Case: Marshall Sons and Co. Ltd Vs. Income Tax Officer

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 reason that on the said date neither the company nor their shareholders had even thought of amalgamation) and that it has no legal significance. According to the High Court, therefore, the date on which the amalgamation should be deemed to have come into being is not January 1, 1982, but January 20, 1984/February 24, 1984, on which dates the Madras and Calcutta High Courts, respectively, approved the scheme. In other words, the High Court has taken the view that in the absence of any date being specified in the order of the High Court as the date of amalgamation, the date of the order of the High Court (company courts) shall be taken as the date of amalgamation. For arriving at the said view, the High Court followed an earlier Full Bench decision of that court in Sahayanidhi (Virudhunagar) Ltd. v. A. R. S. Subrahmanya Nadar 1950 (20) CC 214. The High Court also opined that the decision of the Bombay High Court in Swastik Rubber Products Ltd.s case 1983 (53) CC 174 is of no assistance to the appellant. On this basis the High Court has upheld the validity of the notices issued by the Income-tax Officer, which notices were impugned in the writ petition, and dismissed the writ petition. The question is whether the view taken by the High Court is correct.Every scheme of amalgamation has to necessarily provide a date with effect from which the amalgamation/transfer shall take place. The scheme concerned herein does so provide, viz., January 1, 1982. It is true that while sanctioning the scheme, it is open to the court to modify the said date and prescribe such date of amalgamation/transfer as it thinks appropriate in the facts and circumstances of the case. If the court so specifies a date, there is little doubt that such date would be the date of amalgamation/date of transfer. But where the court does not prescribe any specific date but merely sanctions the scheme presented to it---as has happened in this case---it should follow that the date of amalgamation/date of transfer is the date specified in the scheme as "the transfer date". It cannot be otherwise. It must be remembered that before applying to the court under section 391(1), a scheme has to be framed and such scheme has to contain a date of amalgamation/transfer. The proceedings before the court may take some time; indeed, they are bound to take some time because several steps provided by sections 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 company) should be deemed to have been carried on for and on behalf of the transferee company. This is the necessary and the logical consequence of the court sanctioning the scheme of amalgamation as presented to it. The order of the court sanctioning the scheme, the filing of the certified copies of the orders of the court before the Registrar of Companies, the allotment of shares, etc., may have all taken place subsequent to the date of amalgamation/transfer, yet the date of amalgamation in the circumstances of this case would be January 1, 1982. This is also the ratio of the decision of the Privy Council in Raghubar Dayal v. Bank of Upper India Ltd., 1919 AIR(PC) 9. Counsel for the Revenue contended that if the aforesaid view is adopted then several complications will ensue in case the court refuses to sanction the scheme of amalgamation. We do not see any basis for this apprehension. Firstly, an assessment can always be made and is supposed to be made on the transferee company taking into account the income of both the transferor and transferee companies. Secondly, and probably the more advisable course from the point of view of the Revenue would be to make one assessment on the transferee company taking into account the income of both the transferor or transferee companies and also to make separate protective assessments on both the transferor and transferee companies separately. There may be a certain practical difficulty in adopting this course inasmuch as separate balance-sheets may not be available for the transferor and transferee companies. But that may not be an insuperable problem, inasmuch as assessment can always be made, on the available material, even without a balance-sheet. In certain cases, best judgment assessment may also be resorted to. Be that as it may, we need not pursue this line of enquiry because it does not arise for consideration in these cases directly. 8. In the light of the view taken by us on the principal question, it is not necessary to consider the alternate submission urged by Shri Poddar. 9.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]A reading of the above clauses of the scheme shows that according to the scheme, the entire undertaking of the subsidiary company shall be transferred to the holding company with effect from the transfer 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 reason that on the said date neither the company nor their shareholders had even thought of amalgamation) and that it has no legal significance. According to the High Court, therefore, the date on which the amalgamation should be deemed to have come into being is not January 1, 1982, but January 20, 1984/February 24, 1984, on which dates the Madras and Calcutta High Courts, respectively, approved the scheme. In other words, the High Court has taken the view that in the absence of any date being specified in the order of the High Court as the date of amalgamation, the date of the order of the High Court (company courts) shall be taken as the date of amalgamation.scheme of amalgamation has to necessarily provide a date with effect from which the amalgamation/transfer shall take place. The scheme concerned herein does so provide, viz., January 1, 1982. It is true that while sanctioning the scheme, it is open to the court to modify the said date and prescribe such date of amalgamation/transfer as it thinks appropriate in the facts and circumstances of the case. If the court so specifies a date, there is little doubt that such date would be the date of amalgamation/date of transfer. But where the court does not prescribe any specific date but merely sanctions the scheme presented to it---as has happened in this case---it should follow that the date of amalgamation/date of transfer is the date specified in the scheme as "the transfer date". It cannot be otherwise. It must be remembered that before applying to the court under section 391(1), a scheme has to be framed and such scheme has to contain a date of amalgamation/transfer. The proceedings before the court may take some time; indeed, they are bound to take some time because several steps provided by sections 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 company) should be deemed to have been carried on for and on behalf of the transferee company. This is the necessary and the logical consequence of the court sanctioning the scheme of amalgamation as presented to it. The order of the court sanctioning the scheme, the filing of the certified copies of the orders of the court before the Registrar of Companies, the allotment of shares, etc., may have all taken place subsequent to the date of amalgamation/transfer, yet the date of amalgamation in the circumstances of this case would be January 1, 1982. This is also the ratio of the decision of the Privy Council in Raghubar Dayal v. Bank of Upper India Ltd., 1919do not see any basis for this apprehension. Firstly, an assessment can always be made and is supposed to be made on the transferee company taking into account the income of both the transferor and transferee companies. Secondly, and probably the more advisable course from the point of view of the Revenue would be to make one assessment on the transferee company taking into account the income of both the transferor or transferee companies and also to make separate protective assessments on both the transferor and transferee companies separately. There may be a certain practical difficulty in adopting this course inasmuch as separate balance-sheets may not be available for the transferor and transferee companies. But that may not be an insuperable problem, inasmuch as assessment can always be made, on the available material, even without a balance-sheet. In certain cases, best judgment assessment may also be resorted to. Be that as it may, we need not pursue this line of enquiry because it does not arise for consideration in these casesthe light of the view taken by us on the principal question, it is not necessary to consider the alternate submission urged by Shri Poddar.