Madras High Court
Marshall Sons And Co. (India) Ltd. vs Income-Tax Officer on 10 June, 1991
Equivalent citations: [1992]195ITR417(MAD)
JUDGMENT Ratnam, J.
1. In this writ petition, the petitioner, Marshall Sons and Co. (India) Ltd., claiming as successors to Marshall Sons and Co. (Mfg.) Ltd., Ambattur, has prayed for the issue of a writ of certiorarified mandamus to call for the records relating to the assessment to income-tax for the assessment years 1984-85 and 1985-86 of Marshall Sons and Co. (Mfg.) Ltd., Ambattur, on the file of the respondent and restrain him from taking steps regarding the assessment of the said company, as the said company was not in existence during the previous years relevant to the assessment years, as it had been amalgamated with Marshall Sons and Co. (India) Ltd. with effect from January 1, 1982.
2. Marshall Sons and Co. (Mfg.) Ltd., Ambattur, carried on business in the manufacture and sale of cranes and other road making machinery and it was a subsidiary of Marshall Sons and Co. (India) Ltd., registered under the Companies Act (hereinafter referred to as "the Act") with its registered office at No. 33-A, Chowringee Road, Calcutta. The subsidiary company was an assessee under the jurisdiction of the respondent herein and the return of income for the assessment year 1982-83 was filed on June 30, 1982, and the assessment was completed on March 28, 1985. On December 1, 1982, the subsidiary company applied, to the Income-tax Officer concerned for a change in the previous from December 31, to June 30, and wanted to close the account books on June 30, 1983, for the period from January 1, 1982, to June 30, 1983, and this was granted, subject to the condition that the income for the period of 18 months from January 1, 1982, to June 30, 1983, would be assessed for the assessment year 1984-85. On February 11, 1983, at a meeting of the shareholders of the subsidiary company, a resolution was passed authorising the said company to be amalgamated with its parent company, Marshall Sons and Co. (India) Ltd. Similarly, the shareholders of the petitioner-company, at a meeting held on May 7, 1983, passed a resolution regarding the amalgamation of Marshall Sons and Co. (Mfg.) Ltd. with the petitioner and, in due course, a scheme of amalgamation was finalised, the terms of which will be referred to later. C.P. No. 23 of 1983 was filed before this court by Marshall Sons and Co. (Mfg.) Ltd. for sanctioning the scheme of amalgamation and that was ordered on November 21, 1983. Before the High Court at Calcutta, C.P. No. 294 of 1983 was also filed for sanctioning the scheme of amalgamation and that was ordered on January 11, 1984. In the orders so passed by the courts sanctioning the scheme of amalgamation, the transferor and transferee-companies were directed to deliver certified copies of the orders sanctioning the scheme to the Registrar of Companies at Madras and Calcutta, within 30 days from November 21, 1983, and January 11, 1984, respectively, and, accordingly, the certified copies were filed on January 20, 1984, and February 24, 1984, at Madras and Calcutta. On November 25, 1984, a notice under section 139(2) of the Income-tax Act, 1961, was issued to Marshall Sons and Co. (Mfg.) Ltd., calling upon it to file a return of its income for the assessment years 1984-85 and 1985-86, to which a reply was sent stating that Marshall Sons and Co. (Mfg.) Ltd., Ambattur, had been amalgamated with the parent company, M/s. Marshall Sons and Co. (India) Ltd., and during the previous year relevant to the assessment years, it was not an entity in existence and, therefore, no obligation was cast on it to file a return of income as per the notice. On November 25, 1985, the Income-tax Officer called upon Marshall Sons and Co. (Mfg.) Ltd., Madras, to file the returns immediately, and, in the replies dated December 16, 1985, and December 19, 1985, the amalgamation of Marshall Sons and Co. (Mfg.) Ltd. with Marshall Sons and Co. (India) Ltd. with effect from January 1, 1982, was reiterated and "nil" returns were filed. On January 17, 1986, the Income-tax Officer drew the attention of Marshall Sons and Co. (Mfg.) Ltd. to certain defects in the returns submitted for the assessment years 1984-85 and 1985-86 and also called for certain particulars regarding the amalgamation to which a reply was sent on January 21, 1986, and February 22, 1986, stating that the particulars called for had been furnished and reiterating that the amalgamation had taken place with effect from January 1, 1982, and the filing of the return for the assessment years 1984-85 and 1985-86 was not necessary. The Income-tax Officer, in his letter dated January 31, 1986, drew attention to the order passed by the Calcutta High Court and stated that, having regard to the date of the order passed, it could have been filed with the Registrar of Companies on February 6, 1984, at the earliest and required Marshall Sons and Co. (Mfg.) Ltd. to state the reason for a "nil" return and further required the filing of the audited profit and loss account and balance-sheet. Along with that notice, a notice under section 142(1) of the Income-tax Act was also enclosed requiring compliance by February 7, 1986, on which date, the Income-tax Officer directed the matter to be posted for hearing. It was at that stage that the petitioner filed the writ petition praying for the reliefs set out earlier.
3. In the affidavit filed in support of the writ petition, the principal ground taken is that as the amalgamation had taken effect from January 1, 1982, the Income-tax Officer cannot take any steps for assessing the income of Marshall Sons and Co. (Mfg.) Ltd. for either of the assessment years in question or any other subsequent period. In the counter filed by the respondent, after referring to the grant of the request for a change in the previous years and the exchange of correspondence, it is stated that, under the terms of the scheme of amalgamation, such amalgamation became effective only after the sanction of the scheme by the court, after approval and as a copy of the order in C.P. No. 23 of 1983 was filed before the Registrar of Companies, Madras, on January 20, 1984, Marshall Sons and Co. (Mfg.) Ltd. continued to remain in existence up to January 20, 1984. It was also further pleaded that the subsidiary company was borne on the register of companies up to January 21, 1986, and the minutes book showed that the affairs of the company had been continued by the board of directors up to May 19, 1984, and only in June, 1984, and only in June, 1984, the shares of Marshall Sons and Co. (India) Ltd. were allotted to the members of Marshall Sons and Co. (Mfg.) Ltd. and as the subsidiary company was in existence from January 1, 1982, up to January 20, 1984, the assessment proceedings for the period January 1, 1982, to June 30, 1983, and July 1, 1983, to January 20, 1984, relevant to the assessment years 1984-85 and 1985-86 had been validly initiated. The respondent also put forward the plea that Marshall Sons and Co. (India) Ltd. had also accumulated losses and had closed down its manufacturing operations and as Marshall Sons and Co. (Mfg.) Ltd. had earned substantial income during the assessment years in question and there was no loss, the entire income earned by the subsidiary company was liable to be assessed to tax and, by the device of amalgamation, Marshall Sons and Co. (India) Ltd. was seeking to set off its accumulated loss against the profits of Marshall Sons and Co. (Mfg.) Ltd. Yet another objection raised by the respondent was that the operative date with reference to the scheme of amalgamation was the date of the filing of copies of court orders with the Registrar of Companies and, under the clauses in the scheme of amalgamation, only after the operative date, the petitioner-company acquired rights to dispose of the profits and losses of the transferor-company and the claim that there was an amalgamation on January 1, 1982, was untenable. The availability of an adequate alternative remedy to the petitioner was also put forward as justifying the exercise of discretion against the petitioner in the matter of the issue of a writ.
4. Mr. M. R. Narayanaswamy, learned counsel for the petitioner, inviting attention to clauses (1), (2) and (6)(b) in the scheme of amalgamation and orders of the courts in C.P. Nos. 23 of 1983 of 294 of 1983, contended that the scheme of amalgamation took effect on and from January 1, 1982, on which date the subsidiary company ceased to exist and, therefore, there no assessable entity in the shape of the subsidiary company during the relevant assessment years 1984-85 and 1985-86. Strong reliance in this connection was also placed upon the decision in CIT v. Swastik Rubber Products Ltd. [1983] 140 ITR 304 (Bom) and the order in S.L.P. (Civil) No. 1969 of 1980, [1983] 140 ITR (St.) 2. On the other hand, learned counsel for the Revenue submitted that, on January 1, 1982, there was no scheme of amalgamation at all in contemplation and the date January 1, 1982, had been incorporated as an arbitrary and artificial date with no nexus whatever to the scheme of amalgamation and was intended only as a tax avoidance device. Referring to the clauses in the scheme of amalgamation, particularly, clauses (1) and (6) to (8), learned counsel pointed out that the whole scheme of amalgamation was subject to the provisions of the Act (Companies Act) and the date on which, the assets, properties and liabilities of the subsidiary company stood transferred and vested in the petitioner-company was November 21, 1983, or February 20, 1984, as no date as such had been fixed in the order of court. In addition, learned counsel also contended that the scheme of amalgamation, under the terms thereof, was also made conditional upon the shareholders of the subsidiary company becoming shareholders of the amalgamated company and allotment of shares of the petitioner-company was made in June, 1984, and the subsidiary company had also continued to be borne on the register of companies up to January 21, 1986, and, therefore, the assessment proceedings were properly initiated against the subsidiary company in respect of the assessment years 1984-85 and 1985-86. A point was also raised that the dismissal of a special leave petition by the Supreme Court, in the exercise of its discretion under article 136 of the Constitution of India, cannot be regarded as affirmation of the correctness of the decision appealed against and that the decision in CIT v. Swastik Rubber Products Ltd. [1983] 140 ITR 304 (Bom) is clearly distinguishable as, in that case, the order passed by the court had specifically referred to the effective date of amalgamation as July 1, 1971, which is absent in this case. In support of the aforesaid contentions, learned counsel drew our attention to Sahayanidhi (Virudhunagar) Ltd. v. Subrahmanya Nadar (A.R.S.) [1950] 20 Comp Cas 214 (Mad) [FB]; [1950] 2 MLJ 216, United India Life Assurance Co. Ltd. v. CIT [1963] 49 ITR 965 (Mad), McDowell and Co. Ltd. v. CTO and CIT v. Express Newspapers Ltd. [1960] 40 ITR 38 (Mad).
5. Before proceeding to consider the contentions so raised, it would be necessary to set out the relevant terms of the scheme of arrangement and amalgamation between the petitioner and the subsidiary company. According to the scheme, "Act" means the Companies Act and the "transfer date" means "1st January, 1982". The operative date under the scheme means the date on which certified copies of the orders of the High Courts of Tamil Nadu and Calcutta, under sections 391(2) and 394(2) of the Act, shall have been filed with the Registrars of Companies in Tamil Nadu and Calcutta, respectively. The terminal date in the scheme means the date immediately preceding the operative date. The provision made under clause (1) of the scheme is as follows : (1) The undertaking of the transferor-company shall, with effect from and including the transfer date and without further act or deed, be transferred to the transferee-company pursuant to sections 391(2) and 394(2) of the Act and vest in the transferee-company with all the estate and interests of the transferor-company, but subject nevertheless to all charges affecting the same and, on the said date, the transferor-company shall be amalgamated with the transferee-company." Clause (2)(a) of the scheme proceeds to set out what is comprised in the undertaking of the transferor-company and that takes in all the properties of the transferor-company immediately before the amalgamation wheresoever situate and all the liabilities of the transferor-company immediately before the amalgamation. Clause (2)(b) of the scheme further elaborates what is included in the undertaking of the transferor by stating that it includes all rights, privileges, powers and authorities and all properties, movable or immovable, real or personal corporeal or incorporeal, in possession or reversion, present or contingent, of whatsoever nature and wheresoever situate including leases and tenancy rights and including, in particular, all licences and liberties, patents, trade marks and import and export quotas held by the transferor-company before amalgamation, or to which the transferor-company is entitled and all-duties, liabilities and debts of the transferor-company in India and all other obligations of whatsoever kind, including liability for payment of gratuity, pension benefits, provident fund and compensation in the event of retrenchment. Clause (6)(b) of the scheme is as follows :
6. The transferor-company shall, with effect from the transfer date, be deemed to have carried on its business for and on behalf of the transferee-company and, accordingly, the profits and losses of the transferor-company for the period commencing from the transfer date, shall be deemed to be the profits or losses of the transferee-company and shall be available to the transferee-company for disposal in any manner, including the declaration of any dividend by the transferee-company, after the operative date, subject to the provisions of the Act. Clauses (7) and (8) specify the further conditions to which the implementation of the scheme is subject to. Clause (7) provides that the implementation of the scheme is conditional upon the scheme being sanctioned under section 391 of the Act and appropriate orders for implementation of the scheme being made under section 394 of the Act by the High Courts of Tamil Nadu and Calcutta. Clause (8) also provides that the implementation of the scheme is conditional also upon the shareholders holding not less than nine-tenths in value of the shares in the transferor-company (other than shares already held therein immediately before the amalgamation by the transferee-company) becoming shareholders of the transferee-company by virtue of the amalgamation. A reference may also be made now to the orders of court in C.P. No. 23 of 1983 and C.P. No. 294 of 1983. In so far as the order in C.P. No. 23 of 1983 passed by this court on November 21, 1983, is concerned, it merely purports to sanction the scheme of amalgamation and directs the filing of a certified copy of the order sanctioning the scheme within 30 days before the Registrar of Companies and give liberty to the parties to apply for further directions to carry out the scheme of amalgamation. In the schedule to that order, the terms of the scheme of amalgamation have been set out. In the order passed in C.P. No. 294 of 1983 on January 11, 1984, there is a reference to the order passed by this court in C.P. No. 23 of 1983 dated November 21, 1983, and, thereafter, the order proceeds to sanction the scheme of amalgamation set forth in annexure G to the order and specified in the schedule.
7. It is in the background of the aforesaid provisions in the scheme of amalgamation and court orders and the relevant provisions of the Act that the precise date of amalgamation of the subsidiary company with the petitioner-company has to be ascertained. Though in the scheme of amalgamation, the transfer date has been stated as January 1, 1982, it is seen that that date has really no connection whatever with the scheme of amalgamation. It is seen that the terms of the scheme of amalgamation appear to have been finalised some time in December, long after the transfer date January 1, 1982, as provided in the scheme. There is no indication in the terms of the scheme as to why this date January 1, 1982, has been thought of. When there was no scheme of amalgamation in contemplation till at least the beginning of December, 1982, how the transfer date had been pushed back of January 1, 1982, is not very clear. The date January 1, 1982, appears to us to be a totally artificial and arbitrary date, not in any manner related to or affecting the other provisions in the scheme of amalgamation and that date had no nexus whatever to the scheme of amalgamation. Therefore, the date January 1, 1982, found in the scheme, by itself, does not appear to have any relevance whatever to the scheme of amalgamation especially when, on January 1, 1982, the idea of amalgamation was perhaps farthest from the contemplation of the amalgamated and amalgamating companies. Besides, the provisions in the scheme of amalgamation, as reflected in the clauses extracted earlier, establish that they are subject to the provisions of the Companies Act as well as fulfilment of certain other conditions. Though in clause (1) of the scheme, the undertaking of the subsidiary company, shall from January 1, 1982, the transfer date, be transferred to the transferee-company, that is stated to be pursuant to sections 391(2) and 394(2) of the Act. Under section 394(2) of the Act, the property shall stand transferred and vest in the transferee-company by virtue of the order of court. In this case, the order in C.P. No. 23 of 1983 was passed on November 21, 1983, and that in C.P. No. 294 of 1983 on January 11, 1984. Thus, even under clause (1) of the scheme of amalgamation, an order of court transferring and vesting the properties of the subsidiary company in the parent company has been contemplated and that could have taken place only on the passing of the order by the court and not from an anterior date. Again, in the order passed by the court, no specific date is mentioned and this also stands to reason because of the provisions in the scheme of amalgamation. Under clause (6)(b), though it is stated that the subsidiary company shall, with effect from January 1, 1982, be deemed to have carried on business for and on behalf of the amalgamated company and the profits and losses of the subsidiary company from January 1, 1982, shall be deemed to be the profits and losses of the amalgamated company and shall be available to the amalgamated company for disposal, in any manner, including declaration of any dividend by the transferring company, after January 20, 1984, or February 24, 1984, that again is made subject to the provisions of the Companies Act and the operative date would be January 20, 1984, and February 24, 1984. The provision for making available amounts for the declaration of any dividend after January 20, 1984, and February 24, 1984, subject again to the provisions of the Companies Act, would appear to indicate that only after the transfer and vesting orders are passed by the court under section 394(2) of the Act and the certified copies thereof are filed before the Registrars of Companies at Madras and Calcutta, under section 394(3) of the Act, the amalgamation under the scheme becomes effective. There are two other conditions also which would clearly establish that the date of amalgamation of the subsidiary company with the amalgamated company could not be January 1, 1982. Under clause (7) of the scheme, the implementation of the scheme is made conditional upon the sanction of the scheme by court under section 391 of the Act and the passing of orders for implementation under section 394 by the High Courts. This provision also clearly envisages that the passing of orders by the courts had been thought of as an essential condition and, if that be so, only by virtue of the order of court under section 394(2) of the Act, the transfer of assets could take place and vest in the transferee-company in implementation of the scheme of amalgamation, and this could not certainly be related back to January 1, 1982. Yet another provision in the scheme is that its implementation is conditional upon the shareholders holding not less than one-tenth in value of the shares in the transferor-company (other than shares already held therein immediately before the amalgamation by the transferee-company) becoming the shareholders of the transferee-company by virtue of the amalgamation. It is seen from the counter-affidavit filed by the respondent that the allotment of shares in the petitioner-company to the members of the assessee-company was made in June, 1984. The fulfilment of this condition towards implementation of the scheme would also indicate that January 1, 1982, could not have been the effective date for the purpose of amalgamation. It is thus seen that, on a consideration of the terms of the scheme of amalgamation, the amalgamation could not have taken place on January 1, 1982, as claimed by the petitioners.
8. Earlier, a reference had been made to section 394(2) of the Act. That corresponds to section 153A of the Indian Companies Act, 1913 (Act 7 of 1913). Interpreting section 153A of that Act, a Full Bench of this court, in Sahayanidhi (Virudhunagar) Ltd. v. A. R. S. Subrahmanya Nadar [1950] 20 Comp Cas 214; [1950] 2 MLJ 218, pointed out that that section had been enacted to facilitate arrangements involving transferring of assets and liabilities to other companies, as part of such arrangement and where an order of court is made and that provides for the transfer of the assets and liabilities of a company, the assets, by virtue of that order, without more, stand transferred to and vest in the transferee-company and that the title of the transferee-company to the property and assets transferred as a result of the order of court under section 153A is derived from and by force of the order of court itself. This principle, laid down with reference to the effect of order of court, would be applicable in this case also, so that the date of amalgamation cannot be January 1, 1982, as claimed by the petitioner. Though learned counsel for the petitioner submitted that the decision of the Full Bench, referred to above, dealt with a case of stamp duty and would not apply to this case, it is difficult to accept this distinction, for the liability for payment of stamp duty arose in the context of the transfer of the assets and liabilities of the company under an arrangement under section 153A of the Indian Companies Act, 1913, and sanctioned by the court and it became necessary to consider the effect of the passing of the order by the court, transferring the assets and liabilities to another company on the question of payment of stamp duty on the documents on the basis of which suits came to be instituted. In United India Life Assurance Co. Ltd. v. CIT [1963] 49 ITR 965, the question arose as to when a Swiss company became merged with the assessee-company losing all rights of ownership in its assets. It was maintained on behalf of the assessee that the transfer took effect on January 1, 1952, though the court passed orders on July 10, 1954, and, therefore, in respect of the assessment years 1953-54 and 1954-55, it would not be open to the Revenue to treat the businesses as those of two companies, and apply either rule 2(a) or rule 2(b) on the Schedule or both. This was rejected by the authorities below and, on a reference, this court, after referring to the terms in the scheme of amalgamation, providing for the transferee taking over the liabilities, etc., as on January 1, 1952, pointed out that the language of section 153A of the Indian Companies Act, 1913, clearly indicated that the instrumentality of transfer is not the agreement, but the order of the court. It was also further pointed out that, if the court refused to set its seal to the scheme of amalgamation, the arrangement would fall to the ground and it is, therefore, the sanction of court which gives life to it; even an order of court does not have retrospective operation so as to claim that the scheme had been in operation from an anterior date, anterior to the date of sanction and the order of court cannot have retrospective effect or operation. In arriving at this conclusion, the court stated that it would be very difficult to contend that ex post facto sanction by a court, of an agreement, would achieve the legal result of making the agreement effective, either from its date or from a date long anterior to it, by imagining a fiction that the court gave the sanction on the date from which the operation is claimed. Taking note of the decision of the Judicial Committee in Raghubar Dayal v. Bank of Upper India Ltd. [1919] LR 46 IA 135, the Division Bench pointed out that that was a decision rendered under section 153 and not under section 153A and the absence of any provision in section 153 as regards the point of time for vesting is natural and intelligible, as there is no occasion for that in that section, while, a point of time for vesting, in cases of transfer of rights under section 153A is essential, which has been indicated in the section, as being the date of the order of the court. CIT v. Swastik Rubber Products Ltd. [1983] 140 ITR 304 (Bom) relied on by learned counsel for the petitioner, in our view, does not really assist him. On a consideration of the provisions in the scheme of amalgamation, the Tribunal found that the entire undertaking of the bank stood transferred to the assessee from July 1, 1971, and the High Court also passed orders that with effect from July 1, 1971, the business and profits and liabilities of the bank stood transferred to the assessee. It is thus seen that mention was made of the date, with effect from which the whole undertaking or business stood vested in the transferee as on July 1, 1971, even in the order of the court. When the order of the court specified the date as July 1, 1971, the amalgamation and the transfer of assets and liabilities would also be effective from that date, as per the order of the court, for under section 394(2), by virtue of the order passed on July 1, 1971, and effective from that date, the transfer of the assets and liabilities took place. In the present case, it had already been pointed out that neither in the order passed in C.P. No. 23 of 1983 by this court nor in C.P. No. 294 of 1983 by the High Court of Calcutta had any particular date been specified, but the court merely proceeded to sanction the scheme contained in the annexure to the petition and, therefore, the decision in CIT v. Swastik Rubber Products Ltd. [1983] 140 ITR 304 (Bom), relied on by learned counsel for the petitioner, would not be of any assistance. Equally, the circumstance that a special leave petition S.L.P. (Civil) No. 1969 of 1980 had been dismissed by the Supreme Court on November 17, 1982 (vide [1983] 140 ITR (St.) would not be of any assistance to the petitioner. The dismissal of the special leave petition by the Supreme Court was in the exercise of its discretion under article 136 of the Constitution of India. As pointed out by the Supreme Court in Nawab Sir Mir Osman Ali Khan v. CWT , the dismissal by the Supreme Court of a petition for special leave to appeal under article 136 of the Constitution of India against a decision in limine does not clothe the decision with the authority of the Supreme Court and the dismissal of a special leave petition, in the course of discretionary jurisdiction, cannot be construed as an affirmation by the Supreme Court of the decision against which special leave appeal was sought. The principle of this decision has been followed and applied in CIT v. K. M. Jagannathan . Thus, neither the decision in CIT v. Swastik Rubber Products Ltd. [1983] 140 ITR 304 (Bom) nor the dismissal of the special leave petition against it by the Supreme Court would, in any manner, assist the petitioner.
9. It is seen from para 4 of the counter-affidavit filed that the subsidiary company had been shown to have been borne on the register of companies up to January 21, 1986. We had earlier pointed out that, at least till January 20, 1984, when section 394(3) of the Act was fulfilled, after the passing of the order under section 394(2) of the Act, the implementation of the scheme could not have taken place by virtue of clause (7) in the scheme of amalgamation. Even otherwise, we find that the company had continued to exist till January 21, 1986, as stated in para 4 of the counter-affidavit. That means that, according to the records maintained pursuant to the provisions of the Companies Act, the subsidiary company had continued to remain in existence up to January 21, 1986, even long after January 1, 1982. We may, in this connection, refer to CIT v. Express Newspapers Ltd. [1960] 40 ITR 38 (Mad), at page 60, where it has been pointed out that till the company is struck off the register, it cannot be stated that it had ceased to exist.
10. We may briefly advert to the contention of learned counsel for the Revenue to the effect that the scheme of amalgamation was a device for tax avoidance. Though learned counsel for the respondent relied on the decision in McDowell and Co. Ltd. v. CTO to contend that a construction of the provisions in the scheme of amalgamation which would encourage tax avoidance should be avoided and learned counsel for the petitioner countered this by referring to the decision in CWT v. Arvind Narottam , we are of the view that when, on the interpretation of the clause in the scheme of amalgamation, it is clear that January 1, 1982, was not the date of amalgamation, it is unnecessary to consider the appeal to discourage tax avoidance. We, therefore, do not express any opinion on this and also on the question of availability of an alternative remedy, as we have considered the matter on merits. No other point was urged. The writ petition is, therefore, dismissed with costs. Counsel's fee Rs. 1,500.