TaxTMI 
TaxTMI 
2025 (4) TMI 674
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....lue of the assets of the amalgamating companies on the basis depreciation actually allowed to them and to claim depreciation on such adjusted written down value of the assets of the amalgamating companies?" 2. Some few facts are relevant to answer the substantial question of law which arises in this appeal. The appellant is a company incorporated under the provisions of the Companies Act, 1956 and is engaged in the business of manufacture and sale of aluminium based presensitised lithographic plates, chemicals and polyester based reprographic films for printing and other allied image transfer industries. Respondent no.1 is the Assessing Officer, who has passed the assessment order for the assessment year 1992-93 and respondent no.2 is the Commissioner of Income-tax who at the relevant time had jurisdiction and administrative control over the appellant's case. 3. The appellant at the relevant time was assessed by the Assistant Commissioner of Income-tax, Circle-7 (3), Mumbai and the Commissioner of Income-tax having jurisdiction over the appellant's case is Commissioner of Income-tax, City-VII, Mumbai. 4. TechNova Graphic Systems Pvt. Ltd. had filed a petition befor....
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.... of the amalgamating companies in its return of income but had calculated depreciation by taking the written down value of the assets of the amalgamating companies on the basis of depreciation which was actually allowed to them. 7. The assessment for the assessment year 1991-92 was completed under Section 143 (3) of the IT Act vide order dated 10/03/1994 determining net loss of Rs. 27,25,537/-. The Assessing Officer inter alia restricted the depreciation allowance to Rs. 48,49,643/- as against the claim of Rs. 63,80,841/- made by the appellant. The Assessing Officer held that under the provisions of Section 72A of the IT Act which specifically dealt with situation relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowances in certain cases of amalgamation, a specific order of the Central Government had to be obtained which was not obtained by the appellant. The Assessing Officer therefore ignored the unabsorbed depreciation of Rs. 48,85,213/- of the amalgamating companies. 8. On appeal, the Commissioner of Income-tax (Appeals) vide his order dated 05/07/1995 allowed the appeal of the appellant as regards computation of depreciation allowan....
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.... the basis of the written down value of the assets in the books of amalgamating (transferor) companies ignoring the unabsorbed depreciation, that is, depreciation which was not actually allowed. 12. Being aggrieved by the assessment order dated 28/02/1995 passed under Section 143 (3) of the IT Act for the assessment year 1992-93, the appellant filed an appeal before the Commissioner of Income-tax (Appeals) on 30/03/1995. 13. The Commissioner of Income-tax (Appeals) disposed of the appeal of the appellant by order dated 18/10/1995 inter alia allowing the grounds of appeal regarding determination of written down value of assets acquired on amalgamation following its own order dated 05/07/1995 for assessment year 1991-92. 14. The Assessing Officer filed an appeal against the order of the Commissioner of Income-tax (Appeals) before the Tribunal. 15. Learned counsel for the appellant submits that when the appellant's authorised representative made a request for adjournment as the appeal for assessment year 1991-92 was still pending before the Tribunal, the Tribunal, rejected the appellant's request for adjournment. The Tribunal by its impugned order dated 10/01/2003 ....
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....Mad.), in support of his submissions. Learned counsel invited our attention to the findings of the Commissioner of Income-tax (Appeals). Our attention is invited to the various statutory provisions which have been discussed in the order of the Commissioner of Income-tax (Appeals). 17. On the other hand, Shri Suresh Kumar, learned counsel appearing for the Revenue supported the order of the Tribunal. It is submitted that as there was no approval of the Central Government under Section 72A and that legal position obtaining prior to insertion of Section 72A of the IT Act as amended by Finance Act, 1978 has been relied upon by the Commissioner of Income-tax (Appeals), the Tribunal rightly came to the conclusion that the order passed by the Commissioner of Income-tax (Appeals) deserves to be set aside. He submits that the impugned order does not call for any interference. 18. For a proper appreciation of controversy, we straight away refer to the order passed by the Commissioner of Income-tax (Appeals) on 05/07/1995 for the assessment year 1991-92. Though this appeal concerns the order dated 18/10/1995 passed by the Commissioner of Income-tax (Appeals), but the Commissioner of Inc....
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.... the previsions of sub-sec. (2) of Sec. 72 and sub-sec. (3) of Sec. 73, the allowance or part of allowance to which effort has not been given, as the case may be, shall be added to the amount of allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years." Pursuant to the scheme of Amalgamation all assets and liabilities of TechNova Graphic Systems Pvt. Ltd. (TGS) and Image Print Makers Pvt. Ltd. (IPM) vested in the Appellant Company with effect from 1.4.1990 and TGS and IPM were dissolved and ceased to own assets and to carry on business, the unabsorbed depreciation could not be given effect to in their own assessments for the Asst. year under appeal in accordance with the provisions of Section 32 (2) of the Act. Therefore, Section 32 (2) breaks down. Attention, in context of this proposition invited to the judgment of Hon'ble Cupreme Court in the case of CIT Vs. B.C. Shrinivasa Shetty, reported in (1981) 128 ITR 294. On page 299 of the report the Hon'ble Supreme Court observed as....
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....ious year as reduced by the amount of depreciation actually allowed in relation to the said preceding previous year. Explanation 3. Any allowance in respect of any depreciation carried forward under sub-section (2) of Section 32 shall be deemed to be depreciation "actually allowed". 9.4 It has been further argued that Explanation 3 deems depreciation carried forward under Section 32 (2) to be actually allowed. In view of this it has been argued that Explanation 3 to Section 43 (6) becomes inoperative and redundant for the purpose of the appellant where amalgamating companies have merged into the amalgamated company. (the assessee) by order of the Bombay High Court. My attention was also invited to the observations of the Supreme Court in the case of Madeya Upendra Sinal v/s. Union of India, reported in (1975) 98 ITR 209, wherein at page 223 it has been observed as under : "The pivot of the definition of "written down value" is the "actual cost of the assets, where the assets are acquired and also used for the business in the previous year, such value would be its full actual cost and the depreciation for that year would be allowed at the prescribed rate o....
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....erved that -- "Accordingly, in our judgment, Explanation 3 is not attracted in the present case. In this view of the matter, it has to be held that the written down value of the assets in this case will be the actual cost of the assets to Lube India Ltd., less depreciation actually allowed to the Company. The unabsorbed depreciation which is not to be set off or carries forward should not be taken into account. 9.6. With regard to the assessing officer taking resort to Section 72A, It has been stated by him that Section 72A of the Act is a very specific section for carry forward of unabsorbed depreciation and unabsorbed losses, the assessee is entitled to carry forward the same only if it is approved by the Central Government. It has been stated by the appellant that the provisions of said section are not applicable to the facts of its case. Section 72A of the Act is an enabling provision for "carry forward and set off" of accumulated losses and unabsorbed depreciation allowance. It may be noted that the Appellant did not claim carry forward of unabsorbed depreciation of amalgamating Companies in its own assessment. The Appellant's claim was with reference to ....
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....d land, factory building, plant and machinery, book debts and inventory and also personal guarantee of the Directors. The market value of the assets hypothecated to the banks far exceeded the outstanding loans. All the companies were prompt in meeting their obligations of repayment of installments and interest. There were no outstanding installments or any default in payment of interest. In view of this, it cannot be said that the amalgamation was in interest of banks, as their interest was never in jeopardy. (iii) The amalgamating companies were prompt in payment to their creditors for goods and services. Even if they were not amalgamated with the Appellant, they were in a position to meet their obligations. (iv) TechNova Graphic Systems Pvt. Ltd. was engaged in manufacture of polyster based reprographic films for printing and other allied industries, such as tracing film, masking film. These products were substituted for paper based products. But for amalgamation, if said company had discontinued its activities, the interest of consumers would not have sufferer, as they could very well use paper based similar products which are available in market in su....
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....ance in respect of any depreciation carried forward u/sub-sec. (2) of Section 32 shall be deemed to be depreciation "actually allowed". I agree with the appellant that since the Company is amalgamated there is no question of carry forward of depreciation U/0.32 (2) and therefore, it breaks down. In so far as the case of amalgamation is concerned, it has been clearly pointed out by the Bombay High Court in the case of CIT V/s. Hindustan Petroleum Corporation Ltd. (187 ITR 1) that Expln. 3 to Sec. 43 (6) would not be attracted in the case of the appellant as it is not the case of carry forward of depreciation U/s.32 (2). Since the two Companies have merged without winding up with the appellant Company, they cease to be Companies on which Sec.32 (2) is applicable. Explanation 3 to Section 43 (6) exclusively deals with carry forward of unabsorbed depreciation in case thẹ Соmраnу is in existence in the subsequent year. Thus the applicability of Explanation 3 is also ruled out in the case of the merging companies. In the absence of Explanation 3, we are left with Explanation 2(b) where depreciation actually allowed had to be taken into consideration fo....
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....gwith the various Supreme Court Judgments defining the term 'actually allowed', I hold that the unabsorbed depreciation of the amalgamating company should be added to the W. D. V. of the block of assets. In view of this appellant's claim succeeds." 19. The analysis of the relevant provisions of the IT Act is necessary. Section 43 of the IT Act provides the definition of certain terms relevant to the profits and gains of business or profession. Section 43 (1) of the IT Act provides for definition of "actual cost". Section 43 (6) provides for the definition of "written down value". As far as the assets which are transferred under the scheme of amalgamation or merger is concerned, Explanation 2 of sub-section (6) is relevant. Explanation 2 substituted the original Explanation 2 and 2A by the Taxation laws (Amendment and Miscellaneous Provisions) Act, 1986 with effect from 01/04/1988. Explanation 2A was later on inserted by Finance Act, 2000 with effect from 01/04/2000. Explanations 2 and 3 which are relevant to the case in hand are already reproduced hereinbefore which form part of paragraph 9.3 of the order passed by the Commissioner of Income-tax (Appeals). 20. At ....
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.... 19. Thus Explanation 3 was not attracted to the present case. The Bombay High Court pointed out that going by Explanation 2A, the written down value of the assets at the hands of the amalgamated company would be the actual cost of the assets to the amalgamating company, less depreciation actually allowed to the company. The unabsorbed depreciation, which was not to be set off for carry forward, could not be taken into account. 20. In coming to the conclusion, the Bombay High Court pointed out that the legal position about the unabsorbed depreciation is that, under normal circumstances, it is not carried forward as such, but is added to the depreciation for the following previous year and deemed to be a part of that allowance. This would be possible only if the assessee continued to carry on business in the following years. Thus, when the company is not in existence, the unabsorbed depreciation could not, under Section 32 (2), be treated and/or allowed as depreciation of the current year. 21. The Bombay High Court further pointed out that the main purpose of Explanation 3 was to avoid an anomaly, which would have otherwise resulted, but for Explanation 3. After....
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....f a depreciation is not actually carried forward, is likely to cause injustice. Thus, Explanation 3 was not attracted to the case and the written down value of the assets would be the actual cost of the assets to the amalgamating company, less depreciation actually allowed to the company and the unabsorbed depreciation, which is not to be set off or carried forward should not be taken into account. 23. As far as the present case is concerned, it is no doubt true that Explanation 2 is not similarly worded as Explanation 2A, which was considered by the Bombay High Court. The provisions contained in Explanation 2, applicable to the present case, in fact, brings out the intention better and is crisp in its language, as is evident from a reading of Explanation 2. As per Explanation 2, the actual cost of the block of assets at the hands of the amalgamated company is "the written down value of the block of assets" as in the case of the transferor company or the amalgamating company for the immediately preceding previous year as reduced by the amount of depreciation actually allowed in relation to the said immediately preceding previous year. The use of the phrase "for the immedia....
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....ting that Section 72A of the IT Act is a very specific section for carry forward and set off of unabsorbed depreciation and accumulated loss and the assessee is entitled to carry forward only if there is approval by the Central Government. On the other hand, it is the case of the appellant that Section 72A of the IT Act is not applicable to the facts of this case. The appellant did not claim carry forward of unabsorbed depreciation of amalgamation of amalgamating companies in its own assessment. The appellant's claim was with reference to the adoption of "correct written down value" of the block of assets of the amalgamating company which vested in the appellant pursuant to the scheme of amalgamation. According to learned counsel for the appellant, provisions of Section 72A are not applicable as none of the amalgamating companies namely TechNova Graphic Systems Pvt. Ltd. and TechNova Imaging Systems Limited was not financially nonviable. Secondly, if public interest has to be adjudged from the point of view of the share holders, bank financial institution, creditors, consumers, then for the sound reasoning in paragraph 9.6 in the order of the Commissioner of Income-tax (Appeals), w....