Appeal No 91 of 1976
From the Judgment and Order dated 154
1975 of the Punjab and Haryana High Court in IT Reference No 14 of 1972
Bishamber Lal and Ms Geetanjali Madan for the Appellant
Gauri Shanker Manoj Arora section Rajappa and Ms A Subhashini for the Respondent
The Judgment of the Court was delivered by SINGH J
This appeal is directed against the judgment and order of the Punjab and Haryana High Court dated 1541975 answering the Income Tax Reference made to it by the Income Tax Appellate Tribunal
Briefly the facts giving rise to this appeal are that the appellant Saraswati Industrial Syndicate is a limited company carrying on business of manufacturing and sale of sugar and machinery for sugar mills and other industries
Another company namely the Indian Sugar and General Engi neering Corporation hereinafter referred to as the Indian Sugar Company  was also manufacturing machinery parts for sugar mills
On 28th September 1962 under the orders of the High Court the Indian Sugar Company was amalgamated with the appellant company
After the amalgamation the Indian Sugar Company lost its identity as it did not carry on any busi ness
Prior to the amalgamation the Indian Sugar Company had been allowed expenditure to the extent of Rs58735 on accrual basis in its earlier assessment
The company had shown the aforesaid amount as a trading liability and the said trading liability was taken over by the appellant company
After amalgamation the appellant company claimed exemption on the amount of Rs58735 from income tax for the assessment year 1965 66 on the ground that the amalgamated 335 company was not liable to pay tax under Section 411 of the Income Tax Act 1961 hereinafter referred to as the Act  as the expenditure had been allowed to the erstwhile Indian Sugar Company which was a different entity from the amalga mated company
The Income Tax Officer disallowed the appel lant s claim for exemption
The assessee filed appeal before the Appellate Assistant Commissioner who confirmed the order of the Income Tax Officer
The assessee thereafter pre ferred appeal before the Income Tax Appellate Tribunal
The Tribunal allowed the appeal on the construction of Section 411 of the Act
The Tribunal held that after the amalgama tion of the Indian Sugar Company with the assessee company the identity of the amalgamating company was lost and it was no longer in existence therefore the assessee company was a different entity not liable to tax on the aforesaid amount of Rs58735
On the Department s application the Tribunal referred the following question to the High Court Whether on the facts and circumstances of the case the Tribunal was justified in law in holding that the amount of Rs58735 was not chargeable to tax under sub section 1 of Section 41 of the Income Tax Act 1961 for the assessment year 1965 66 The High Court answered the question in favour of the Reve nue holding that the exemption from tax liability claimed by the appellant assessee was chargeable to tax under Section 411 of the Act
The High Court held that on the amalgama tion of the two companies neither of them ceased to exist instead both the amalgamating companies continued their entities in a blended form
It further held that the amalga mated company was a successor in interest of amalgamating company and since the assets of both the companies were merged and blended to constitute a new company the liabili ties attaching thereto must therefore be on the amalgamat ed company
On these findings the High Court held that the amalgamated company namely the assessee was liable to pay tax on Rs58735 which came into its hands from the assets of the Indian Sugar Company
The assessee made application before the High Court under Section 261 of the Act read with Section 109 of the Code of Civil Procedure for certificate to appeal to this Court but the High Court dismissed the same
The appellant thereupon approached this Court by means of special leave petition under Article 136 of the Constitution
This Court granted leave
Hence this appeal
Section 411 of the Act reads as under 336 11
Whether an allowance or deduction has been made in the assessment for any year in respect of loss expenditure or trading liability incurred by the assessee and subsequently during any previous year the assessee has obtained
whether in cash or in any other manner whatsoever any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof the amount obtained by him or the  value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accord ingly chargeable to income tax as the income of that previ ous year whether the business or profession in respect of which the allowance or deduction has been made is in exist ence in that year or not  Section 411 has been enacted for charging tax on profits made by an assessee but it applies to the assessee to whom the trading liability may have been allowed in the previous year
If the assessee to whom the trading liability may have been allowed as a business expenditure in the previous year ceases to be in existence or if the assessee is changed on account of the death of the earlier assessees the income received in the year subsequent to the previous year or the accounting year cannot be treated as income received by the assessee
In order to attract the provisions of Section 411 for enforcing the tax liability the identity of the assessee in the previous year and the subsequent year must be the same
If there is any change in the identity of the assessee there would be no tax liability under the provi sions of Section 41
In Commissioner of Income Tax Madhya Pradesh vs Hukumchand Mohanlal this Court held that the Act did not contain any provision making a succes sor in a business or the legal representative of an assessee to whom the allowance may have been already granted liable to tax under Section 411 in respect of the amount remitted on receipt by the successor or by the legal representative
ln that case the wife of the assessee on the death of her husband succeeded to the business carried on by him
Another firm which had recovered certain amounts towards the sales tax from the assessee s husband succeeded in an appeal against its sales tax assessment and thereupon the firm refunded that amount to the assessee which was received during the relevant accounting period
The question arose whether the amount so received by the assessee could be assessed in her hands as a deemed profit under Section 411 of the Act
This Court held that Section 41 did not apply because the assessee sought to be taxed was not the assessee as contemplated by Section 411 as the husband of the asses 337 see had died therefore the Revenue could not take advantage of the provisions of Section 411 of the Act
The question is whether on the amalgamation of the Indian Sugar Company with the appellant company the Indian Sugar Company continued to have its entity and was alive for the purposes of Section 411 of the Act
The amalgamation of the two companies was effected under the order of the High Court in proceedings under Section 391 read with Sec tion 394 of the 
The Saraswati Industrial Syndicate the transferee company was a subsidiary of the Indian Sugar Company namely the transferor company
Under the scheme of amalgamation the Indian Sugar Company stood dissolved on 29th October 1962 and it ceased to be in existence thereafter
Though the scheme provided that the transferee company the Saraswati Industrial Syndicate Ltd undertook to meet any liability of the Indian Sugar Company which that company incurred or it could incur any liabili ty before the dissolution or not thereafter
Generally where only one company is involved in change and the rights of the share holders and creditors are varied it amounts to reconstruction or reorganisation or scheme of arrangement
In amalgamation two or more companies are fused into one by merger or by taking over by another
Reconstruction or amalgamation  has no precise legal mean ing
The amalgamation is a blending of two or more existing undertakings into one undertaking the share holders of each blending company become substantially the share holders in the company which is to carry on the blended undertakings
There may be amalgamation either by the transfer of two or more undertakings to a new company or by the transfer of one or more undertakings to an existing company
Strictly amalgamation  does not cover the mere acquisition by a company of the share capital of other company which remains in existence and continues its undertaking but the context in which the term is used may show that it is intended to include such an acquisition
See Halsbury s Laws of Eng land 4th Edition Vol
7 Para 1539
Two companies may join to form a new company but there may be absorption or blend ing of one by the other both amount to amalgamation
When two companies are merged and are so joined as to form a third company or one is absorbed into one or blended with another the amalgamating company loses its entity
In Ms General Radio and Appliances Co Ltd  Ors
MA Khader dead by Lrs 1986 2 SCC 656 the effect of amalgamation of 338 two companies was considered
Ms General Radio and Appli ances Co Ltd was tenant of a premises under an agreement providing that the tenant shall not sub let the premises or any portion thereof to anyone without the consent of the landlord
Ms General Radio and Appliances Co Ltd was amalgamated with Ms National Ekco Radio and Engineering Co Ltd under a scheme of amalgamation and order of the High Court under Sections 391 and 394 of 
Under the amalgamation scheme the transferee company namely Ms National Ekco Radio and Engineering Company had acquired all the interest rights including leasehold and tenancy rights of the transferor company and the same vested in the transferee company
Pursuant to the amalgamation scheme the transferee company continued to occupy the prem ises which had been let out to the transferor company
The landlord initiated proceedings for the eviction on the ground of unauthorised sub letting of the premises by the transferor company
The transferee company set up a defence that by amalgamation of the two companies under the order of the Bombay High Court all interest rights including lease hold and tenancy rights held by the transferor company blended with the transferee company therefore the transfer ee company was legal tenant and there was no question of any sub letting
The Rent Controller and the High Court both decreed the landlord s suit
This Court in appeal held that under the order of amalgamation made on the basis of the High Court s order the transferor company ceased to be in existence in the eye of law and it effaced itself for all practical purposes
This decision lays down that after the amalgamation of the two companies the transferor company ceased to have any entity and the amalgamated company ac quired a new status and it was not possible to treat the two companies as partners or jointly liable in respect of their liabilities and assets
In the instant case the Tribunal rightly held that the appellant company was a separate entity and a different assessee therefore the allowance made to Indian Sugar Company which was a different asses see could not be held to be the income of the amalgamated company for purposes of Section 411 of the Act
The High Court was in error in holding that even after amalgamation of two companies the transferor company did not become non existent instead it continued its entity in a blended form with the appellant company
The High Court s view that on amalgamation there is no complete destruction of corpo rate personality of the transferor company instead there is a blending of the corporate personality of one with another corporate body and it continues as such with the other is not sustainable in law
The true effect and character of the amalgamation largely depends on the terms of the scheme of merger
But there cannot be any doubt that when two compa nies 339 amalgamate and merge into one the transferor company loses its entity as it ceases to have its business
However their respective rights of liabilities are determined under scheme of amalgamation but the corporate entity of the transferor company ceases to exist with effect from the date the amal gamation is made effective
In view of the above discussion we agree with the Tribunal s view that the amalgamating company ceased to exist in the eye of law therefore the appellant was not liable to pay tax on the amount of Rs58735
The appeal is accordingly allowed and we set aside the order of the High Court and answer the question in favour of the assessee against the Revenue
There will be no order as to costs
VPR Appeal allowed


Summary:
In respect of the assessment for the assessment year 1974 75 the appellant assessee preferred an appeal before the Appellate Assistant Commissioner
During the hearing of the appeal the assessee raised an additional ground as regards its liability to Purchase Tax and claimed a deduc tion of Rs1154995
After giving an opportunity of hearing to the Income Tax Officer the Appellate Assistant Commis sioner allowed the said claim
The Revenue preferred an appeal before the Income Tax Appellate Tribunal
The Tribunal held that the Appellate Assistant Commissioner had no jurisdiction to entertain any additional ground not raised before the Income Tax Officer and set aside the order of the Appellate Assistant Commis sioner
The assessee s application for making reference to the High Court was refused by the Tribunal
The High Court also rejected the assessee s application for calling the state ment of the case and reference from the Tribunal
Hence this appeal by special leave
Disposing of the appeal the Court HELD 11 The declaration of law is clear that the power of the Appellate Assistant Commissioner is co terminus with that of the Income Tax Officer
If that be so there appears to be no reason as to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the Income Tax Officer
No exception could be taken to this view as the Act does not place any restric tion or limitation on the exercise of appellate power
Even otherwise an Appellate Authority while hearing appeal against the order of a subordinate authority has all the powers which the original 341 authority may have in deciding the question before it sub ject to the restrictions or limitation if any prescribed by the statutory provisions
In the absence of any statutory provisions to the contrary the Appellate Authority is vested with all the plenary powers which the subordinate authority may have in the matter
155G H 156A B 12 If the Appellate Assistant Commissioner is satisfied he would be acting within his jurisdiction in considering the question so raised in all its aspects
Of course while permitting the assessee to raise an additional ground the Appellate Assistant Commissioner should exercise his discre tion in accordance with law and reason
He must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons
The satisfac tion of the Appellate Assistant Commissioner depends upon the facts and circumstances of each case and no rigid prin ciples or any hard and fast rules can be laid down for this purpose
157D F Commissioner of Income Tax vs Mc Millan  Co   Commissioner of Income Tax UP vs Kanpur Coal Syndicate  Kedarnath Jute Mfg Co Ltd vs Commissioner of Income Tax Central Calcutta  relied on
Commissioner of Income Tax Bombay vs Shapporji Patton Ji Mistry  Addl
Commissioner of Income Tax Gujarat vs Gurjargravures 
Ltd  distinguished
Rai Kumar Srimal vs Commissioner of Income Tax West Bengal 111  approved
Narrondas Manordass vs Commissioner of Income Tax 1957 31 referred to 2
In the instant case the assessee was assessed to Purchase Tax
The appellant disputed the demand and filed an appeal before the Appellate Authority and obtained stay order
The assessee thereafter claimed deduction for the amount of Rs1154995 towards his liability to pay Purchase Tax as deduction for the assessment year 1974 75
The asses see had not actually paid the Purchase Tax as it had ob tained stay from the Appellate Authority nonetheless its liability to pay tax existed and it was entitled to deduc tion of Rs 1154995
158B C 3
Since the view taken by the Income Tax Appellate Tribunal is 342 not sustainable in law the order of the Tribunal is set aside and the matter is remitted to the Tribunal to consider the merit of the deduction permitted by the Appellate As sistant Commissioner
If the Tribunal thinks it necessary it may remand the matter to the Appellate Assistant Commissioner Deputy Commissioner of Appeals for hearing 158F H