PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL) – 2 versus M/S. MAHAGUN REALTORS (P) LTD.
[2022] 4 S.C.R. 502, Supreme Court of India, 2022
Outcome: Appeal(s) allowed (Granted)
Segment: Facts
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PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL) – 2
v.
M/S. MAHAGUN REALTORS (P) LTD.
(Civil Appeal No. 2716 of 2022)
APRIL 05, 2022
[UDAY UMESH LALIT AND S. RAVINDRA BHAT, JJ.]
Income Tax Act, 1961 – ss. 2(1A), 2(31) and 170(2) –
Amalgamation of companies – Effect of amalgamation in the context
of income tax – Held: The combined effect of s.394(2) of the
Companies Act, 1956, s.2(1A) and various other provisions of the
Income Tax Act, is that despite amalgamation, the business, enterprise
and undertaking of the transferee or amalgamated company- which
ceases to exist, after amalgamation, is treated as a continuing one,
and any benefits, by way of carry forward of losses (of the transferor
company), depreciation, etc., are allowed to the transferee –
Therefore, unlike a winding up, there is no end to the enterprise,
with the entity – The enterprise in the case of amalgamation,
continues – Whether corporate death of an entity upon amalgamation
per se invalidates an assessment order ordinarily cannot be
determined on a bare application of s.481 of the Companies Act,
1956 (and its equivalent in the 2013 Act), but would depend on the
terms of the amalgamation and the facts of each case – Companies
Act, 1956 – ss.394(2) and 481 – Companies Act, 2013.
Company Law – Amalgamation and winding up of a corporate
entity – Difference.
Allowing the appeal, the Court
HELD: 1. Amalgamation is unlike the winding
up of a
corporate entity. In the case of amalgamation, the outer shell of
the corporate entity is undoubtedly destroyed; it ceases to exist.
Yet, in every other sense of the term, the corporate venture
continues – enfolded within the new or the existing transferee
entity. In other words, the business and the adventure lives on
but within a new corporate residence, i.e., the transferee company.
It is, therefore, essential to look beyond the mere concept of
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destruction of corporate entity which brings to an end or
terminates any assessment proceedings. There are analogies in
civil law and procedure where upon amalgamation, the cause of
action or the complaint does not per se cease – depending of
course, upon the structure and objective of enactment. Broadly,
the quest of legal systems and courts has been to locate if a
successor or representative exists in relation to the particular
cause or action, upon whom the assets might have devolved or
upon whom the liability in the event it is adjudicated, would fall.
[Para 18][511-C-F]
2. The combined effect of Section 394(2) of the Companies
Act, 1956, Section 2(1A) and various other provisions of the
Income Tax Act, is that despite amalgamation, the business,
enterprise and undertaking of the transferee or amalgamated
company- which ceases to exist, after amalgamation, is treated
as a continuing one, and any benefits, by way of carry forward of
losses (of the transferor company), depreciation, etc., are allowed
to the transferee. Therefore, unlike a winding up, there is no end
to the enterprise, with the entity. The enterprise in the case of
amalgamation, continues. [Para 30][521-E-F]
3. Whether corporate death of an entity upon amalgamation
per se invalidates an assessment order ordinarily cannot be
determined on a bare application of Section 481 of the Companies
Act, 1956 (and its equivalent in the 2013 Act), but would depend
on the terms of the amalgamation and
the facts of each case. [Para
42][534-G]
Principal Commissioner of Income Tax v. Maruti Suzuki
India Limited 2019 SCC Online SC 928 and Spice
Infotainment Limited v. Commissioner of Income Tax,
[2012] 247 CTR 500 (Del) – distinguished.
Marshall Sons and Co. (India) Ltd. v. Income Tax Officer
[1996] Supp 9 SCR 216 – relied on.
Saraswati Industrial Syndicate v. Commissioner of
Income Tax Haryana, Himachal Pradesh [1990] Supp 1
SCR 332; Commissioner of Income Tax, v. Hukamchand
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Mohanlal [1972] 1 SCR 786; Commissioner of Income
Tax v. Amarchand Shroff [1963] Supp 1 SCR 699;
Commissioner of Income Tax v. James Anderson [1964]
6 SCR 590; Commissioner of Income Tax v. Spice
Enfotainment Ltd. (2020) 18 SCC 353; Dalmia Power
Limited & Ors v. The Assistant Commissioner of Income
Tax, Circle 1, Trichy (2020) 14 SCC 736; McDowell
and Company Ltd. v. Commissioner of Income Tax,
Karnataka Central (2017) 13 SCC 799 : [2017] 2 SCR
856; Bhagwan Dass Chopra v. United Bank of India
[1988] 1 SCR 1088 and Singer India Ltd v. Chander
Mohan Chadha [2004] Supp 3 SCR 535 – referred to.
Case Law Reference
[1990] Supp 1 SCR 332
referred to
Para 12
[1972] 1 SCR 786
referred to
Para 19
[1963] Supp 1 SCR 699
referred to
Para 19
[1964] 6 SCR 590
referred to
Para 19
[1996] Supp 9 SCR 216
relied on
Para 22
(2020) 18 SCC 353
referred to
Para 24
(2020) 14 SCC 736
referred to
Para 26
[2017] 2 SCR 856
referred to
Para 27
[1988] 1 SCR 1088
referred to
Para 29
[2004] Supp 3 SCR 535
referred to
Para 29
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2716
of 2022.
From the Judgment and Order dated 21.08.2019 of the High Court
of Delhi at New Delhi in Income Tax Appeal No.73 of 2019.
N. Venkataraman, ASG, Arijit Prasad, Sr. Adv., Ms. Swati Ghildiyal,
Ms. Niranjana Singh, Ms. Swarupama Chaturvedi, Raj Bahadur Yadav,
Advs. for the Petitioner.
Ms. Kavita Jha, T. L. Garg, Advs. for the Respondent.
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The Judgment of the Court was delivered by
S. RAVINDRA BHAT, J.
1. Special leave to appeal granted. With consent of counsels, this
appeal was heard finally. This appeal arises from an order1 of the Delhi
High Court rejecting the appeal, by the present appellant (hereafter “the
revenue”) and affirming the order of the Income Tax Appellate Tribunal
(ITAT) which quashed the assessment order against the assessee (i.e.,
the respondent in this case).
2. The respondent-assessee company, Mahagun Realtors Private
Limited (hereafter variously referred to as “MRPL”, “the amalgamating
company” or the “transferor company”), was engaged in development
of real estate and had executed one residential project under the name
“Mahagun Maestro” located in Noida, Uttar Pradesh. MRPL
amalgamated with Mahagun India Private Limited (herein after ‘MIPL’)
by virtue of an order2 of the High Court (dated 10.09.2007). In terms of
the order and provisions of the Companies Act, 1956, the amalgamation
was with effect from 01.04.2006.
3. On 20.03.2007 survey proceedings were conducted in respect
of MRPL during the course of which, some discrepancies in its books of
account were noticed. On 27.08.2008, a search and seizure operation
was carried out in the Mahagun group of companies, including MRPL
and MIPL. During those operations, the statements of common directors
of these companies were recorded, in the course of which admissions
about not reflecting the true income of the said
entities was made; these
statements were duly recorded under provisions of the Income Tax Act,
1961 (hereafter “the Act”). On 02.03.2009, the revenue issued notice to
MAPL to file Return of Income (ROI) for the assessment year (hereafter
“AY”) 2006-2007 under Section 153A of the Act, within 16 days. On
failure by the assessee to file the ROI, the Assessing Officer (hereafter
“AO”) issued show cause notice on 18.05.2009 under Section 276CC
of the Act. On 23.05.2009, a reply was issued to the show cause notice
stating that no proceedings be initiated and that a return would be filed
by 30.06.2009. A ROI on 28.05.2010, describing the assessee as
MRPLwas filed. On 13.08.2010, the revenue issued notice under Section
143(2) of the Act. To this, adjournment was sought by letter dated
1 Dated 21.08.2019 in Income Tax Appeal No. 73/2019.
2 In Company Petition No. 133/2007 c/w Company Application (M) No. 41/2007.
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27.08.2010. In the ROI, the PAN3 disclosed was “AAECM1286B”
(concededly of MRPL); the information given about the assessee was
that its date of incorporation was 29.09.2004 (the date of incorporation
of MRPL). Under Col. 27 of the form (of ROI) to the specific query of
“Business Reorganization (a)….(b) In case of amalgamated
company, write the name of amalgamating company” the reply was
“NOT APPLICABLE”.
4. The Assessing Officer (AO), issued the assessment order on
11.08.2011, assessing the income of  8,62,85,332/- after making several
additions of  6,47,00,972/- under various heads. The assessment order
showed the assessee as “Mahagun Relators Private Ltd, represented
by Mahagun India Private Ltd”.
5. Being aggrieved, an appeal was preferred to the Commissioner
of Income Tax (hereafter “CIT”). The appellant’s name and particulars
were as follows:
M/s Mahagun Realtors
(Represented by Mahagun India Pvt Ltd,
after amalgamation)
B-66, Vivek Vihar, Delhi-110095.
The appeal was partly allowed by the CIT on 30.04.2012. The
CIT set aside some amounts brought to tax by the AO. The revenue
appealed against this order before the ITAT; simultaneously, the assessee
too filed a cross objection4 to the ITAT. The revenue’s appeal was
dismissed; the assessee’s cross objection was allowed only on a single
point, i.e., that MRPL was not in existence when the assessment order
was made, as it had amalgamated with MIPL. The ITAT held
inter
alia, that:
“The above assessee company did not exist on the date of the
assessment order, we find that the assessment order passed
by the ld AO is not sustainable in law in view of the· decision
of the Hon’ble Delhi High Court in case of Spice Infotainment
Ltd v CIT 247 ITR 500 as well as the decision of the Hon’ble
Delhi High· Court in the case of CIT v Dimension Apparel
Pvt. Ltd 370 ITR 288. On the last decision Hon’ble Delhi High
3 Permanent Account Number
4 CO No. 300/Del/2012
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Court has considered the whole issue from all the angles and
therefore, respectfully following the decision of Hon’ble ·Delhi
High Court, we are of the view that the order of the Id AO is
unsustainable.”
6. The revenue appealed to the High Court. The High Court, relying
upon a judgment of this court, in Principal Commissioner of Income
Tax v. Maruti Suzuki India Limited5 (hereafter ‘Maruti Suzuki’),
dismissed the appeal. The revenue has, therefore, appealed against that
judgment.
Submissions
7. The revenue, represented by the Additional Solicitor General,
Mr. N. Venkataraman, urged that the name of both the amalgamating
and amalgamated companies were mentioned in the assessment order.
According to him such mistakes, defects or omissions are curable under
Section 292B when the assessment is in substance and effect, in
conformity with or according to the intent and purpose of the Act.
8. It was contended that the amalgamating or transferor company
was duly represented by the amalgamated company and no prejudice
was caused to any of the parties by the assessment order. It is further
urged by the revenue that in Maruti Suzuki, this court rejected the
revenue’s appeal on the ground that the final assessment order referred
only to the name of the amalgamating company and there was no mention
of the resulting company, whereas in this case, in both the draft and the
final assessment orders, the names of both the amalgamating and
amalgamated company were
mentioned.
9. It was also urged that the facts of the Maruti Suzuki are
distinguishable from the present case, as in that case the revenue was
duly informed about the merger and change in name of the company,
and yet the assessing officer passed the order in name of the transferor
or amalgamating company. However, in the present case, the AO or
even the revenue was not informed about the amalgamation. Even when
the search and seizure operations were carried out, the directors of MIPL
(and MRPL, which had ceased to exist) clearly held out that both entities
existed; what is more, surrender of specific amounts relatable to MRPL’s
activities, for a past period, were made. A notice was issued under Section
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153A on 02.03.2009 asking the assessee to file ROI. As ROI was not
filed, the revenue issued show cause notice as per Section 276CC. In
response of the same, the representative of the assessee filed a letter
dated 23.05.2009 clearly mentioning the name of the transferor/
amalgamating company, i.e., MRPL and stated that no proceedings be
initiated, and that the return would be filed by 30.06.2009. On 28.05.2010,
the assessee filed ROI for AY 2006-07 in the name of MRPL. The AO
assumed scrutiny jurisdiction under section 143(2) of the Act and issued
notice on 13.08.2010. This notice was duly accepted by the authorized
representative on 16.09.2010. Further, on 27.08.2010 adjournment was
sought on behalf of the assessee, and the letter mentioned the name of
MRPL. In addition to this, the submissions dated 28.06.2011 filed by the
assessee in response to the notice of the AO clearly mentioned the share
holding pattern in the assessee company (MRPL) which indicated that
even as of 28.06.2011, the assessee continued the proceedings in the
name of MRPL.
10. It was urged that in the survey proceedings carried out on
20.03.2007, the director of the companies, made statements under oath.
At this time, the application for merger was already filed in the High
Court. The assessee MRPL surrendered amounts for which it was unable
to account. Other entities which merged with MIPL too likewise
surrendered amounts. Throughout the
proceedings, the assessee never
revised its offer of surrender of additional income nor brought it to the
notice of the AO. Further, on 20.03.2007, the assessee issued postdated
cheques in the name of MRPL. After merger, they were neither taken
back nor fresh cheques were submitted from the amalgamated company
MIPL.
11. It was submitted that in these circumstances, when assessment
proceedings were effectively resisted, during which the AO was appraised
of the amalgamation, which was duly given effect to in the assessee’s
description, the question of the assessment and further proceedings
being a nullity cannot arise. It was pointed out that in the appeal to
CIT, as well as the cross objections to ITAT, the assessee’s description
was as Mahagun Relators Private Ltd, represented by Mahagun India
Private Ltd., In these circumstances, the assessment order, in reality
and substance, was in relation to the new or transferee company, i.e.,
MIPL.
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12. On behalf of the respondent, it was contended by Ms. Kavita
Jha, learned counsel, that upon sanction of amalgamation scheme, the
amalgamated company stood dissolved without winding up, in terms of
section 394 of the Companies Act, 1956. Reliance was placed on the
decision of this court in Saraswati Industrial Syndicate v. Commissioner
of Income Tax Haryana, Himachal Pradesh.6 It was argued that the
amalgamating company (MRPL) cannot be regarded as a ‘person’ in
terms of Section 2(31) of the Act.
13. Learned counsel urged that the notice under Section 153A
by the AO (despite the intimation by Respondent about the
amalgamation on 30.05.2008 and the statement of the director at the
time of search) issued in the name of MRPL, a non-existing entity,
was invalid and initiation of proceedings against non-existent entity
was void-ab-initio.
14. Counsel urged that the assessment framed in the name of
amalgamating company is invalid in terms of Section 170(2) of the Act.
Once the amalgamation is effective, the notice had to be issued in the
name of amalgamated company. The Delhi High Court in Spice
Infotainment Limited v. Commissioner of Income Tax,7 (hereafter
‘Spice’) held that assessment framed in the name of the amalgamating
company which was ceased to exist in law, was invalid and untenable
and such defect would not be cured in terms of section 292B of the Act.
Further, the fact that amalgamated company participated in the
assessment proceedings would not
operate as estoppel.
15. It was contended that the respondent’s case is covered by
Maruti Suzuki The facts of both cases are similar. In Maruti Suzuki,
the fact of amalgamation was known to the AO and in the assessment
order he tried to cure the defect by amending the cause title by including
the name of both the existing and non-existing entity; the assessment
order being in the name of a non-existing company, was highlighted to
urge that as a result, this court should follow the ratio in that decision,
and reject the revenue’s appeal.
6 (1990) Supp (1) SCR 332
7 [2012] 247 CTR 500 (Del). This judgement has also been referred to as Spice
Entertainment v. Commissioner of Income Tax in 2012 (280) ELT 43 (Del.).
PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL) – 2 v.
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Analysis and Conclusions
16. The relevant provision of the Act is Section 1708. It inter alia,
provides that where a person carries on any business or profession and
is succeeded (to such business) by some other person (i.e., the successor),
the predecessor shall be assessed to the extent of income accruing in
the previous year in which the succession took place, and the successor
shall be assessed in respect of income of the previous year in respect of
the income of the previous year after the date of succession.
17. The amalgamation of two or more entities with an existing
company or with a company created anew was provided for, statutorily,
under the old Companies Act, 19569, under Section 394 (1) (a). Section
394 empowered the court to approve schemes proposing amalgamation,
and oversee the various steps and procedures that had to be undertaken
for that purpose, including the apportionment of and devolution of assets
and liabilities, etc. Section 394 (2) provided as follows:
“(2) Where an order under this section provides for the
transfer of any property or liabilities, then, by virtue of the
8 The relevant part of Section 170 reads as follows:
“170. Succession to business otherwise than on death
(1) Where a person carrying on any business or profession (such person hereinafter in
this section being referred to as the predecessor) has been succeeded therein by any
other person (hereinafter in this section referred
to as the successor) who continues to
carry on that business or profession,-
(a) the predecessor shall be assessed in respect of the income of the previous year in
which the succession took place up to the date of succession;
(b) the successor shall be assessed in respect of the income of the previous year after the
date of succession.
(2) Notwithstanding anything contained in sub- section (1), when the predecessor cannot
be found, the assessment of the income of the previous year in which the succession took
place up to the date of succession and of the previous year preceding that year shall be
made on the successor in like manner and to the same extent as it would have been made
on the predecessor, and all the provisions of this Act shall, so far as may be, apply
accordingly.
(3) When any sum payable under this section in respect of the income of such business
or profession for the previous year in which the succession took place up to the date of
succession or for the previous year preceding that year, assessed on the predecessor,
cannot be recovered from him, the 1 Assessing] Officer shall record a finding to that
effect and the sum payable by the predecessor shall thereafter be payable by and
recoverable from the successor, and the successor shall be entitled to recover from the
predecessor any sum so paid.”
9 Under the present Companies Act, 2013, the corresponding provisions are Sections
230-234.
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order, that property shall be transferred to and vest in, and
those liabilities shall be transferred to and become the
liabilities of, the transferee company; and in the case of any
property, if the order so directs, freed from any charge which
is, by virtue of the compromise or arrangement, to cease to
have effect.”
Section 394 (4) (a) defined “property” for the purpose of devolution
of assets and liabilities:
“394….(4) In this section-
(a) “ property” includes property, rights and powers of every
description and” liabilities” includes duties of every
description; and..”
18. Amalgamation, thus, is unlike the winding up of a corporate
entity. In the case of amalgamation, the outer shell of the corporate
entity is undoubtedly destroyed; it ceases to exist. Yet, in every other
sense of the term, the corporate venture continues – enfolded within the
new or the existing transferee entity. In other words, the business and
the adventure lives on but within a new corporate residence, i.e., the
transferee company. It is, therefore, essential to look beyond the mere
concept of destruction of corporate entity which brings to an end or
terminates any assessment proceedings. There are analogies in civil law
and procedure where upon amalgamation, the cause of action or the
complaint does not per se cease – depending of course, upon the structure
and objective of enactment. Broadly, the quest of legal systems and
courts has been to locate if a successor or
representative exists in relation
to the particular cause or action, upon whom the assets might have
devolved or upon whom the liability in the event it is adjudicated, would
fall.
19. This court, in Commissioner of Income Tax, v. Hukamchand
Mohanlal10 noticed that Section 159 of the Act related to a legal
representative’s tax liability. It casts liability upon a legal representative
in the event of death of her or his predecessor, to pay tax, in effect
saying that where a person dies his legal representative shall be liable to
pay any sum which the deceased would have been liable to pay if he had
not died. The corresponding provision in the old Income Tax Act (of
10 1972 (1) SCR 786
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1922) was Section 24B. The court in Commissioner of Income Tax v.
Amarchand Shroff 11 held that the provision did not authorise levy of
tax on receipts by the legal representative of a deceased person in the
year of assessment succeeding the year of account, being the previous
year in which such person died. The assessee ordinarily had to be a
living person and could not be a dead person. By Section 24B the legal
personality of the deceased assessee was extended for the duration of
the entire previous year in the course of which he died. The income
received by him before his death and that received by his legal
representative after his death (but in that previous year) became
assessable to income tax in the relevant assessment year. Any income
received in the year subsequent to the previous year or the accounting
year could not be called income received by the deceased person. This
reasoning was adopted later, in the judgment reported as Commissioner
of Income Tax v. James Anderson12 where, in the context of dividend
income accruing to the estate of a deceased, this court held that as
Parliament did not make
“any provision generally for assessment of income receivable
by the estate of the deceased person, the expression “any tax
which would have been payable by him under this Act if he
had not died” cannot be deemed to have supplied the
machinery for taxation of income received by a legal
representative to the estate
after the expiry of the year in the
course of which such person died.”
20. In Saraswati Syndicate (supra), the facts were that after
amalgamation, the transferee company claimed exemption from tax, of
a sum which had been allowed as a trading liability- on accrual basis, in
the hands of the transferee company which had ceased to exist. The
revenue disallowed that claim; that view was upheld. This court stated
that:
“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 meaning. The
amalgamation is a blending of two or more existing
undertakings into one undertaking, the share holders of each
11 1963 Supp (1) SCR 699
12 1964 (6) SCR 590
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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 England, 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 M/s General Radio and Appliances Co Ltd v M.A.. Khader
(dead) by Lrs., [1986] 2 S.C.C. 656, the effect of
amalgamation of two companies was considered. M/s. General
Radio and Appliances 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. M/s. General Radio and Appliances Co. Ltd.
was amalgamated with M/s. National Ekco Radio and
Engineering Co. Ltd. under a scheme of amalgamation and
order of the High Court under
Sections 391 and 394 of
Companies Act, 1956. Under the amalgamation scheme, the
transferee company, namely, M/s. 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 premises 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
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by the transferor company blended with the transferee
company, therefore the transferee 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 assessee, could not be held to be the
income of the amalgamated company for purposes of Section
41 (1) 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 companies 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 amalgamation is made
effective.”
21. Saraswati Syndicate (supra) noticeably was decided in
relation to assessment issues when amalgamation was not separately
defined under the Income Tax Act. By an amendment of 1967, this term
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was for the first time defined in the form of Section 2(1A). That provision
reads as follows:
“(1A) “amalgamation”, in relation to companies, means the
merger of one or more companies with another company or
the merger of two or more companies to form one company
(the company or companies which so merge being referred to
as the amalgamating company or companies and the company
with which they merge or which is formed as a result of the
merger, as the amalgamated company) in such a manner that—
(i) all the property of the amalgamating company or companies
immediately before the amalgamation becomes the property
of the amalgamated company by virtue of the amalgamation;
(ii) all the liabilities of the amalgamating company of
companies immediately before the amalgamation, become the
liabilities of the amalgamated company by virtue of the
amalgamation;
(iii) shareholders holding not less than nine-tenths in value
of the shares in the amalgamating company or companies
(other than shares already held therein immediately before
the amalgamation by, or by a nominee for, the amalgamated
company or its subsidiary) become shareholders of the
amalgamated company by virtue of the amalgamation,
otherwise than as a result of the acquisition of the property
of one company by another company pursuant to the purchase
of such property by the other company or as a result of the
distribution of such property to the other company after the
winding up of the first mentioned
company;”
22. The effect of amalgamation in the context of income tax, was
again considered in another earlier decision, i.e., Marshall Sons and
Co. (India) Ltd. v. Income Tax Officer13. There, the court held that:
“14. 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
13 1996 Supp (9) SCR 216
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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 date of amalgamation/date of transfer.
But where the Court does not prescribed any specific date
but merely sanctions the scheme presented to it - as has
happened in this case - it should follow that the rate 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 394 and the relevant Rules have to be followed and
complied with. During the period the proceedings are pending
before the Court, both the amalgamation 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 present scheme, 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
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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.
The Bank of Upper India Ltd. A.I.R. 1919 P.C. 9, relied on.
15. 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 Company. 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,
of 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.”
(emphasis supplied)
23. Many High Courts in recent years, had mostly relied upon
Saraswati Syndicate which was a case where the transferor entity had
claimed a certain relief on the basis of the agreed method of accounting.
The corresponding obligation to recognise the demands was sought to
be disallowed in the subsequent year, in the case of the then transferee
company. The decision of the Delhi High Court, in Spice (supra), after
discussing the decision in Saraswati Syndicate, went on to explain why
assessing an amalgamating company, without framing the order in the
name of the transferee company is fatal:
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“10. Section 481 of the Companies Act provides for dissolution
of the company. The Company Judge in the High Court can
order dissolution of a company on the grounds stated therein.
The effect of the dissolution is that the company no more
survives. The dissolution puts an end to the existence of the
company. It is held in M.H. Smith (Plant Hire) Ltd. v. D.L.
Mainwaring (T/A Inshore), 1986 BCLC 342 (CA) that “once
a company is dissolved it becomes a non-existent party and
therefore no action can be brought in its name. Thus an
insurance company which was subrogated to the rights of
another insured company was held not to be entitled to
maintain an action in the name of the company after the latter
had been dissolved”.
11. After the sanction of the scheme on 11th April, 2004, the
Spice ceases to exit w.e.f. 1st July, 2003. Even if Spice had
filed the returns, it became incumbent upon the Income tax
authorities to substitute the successor in place of the said
‘dead person’. When notice under Section 143(2) was sent,
the appellant/amalgamated company appeared and brought
this fact to the knowledge of the AO. He, however, did not
substitute the name of the appellant on record. Instead, the
Assessing Officer made the assessment in the name of M/s
Spice which was non existing entity on that day. In such
proceedings and assessment order passed in the name of M/
s Spice would clearly be void. Such a defect cannot be treated
as
procedural defect. Mere participation by the appellant
would be of no effect as there is no estoppel against law.
12. Once it is found that assessment is framed in the name of
non-existing entity, it does not remain a procedural irregularity
of the nature which could be cured by invoking the provisions
of Section 292B of the Act.”
24. A series of decisions had followed the Delhi High Court’s
decision in Spice. All these were the subject of special leave petitions,
which were disposed of by the following order in Commissioner of
Income Tax v. Spice Enfotainment Ltd14.
14 (2020) 18 SCC 353
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“Delay condoned. Heard the learned Senior Counsel
appearing for the parties. We do not find any reason to
interfere with the impugned judgment(s) [Spice Entertainment
Ltd. v. Commr. of Service Tax, (2011 SCC OnLine Del);
CIT v. Dimension Apparels (P) Ltd., (2015) 370 ITR 288;
CIT v. Chanakaya Exports (P) Ltd., 2014 SCC OnLine Del
7678; CIT v. Chanakaya Exports (P) Ltd., [ITA No. 721 of
2014, order dated 24-11-2014 (Del)]; CIT v. Radha Appearals
(P) Ltd., 2015 SCC OnLine Del 14568; CIT v. Intel Technology
(India) (P) Ltd., 2015 SCC OnLine Kar 9493; CIT v.
Chanakaya Exports (P) Ltd., 2015 SCC OnLine Del 14567;
CIT v. Mayank Traders (P) Ltd., 2015 SCC OnLine Del 14633;
CIT v. P.D. Associates (P) Ltd., 2015 SCC OnLine Del 14632;
CIT v. Foryu Overseas (P) Ltd., 2015 SCC OnLine Del 14566;
CIT v. Sapient Consulting Ltd., 2016 SCC OnLine Del 6615;
passed by the High Court. In view of this, we find no merit in
the appeals and special leave petitions. Accordingly, the
appeals and special leave petitions are dismissed.”
25. This court, without elaborate discussion, approved the reasoning
in various judgments which held that upon the cessation of the transferor
company, assessment of the transferor (or amalgamated company) was
impermissible.
26. In Dalmia Power Limited & Ors v. The Assistant
Commissioner of Income Tax, Circle 1, Trichy15 the amalgamated
(transferee) company filed a revised return, beyond the time prescribed.
The original return had been filed by the
transferor company. This was
not allowed by the revenue. The assessee moved the High Court. This
court endorsed the view of the single judge, holding that the revenue had
not objected to the amalgamation schemes duly and that Sections 139(5)
and 119(2)(b) of the Act and Circular No. 9/2015 issued by the CBDT
were inapplicable to a case where a revised ROI was filed pursuant to
a Scheme of Arrangement and Amalgamation, approved and sanctioned
by the National Company Law Tribunal.
27. In another recent decision, McDowell and Company Ltd. v.
Commissioner of Income Tax, Karnataka Central16 this court had
occasion to consider the effect of amalgamation of two companies, and
15 (2020) 14 SCC 736
16 (2017) 13 SCC 799
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the rights and liabilities in relation to claim for depreciation, under the Act.
The assessee had taken over a sick company-HPL – by amalgamation;
HPL ceased to have any identity after amalgamation. The relative rights,
however, were determined in terms of the scheme of amalgamation.
The benefit of interest accrued after the company ceased to exist was
availed of by the assessee (the successor) company. The assessee was
allowed to set off the amalgamated losses of the company amalgamated
with it, i.e., HPL. This benefit accrued to the assessee under Section
72A of the Act. The court held that when the assessee was allowed the
benefit of the accumulated loss, while computing those losses, the income
which accrued to it had to be adjusted and only thereafter net loss could
have been allowed to be set off by the assessee company. The AO had
made those calculations. The assessee was given the benefit of the
accumulated loss of the amalgamated company. Its effect was that though
those losses were suffered by the amalgamated company they were
deemed to be treated as losses of the assessee by virtue of Section 72A.
This court negatived the plea that even while taking advantage of the
accumulated loss, in calculating them at the hands of amalgamated
company, i.e., HPL, the income accrued under Section 41(1) of the Act
at the hands of HPL could not be accounted for. It was held that it had
to be adjusted to see what was the
actual accumulated losses, the benefit
of which had to be extended to the assessee. This court considered
Section 41(1) along with Section 72A of the Act.
28. This court notices that there are not less than 100 instances17
under the Income Tax Act, wherein the event of amalgamation, the
method of treatment of a particular subject matter is expressly indicated
in the provisions of the Act. In some instances, amalgamation results in
withdrawal of a special benefit (such as an area exemption under Section
80IA) - because it is entity or unit specific. In the case of carry forward
of losses and profits, a nuanced approach has been indicated. All these
provisions support the idea that the enterprise or the undertaking, and
the business of the amalgamated company continues. The beneficial
treatment, in the form of set-off, deductions (in proportion to the period
the transferee was in existence, vis-à-vis the transfer to the transferee
17 For instance, Section 35A, 35AB (3); 35ABB; 35D (5); 35DDA; 35E; 41 (1) (Any
benefit accrued by the amalgamated co.) from cessation of liability of amalgamating
company shall be taxed in the hands of the amalgamated company); 43 (1); 43 (6); 32
and 43 (6) (c); 43C; 47 (vi); (via) (viaa) (viab); 47 (vii); 72A; 72AB, etc.
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company); carry forward of loss, depreciation, all bear out that under
the Act, (a) the business-including the rights, assets and liabilities of the
transferor company do not cease, but continue as that of the transferor
company; (b) by deeming fiction- through several provisions of the Act,
the treatment of various issues, is such that the transferee is deemed to
carry on the enterprise as that of the transferor.
29. In Bhagwan Dass Chopra v. United Bank of India18 it was
held that in every case of transfer, devolution, merger or scheme of
amalgamation, in which rights and liabilities of one company are
transferred or devolved upon another company, the successor-in-interest
becomes entitled to the liabilities and assets of the transferor company
subject to the terms and conditions of contract of transfer or merger, as
it were. Later, in Singer India Ltd v. Chander Mohan Chadha19 this
court held as follows:
“8. ..there can be no doubt that when two companies
amalgamate and merge into one, the transferor company loses
its identity as it ceases to have its business. However, their
respective rights and liabilities are determined under the
scheme of amalgamation, but the corporate identity of
transferor company ceases to exist with effect from the date
the amalgamation is made effective.”
30. The combined effect, therefore, of Section 394 (2) of the
Companies Act, 1956, Section 2 (1A) and various other provisions of the
Income Tax Act, is that despite
amalgamation, the business, enterprise
and undertaking of the transferee or amalgamated company- which ceases
to exist, after amalgamation, is treated as a continuing one, and any
benefits, by way of carry forward of losses (of the transferor company),
depreciation, etc., are allowed to the transferee. Therefore, unlike a
winding up, there is no end to the enterprise, with the entity. The enterprise
in the case of amalgamation, continues.
31. In Maruti Suzuki (supra), the scheme of amalgamation was
approved on 29.01.2013 w.e.f. 01.04.2012, the same was intimated to
the AO on 02.04.2013, and the notice under Section 143(2) for AY 2012-
13 was issued to amalgamating company on 26.09.2013. This court in
facts and circumstances observed the following:
18 1988 (1) SCR 1088
19 [2004] Supp (3) SCR 535
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“35.In this case, the notice under Section 143(2) under which
jurisdiction was assumed by the assessing officer was issued
to a non-existent company. The assessment order was issued
against the amalgamating company. This is a substantive
illegality and not a procedural violation of the nature adverted
to in Section 292B.
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39. In the present case, despite the fact that the assessing
officer was informed of the amalgamating company having
ceased to exist as a result of the approved scheme of
amalgamation, the jurisdictional notice was issued only in its
name. The basis on which jurisdiction was invoked was
fundamentally at odds with the legal principle that the
amalgamating entity ceases to exist upon the approved scheme
of amalgamation. Participation in the proceedings by the
appellant in the circumstances cannot operate as an estoppel
against law. This position now holds the field in view of the
judgment of a co-ordinate Bench of two learned judges which
dismissed the appeal of the Revenue in Spice Entertainment
on 2 November 2017. The decision in Spice Entertainment
has been followed in the case of the respondent while
dismissing the Special Leave Petition for AY 2011-2012. In
doing so, this Court has relied on the decision in Spice
Entertainment.
40. We find no reason to take a different view. There is a
value which the court must abide by in promoting the interest
of certainty in tax
litigation. The view which has been taken
by this Court in relation to the respondent for AY 2011-12
must, in our view be adopted in respect of the present appeal
which relates to AY 2012-13. Not doing so will only result in
uncertainty and displacement of settled expectations. There
is a significant value which must attach to observing the
requirement of consistency and certainty. Individual affairs
are conducted and business decisions are made in the
expectation of consistency, uniformity and certainty. To detract
from those principles is neither expedient nor desirable.”
32. The court, undoubtedly noticed Saraswati Syndicate. Further,
the judgment in Spice (supra)and other line of decisions, culminating in
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this court’s order, approving those judgments, was also noticed. Yet, the
legislative change, by way of introduction of Section 2 (1A), defining
“amalgamation” was not taken into account. Further, the tax treatment
in the various provisions of the Act were not brought to the notice of this
court, in the previous decisions.
33. There is no doubt that MRPL amalgamated with MIPL and
ceased to exist thereafter; this is an established fact and not in contention.
The respondent has relied upon Spice and Maruti Suzuki (supra)to
contend that the notice issued in the name of the amalgamating company
is void and illegal. The facts of present case, however, can be distinguished
from the facts in Spice and Maruti Suzuki on the following bases.
34. Firstly, in both the relied upon cases, the assessee had duly
informed the authorities about the merger of companies and yet the
assessment order was passed in the name of amalgamating/non-existent
company. However, in the present case, for AY 2006-07, there was no
intimation by the assessee regarding amalgamation of the company. The
ROI for the AY 2006-07 first filed by the respondent on 30.06.2006 was
in the name of MRPL. MRPL amalgamated with MIPL on 11.05.2007,
w.e.f. 01.04.2006. In the present case, the proceedings against MRPL
started in 27.08.2008- when search and seizure was first conducted on
the Mahagun group of companies. Notices under Section 153A and
Section 143(2) were issued in the name MRPL and the
representative
from MRPL corresponded with the department in the name of MRPL.
On 28.05.2010, the assessee filed its ROI in the name of MRPL, and in
the ‘Business Reorganization’ column of the form mentioned ‘not
applicable’ in amalgamation section. Though the respondent contends
that they had intimated the authorities by letter dated 22.07.2010, it was
for AY 2007-2008 and not for AY 2006-07. For the AY 2007-08 to 2008-
2009, separate proceedings under Section 153A were initiated against
MIPL and the proceedings against MRPL for these two assessment
years were quashed by the Additional CIT by order dated 30.11.2010 as
the amalgamation was disclosed. In addition, in the present case the
assessment order dated 11.08.2011 mentions the name of both the
amalgamating (MRPL) and amalgamated (MIPL) companies.
35. Secondly, in the cases relied upon, the amalgamated companies
had participated in the proceedings before the department and the courts
held that the participation by the amalgamated company will not be
regarded as estoppel. However, in the present case, the participation in
proceedings was by MRPL- which held out itself as MRPL.
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36. The judgments of this court- in Saraswati Syndicate and
Marshall (supra) have indicated that the rights and liabilities of the
transferor and transferee companies are determined by the terms of the
merger. In Saraswati Syndicate, the point further made is that the
corporate existence of the transferor ceases, upon amalgamation.
37. In the present case, the terms of the amalgamation have been
set out in the order sanctioning it, by the Delhi High Court, by its order
dated 10.09.2007. The court, by its order directed the amalgamation of
Mahagun Developers Ltd., Mahagun Realtors Pvt. Ltd., Universal
Advertising Pvt. Ltd., ADR Home Décor Pvt. Ltd. under Section 394 of
the Companies Act, 1956 with Mahagun (India) Pvt. Ltd. (MIPL) the
transferee Company. The operative order of the Delhi High Court under
Section 394 of the Companies Act, 1956 inter alia stated as follows:
“THIS COURT DOTH HEREBY SANCTION THE SCHEME
OF AMALGAMATION setforth in Schedule -I annexed hereto
and DOTH HEREBY DECLARE the same to be binding on all
the shareholders and creditors of the Transferor and
Transferee Companies and all concerned and Doth approve
the said scheme of amalgamation with effect from the appointed
date i.e., 1.04.2006.
AND THIS COURT DOTH FURTHER ORDER:
1. That all the property, rights and powers of the Transferor
Companies specified in the First, Second and Third parts of
the Schedule-II hereto and all other property, right
and powers
of the Transferor Companies be transferred without further
act or deed to all the Transferee Company and accordingly
the same shall pursuant to Section 394(2) of the Companies
Act, 1956 be transferred to and vest in the Transferee
Company for all the estate and interest of the Transferor
Companies therein but subject nevertheless to all charges now
affecting the same; and
2. That all the liabilities and duties of the Transferor
Companies be transferred without further act or deed to the
Transferee Company and accordingly the same shall pursuant
to Section 394 (2) of the Companies Act, 1956 be transferred
to and become the liabilities and duties of the Transferee
Company; and
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3. That all the proceedings now pending by or against the
Transferor Companies be continued or against the Transferee
Company; and
4. That the Transferee Company do without further
application allot to such members of the Transferor Companies
as have not given such notice of dissent as it required by
Clause 7 given in the scheme of amalgamation herein the
shares in the Transferee Company to which they are entitled
under the said amalgamation; and
5. That the Transferor Companies do within five weeks after
the date of this order cause a certified copy of this order to
be delivered to the Registrar of Companies for registration
and on such certified copy being so delivered, the Transferor
Companies shall be dissolved without the process of winding
up and the Registrar of Companies shall place all documents
relating to the Transferor Companies and registered with him
on the file kept by him in relation to the Transferee Company
and the files relating to the said Transferor and Transferee
Companies shall be consolidated accordingly.”
38. The Assessment Order passed by the A.O. recorded inter
alia as follows:
“6.1 In the case of the assessee group a survey operation
was carried out on 20-03-2007 wherein incriminating
documents were found which reflected the receipt of ‘on
money’/suppressed sale proceeds on sale of flats/shops.
During the survey one ‘Jaguar’ spiral diary was found which
contained unrecorded sale proceeds of various projects
undertaken by the
group. On being confronted the Assessee
group as per the statement of Amit Jain, Managing Director
of Mahagun Realtors Pvt. Ltd., Mahagun Developers Ltd.,
Mahagun (India) Pvt. Ltd. recorded on 20-03-2007 itself vide
answer to question no. 19 & 21 surrendered an amount of
Rs. 16.9589 crores as per the following details for A.Y. 2007-
08:
(i)
Mahagun Realtors Pvt. Ltd. Rs. 5.072 crores
(ii)
Mahagun Developers Ltd. Rs. 4.952 crores
(iii)
Mahagun India Pvt. Ltd. Rs. 6.934 crores
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For easy reference relevant portion of the statement is
quoted as under:
Q.18 Please further elaborate on the sale proceed as
mentioned on pages 2 to 18 of the said diary, in the
light of the fact that in reply to Q No. 15 it has been
stated that the said sale proceeds are not reflected in
the book of A/c.
The said sale figures denote the month-wise sale proceeds
pertaining to F.Y. 2006-07 in respect of the projects
under the construction at various sites as mentioned
above, which are not reflected in our books of A/c are
not reflected in our sales of MRPT, MDL, MIPL as on
20.03.2007.
Q.19 What is the total quantum of sale proceeds in the three
companies, namely, ‘MRPL, MDL, and MIPL’ which has
not been declared in the F.Y. 06-07 in your books of A/
c as admitted by you in your replay to the above relevant
question.
A.  As per the said diary, the following sale proceeds not
declared in our books of a/c of F.Y. 06-07 in respect of
MRPL, MDL and MIPL are as under:
a) Mahagun Realtors Pvt. Ltd. (MRPL)
Rs. 507.2 lacs
b) Mahagun Developers Ltd. (MDL)
Rs. 495.2 lacs
c) Mahagun India Pvt. Ltd. (MIPL)
Rs. 693.48 lacs
Rs .1 6 95 . 88
lacs
Q21. With reference to Q. No. 19, please re-confirm as to
whether the total amount of Rs. 16,95,88,000/- is part
of net profit corresponding to advance taxes paid by
MDL, MIPL and MRPL for the period from 01.04.2006
to 20.03.2007.
A. I hereby re-confirm that the amount of Rs. 16,95,88,000/
-
has not been declared in the P& L A/c of MDL, MIPL
and MRPL for the period from 01.04.2006 to 20.03.2007.
I, therefore, make and unequivocal surrender of an
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amount of Rs. 16.95,88,000/- as the additional income
of the following companies for the F.Y. 06-07 relevant to
A.Y. 07-08:
a) Mahagun Realtors Pvt. Ltd. (MRPL) Rs. 507.2 lacs
b) Mahagun Developers Ltd. (MDL)
Rs. 495.2 lacs
c) Mahagun India Pvt. Ltd. (MIPL)
Rs. 693.48 lacs
Rs. 1695.88 lacs
I further reconfirm that the total surrendered amount of Rs.
16.95.88.000 is over and above the net profit corresponding
to advance taxes paid by MDL, MIPL & MRPL for the period
from 01.04.2006 to 20.03.2007. I would further like to state
that the total surrender of Rs. 16.95.88.000/- in respect of
MIPL, MDL & MRPL for A.Y. 2007-08 for which Income Tax
Return is yet to be filed & I hereby undertake that the returns
of MIPL, MDL & MRPL for A.Y. 2007-08 shall be filed at
minimum returned income of Rs.16.95.88.000/- (corresponding
to total surrender amount) plus the net profit corresponding to
advance tax paid by MDL, MIPL & MRPL for the period from
01.04.2006 to 20.02.2007.
Thus, the surrender was over and above the net profit for AY
2007-08 in the case of respective company. The assessee was
required to correlate and justify the same that it has been
shown over and above the regular business income. The
assessee has submitted that while filing return of income for
AY 2007-08 it has disclosed income of Rs. 16.95 crores as
additional cash sales under the head of business income.
6.2 Subsequent to survey operation a search and seizure
operation u/s. 132 of the Income-Tax
Act, 1961 was carried
out in the hands of the assessee group. During the search
incriminating documents/ diaries which contained entries of
unaccounted income generated on account of receipt of ‘on
money’ etc. were found and on being confronted, Shri Amit
Jain, Managing Director of group and the main person of
the group in answer to question 15 of the statement recorded
u/s. 132 (4) on 27-08-2008 admitted as under:
“As stated number of times above, I am not able to explain
the case entries/receipts appearing in the ledgers marked as
annexure A-20, A-21, A-22, A-23 & A-24. Therefore, I offer
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Rs. 30 crores as additional income on account of case receipts/
entries in the above annexures in the hands of M/s. Mahagun
India (P) Ltd. The additional income declared is over and
above the regular income to be declared.”
6.3 Admissions of additional income or receipts were examined
in the light of the returns of income filed by the respective
companies. In so far as accounting of the income of 16.95
crores admitted during the course of survey proceedings is
concerned it is found to have been accounted for in the
respective years for which it was offered. Here, it is important
to note that Shri Amit Jain whose statement was recorded qua
the surrender of additional income of 30 crores has nowhere
stated as to which particular year the income surrendered is
attributable to. Careful scrutiny of the returns revealed that
in so far as admitted additional income of 30 crores as
voluntarily surrendered during the course of search in the
statement recorded u/s. 132(4) is concerned the assessee
company Mahagun India (P) Ltd. instead of offering the full
amount of 30 crores for taxation, has offered only 17.97 crores
for AY 2009-10. This amount of additional income has been
offered on the bases of peak of the annexures (A-20, A-21,
A-22, A-23 & A-24) which too is found to have been
capitalized by the assessee company in its work-in-progress
at 16.97 crores and Rs. 1 crore as cash in hand. This word-
in-progress is found
debited in the books maintained for AY
2010-11 i.e., to this extend surrender made in AY 09-10 has
been set off against the income meant for AY 2010-11.”
39. The A.O. had directed a Special Audit under Section 142
(2A) of the Act. Having received the report of the Special Auditor and
having considered the objections of the assessee the A.O. recorded
further as follows:
“7.3 The documents seized reveals that the assessee group
had received on ‘on money’ as a matter of routine/practice
on sale of almost each and every flat/shop. Accordingly, it
was considered expedient/necessary to work out the
unaccounted receipts of ‘on money’ in respect of the entire
area sold of all the relevant projects so as to work out the
exact quantum of receipts suppressed. The Special Auditors
were specifically directed to work out the quantum of addition
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to be made on this extrapolation bases which they worked it
out at Rs. 42, 98, 06,439 as per the following;
7.6 The reply filed by the assessee has been considered. The
assessee as such does not dispute the extrapolation done but
has just asked for discounting the extrapolated rate suitably
and spread it over to the entire projects period. Before
considering whether the reply as filed by the assessee company
is acceptable or not it is considered necessary to re-iterate
certain facts of the case at a glance. During the currency of
the block or 7 years as relevant to the search & seizure
operations as carried out in the hands of the assessee group
following projects are found to have been either started or
completed as per the following details;
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8. Year & Entity of taxability of suppressed receipts
8.1 It is to mention here that during the F.Y. 2002-2003 and
2003-04, the assessee was following Project Completion
Method and in subsequent years that assessee has changed to
percentage completion method. Since, the assessee is following
the ‘Percentage Completion Method’ it was incumbent upon
the assessee to spread the unaccounted receipts of Rs. 16.95
as admitted during survey and of Rs. 32,82,27,143 as found in
the diaries found in search in relation to the projects undertaken
in proportion to the percentage of completion of the projects
as achieved in the relevant years. In my view unless this is
done the correct taxable income of the assessee cannot be
worked out. Here, it is relevant to mention that even in its reply
dated 27-07-2011, assessee has agreed that unaccounted
receipts are required to be spread over to various years on the
basis of percentage completion method.
8.2 On attributing the aforesaid surrender qua the stag of
construction of various projects (on the same bases as adopted
by the Special Auditor for working out the figure of 42 crores)
likely additional income attributable to unaccounted receipts
as referred to in this para amounting to Rs. 49,78,59,943 which
the assessee ought to have offered for taxation is worked out
as per Annexure A-1 to this order. The additions are accordingly
made in the respective years of assessment over and
above the
receipts duly accounted for by the assessee group in its returns
filed for these years. In brief, as per this working, additions to
be made will be as below:
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8.3 Before parting with this issue it is considered necessary
to pin point that assessee group ought to have offered the
income in the hands of the entities which had earned the
aforesaid incomes detected during survey and search action.
Under the Income-Tax act, 1961 as explained by the Supreme
Court in CIT vs. Ch. Atchaiah (218 ITR 241 SC) the income is
required to be taxed in the correct year, under the correct
heads and in the correct hands/entities. In the context of the
assessee group, the suppressed receipts, irrespective of what
treatment the assessee group are required to be taxed in the
hands of the entities/companies which executed the aforesaid
projects. Accordingly, disregarding the treatment given by the
assessee group, the aforesaid unaccounted receipts totaling
to 49.78 crores are brought to tax in the hands of entitles to
which these are allocated as per para 8.2 above.
In view of the above, unaccounted receipts attributable to
the assessee for the assessment year 2005-06 amounting to
Rs. 6,05,71,018/- as supra is treated as undisclosed income
of the assessee and added to the total income of the assessee.
I am satisfied that the assessee has not disclosed the above
receipts/income and as such penalty proceedings u/s 271(1)(c)
are attracted on this score.
(Addition of Rs. 6,05,71,018/-)”
40.
The facts of the present case are distinctive, as evident
from the following sequence:
1.
The original return of MRPL was filed under Section 139(1)
on 30.06.2006.
2.
The order of amalgamation is dated 11.05.2007 – but made
effective from 01.04.2006. It contains a condition – Clause
220 - whereby MRPL’s liabilities devolved on MIPL.
3.
The original return of income was not revised even though
the assessment proceedings were pending. The last date
20 “2.That all the liabilities and duties of the Transferor Companies be transferred
without further act or deed to the Transferee Company and accordingly the same shall
pursuant to Section 394 (2) of the Companies Act, 1956 be transferred to and become
the liabilities and duties of the Transferee Company”
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for filing the revised returns was 31.03.2008, after the
amalgamation order.
4.
A search and seizure proceeding was conducted in respect
of the Mahagun group, including the MRPL and other
companies:
(i)
When search and seizure of the Mahagun group took
place, no indication was given about the
amalgamation.
(ii)
A statement made on 20.03.2007 by Mr. Amit Jain,
MRPL’s managing director, during statutory survey
proceedings under Section 133A, unearthed
discrepancies in the books of account, in relation to
amounts of money in MRPL’s account. The specific
amount admitted was  5.072 crores, in the course
of the statement recorded.
(iii)
The warrant was in the name of MRPL. The
directors of MRPL and MIPL made a combined
statement under Section 132 of the Act, on
27.08.2008.
(iv)
A total of  30 crores cash, which was seized- was
surrendered in relation to MRPL and other transferor
companies, as well as MIPL, on 27.08.2008 in the
course of the admission, when a statement was
recorded under Section 132 (4) of the Act, by Mr.
Amit Jain.
5.
Upon being issued with a notice to file returns, a return
was filed in the name of MRPL on 28.05.2010. Before that,
on two dates, i.e., 22/27.07.2010, letters were written on
behalf of MRPL, intimating about the amalgamation, but
this was for AY 2007-08 (for which separate proceedings
had been initiated under Section 153A) and not for AY 2006-
07.
6.
The return specifically suppressed – and
did not disclose
the amalgamation (with MIPL) – as the response to Query
27(b) was “N.A”.
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7.
The return – apart from specifically being furnished in the
name of MRPL, also contained its PAN number.
8.
During the assessment proceedings, there was full
participation – on behalf of all transferor companies, and
MIPL. A special audit was directed (which is possible only
after issuing notice under Section 142). Objections to the
special audit were filed in respect of portions relatable to
MRPL.
9.
After fully participating in the proceedings which were
specifically in respect of the business of the erstwhile MRPL
for the year ending 31.03.2006, in the cross-objection before
the ITAT, for the first time (in the appeal preferred by the
Revenue), an additional ground was urged that the
assessment order was a nullity because MRPL was not in
existence.
10.
Assessment order was issued – undoubtedly in relation to
MRPL (shown as the assessee, but represented by the
transferee company MIPL).
11.
Appeals were filed to the CIT (and a cross-objection, to
ITAT) – by MRPL “represented by MIPL”.
12.
At no point in time – the earliest being at the time of search,
and subsequently, on receipt of notice, was it plainly stated
that MRPL was not in existence, and its business assets
and liabilities, taken over by MIPL.
13.
The counter affidavit filed before this court – (dated
07.11.2020) has been affirmed by Shri Amit Jain S/o Shri
P.K. Jain, who- is described in the affidavit as “Director
of M/S Mahagun Realtors(P) Ltd., R/o…”.
41. In the light of the facts, what
is overwhelmingly evident- is
that the amalgamation was known to the assessee, even at the stage
when the search and seizure operations took place, as well as statements
were recorded by the revenue of the directors and managing director of
the group. A return was filed, pursuant to notice, which suppressed the
fact of amalgamation; on the contrary, the return was of MRPL. Though
that entity ceased to be in existence, in law, yet, appeals were filed on its
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behalf before the CIT, and a cross appeal was filed before ITAT. Even
the affidavit before this court is on behalf of the director of MRPL.
Furthermore, the assessment order painstakingly attributes specific
amounts surrendered by MRPL, and after considering the special
auditor’s report, brings specific amounts to tax, in the search assessment
order. That order is no doubt expressed to be of MRPL (as the assessee)
- but represented by the transferee, MIPL. All these clearly indicate
that the order adopted a particular method of expressing the tax liability.
The AO, on the other hand, had the option of making a common order,
with MIPL as the assessee, but containing separate parts, relating to the
different transferor companies (Mahagun Developers Ltd., Mahagun
Realtors Pvt. Ltd., Universal Advertising Pvt. Ltd., ADR Home Décor
Pvt. Ltd.). The mere choice of the AO in issuing a separate order in
respect of MRPL, in these circumstances, cannot nullify it. Right from
the time it was issued, and at all stages of various proceedings, the parties
concerned (i.e., MIPL) treated it to be in respect of the transferee
company (MIPL) by virtue of the amalgamation order – and Section
394 (2). Furthermore, it would be anybody’s guess, if any refund were
due, as to whether MIPL would then say that it is not entitled to it,
because the refund order would be issued in favour of a non-existing
company (MRPL). Having regard to all
these reasons, this court is of
the opinion that in the facts of this case, the conduct of the assessee,
commencing from the date the search took place, and before all forums,
reflects that it consistently held itself out as the assessee. The approach
and order of the AO is, in this court’s opinion in consonance with the
decision in Marshall & Sons (supra), which had held that:
“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 Company.”
42. Before concluding, this Court notes and holds that whether
corporate death of an entity upon amalgamation per se invalidates an
assessment order ordinarily cannot be determined on a bare application
of Section 481 of the Companies Act, 1956 (and its equivalent in the
2013 Act), but would depend on the terms of the amalgamation and the
facts of each case.
43. In view of the foregoing discussion and having regard to the
facts of this case, this court is of the considered view, that the impugned
order of the High Court cannot be sustained; it is set aside. Since the
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appeal of the revenue against the order of the CIT was not heard on
merits, the matter is restored to the file of ITAT, which shall proceed to
hear the parties on the merits of the appeal- as well as the cross objections,
on issues, other than the nullity of the assessment order, on merits. The
appeal is allowed, in the above terms, without order on costs.
Bibhuti Bhushan Bose
Appeal allowed.
(Assisted by : Shubhanshu Das, LCRA)
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