TaxTMI 
TaxTMI 
1983 (5) TMI 55
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....e case. 2. The assessee, Straw Products Ltd., during the relevant year carried on business in the manufacture and sale of a variety of high quality papers, including coated papers. The registered office of the assessee-company during the relevant period was at Jaykaypur, Rayagada, District Koraput (Orissa), and its Calcutta Office located at 7, Council House Street, Calcutta. For the previous year ending 31-12-1976, relevant for the assessment year 1977-78, the company filed its return of income showing a loss of Rs. 3,47,15,126. The ITO determined the total income of the assessee at nil after setting off Rs. 1,26,892 being a portion of the carried forward unabsorbed development rebate of Rs. 44,91,590. The ITO recorded in the assessment order that the assessee-company took over the non-banking assets and liabilities of Dena Bank Ltd. with effect from 1-1-1976 as per amalgamation order of the Orissa High Court dated 26-4-1976 and in terms of the Bombay High Court order dated 6-4-1976 as modified by a subsequent order of the same High Court dated 8-7-1976. The ITO in the assessment disallowed Rs. 74,609 out of total legal expenses claimed at Rs. 3,40,880 for which details were subm....
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.... to be allotted on pro rata basis where the equity holding of the members of the transferor company were less or in excess of 10 shares or multiple of 10 shares. The new equity shares and new preference shares allotted to the members of the transferor company were to rank pari passu with the existing equity and preference shares for dividend declared in respect of the accounting year of the transferee company commencing from 1-1-1976 and subsequent accounting years. The scheme also provided the manner in which the convertible bonds could be converted into equity shares of the transferee company. The holders of the convertible bonds had the right during the period of six months on the expiry of the fifth year of the effective date to receive in exchange of every such bond 5 equity shares of the face value of Rs. 10 each, credited as fully paid-up in the capital account of the transferee company each valued at Rs. 20 per share, i.e., at a premium of Rs. 10 per share. It was further stipulated that such of those shareholders of Dena Bank Ltd., who were not willing to receive the aforesaid entitlements could exercise option for cash compensation at the rate of Rs. 120 per every equity ....
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....3 pages and gives the details of the work done from 19th May, 1975 to 13th December, 1976 (although the charges for each specific item and the fees to the counsel have not, in most cases, been mentioned). Out of this amount it has been stated by the assessee that Rs. 55,000 had been paid or adjusted in 1976 and the balance in the accounts of the next year. The bill is styled : 'Re. The scheme of amalgamation of Dena Bank Ltd., with Straw Products Ltd. and Re. Company Petition No. 4 of 1975 filed by your Company (Straw Products Ltd.) under section 391/394 of the Companies Act, 1956, in the High Court of Judicature at Cuttack, Orissa and Re. High Court (Bombay) Company Petition No. 584 of 1975 Dena Bank Ltd., and Re. (1) Letters of Opinion. (2) Counsel Advice in conference and their written opinions. Bill of costs of and incidental to the above matters.' A Memo of fees for Rs. 25,000 dated 27-5-1976 was rendered by Shri M.R. Shroff of J.K. Building, Naraottam Morarji Marg, Ballard Estate, Bombay to the assessee giving narration 'Towards professional fees for services rendered in connection with Dena Bank Ltd. Straw Products Ltd. merger'. This amount has been debited to the lega....
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.... about the merger in the circumstances could not be considered as a capital expenditure. In this connection it has been pointed out that in the assessment year 1978-79, the disallowance made by the ITO of a sum of Rs. 69,508, being the legal expenses incurred in connection with the amalgamation of Dena Bank Ltd. and Madhya Pradesh Industries Ltd. with the appellant company, was deleted by the Commissioner (Appeals) as per order dated 30-4-1982. The department did not prefer any appeal on this account even though an appeal has been filed before the Tribunal against the Commissioner (Appeals)'s order on some other grounds. In support a copy of the grounds of appeal in the case of Straw Products Ltd. for the assessment year 1978-79 filed by the ITO, has been furnished. It has been stated that the assessee's case is squarely covered by the Madras High Court decision in the case of Addl. CIT v. W.A. Beardsell & Co. (P.) Ltd. [1981] 130 ITR 159, wherein the legal expenses incurred for getting the scheme of amalgamation approved by the High Court has been allowed as a revenue expenditure. Since the Madras High Court decision was the only direct case on the point at issue, the principle en....
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....ill left a very substantial amount in the hands of the transferor company. The board of directors of the transferor company had been looking out for profitable outlets for utilising the amount of compensation that had been received from the Central Government under the Acquisition Act and after due deliberation, the board of directors of the transferor company decided that it would be in the interests of the shareholder to amalgamate with a reputed running concern, so that on such amalgamation, the shareholders of the transferor company would get the advantage of immediate good earnings out of the existing business of such a running company. Negotiations were undertaken with a view to amalgamate the transferor company with the petitioner company. The petitioner company though solvent and possessed of assets in excess of its liabilities, as would appear from its latest balance sheet and profit and loss account, was looking for more funds for the purpose of locating a new plant for the manufacturing industrial packing and base paper for which an industrial licence has already been granted by the Government of India. As a result of the negotiations and discussions carried on by and on....
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....n by the learned counsel helps the assessee. In the case of W.A. Beardsell & Co., the assessee was the managing agent of another company. The assessee and the managed company applied to the High Court for approval of a scheme of amalgamation and succeeded in that application. The successor-company claimed the share in the legal expenses of the assessee-company for getting the scheme of amalgamation approved as a deduction as being in the nature of revenue expenditure. This claim was negatived by the ITO and the AAC, but upheld by the Tribunal. Their Lordships of the Madras High Court, by following the Supreme Court decision in the case of CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140, held : "...that the expenditure had been incurred by the assessee-company in their capacity as persons carrying on the business with the object of carrying on their business to their advantage and not for acquiring any capital asset of an enduring nature. The expenditure was incurred for getting more profits and, hence, the Tribunal was right in its view that the expenditure in question was revenue in nature and accordingly allowable. " The ITO disallowed the expenditure in that case, as he th....