the learned counsel for the petitioner had referred to the decision of the Supreme Court in Commissioner of Income-tax v. Mahindra & Mahindra Ltd. and on the strength of the said decision submitted that the power to grant exemption must be construed liberally and from a businessman point of view. It is relevant to note that the said decision was rendered in the context of Section 72A of the Act as introduced by Finance Act, 1997. The discussion was in the context of granting such benefit by the Central Government keeping in view the guidelines and the object of introducing Section 72A of the Act. The said objective being to incentivize revival of financially unviable industrial undertakings. The Supreme Court noting the objective of introducing Section 72A of the Act had made observations to the effect that the Central Government must extend the benefit by construing the financial unviability from a businessman's perspective and in a commercial sense. The sweep of the main section - which is to provide incentive to encourage revival of financially unviable industrial undertaking - is required to be int....
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....of the Act, in a case of amalgamation of certain companies (including company owning an industrial undertaking), the accumulated loss and unabsorbed depreciation is deemed to be a loss or allowance of the amalgamated company for the previous year in which the amalgamation is affected. According to the petitioner, it is permissible to carry forward the unabsorbed losses, depreciation allowance of an amalgamated company for further eight assessment years notwithstanding that the amalgamating company could not have carried forward the loss if it was not dissolved on account of amalgamation with the amalgamated company. 61. However, as noted above, this benefit is subject to the amalgamated company complying with certain conditions as stipulated in Sub-section (2) of Section 72A of the Act. A plain reading of the said conditions clearly indicates that the said conditions have been stipulated to preclude abuse of the said provision by profit making companies amalgamating with loss making companies solely to avoid tax without any intention of continuing the business. It is also apparent that the rationale is to ensure that the business of amalgamating company continues and sustains. I....