Adani Gas Ltd, Ahmedabad V. The ACIT.,Circle-1, Ahmedabad

ITA 2516/AHD/2011

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2374 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 21-10-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 07-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Competent authority; Scheme of amalgamation; Revised return
• Section: 143(3); 244A; 234B; 37; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: S H RI PRAMOD KUMAR , ACCOUNTANT MEMBER AND SHR I S. S. GODARA , JUDICIAL MEMBER ADANI GAS LTD, ADANI HOUSE, NR. MITHAKALI SIX ROADS, NAVRANGPURA, AHMEDABAD PAN: AAFCA3788D (APPELLANT) VS ACIT, CIRCLE - 1 JITENDRA CHAMBERS, ASHRAM ROAD, AHMEDABAD (RESPONDENT) REVENUE BY : S H RI JAMES KURIAN , SR. D . R. ASSESSEE BY: S H RI S.N. SOPARKAR , A.R. DATE OF HEARING : 21 - 10 - 2 015 DATE OF PRONOUNCEMENT : 18 - 01 - 2 016 / ORDER P ER : S. S. GODARA , JUDICIA L MEMBER : - THE S E TWO ASSESSEE S APPEAL S FOR ASSESSMENT YEAR 200 8 - 09, ARISE FROM TWO SEPARATE ORDER S OF THE CIT(A) - VI, AHMEDABAD DATED 28 - 06 - 2011 AND 02 - 08 - 2011 IN APPEAL NO S CIT(A) - VI - CIR - 1/332/10 - 11 AND CIT(A) - VI - CIR - 1/289/10 - 11 , IN PROCEEDINGS UNDER S ECTION 154 AND 143 (3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT ; RESPECTIVELY . I T A NO S . 2241 & 2516 / A HD/20 11 A SSESSMENT YEAR 200 8 - 09 I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 2 2. THE ASSESSEE SUBMITS AT THE OUTSET THAT ITS FORMER APPEAL ITA 2241/AHD/2011 ARISES FROM SECTION 154 RECTIFICATION PROCEEDINGS ON ISSUES ALREADY FORMING SUBJECT MATTER OF LATTER APPEAL ITA 2516/AHD/2011 PREFERRED IN QUANTUM ASSESSMENT. THE REVENUE IS FAIR ENOUGH NOT TO DISPUTE THIS FACTUAL POSITION. THE FORMER APPEAL ITA 2241/AHD/2 011 IS ACCORDINGLY DISMISSED AS NOT PRESSED. 3. WE PROCEED WITH THE LATTER APPEAL. TH E ASSESSEE SUBMITS A TABULATION CHART SUMMARIZING ITS PLEADINGS. ITS FIRST SUBSTANTIVE GROUND CHALLENGES DISALLOWANCE OF RS. 10,28,028/ - OF PRELIMINARY EXPENDITURE U/S. 35D OF THE ACT. THIS ASSESSEE IS A COMPANY ENGAGED IN TRADING AND TRANSPORTATION OF N ATURAL GAS, PRODUCTION OF COMPRESSED NATURAL GAS AND SALE THEREOF. IT AMORTIZED PRELIMINARY EXPENSES OF RS. 10,28028/ - U/S. 35D. THE SAME COMPRISED OF A SUM OF RS. 5 LACS @ 1/5 OF RS. 25 LACS INCURRED I N AY 2005 - 06. THE REMAINING FIG URE OF RS. 5,28,028/ - IS @ 1/5 OF RS, 26,40,140/ - SIMILARLY INCURRED EARLIER. BOTH THESE AMOUNTS REPRESENT ROC FEES PAID TO INCREASE AUTHORIZED CAPITAL. THE ASSESSEE S CASE WAS THAT ITS IDENTICAL CLAIMS HAD ALREADY BEEN ALLOWED IN AY 2007 - 08 U/S. 35D. THE ASSESSING OFFICE R INTER ALIA WAS OF THE VIEW THAT SUCH A EXPENDITURE FOR INCREASING AUTHORIZED WAS NEITHER ALLOWABLE U/S. 37 NOR U/S. 35D(2) SINCE NOT COVERED BY THE SPECIFIC ILLUSTRATIONS THEREIN. THIS CULMINATED IN THE IMPUGNED DISALLOWANCE BEING MADE IN ASSESSMENT ORD ER DATED 28 - 12 - 2010 WHICH IN TURN STANDS AFFIRMED IN THE LOWER APPELLATE FINDINGS UNDER CHALLENGE. I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 3 4. HEARD BOTH SIDES. CASE RECORDS PERUSED. RELEVANT FACTS QUA THE ISSUE STATED IN PRECEDING PARAGRAPHS ARE NOT REPEATED FOR THE SAKE OF BREVITY. NEITH ER OF THE LOWER AUTHORITY HAS SPECIFICALLY REJECTED ASSESSEE S CONTENTION BASED ON FACT THAT THE VERY EXPENDITURE STANDS ACCEPTED IN PRECEDING ASSESSMENT YEARS. THE HON BLE JURISDICTIONAL IN ( 2014) 369 ITR 763 (GUJ) GUJARAT NARMADA VALLEY FERTILIZERS COMP ANY LTD VS. DCIT AS AFFIRMED BY THE HON BLE APEX COURT IN (2015) 229 TAXMANN 489 (SC) HOLDS THAT THE IMPUGNED SECTION 35D DEDUCTION OF AMORTIZATION ALREADY ALLOWED IN PRECEDING ASSESSMENT YEARS CANNOT BE DISTURBED IN SUCCEEDING ASSESSMENT YEARS. THE REVEN UE IS UNABLE IN REBUTTING THIS FACTUAL AND LEGAL POSITION. WE DRAW SUPPORT THEREFROM AND REVERSE ACTION OF THE LOWER AUTHORITIES IN INVOKING THE IMPUGNED SECTION 35D DISALLOWANCE OF RS. 10,28,028/ - . THE ASSESSEE S FIRST SUBSTANTIVE GROUND SUCCEEDS. 5. THE SECOND SUBSTANTIVE GROUND RAISED IN THE IMPUGNED APPEAL CHALLENGES PRIOR PERIOD EXPENDITURE DISALLOWANCE OF RS. 15,25,746/ - MADE IN BOTH THE LOWER PROCEEDINGS. THIS CLAIM INCLUDES PROFESSIONAL FEE SUM OF RS. 10,10,160/ - . THE ASSESSING OFFICER OBSERV ED THAT SUCH A CLAIM IS ALLOWABLE IN THE CORRESPONDING ASSESSMENT YEAR SINCE THERE WAS NO EVIDENCE OF THE SAME HAVING BEEN ACTUALLY CRYSTALIZED DURING THE RELEVANT PREVIOUS YEAR. THE CIT(A) CONFIRMS THE VERY VIEW. 6. WE HAVE HEARD BOTH THE PARTIES. TH ERE IS NO DISPUTE ABOUT GENUINENESS OF THE CLAIM COMPRISING OF CRANE HIRING CHARGES, I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 4 RETAINERSHIP FEE, O & M EXPENDITURE, PROPERTY TAX, REPAIR AND MAINTENANCE, RENT, PRINTING AND STATIONERY, WAIVER OF MGO PENALTY, BANK INTEREST SUBSIDY AND PROPERTY TAX; AL L FORMING GROSS SUM OF RS. 15,25,764/ - IN QUESTION RELATING TO ASSESSMENT YEAR 2006 - 07. ITS ARGUMENTS THROUGHOUT CLAIM THAT THE RELEVANT PREVIOUS YEAR IS THE YEAR OF CRYSTALLIZATION . THERE IS NO EVIDENCE OF SUCH CRYSTALLIZATION FORTHCOMING FROM THE CAS E FILE. BOTH THE LOWER AUTHORITIES HOLD ACCORDINGLY THAT THE ASSESSEE HAS FAILED IN PROVING CRYSTALLIZATION OF THE IMPUGNED EXPENDITURE. THEREFORE, WE DO NOT FIND ANY MERIT IN THIS CRYSTALLIZATION PLEA BASED IN THE COURSE OF ARGUMENTS BEFORE US. THIS S ECOND SUBSTANTIVE GROUND FAILS. AT THIS STAGE, THE ASSESSEE RAISES AN ALTERNATI VE ARGUMENT THAT IT IS ENTITLED TO SET OFF PRIOR PERIOD INCOME OF RS. 7,55,575/ - AGAINST THE ABOVE STATED PRIOR PERIOD EXPENDITURE. THE RELEVANT GROUNDS PLEADED ARE THIRD AND FOURTH BEFORE US. ITS CASE IS THAT WHEN THE DEPARTMENT HAD TAXED ITS PRIOR PERIOD INCOME, IT IS ENTITLED FOR SET OFF OF THE SAME. WE FIND THAT THE HON BLE DELHI HIGH COURT IN CI T VS. EXXON MOBIL LUBRICANT PVT. LTD (2010) 8 TAXMANN.COM 249 (DELHI) HOL DS THAT IF AN ASSESSEE HAS SHOWN PRIOR PERIOD INCOME AND THE ASSESSING OFFICER HAS NOT EXCLUDED IT WHILE WORKING OUT CURRENT YEAR TAXABLE INCOME, THERE IS NO REASON TO DISALLOW ONLY ONE PART OF THE PRIOR PERIOD ADJUSTMENT I.E. THE PRIOR PERIOD EXPENDITURE. THE REVENUE FAILS IN REBUTTING THIS PROPOSITION. WE ACCORDINGLY ACCEPT THIS ALTERNATIVE CONTENTION AND DIRECT THE ASSESSING OFFICER TO SET OFF ASSESSEE S PRIOR PERIOD EXPENDITURE AND INCOME AS PER LAW. HE SHALL I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 5 PASS A CONSEQUENTIAL ORDER ACCORDINGLY. THE AS SESSEE S THIRD AND FOURTH SUBSTAN T I VE GROUND S ARE ACCEPTED FOR STATISTICAL PURPOSES. 7. THE ASSESSEE S NEXT THREE SUBSTANTIVE GROUNDS ASSAIL CORRECTNESS OF THE LOWER APPELLATE FINDINGS AFFIRMING ASSESSING OFFICER S ACTION INTER ALIA HOLDING IT AS NO T ENTITLED TO SET OFF MAT CREDITS AS PER SECTION 115JAA, TDS AND ADVANCE TAXES OF RS. 2,11,51,773/ - THEREBY REJECTING ITS PLEA THAT CONSEQUENTIAL INTEREST U/S. 234B IS LIABLE TO BE CHARGED ACCORDINGLY. THE CIT(A) S FINDINGS UNDER CHALLENGE ARE AS FOLLOWS: - 6. THE GROUNDS NO. 9 TO 12 ARE REGARDING GIVING CREDIT OF TAXES PAID AND SET OFF OF MAT CREDIT AS PER THE PROVISIONS OF SECTION 115JAA OF THE ACT. 6.1 THE APPELLANT HAS SUBMITTED IN ITS WRITTEN SUBMISSION, WHICH IS AS UNDER: 'IN TERMS OF THE SCHEME OF DE - MERGER FOR ASSETS, LIABILITIES ETC. OF THE RESPECTIVE UNDERTAKINGS SANCTIONED BY THE HON'BLE GUJARAT HIGH COURT, THERE WAS BIFURCATION OF INCOME AND TAXES PERTAINING TO THE DE - MERGED COMPANY I.E. ADANI ENERGY LTD. AND THE RESULTANT COMPANY I.E. ADANI G AS LTD. THE ENERGY LIMITED HAS CLAIMED REFUND OF RS. 17, 1 1,442/ - AS PER THE ORIGINAL RETURN OF INCOME BUT SINCE THE RETURN OF INCOME WAS REVISED TO GIVE EFFECT TO THE ORDER OF DE - MERGER OF HON'BLE GUJARAT HIGH COURT, THE TOTAL AMOUNT OF REFUND IS REDUCED TO RS. 7,30,780 I.E. 7,24,690/ - IN THE CASE OF ADANI ENERGY LTD. AND RS. 6090 IN THE CASE OF THE APPELLANT COMPANY DUE TO BIFURCATION OF MAT CREDIT BETWEEN THE TWO COMPANIES. SINCE THE ENTIRE DE - MERGER EXERCISE IS TAX NEUTRAL, BOTH THE COMPANIES SHALL BE GIVEN CREDIT OF TAXES PAID I.E. M AT CREDIT, ADVANCE TAX AND SELF ASSESSMENT TAX ON TOTAL INCOME OF THE RESPECTIVE COMPANIES AS PER THE CLAIM OF TAXES PAID IN THE REVISED RETURN OF INCOME SO THAT THE TOTAL AMOUNT OF REFUND IS NOT LESS THAN I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 6 RS. 17,11,442/ - A LONG WITH INTEREST THEREON U/S 244A OF THE IT ACT AS CLAIMED IN THE ORIGINAL RETURN OF INCOME. THUS FROM THE ABOVE THE APPELLANT WOULD LIKE TO SUBMIT THAT THE MINIMUM AMOUNT OF THE MAT CREDIT AVAILABLE FOR SET OFF IS RS 90.29 LACS AS CLAIMED IN THE RETURN OF INCOME. IN THE EVENT THE ADDITIONS AS MADE UNDER THE ASSESSMENT ORDER ARE CONFIRMED YOUR GOODSELVES MAY DIRECT THE ASSESSING OFFICER ACCORDINGLY. CREDIT OF TAXED PAID: T HE LD. A.O HAS PROCEEDED TO ESTIMATE THE DEMAND PAYABLE OF RS 4,54,05,211 ON THE ASSESSED INCOME OF RS 9,35,26,842 WITHOUT GIVING CREDIT OF THE TAXES PAID. DETAILS OF TDS, ADVANCE TAX, AND OTHER PREPAID TAXES WHICH HAD BEEN PAID WHILE FILLING RETURN OF INCOME ARE AS UNDER: SR. NO. TAX PAID DATE OF PAYMENT AMOUNT (RS) 1 TDS 36,57,863 2. ADVANCE TAX 15 - 09 - 2007 50,00,000 15 - 03 - 2008 85,00,000 3 SELF - ASSESSMENT TAX 30 - 04 - 2008 40,00,000 4, TOTAL 2, 1 1 , 57,863 THE TOTAL AMOUNT OF THE TAXES PAID BY THE APPELLANT AMOUNT TO RS 2,11,57,863. DUE TO DEM ERGER THE ENTIRE CREDIT WAS TRANSFERRED TO APPELLANT COMPANY BECAUSE THE TAXES RESULTED MAINLY FROM ACTIVITIES PERTAINING TO THE COMPANY. BUT ON THE PERUSAL OF ORDER U/S 143(3) AND NOTICE OF DEMAND U/S 156 OF APPELLANT COMPANY IT SEEMS THAT APPELLANT COMPA NY HAS NOT BEEN ALLOTTED THE ANY CREDIT OF TDS. THE LD. A.O HAS PROCEEDED TO ESTIMATE THE DEMAND PAYABLE WITHOUT GIVING THIS CREDIT OF THE TAXES PAID. YOUR GOODSELVES MAY DIRECT THE ASSESSING OFFICER TO RECALCULATE THE DEMAND PAYABLE ON THE I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 7 ASSESSED INCOME OF RS 9,35,26,842 INSTEAD OF RS. 1 0,04,39,172 AFTER GIVING THE CREDIT OF THE ABOVE FAXES. FURTHER IT WOULD ALSO BE NECESSARY TO NOTE THAT IN TERMS OF PROVISIONS OF SECTION 199 OF THE INCOME TAX ACT, 1961 ANY TAXES PAID BY THE TAX DEDUCTOR AND PAID TO TH E CENTRAL GOVERNMENT SHALL BE TREATED AS A PAYMENT OF TAX ON BEHALF OF THE PERSON FROM WHOSE INCOME THE DEDUCTION WAS MADE AND CREDIT SHALL BE GIVEN TO HIM FOR THE AMOUNT SO DEDUCTED ON THE PRODUCTION OF THE CERTIFICATE FURNISHED UNDER SECTION 203 IN THE A SSESSMENT MADE UNDER THIS ACT FOR THE ASSESSMENT YEAR FOR WHICH SUCH INCOME IS ASSESSABLE'., THE TAX HAS BEEN DULY DEDUCTED BY THE PAYER AND HAS FULFILLED HIS OBLIGATIONS UNDER SECTION 200 AND THAT TAX DEDUCTION CERTIFICATES HAVE BEEN ISSUED UNDER SECTION 203. THUS THE ASSESSING OFFICER SHOULD GRANT DUE CREDIT TO THE APPELLANT, ON THE BASIS OF ORIGINAL TAX DEDUCTION AT SOURCE CERTIFICATES PRODUCED BY THE APPELLANT, IN ACCORDANCE WITH THE LAW AND AS LONG AS TAXES SO DEDUCTED HAVE BEEN PAID OVER TO THE GOVER NMENT AND CERTIFICATES IN RESPECT OF THE SAME HAVE BEEN ISSUED BY THE TAX DEDUCTOR. ALL THE TDS CERTIFICATES ARE DULY FILED WITH THE ASSESSING OFFICER AT THE TIME OF THE HEARING. THE ISSUE OF NON - FILING OF TAX CERTIFICATES HAS ALSO NOT BEEN RAISED BY ASSES SING OFFICER. HENCE, YOUR GOODSELVES MAY DIRECT THE ASSESSING OFFICER TO GIVE CREDITS IN ACCORDANCE WITH THE PROVISIONS OF THE LAW.' 6.2 - I HAVE CONSIDERED THE FACTS OF THE CASE AND APPELLANT'S SUBMISSION. THE TAXES HAVE BEEN PAID PRIOR TO DEMERGER BY ADANI ENERGY LTD. APPELLANT CLAIMED CREDIT OF TAXES PAID INCLUDING MAT CREDIT ON THE DEMERGED PART. HOWEVER AS PER OFFICE NOTE OF THE ASSESSMENT ORDER, IT IS SEEN THAT ASSESSING OFFICER ALLOWED CREDIT OF TAXES ONLY IN THE HANDS OF ADANI ENERGY LTD SINC E THE DEMERGER SCHEME APPROVED BY THE HIGH COURT DOES NOT SPEAK OF BIFURCATIONS OF VARIOUS TAX CREDITS. IN THE ABSENCE OF ANY DIRECTION FOR SUCH BIFURCATIONS OF TAXES, ASSESSING OFFICER IS JUSTIFIED IN GIVING CREDIT OF TAXES AND MAT IN THE HANDS OF ADANI E NERGY LTD. THESE GROUNDS ARE ACCORDINGLY DISMISSED. I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 8 8. WE HAVE HEARD RIVAL ARGUMENTS. THERE IS NO DISPUTE THAT GAS DISTRIBUTION DIVISION UNDERTAKING OF M/S ADANI ENERGY LTD. DEMERGED WITH M/S. ADANI ENERGY LTD (UP PVT LTD) LATER ON CHANGING ITS NAM E TO ITS PRESENT AVATAR M/S ADANI GAS LTD (ASSESSEE). THE RELEVANT SCHEME OF ARRANGEMENT IS U/SS. 391 TO 394 R.W.SS. 100 TO 104 OF THE COMPANIES ACT, 1956. THIS SCHEME WAS PRESENTED BEFORE THE HON BLE JURISDICTIONAL HIGH COURT IN COMPANY PETITION NO. 2 05 OF 2009 RESULTING IN ITS APPROVAL VIDE ORDER DATED 19 - 11 - 2009. THE APPOINTED DATE THEREIN IS 01 - 01 - 2007. THIS DEMERGER ARRANGEMENT FORMS OF THE PAPER BOOK AT PAGES 14 TO 44. IT TRANSPIRES THAT THE SAME COVERS ALL ASSETS AND PROPERTIES OF THE DEMERGED UNDERTAKING FOLLOWED BY ALL OF ITS DEBTS, LIABILITIES, DUTIES AND OBLIGATIONS OF THE GAS DIVISION IN QUE STION. THIS GENERAL EXPRESSION IS FURTHER CLARIFIED IN WRITING WITHOUT PREJUDICE TO THE FORMER THAT IT IS INCLUSIVE OF DEFERRED TAX BENEFITS AS WELL T O NAME A FEW. IT HAS ALREADY COME ON RECORD THAT BOTH THE ENTITIES REVISED THEIR RETURNS STATING INCOMES OF RS. 3,19,62,916/ - AND RS. 9,09,73,050/ - AS AGAINST THAT SHOWN EARLIER OF RS. 12,29,35,968/ - DECLARED AT THE DEMERGED ENTITY S BEHEST IN ORIGINAL RE TURN. THE REVENUE IS ALSO NOT ALLEGING ANY CLAIM OF DOUBLE RELIEF OF THE IMPUGNED CREDITS. THERE CAN HARDLY BE ANY QUARREL THAT A DEMERGER SCHEME COMES UNDER SECTIONS 391 TO 394 OF THE COMPANIES ACT, 1956. WE PROCEED FURTHER AND FIND THAT SECTION 2(19AA ) OF THE INCOME TAX ACT DEFINES A DEMERGER TO BE AN ARRANGEMENT UNDER THE ABOVE STATED PROVISION S OF THE COMPANIES L AW MEANING TRANSFER OF ALL PROPERTIES OF THE UNDERTAKING IMMEDIATELY BEFORE THE DEMERGER I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 9 BECOMING PROPERTIES OF THE RESULTING COMPANY FOLLOW ED BY CORRESPONDING CLAUSES PERTAINING TO LIABILITIES AS WELL. 9. WE COME TO THE LOWER APPELLATE FINDINGS NOW. THE LOWER APPELLATE AUTHORITY HOLDS THAT THE ASSESSING OFFICER ALLOWED THE IMPUGNED CREDITS ONLY IN THE HANDS OF M/S ADANI ENERGY LTD SINCE THE DEMERGER SCHEME DID NOT SPEAK OF ANY BIFURCATION THEREOF. WE ARE UNABLE TO AGREE WITH THIS REASONING. WE REITERATE FIRST OF ALL THE FACT THAT THE DEMERGER SCHEME CLAUSES ALREADY COVER ALL ASSETS AND PROPERTIES OF THE ABOVE STATED GAS DISTRIBUTION DIV ISION. THE S A ME IS FOLLOWED BY MUCH MORE AN ELABORATE CLAUSE COVERING ALL POSSIBLE BENEFITS INCLUDING DEFERRED TAX BENEFITS. WE OB SERVE IN THIS FACTUAL BACKDROP THAT THE CIT(A) S FINDINGS GO AGAINST THE CASE RECORD AS WELL AS THE STATUTORY MEANING OF A DEMERGER QUOTED HEREINABOVE NOT STIPULATING SPECIFIC CLAUSE OF BIFURCATION OF TAX CREDITS IN THE SCHEME OF ARRANGEMENT APPROVED U/SS. 391 TO 394 OF THE COMPANIES ACT. 10. WE COME TO CASE LAW QUOTED IN COURSE OF ARGUMENTS. THE FIRST ONE IS (1997) 223 ITR 809 (SC) MARSHALL SONS & COMPANY INDIA LTD VS. ITO. THIS CASE INVOLVED AN AMALGA MA TION SCH E ME UNDER THE VERY PROVISIONS OF COMPANIES ACT. A SUBSIDIARY COMPANY IN THIS CASE HAD AMALGAMATED IN ITS HOLDING COMPANY W.E.F. 01 - 01 - 1982 ALTHOUGH THE REGISTRAR O F COMPANIES HAD STRUCK OFF ITS NAME IN COMPANIES REGISTER ON 21 - 01 - 19 86. THE REV ENUE AUTHORITIES SOUGHT TO TAX THE SAID SUBSIDIARY ENTITY FOR THE ASSESSMENT PERIOD AFTER 01 - 01 - 1982. THE HOLDING COMPANY CHALLENGED THIS ACTION IN EXTRA - ORDINARY JURISDICTION I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 10 VESTED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA. HON BLE APEX COURT ELABORATED EFFECT OF AMALGAMATION UNDER COMPANIES ACT AS FOLLOWS: - 8. LET US FIRST EXAMINE THE POSITION OBTAINING IN THIS BEHALF UNDER THE COMPANIES ACT. SUB - SECTION S (1), (2) AND (3) OF SECTION 39 1 (RELEVANT FOR OU R PURPOSE) AND SECTION 394 READ : 'SECTION 391. POWER OF COMPROMISE OR MAKE ARRANGEMENTS WITH CREDITORS AND MEMBERS. (I) WHERE A COMPROMISE OR ARRANGEMENT IS PROPOSED (A )BETWEEN A COMPANY AND ITS CREDI TORS OR ANY CLAS S OF THEM; OR ( B ) B ETWEEN A COMPANY AND ITS MEMBERS OR ANY CLASS OF THEM ; THE COURT MAY, ON THE APPLICATION OF THE COMPANY OR OF ANY CREDITOR OR MEMBER OF THE COMPANY, OR, IN THE CASE OF A COMPANY WHICH IS BEING WOUND - UP, OF THE LIQUIDATOR, ORDER A MEETI NG OF THE CREDITORS OR CLASS OF CREDITORS, OR OF THE MEMBERS OR CLASS OF MEMBERS, AS THE CASE MAY BE, TO BE CALLED, HELD AND CONDUCTED IN SUCH MANNER AS THE COURT DIRECTS. (2) IF A MAJORITY IN NUMBER REPRESENTING THREE - FOURTHS IN VALUE OF THE CREDITORS, O R CLASS OF CREDITORS, OR MEMBERS, OR CLASS OF MEMBERS, AS THE CASE MAY BE, PRESENT AND VOTING EITHER IN PERSON OR, WHERE PROXIES ARE ALLOWED UNDER THE RULES MADE UNDER SECTION 643, BY PROXY, AT DIE MEETING, AGREE TO ANY COMPROMISE OR ARRANGEMENT, THE COMPR OMISE OR ARRANGEMENT SHALL, IF SANCTIONED BY THE COURT, BE BINDING ON ALL THE CREDITORS, ALL THE CREDITORS OF THE CLASS, ALL THE MEMBERS, OR ALL THE MEMBERS OF THE CLASS, AS THE CASE MAY BE, AND ALSO ON THE COMPANY, OR, IN THE CASE OF A COMPANY WHICH IS BE ING WOUND - UP, ON THE LIQUIDATOR AN D CONTRIBUTORIES OF THE COMPANY : PROVIDED THAT NO ORDER SANCTIONING ANY COMPROMISE OR ARRANGEMENT SHALL BE MADE BY THE COURT UNLESS THE COURT IS SATISFIED THAT THE COMPANY OR ANY OTHER PERSON BY WHOM AN APPLICATION HAS BE EN MADE UNDER SUB - SECTION (1) HAS DISCLOSED TO THE COURT, BY AFFIDAVIT OR OTHERWISE, ALL MATERIAL FACTS RELATING TO THE COMPANY, SUCH AS THE LATEST FINANCIAL I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 11 POSITION OF THE COMPANY, THE LATEST AUDITOR'S REPORT ON THE ACCOUNTS OF THE COMPANY, THE PENDENCY OF ANY INVESTIGATION PROCEEDINGS IN RELATION TO THE C OMPANY UNDER SECTIONS 235 TO 251 , AND THE LIKE. (3) AN ORDER MADE BY THE COURT UNDER SUB - SECTION (2) SHALL HAVE NO EFFECT UNTIL A CERTIFIED COPY OF THE ORDER HAS BEEN FILED WITH THE REGISTRAR. ' 'SECTI ON 394. PROVISIONS FOR FACILITATING RECONSTRUCTION AND AMALGAMATION OF COMPANIES. (1) WHERE AN APPLICATION IS MADE TO THE COURT UNDER SECTION 391 FOR THE SANCTIONING OF A COMPROMISE OR ARRANGEMENT PROPOSED BETWEEN A COMPANY AND ANY SUCH PERSONS AS ARE MENT IONED IN THAT SECTION, AND IT IS SHOWN TO THE COURT (A )THAT THE COMPROMISE OR ARRANGEMENT HAS BEEN PROPOSED FOR THE PURPOSES OF, OR IN CONNECTION WITH, A SCHEME FOR THE RECONSTRUCTION OF ANY COMPANY OR COMPANIES OR THE AMALGAMATION OF ANY TWO OR MORE COMP ANIES; AND (B)THAT UNDER THE SCHEME THE WHOLE OR ANY PART OF THE UNDERTAKING, PROPERTY OR LIABILITIES OF ANY COMPANY CONCERNED IN THE SCHEME (IN THIS SECTION REFERRED TO AS A 'TRANSFEROR COMPANY!) IS TO BE TRANSFERRED TO ANOTHER COMPANY (IN THIS SECTION RE FERRED TO AS 'THE TRANSFEREE COMPANY'); THE COURT MAY, EITHER BY THE ORDER SANCTIONING THE COMPROMISE OR ARRANGEMENT OR BY A SUBSEQUENT ORDER, MAKE PROVISION FOR ALL OR ANY OF THE FOLLOWING MATTERS: (I)THE TRANSFER TO THE TRANSFEREE COMPANY OF THE WHOLE O R ANY PART OF THE UNDERTAKING, PROPERTY OR LIABILITIES OF ANY TRANSFEROR COMPANY; (II)THE ALLOTMENT OR APPROPRIATION BY THE TRANSFEREE COMPANY OF ANY SHARES, DEBENTURES, POLICIES, OR OTHER LIKE INTEREST IN THAT COMPANY WHICH, UNDER THE COMPROMISE OR ARRANG EMENT, ARE TO BE ALLOTTED OR APPROPRIATED BY THE COMPANY TO OR FOR ANY PERSON; (III)THE CONTINUATION BY OR AGAINST THE TRANSFEREE COMPANY OF ANY LEGAL PROCEEDINGS PENDING BY OR AGAINST ANY TRANSFEROR COMPANY; (IV)THE DISSOLUTION, WITHOUT WINDING - UP, OF ANY TRANSFEROR COMPANY; I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 12 (V)THE PROVISION TO BE MADE FOR ANY PERSONS WHO, WITHIN SUCH TIME AND IN SUCH MANNER AS THE COURT DIRECTS, DISSENT FROM THE COMPROMISE OR ARRANGEMENT; AND (VI)SUCH INCIDENTAL, CONSEQUENTIAL AND SUPPLEMENTAL MATTERS AS ARE NECESSARY TO SECURE THAT THE RECONSTRUCTION OR AMALGAMATION SHALL BE FULLY AND EFFECTIVELY CARRIED OUT: PROVIDED THAT NO COMPROMISE OR ARRANGEMENT PROPOSED FOR DIE PURPOSE OF, OR IN CONNECTION WITH, A SCHEME OR THE AMALGAMATION OF A COMPANY, WHICH IS BEING WINDING - UP, WITH ANY OTHER COMPANY OR COMPANIES, SHALL BE SANCTIONED BY THE COURT UNLESS THE COURT HAS RECEIVED A REPORT FROM THE COMPANY LAW BOARD OR THE REGISTRAR THAT THE AFFAIRS OF THE COMPANY HAVE NOT BEEN CONDUCTED IN A MANNER PREJUDICIAL TO THE INTEREST OF ITS MEMBERS OR TO PUBLIC INTEREST. PROVIDED FURTHER THAT NO ORDER FOR THE DISSOLUTION OF ANY TR ANSFEROR COMPANY UNDER CLAUSE (I V) SHALL BE MADE BY THE COURT UNLESS THE OFFICIAL LIQUIDATOR HAS, ON SCRUTINY OF THE BOOKS AND PAPERS OF THE COMPANY, MADE A REPORT TO THE COURT THAT THE AFFAIRS OF THE COMPANY HAVE NOT BEEN CONDUCTED IN A MANNER PREJUDICIAL TO THE INTEREST OF ITS MEMBERS OR TO PUBLIC INTEREST. (2) WHERE AN ORDER UNDER THIS SECTION PROVIDES FOR THE TRANSFER OF ANY PROPERTY OR LIABILITIES, THEN, BY VI RTUE OF THE 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. (3) WITHIN THIRTY DAYS AFTER THE MAKING OF AN ORDER UNDER THIS SECTION, EVERY COMPANY IN RELATION TO WHICH THE ORDER IS MADE SHALL CAUSE A CERTIFIED COPY THEREOF TO BE FILED WITH TH E REGISTRAR FOR REGISTRATION. IF DEFAULT IS MADE IN COMPLYING WITH THIS SUB - SECTION, THE COMPANY, AND EVERY OFFICER OF THE COMPANY WHO IS IN DEFAULT, SHALL BE PUNISHABLE WITH FINE WHICH MAY EXTEND TO FIFTY RUPEES. (4) IN THIS SECTION (A )'PROPERTY' INCLUDE S PROPERTY, RIGHTS AND POWERS OF EVERY DESCRIPTION; AND 'LIABILITIES' INCLUDES DUTIES OF EVERY DESCRIPTION; AND (B )'TRANSFEREE COMPANY' DOES NOT INCLUDE ANY COMPANY, OTHER THAN A COMPANY WITHIN THE MEANING OF THIS ACT; BUT 'TRANSFEROR I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 13 COMPANY' INCLUDES ANY BODY CORPORATE, WHETHER A COMPANY WITHIN THE MEANING OF THIS ACT OR NOT.' 9. SECTION 394A OF THE COMPANIES ACT PROVIDES THAT ON EVERY APPLICATION UNDER SECTION 391 OR SECTION 394, DIE COURT SHALL GIVE NOTICE OF SUCH APPLICATION TO DIE CENTRAL GOVERNMENT A ND SHALL TAKE INTO CONSIDERATION THE REPRESENTATIONS, IF ANY, MADE TO IT BY THAT GOVERNMENT BEFORE PASSING ANY ORDER UNDER ANY OF DIE SAID SECTIONS. RULES 67 TO 87 OF DIE COMPANIES [COURT] RULES, 1959 DEAL WITH MATTERS PROVIDED BY SECTIONS 391 TO 394. THE FORM IN WHICH SEVERAL NOTICES CONTEMPLATED BY SECTIONS 391 AND 394 AND RULES 67 TO 87 ARE TO BE ISSUED ARE PRESCRIBED IN FORM NOS. 33 TO 42 APPENDED TO THE COMPANIES [COURT] RULES. 10. THIS EFFECT OF THE SCHEME OF THE ABOVE PROVISIONS, INSOFAR AS IT IS RE LEVANT TO THE FACTS OF THE CASE BEFORE US, MAY BE SUMMARISED THUS: (A)WHERE AN AMALGAMATION OF TWO OR MORE COMPANIES IS PROPOSED, AN APPLICATION HAS TO BE MADE TO THE COURT FOR THE PURPOSE. THEREUPON, THE COURT MAY CALL THE MEETING OF MEMBERS OF THE COMPA NIES CONCERNED. THE ORDER OF THE COURT SHALL BE IN FORM NO. 3 5 PRESCRIBED BY THE RULES. (B )SUCH NOTICE OF THE MEETING HAS TO BE SENT INDIVIDUALLY TO ALL THE MEMBERS. (THE NOTICE AND THE EXPLANATORY STATEMENT UNDER SECTION 393 ARE SETTLED BY THE OFFICER O F THE COURT.) (C)APART FROM INDIVIDUAL NOTICES, THE NOTICE OF THE MEETING HAS ALSO TO BE PUBLISHED IN SUCH NEWSPAPERS AS MAY BE DIRECTED BY THE COURT. (D )ONLY WHEN A MAJORITY OF THE MEMBERS REPRESENTING THREE - FOURTHS OF THE VALUE OF THE MEMBERS PRESENT A ND VOTING, EITHER IN PERSON OR BY PROXY, APPROVES THE SCHEME, WOULD THE COURT PROCEED TO SANCTION THE AMALGAMATION ARRANGEMENT. SUCH AN ORDER SHALL BIND ALL CONCERNED. OF COURSE, THE COURT SHALL NOT SANCTION ANY SUCH ARRANGEMENT UNLESS IT IS SATISFIED THAT THE APPLICANTS HAVE DISCLOSED ALL MATERIAL FACTS FULLY AND TRULY. (E)THE APPLICATION FOR CONFIRMATION MADE UNDER SECTIONS 391(2) AND 394 IS ALSO REQUIRED TO BE ADVERTISED IN THE SAME NEWSPAPERS IN WHICH THE NOTICE OF THE MEETING WAS ADVERTISED I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 14 AND THE NO TICE IS ALSO REQUIRED TO BE SERVED ON THE CENTRAL GOVERNMENT AS PROVIDED BY SECTION 394A. (F )IF THE COURT IS SATISFIED THAT THE STATUTORY FORMALITIES HAVE BEEN DULY COMPLIED WITH AND THE SCHEME IS FAIR AND A REASONABLE ONE AND BENEFICIAL TO THE INTERESTS OF THE COMPANIES AND ITS MEMBERS, THE COURT MAY SANCTION THE SCHEME. WHILE SANCTIONING THE SCHEME, THE COURT MAY ALSO PROVIDE FOR ALL OR ANY OF THE MATTERS SPECIFIED IN CLAUSES (I ) TO (VI) OF SUB - SECTION (1) OF SECTION 394. THE TWO PROVISOS APPENDED TO SAI D SUB - SECTION PROVIDE FOR CERTAIN PRE - CONDITIONS WHICH TOO HAVE TO BE OBSERVED BY THE COURT. SUB - SECTION (2) PROVIDES THAT WHERE THE ORDER SANCTIONING THE AMALGAMATION PROVIDES FOR ANY OF THE MATTERS IN CLAUSES (I) TO (VI) AFORESAID, THEY SHALL TAKE EFFECT AS PROVIDED IN THE ORDER. (G)WITHIN 30 DAYS OF THE ORDER SANCTIONING THE AMALGAMATION ARRANGEMENT, THE COMPANY CONCERNED SHALL FILE A CERTIFIED COPY OF THE ORDER BEFORE THE REGISTRAR FOR REGISTRATION. THIS IS MADE MANDATORY BY THE SECOND LIMB OF SUB - SECT ION (3) OF SECTION 3 94. ( H)THE ORDER SANCTIONING THE SCHEME IS REQUIRED TO BE DRAWN UP IN ACCORDANCE WITH FORM NOS. 41 AND 42 OF THE COMPANIES [COURT] RULES. 11. WE MAY NOW REFER TO THE SCHEME OF AMALGAMATION AS PASSED AT THE MEETINGS OF THE SHAREHOLDERS OF BOTH THE HOLDING AND THE SUBSIDIARY COMPANIES. 'TRANSFEROR COMPANY' IS DEFINED TO MEAN THE 'SUBSIDIARY COMPANY' AND THE EXPRESSION 'TRANSFEREE COMPANY' IS DEFINED TO MEAN THE 'HOLDING COMPANY'. THE EXPRESSION 'THIS SCHEME' IS DEFINED TO MEAN 'THIS SCHE ME IN THE PRESENT FORM OR WITH ANY MODIFICATIONS APPROVED OR IMPOSED BY THE HIGH COURT OF JUDICATURE AT TAMIL NADU AND/OR BY THE HIGH COURT OF JUDICATURE AT CALCUTTA'. THE EXPRESSION 'THE TRANSFER DATE' IS DEFINED TO MEAN '1ST JANUARY, 1982' AND THE EXPRES SION 'THE OPERATIVE DATE' MEANS THE DATE ON WHICH THE CERTIFIED COPIES OF THE ORDERS OF THE HIGH COURTS OF TAMIL NADU AND CALCUTTA UNDER SECTION 391(2)/394(2) SHALL HAVE BEEN FILED WITH THE REGISTRARS OF COMPANIES IN TAMIL NADU AND CALCUTTA, RESPECTIVELY. THE EXPRESSION 'TERMINAL DATE IS DEFINED TO MEAN THE DATE IMMEDIATELY PRECEDING THE OPERATIVE DATE. THE SCHEME REFERS TO THE CAPITAL STRUCTURE OF THE TRANSFEROR AND TH E TRANSFEREE COMPANIES, THE I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 15 OBJ ECT OF THE SCHEME UNDERLYING THE AGREEMENT BETWEEN THE PA RTIES AND THEN STATES: '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 VE ST IN THE TRANSFEREE COMPANY WITH ALL THE ESTATE AND INTEREST 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. (2) TO (5) ** ***** 6. (A) THE EXCESS OF THE VALUE OF THE NET ASSETS OF THE TRANSFEROR COMPANY, BASED ON THE BALANCE SHEET OF THE TRANSFEROR COMPANY AS AT THE DATE IMMEDIATELY PRECEDING THE TRANSFER DATE OVER ITS SUBSCRIBED AND PAID - UP CAPITAL SHALL, TO THE EXTENT OF TH E AMOUNT APPEARING AS DEVELOPMENT REBATE RESERVE, INVESTMENT ALLOWANCE RESERVE AND INVESTMENT ALLOWANCE RESERVE (UTILISED) IN SUCH BALANCE SHEET OF THE TRANSFEROR COMPANY, BE THE DEVELOPMENT REBATE RESERVE, INVESTMENT ALLOWANCE RESERVE AND INVESTMENT ALLOW ANCE RESERVE (UTILISED) TO THE TRANSFEREE COMPANY. (B ) THE TRANSFEROR COMPANY SHALL, WITH EFFECT FROM THE TRANSFER DATE, BE DEEMED TO HAVE CARRIED ON ITS BUSINESS FOR A ND ON BEHALF OF THE TRANSFEREE COMPANY, AND ACCORDINGLY THE PROFITS AND LOSSES OF THE T RANSFEROR COMPANY FOR THE PERIOD COMMENCING FROM THE TRANSFER DATE SHALL BE DEEMED TO BE THE PROFITS OR LOSSES O F THE TRANSFEREE COMPANY AND SHA LL BE AVAILABLE TO THE TRANSFEREE COMPANY FOR DISPOSAL IN ANY MANNER INCLUDING THE DECLARATION OF ANY DIVIDEND B Y THE TRANSFEREE COMPANY AFTER THE OPERATIVE DATE, SUBJECT TO THE PROVISIONS OF THE ACT. 7. THE IMPLEMENTATION OF THIS SCHEME IS CONDITIONAL UPON THIS SCHEME BEING SANCTIONED UNDER SECTION 3 91 OF THE ACT AND THE APPROPRIATE ORDERS FOR IMPLEMENTATION OF T HIS SCHEME BEING MADE UNDER SECTION 394 OF THE ACT BY THE HIGH COURTS OF TAMIL NADU AND CALCUTTA. I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 16 8. THE IMPLEMENTATION OF THIS SCHEME IS CONDITIONAL ALSO UPON 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 READING OF THE ABOVE CLAUSES OF THE SCHEME SHOWS THAT ACCORDING TO TH E SCHEME, THE ENTIRE UNDERTAKING OF THE SUBSIDIARY COMPANY SHALL BE TRANSFERRED TO THE HOLDING COMPANY WITH EFFECT FROM THE TRANSFERRED DATE AND THAT THE SUBSIDIARY COMPANY SHALL BE AMALGAMATED WITH THE HOLDING COMPANY WITH EFFECT FROM THE SAID DATE. CLAUS E 6 STATES CLEARLY THAT THE IMPLEMENTATION OF THE SAID SCHEME 'IS CONDITIONAL UPON THE SCHEME BEING SANCTIONED UNDER SECTION 391 OF THE ACT AND THE APPROPRIATE ORDERS FOR THE IMPLEMENTATION OF THIS SCHEME BEING MADE UNDER SECTION 394 OF THE ACT BY THE HIGH COURTS OF TAMIL NADU AND CALCUTTA'. CLAUSE 8 FURTHER PROVIDES THAT THE IMPLEMENTATION OF THE SAID SCHEME 'IS CONDITIONAL ALSO UPON SHAREHOLDERS HOLDING NOT LESS THAN NINE - TENTHS IN VALUE OF THE SHARES IN THE SUBSIDIARY COMPANY BECOMING SHAREHOLDERS OF THE HOLDING COMPANY BY VIRTUE OF THE AMALGAMATION'. IT IS ON THE BASIS OF THE LANGUAGE OF CLAUSES 7 AND 8 THAT THE HIGH COURT HAS OPINED THAT THE SCHEME TAKES EFFECT ONLY ON AND FROM THE DATE IT WAS SANCTIONED BY THE HIGH COURTS OF MADRAS AND CALCUTTA COUPLED WITH THE DATE ON WHICH THE SHAREHOLDERS OF THE SUBSIDIARY COMPANY BECOME THE SHAREHOLDERS OF THE HOLDING COMPANY AS PROVIDED IN THE SUB - CLAUSES. THE HIGH COURT HAS OPINED THAT THE TRANSFER DATE MENTIONED IN THE SCHEME, VIZ., 1 - 1 - 1982, IS 'TOTALLY ARTIFICI AL AND ARBITRARY' - FOR THE REASON THAT ON THE SAID DATE NEITHER THE COMPANY NOR THEIR SHAREHOLDERS HAD EVEN THOUGHT OF AMALGAMATION AND THAT IT HAS NO LEGAL SIGNIFICANCE. ACCORDING TO THE HIGH COURT, THEREFORE, THE DATE ON WHICH THE AMALGAMATION SHOULD BE DEEMED TO HAVE COME INTO BEING IS NOT 1 - 1 - 1982 BUT 20 - 1 - 1984/24 - 2 - 1984, ON WHICH DATES THE MADRAS AND CALCUTTA HIGH COURTS RESPECTIVELY APPROVED THE SCHEME. IN OTHER WORDS, THE HIGH COURT HAS TAKEN THE VIEW THAT IN THE ABSENCE OF ANY DATE BEING SPECIFIED IN THE ORDER OF THE HIGH COURT AS THE DATE OF AMALGAMATION, THE DATE OF THE ORDER OF THE HIGH COURT [COMPANY COURTS] SHALL BE TAKEN AS THE DATE OF AMALGAMATION. FOR ARRIVING AT THE SAID VIEW, THE HIGH COURT FOLLOWED AN EARLIER FULL BENCH DECISION OF THAT C OURT IN SAHAYANIDHI (VIRUDHUNAGAR) LTD. V. AR.S. SUBRAHMANYA NADAR [1950] 20 COMP. CAS. 214. THE HIGH COURT ALSO OPINED THAT THE DECISION OF THE BOMBAY HIGH COURT IN I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 17 SWASTIK RUBBER PRODUCTS LTD'S CASE (SUPRA) IS OF NO ASSISTANCE TO THE APPELLANT. ON THIS B ASIS, THE HIGH COURT HAS UPHELD THE VALIDITY OF THE NOTICES ISSUED BY THE ITO, WHICH NONCES WERE IMPUGNED IN THE WRIT PETITION, AND DISMISSED THE WRIT PETITION. THE QUESTION IS WHETHER THE VIEW TAKEN BY THE HIGH COURT IS CORRECT . 12. EVE RY SCHEME OF AMALG AMATION HAS TO NECESSARILY PROVIDE A DATE WITH EFFECT FROM WHICH THE AMALGAMATION/TRANSFER SHALL TAKE PLACE. THE SCHEME CONCERNED HEREIN DOES SO PROVIDE, VIZ., 1 - 1 - 1982. IT IS TRUE THAT WHILE SANCTIONING THE SCHEME, IT IS OPEN TO THE COURT TO MODIFY THE SA ID DATE AND PRESCRIBE SUCH DATE OF AMALGAMATION/TRANSFER AS IT THINKS APPROPRIATE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. IF THE COURT SO SPECIFIES A DATE, THERE IS LITTLE DOUBT THAT SUCH DATE WOULD BE THE DATE OF AMALGAMATION/DATE OF TRANSFER. BUT WHE RE THE COURT DOES NOT PRESCRIBE ANY SPECIFIC DATE BUT MERELY SANCTIONS THE SCHEME PRESENTED TO IT - AS HAS HAPPENED IN THIS CASE - IT SHOULD FOLLOW THAT THE DATE OF AMALGAMATION/DATE OF TRANSFER IS THE DATE SPECIFIED IN THE SCHEME AS 'THE TRANSFER DATE . I T CANNOT BE OTHERWISE. IT MUST BE REMEMBERED THAT BEFORE APPLYING TO THE COURT UNDER SECTION 391(1), A SCHEME HAS TO BE FRAMED AND SUCH SCHEME HAS TO CONTAIN A DATE OF AMALGAMATION/TRANSFER. THE PROCEEDINGS BEFORE THE COURT MAY TAKE SOME TIME; INDEED, THEY ARE BOUND TO TAKE SOME TIME BECAUSE SEVERAL STEPS PROVIDED BY SECTIONS 391 TO 394A AND THE RELEVANT RULES HAVE TO BE FOLLOWED AND COMPLIED WITH. DURING THE PERIOD, THE PROCEEDINGS ARE PENDING BEFORE THE COURT, BOTH THE AMALGAMATING UNITS, I.E., THE TRANSF EROR COMPANY AND TRANSFEREE COMPANY MAY CARRY ON BUSINESS, AS HAS HAPPENED IN THIS CASE BUT NORMALLY PROVISION IS MADE FOR THIS ASPECT ALSO IN THE SCHEME OF AMALGAMATION. IN THE SCHEME BEFORE US, CLAUSE 6(B) DOES EXPRESSLY PROVIDE THAT WITH EFFECT FROM THE TRANSFER DATE, THE TRANSFEROR COMPANY (SUBSIDIARY COMPANY) SHALL BE DEEMED TO HAVE CARRIED ON THE BUSINESS FOR AND ON BEHALF OF THE TRANSFEREE COMPANY (HOLDING COMPANY) WITH ALL ATTENDANT CONSEQUENCES. IT IS EQUALLY RELEVANT TO NOTICE THAT THE COURTS HAVE NOT ONLY SANCTIONED THE SCHEME IN THIS CASE BUT HAVE ALSO NOT SPECIFIED ANY OTHER DATE AS THE DATE OF TRANSFER/AMALGAMATION. IN SUCH A SITUATION, IT WOULD NOT BE REASONABLE TO SAY THAT THE SCHEME OF AMALGAMATION TAKES EFFECT ON AND FROM THE DATE OF THE OR DER SANCTIONING THE SCHEME. WE ARE, THEREFORE, OF THE OPINION THAT THE NOTICES ISSUED BY THE ITO (IMPUGNED IN THE WRIT PETITION) WERE NOT WAN - ANTED 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 I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 18 TRANSFEREE COMPANY. THIS IS THE NECESS ARY AND THE LOGICAL CONSEQUENCE OF THE COURT SANCTIONING THE SCHEME OF AMALGAMATION AS PRESENTED TO IT. THE ORDER OF THE COURT SANCTIONING THE SCHEME, THE FILING OF THE CERTIFIED CO PIES 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 1 - 1 - 1982. TH IS IS ALSO THE RATIO OF THE DECISION OF THE PRIVEY COUNCIL IN RAGHUBAR DAYAL V. BANK OF UPPER INDIA LTD. AIR 1919 PC 9. 13. THE COUNSEL FOR THE REVENUE CONTENDED THAT IF THE AFORESAID VIEW IS ADOPTED, THEN SEVERAL COMPLICATIONS WILL ENSUE IN CASE THE COUR T 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 TRANSF EREE COMPANIES. SECONDLY, AND PROBABLY THE MORE ADVISABLE COURSE FROM THE POINT OF VIEW OF THE REVENUE WOULD BE TO MAKE ONE ASSESSMENT ON THE TRANSFEREE COMPANY TAKING INTO ACCOUNT THE INCOME OF BOTH THE TRANSFEROR AND 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 OF THE TRANSFEROR AND TRANSFEREE COMPA NIES. BUT THAT MAY NOT BE 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. 14. IN THE LIGHT OF THE VIEW TAKEN BY US ON THE PRINCIPAL QUESTION, IT IS NOT NECESSARY TO CONSIDER THE ALTERNATE SUBMISSION URGED BY SHRI PODDAR. 11. WE DRAW SUPPORT FROM THE ABOVE EXTRACTED JUDICIAL PRECEDENT TO HOLD THAT ONCE THE DEMERGED UNDERTAKING NO MORE EXISTS POST FACTO THE APPOINTED DATE THEREOF COMING TO 01 - 01 - 2007 AND THE ASSESSEE BEING THE RESULTING COMPANY, THE FORMER S MAT, TDS AND ADVANCE I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 19 TAX CREDIT ARE VERY MUCH ENTITLED TO BE CONSIDERED IN CASE OF THE LATTER ASSESSEE S ENTITY SINCE THE FORMER THE DEMERGED UNDERTAKING IS DEEMED TO HAVE CARRIED OUT ITS BUSINESS , IF ANY ONLY ON BEHALF OF THE ASSESSEE. THE ONLY RIDER THAT WOULD FLOW OUR ABOVE STATED DISCU SSION IS THAT THIS ENTITLEMENT OF ALL THESE BENEFITS WOULD BE CONFINED TO PRO RATA BASIS ONLY I.E. QUA THOSE RELATING TO THE DEMERGED UNDERTAKING. 12. THE NEXT JUDGMENT QUOTED BEFORE US IS (2013) 217 TAXMANN 149 (GUJ) TORRENT (P) LTD VS. CIT. THIS CASE I NVOLVED AN AMALGA MA TION SCHEME W.E.F. 01 - 08 - 1998 APPROVED BY THE HON BLE JURISDICTIONAL HIGH COURT EXERCISING COMPANY JURISDICTION ON 20 - 06 - 2000. THE PETITIONER COMPANY DECLARED DIVIDEND ON 04 - 09 - 1999 IN THE MEAN TIME TO ITS SHARE HOLDING COMPANY. IT PAI D DIVIDEND DISTRIBUTION TAX OF RS. 5,92,96,875/ - TO ITS SHARE HOLDING COMPANIES FOLLOWED BY ITS AMALGA MA TION WITH TWO OF THEM. IT FILED A WRIT PETITION SEEKING REFUN D OF THE ABOVE STATED DIVIDEND DISTRIBUTION TAX IN VIEW OF THE ABOVE STATED AMALGAMATION S CHEME. THEIR LORDSHIPS ACCEPTED THIS PLEA AS UNDER: - 13. COMING TO THE MERITS OF THE PETITIONER'S CLAIM, WE MAY RECALL THAT A TOTAL D IVIDEND OF RS.53,90,62,500/ - W A S PAID BY ONE TORRENT POWER LTD TO THREE DIFFERENT COMPANIES, NAMELY, TORRENT INVESTMENT P VT. LTD., TORRENT LTD. AND TORRENT LEASING AND FINANCE LTD. TORRENT POWER LTD., TOR RENT LTD. AND TORRENT LEASING AND FINANCE LTD. MERGED IN TORRENT INVESTMENT LTD. WITH EFFECT FROM 1ST AUGUST 1999 UNDER A SCHEME FOR AMALGAMATION SANCTIONED BY THE GUJAR AT HIGH COURT BY ORDER DATED 20TH JUNE 2000. IN THE RETUR N OF INCOME FILED BY THE TRANSFEREE COMPANY, A DETAILED NOTE TO THIS EFFECT WAS FILED POINTING OUT THAT DISTRIBUTION DIVIDEND TAX WAS ALREADY PAID WHICH, BY VIRTUE OF SUCH MERGER OF COMPANIES, WAS R EQUIRED TO BE REFUNDED. I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 20 1 4. BY NOW IT IS WELL SETTLED THAT A MERGER OR AMALGAMATION SCHEME ONCE SANCTIONED BY THE COMPETENT COURT WOULD TAKE EFFECT FROM THE DATE OF THE ORDER ENVISAGED IN THE SCHEME ITSELF UNLESS, OF COURSE, THE COURT SANCTIONING SUCH SCH EME OTHERWISE PROVIDES. IN THE CASE OF MARSHALL SONS AND CO. (INDIA) LTD. (SUPRA), T HE APEX COURT OBSERVED AS UNDER : 'EVERY SCHEME OF AMALGAMATION HAS TO NECESSARILY PROV IDE A DATE WITH EFFECT FROM WHICH THE AMALGAMATION TRANSFER SHALL TAKE PLACE. THE SCH EME CONCERNED HEREIN DOES SO PROVIDE VIZ. JANUARY 1, 1982. IT IS TRUE THAT WHILE SANCTIONING THE SCHEME IT IS OPEN TO THE COURT TO MODIFY THE SAID DATE AND PRESCRIBE SUCH DATE OF AMALGAMATION/TRANSFER AS IT THINKS APPROPRIATE IN THIS FACTS AND CIRCUMSTANCE S 'OF THE CASE. IF THE COURT SO SPECIFIES A DATE, THERE IS LITTLE DOUBT THAT SUCH DATE WOULD BE THE DATE OF AMALGAMATION/DATE OF TRANSFER. BUT WHERE THE COURT DOES NOT PRESCRIBE ANY SPECIFIC DATE BUT MERELY SANCTIONS THE SCHEME PRESENTED TO IT - AS HAS HAP PENED IN THIS CASE - IT SHOULD FOLLOW THAT THE DATE OF AMALGAMATION/DATE OF TRANSFER IS THE DATE SPECIFIED IN THE SCHEME AS 'THE TRANSFER DATE'. IT CANNOT BE OTHERWISE. IT MUST BE REMEMBERED THAT BEFORE APPLYING TO THE COURT UNDER SECTION 391(1) A SCHEME H AS TO BE FRAMED AND SUCH SCHEME HAS TO CONTAIN A DATE OF AMALGAMATION/TRANSFER. THE PROCEEDINGS BEFORE THE COURT MAY TAKE SOMETIME; INDEED, THEY ARE BOUND TO TAKE SOME TIME BECAUSE SEVERAL STEPS PROVIDED BY SECTIONS 391 TO 394 - A AND THE RELEVANT RULES HAVE TO BE FOLLOWED AND COMPLIED WITH. DURING THE PERIOD THE PROCEEDINGS ARE PENDING BEFORE THE COURT, BOTH THE AMALGAMATING UNITS, I.E., THE TRANSFEROR COMPANY AND THE TRANSFEREE COMPANY MAY CARRY ON BUSINESS, AS HAS HAPPENED IN THIS CASE BUT NORMALLY PROVISI ON IS MADE FOR THIS ASPECT ALSO IN THE SCHEME OF AMALGAMATION. IN THE SCHEME BEFORE US, CLAUSE 6(B) DOES EXPRESSLY PROVIDE THAT WITH EFFECT FROM THE TRANSFER DATE, THE TRANSFEROR COMPANY (SUBSIDIARY COMPANY) SHALL BE DEEMED TO HAVE CARRIED ON THE BUSINESS FOR AND ON BEHALF OF THE TRANSFEREE COMPANY (HOLDING COMPANY) WITH ALL ATTENDANT CONSEQUENCES.' IN THE CASE OF SARASWATI INDUSTRIAL SYNDICATE LTD. V. CIT AIR 1991 SC 70, THE APEX COURT ON THE QUESTION OF AMALGAMATION OF TWO COMPANIES OBSERVED AS UNDER : I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 21 ' TWO COMPANIES MAY JOIN TO FORM A NEW COMPANY, BUT THERE MAY BE ABSORPTION OR BLENDING 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 A NOTHER, THE AMALGAMATING COMPANY LOSES ITS ENTITY.' THE EF FECT OF THIS LEGAL PROPOSITION WOULD BE THAT BY VIRTUE OF DEEMING FICTION OF AMAL GAMATION RELATING BACK 'TO THE R ATE ENVISAGED IN THE SCHEME, TRANSACTION OF PAYMENT OF DIVIDEND BY THE TRANSFEROR CO MPANY TO OTHER THREE COMPANIES WOULD NOT RETAIN THE CHARACTER OF DIVIDEND. AS HELD AND OBSERVED BY THE BOMBAY HIGH COURT IN THE CASES OF MAFATLAL GAGALBHAI AND COMPANY (P.) LTD. (SUPRA) AND NEW SHORROCK SPG. & MFG. CO. LTD., A COMPANY CANNOT PAY DIVIDEND T O ITS OWN SELF . IN THE CASE OF MAFATLAL GAGALBHAI & CO. (P.) LTD. (SUPRA), THE FACTS WERE THAT THE ASSESSEE COMPANY HAD DECLARED DIVIDEND AND PAID TO ANOTHER COMPANY WHICH WAS A MAJOR SHAREHOLDER OF THE AS SESSEE COMPANY. EVEN BEFORE DECLA RATION OF DIVIDEN D, NEGOTIATIONS WERE GOING ON FOR AMALGAMATION OF BOTH THE COMPANIES. BOTH THE COMPANIES, THEREFORE, PRESENTED A SCHEME FOR AMALGAMATION BEFORE THE HIGH COURT. THE HIGH COURT SANCTIONED THE SCHEME UNDER AN ORDER DATED 6TH JANUARY 1969. UNDER THE ORDER OF T HE COURT, AMALGAMATION WAS TO TAKE EFFECT FROM 1ST APRIL 1968. IN THIS CONTEXT, THE HIGH COURT CONSIDERED THE QUESTION WHETHER THE TRIBUNAL ERRED IN HOLDING THAT A SUM OF RS.2,14,000/ - DECLA RED AS DIVIDEND ON 2ND SEPTEMBER 1968 WAS LIABLE TO BE TAXED AS IN COME IN THE HANDS OF THE ASSESSEE COMPANY. IN THIS CONTEXT, THE HIGH COURT OBSERVED THAT THE ASSESSEE COMPANY CEASED TO BE A SHAREHOLDER OF THE JUTE COMPANY WITH EFFECT FROM 1ST APRIL 1968. IT IS TRITE KW THAT A COMPANY CANNOT HOLD SHARES OF ITS OWN COMPAN Y. AS A NATURAL COROLLARY , IT CANNOT RECEIVE DIVIDEND OUT OF ITS OWN PROFITS. THE HIGH COURT EVENTUALLY HELD AS UNDER : 'EVIDENTLY, DIVIDEND IS MADE TAXABLE AS THE INCOME OF THE P REVIOUS YEAR IN WHICH IT IS DECLA RED. THE DIVIDEND INCOME, THUS ACCRUES AS I NCOME OF THE PREVIOUS YEAR IN WHICH IT IS DECLARED AS DISTINCT FROM INCOM E OF THE DAY ON WHICH IT IS DECLA RED. IF SOMETHING HAPPENS DURING THE PRE VIOUS YEAR DUE TO WHICH THE DECLA RATION OF DIVIDEND IS CANCELLED AND THE AMOUNT PAID AS DIVIDEND IS DIRECTED T O BE TREATED AS LOANS OR PAYMENT OF A PART OF CAPITAL, IT IS POSSIBLE TO CONCEIVE THAT, AT THE END OF THE YEAR, THERE WILL NOT BE ACCRUAL OF INCOME BY WAY I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 22 OF DIVIDEND DESPITE A FACTUAL DECLARATION. SIMILARLY, IF, BY OPERATION OF LAW, THE DECLA RATION OF DIV IDEND BECOMES ILLEGAL, INOPERATIVE OR INVALID DURING THE PREVIOUS YEAR ITSELF, IT IS POSSIBLE TO CONCEIVE OF A SITUATION IN WHICH AN ASSESSEE WOULD BE ENTITLED TO SAY THAT NO INCOME BY WAY OF DIVIDEND - ACCRUED TO HIM DURING THE PREVIOUS YEAR. WHAT IS IMPOR TANT IS THAT SOMETHING FACTUAL OR LEGAL SHOULD HAVE HAPPENED DURING THE PREVIOUS YE AR IN WHICH THE DIVIDEND IS DECLA RED.' LIKEWISE, IN THE CASE OF NEW SHORROCK SPG. & MFG. CO. LTD. (SUPRA), FACTS WERE THAT THE ASSE SSEE COMPANY HAD ON 25.5.72 DECLA RED ITS DIVIDEND FOR THE YEAR 1971. ONE MAFATLAL GAGALBHAI AND CO. PVT. LTD. CASE (SUPRA) HOLDING SHARES IN THE ASSESSEE COMPANY RECEIVED DIVIDEND IN RESPECT OF ITS HOLDINGS IN THE ASSESSEE COMPANY. ON 27TH OCTOBER 1972, A PROPOSAL WAS INITIATED FOR AMALGAMATION O F MAFATLAL GAGALBHAI AND CO. (P.) LTD. CASE (SUPRA) WITH THE ASSESSEE COMPANY. PETITIONS FOR SUCH PURPOSE WERE FILED BEFORE THE BOMBAY HIGH COURT AND THE GUJARAT HIGH COURT. BY THE ORDERS PASSED ON 24TH SEPTEMBER 1973 AND 26TH SEPTEMBER 1973, THE SAID HIGH COURTS SANCTIONED THE AMALGAMATION SCHEME. UNDER BOTH THESE ORDERS, AMALGAMATION CAME INTO EFFECT FROM 1ST APRIL 1972. IN THE ASSESSMENT YEAR 1973 - 74, THE ASSESSEE COMPANY WAS SOUGHT TO BE TAXED IN RESPECT OF THE DI VIDEND INCOME RECEIVED BY MAFATLA L GAGAL BHAI AND CO. LTD. THE CONTENTION OF THE ASSESSEE WAS THAT MAFATLAL GAGALBHAI AND CO. LTD. HAVING CEASED TO EXIST WITH EFFECT FROM 1ST APRIL 1972, BY VIRTUE OF THE ORDERS OF AMALGAMATION, THE ASSESSEE COMPANY COULD NOT BE TAXED FOR THE DIVIDEND DISTRIBUTED IN FAVOUR OF MAFATLAL GAGALBHAI & COMPANY. THE BOMBAY HIGH COURT REFERRING TO AND RELYING UPON THE DECISION OF MAFATLAL GAG ALBHAI AND CO. (P.) LTD. (SUPRA) RULED IN FAVOUR OF THE ASSESSEE. THE DECISION IN THE CASE OF KISHINCHAND CHETTARAM (SUPRA) OF THE AP EX COURT WAS DISTINGUISHED. 15. BEFORE US, THE SITUATION IS VERY SIMILAR. CE RTAIN DIVIDEND WAS DECLA RED AND PAID BY ONE OF THE COMPANIES WHICH ULTIMATELY MERGED WITH THE ASSESSEE COMPANY ALONG WITH OTHER CO MPANIES. BEFORE THE DATE OF DECLA RATION AND PAYME NT OF DIVIDEND, SCHEME FOR AMALGAMATION WAS FRAMED. BY VIRTUE OF THE DECISION OF THE HIGH COURT, SUCH SCHEME WAS SANCTIONED WITH NO VARIATION IN THE EFFECTIVE DATE. THUS, THE DATE OF AMALGAMATION WHICH ACTUALLY TOOK EFFECT WAS PRIOR TO THE DATE ON WHICH DI VIDEND WAS DECLARED AND PAID. IN THAT VIEW OF THE MATTER, WE HAVE NO HESITATION IN HOLDING THAT BY VIRTUE OF I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 23 SUCH SUBSEQUENT DEVELOPMENTS, THE PAYMENT OF DIVIDEND COULD NO LONGER RETAIN THE CHARACTER OF DIVIDEND PAID BY TORRENT POWER LTD SINCE THERE CANNOT BE PAYMENT OF DIVIDEND BY ONE COMPANY TO ITS OWN SELF . 16. OUR ATTENTION WAS ALSO DRAWN TO A DECISION OF DIVISION BENCH OF THIS COURT DATED 13/16TH JULY 2012 IN SPECIAL CIVIL APPLICATION NO.9980 OF 2001 IN CASE OF CADILA HEALTHCARE LTD. IN THE SAID CASE, QUESTION OF PAYMENT OF SALES TAX ON THE SALES MADE BY THE TRANSFEROR COMPANY TO THE TRANSFEREE COMPANY BETWEEN EFFECTIVE DATE AS ENVISAGED IN THE AMALGAMATION SCHEME TILL THE DATE THE HIGH COURT SANCTIONED SUCH SCHEME. IN THAT CONTEXT, REFERRING TO THE DE CISION OF THE APEX COURT IN THE CASE OF MARSHALL SONS & CO. (INDIA) LTD. (SUPRA), DIVISION BENCH OF THIS COURT HELD THAT SUCH TRANSFERS WOULD CEASE TO BE SALES BETWEEN TWO INDEPENDENT ENTITIES BUT WOULD BE TREATED AS BRANCH TRAN SFERS. IT WAS OBSERVED AS UN DER : '20. AS ALREADY NOTED, THE TERM 'SALE' HAS BEEN DEFINED UNDER SECTION 2(23) OF THE ACT. UPON THE HIGH COURT SANCTIONING THE SCHEME FOR AMALGAMATION, THE EFFECTIVE DATE OF AMALGAMATION WOULD BE THE DATE MENTIONED IN THE SCHEME, NAMELY, 1ST JUNE 1995. SUCH LEGAL FALL OUT MUST BE GIVEN ITS FULL IMPLICATION FOR ALL PURPOSES INCLUDING FOR THE PURPOSES OF THE ACT. IF, THEREFORE, IN EYE OF LAW FROM 1ST JUNE 1995, THE TRANSFEROR COMPANIES DID NOT EXIST, AND BY VIRTUE OF THE ORDER OF THE HIGH COURT SANCTIONING THE SCHEME RELATING BACK TO THE DATE ENVISAGED IN THE SCHEME, CEASED TO HAVE ANY LEGAL EXISTENCE, ANY TRANSFER FROM THE TRANSFEROR TO THE TRANSFEREE COMPANIES MUST BE TREATED AS BRANCH TRANSFER. THIS WAS ALSO THE VIEW EXPRESSED BY THE BOMBAY HIGH COURT IN THE CASE OF NATIONAL ORGANIC CHEMICALS INDUSTRIES LTD. (SUPRA}. IN THE SAID CASE, THIS PRECISELY WAS THE ISSUE PRESENTED BEFORE THE HIGH COURT. A DIVISION BENCH OF THE HIGH COURT RULED THAT THE COMPANY LOSES ITS CORPORATE PERSONALITY FROM THE DATE DECLARE D BY THE COMPETENT AUTHORITY UNDER THE COMPANIES ACT. IN CASE OF AMALGAMATION OF A COMPANY, THE HIGH COURT BEING THE COMPETENT AUTHORITY, WHEN THE HIGH COURT SANCTIONS THE SCHEME FOR AMALGAMATION AND DECLARES THE EFFECTIVE DATE FROM WHICH SUCH AMALGAMATION WOULD OPERATE, FROM SUCH DATE, THE CORPORATE PERSONALITY OF THE COMPANY GETS DESTROYED. ON SUCH PRINCIPLE, THE BOMBAY HIGH COURT RULED THAT NO SALES TAX WAS PAYABLE ON THE TRANSFER BY THE TRANSFEROR COMPANY TO THE I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 24 TRANSFEREE COMPANY DURING THE PERIOD WHEN THE SCHEME FOR AMALGAMATION WAS FRAMED TILL THE SAME WAS SANCTIONED BY THE HIGH COURT. WE MAY NOTICE THAT THE STATUTORY PROVISIONS ARISING FOR CONSIDERATION IN THE BOMBAY HIGH COURT CONTAINED IN THE MAHARASHTRA SALES TAX ACT IN ALL MATERIAL PURPOSES ARE S IMILAR TO THE PROVISIONS ARISING IN THE GUJARAT SALES TAX ACT' . 17. IN THE CASE OF KISHENCHAND CHELLARAM (SUPRA), THE APEX COURT DID OBSERVE THAT UNDER THE INCOME TAX ACT, LIABILITY TO PAY TAX ATTACHES AS SOON AS A DIVIDEND IS PAID, CREDITED OR DISTRIBUT ED OR IS SO DECLARED AND FURTHER THAT ONCE A COMPANY DECLARES ITS DIVIDEND, IT CANNOT ALTER THE CHARACTER OF CREDIT BY PASSING SUBSEQUENT RESOLUTIONS. SUCH OBSERVATIONS WERE MADE IN THE CONTEXT OF THE FACTS OF THE ASSESSEE HAVING ONCE DECLARED DIVIDEND SUB SEQUENTLY PASSED A RESOLUTION TO TREAT SUCH AMOUNT AS CREDIT IN THE ACCOUNTS OF THE SHAREHOLDERS. IN THE PRESENT CASE, HOWEVER, SITUATION IS SUBSTANTIALLY DIFFERENT. IT WAS NOT THE COMPANY S OWN VOLITION BY WHICH IT DESIRED TO CHANGE THE CHARACTER OF PAYME NT OF DIVIDEND TO ANY OTHER NATURE. IT WAS BECAUSE OF THE SUBSEQUENT DEVELOPMENTS, WHICH HOWEVER, HAD THE EFFECT FROM THE DATE ANTERIOR TO THE DATE OF PAYMENT OF DIVIDEND AND BY VIRTUE OF WHICH SUCH PAYMENT CEASED TO RETAIN THE CHARACTER OF DIVIDEND. ANY O THER VIEW WOULD EFFECTIVELY NULLIFY THE EFFECTIVE DATE OF AMALGAMATION OF COMPANIES. 18. COUNSEL FOR THE REVENUE, WE MAY RECALL, PLACED RELIANCE ON THE PROVISIONS OF SECTION 115 - O OF THE ACT. IT IS UNDOUBTEDLY TRUE THAT SUB - SECTION (1) OF SECTION 115 - O ST ARTS WITH A NON - OBSTANTE CLAUSE AND PROVIDES THAT NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THE ACT, IN ADDITION TO THE INCOME CHARGEABLE TO TAX IN CASE OF A DOMESTIC COMPANY, THERE SHALL BE TAX ON ANY AMOUNT DECLARED, DISTRIBUTED OR PA ID BY SUCH COMPANY BY WAY OF DIVIDEND OR INTERIM DIVIDEND. SUB - SECTION (3) THEREO F FURTHER PROVIDES THAT THE PRINCIPAL OFFICER OF THE DOMESTIC COMPANY AND THE COMPANY S HALL BE LIABLE TO PAY TAX ON DIS TRIBUTED PROFITS TO THE CREDIT OF THE CENTRAL GOVERNMENT WITHIN FOURTEEN DAYS FROM THE DATE OF DECLARATION OF ANY DIVIDEND OR DISTRIBUTION OR PAYMENT OF ANY DIVIDEND WHICHEVER IS EARLIEST. SUB - SECTION (1) OF SECTION 115 - O OF THE ACT THUS IS A CHARGING SECTION AND PERTAINS TO COLLECTION OF TAX ON DECLARATION, DI STRIBUTION OR PAYMENT OF DIVIDEND BY A DOMESTIC COMPANY. SUB - SECTION (3) DOES NOTHING BEYOND PRESCRIBING THE DATE WITHIN WHICH SUCH TAX MUST BE CREDITED TO THE CENTRAL GOVERNMENT. NEITHER OF THESE TWO PROVISIONS OR ANYTHING ELSE CONTAINED IN SECTION 115O O F I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 25 THE ACT, IN OUR OPINION, WOULD CHANGE THE POSITION. IN THE PRESENT CASE, WE ARE CONCERNED WITH A SITUATION UNDER WHICH AFTER CERTAIN DIVIDEND WAS DECLARED AND TAX THEREON WAS ACTUALLY PAID, BY VIRTUE OF THE HIGH COURT SANCTIONING THE AMALGAMATION SCHEME, WHICH TOOK EFFECT FROM A DATE ANTERIOR TO THE DECLARATION OF THE DIVIDEND WOULD CHANGE THE VERY CHARACTER OF SUCH PAYMENT AND SUCH PAYMENT CEASED TO ENJOY THE CHARACTER OF DIVIDEND. IN THAT VIEW OF THE MATTER, THE PETITIONER WAS PERFECTLY JUSTIFIED IN SEE KING REFUND OF THE TAX ALREADY PAID. WE MAY RECALL THAT IN THE RETURN FILED, THE PETITIONER HAD FILED A DETAILED NOTE EXPLAINING SUCH POSITION. CLAIMING REFUND, A SEPARATE APPLICATION WAS ALSO FILED WHICH UNFORTUNATELY CAME TO BE REJECTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER CONTENDED THAT THERE WAS NO PROVISION UNDER WHICH SUCH REFUND CAN BE CLAIMED. SECTION 237 OF THE ACT, HOWEVER, PROVIDES THAT IF ANY PERSON SATISFIES THE ASSESSING OFFICER THAT THE AMOUNT OF TAX PAID BY HIM OR ON HIS BEHALF OR TREATED AS PAID BY HIM OR ON HIS BEHALF FOR ANY ASSESSMENT YEAR EXCEEDS THE AMOUNT WITH WHICH HE IS PROPERLY CHARGEABLE UNDER THE ACT FOR THAT YEAR, HE SHALL BE ENTITLED TO A REFUND OF THE EXCESS AMOUNT. THE CASE OF THE PETITIONER WOULD, THUS, BE CLEARLY COVERED UNDER THE SAID STATUTORY PROVISIONS. 19. IN THE RESULT, THE PETITION IS ALLOWED. THE IMPUGNED ORDER DATED 26.3.2004 PASSED BY THE COMMISSIONER OF INCOME TAX CONFIRMING THE ORDER OF THE ASSESSING OFFICER IS QUASHED. RESULTANTLY, THE RESPONDENT SHAL L REFUND TO THE PET ITIONER A SUM OF RS.5,92,96,881/ - WITH STATUTORY INTEREST AS APPLICABLE. THIS SHALL BE DONE PREFERABLY WITHIN A PERIOD OF THREE MONTHS FROM THE DATE OF RECEIPT OF A COPY OF THIS ORDER. RULE IS MADE A BSOLUTE ACCORDINGLY. 13. THE REVENU E FAILS TO POINT OUT ANY DISTINCTION ON FACTS OR LAW. WE CONCLUDE ACCORDINGLY THAT ONCE THE DEMERGED GAS DISTRIBUTION UNDERTAKING NO MORE EXISTS W.E.F. 01 - 01 - 2007 COMING TO BE THE APPOINTED DAY, THE ASSESSEE - RESULTING COMPANY IS ENTITLED FOR ALL THE PRO R ATA ADJUSTMENTS OF TDS, ADVANCE TAX AND MAT CREDITS AS PER LAW; TO BE UTILIZED IN FORMER S ACCOUNT. THE NET RESULT OF OUR ABOVE DISCUSSION IS THAT ASSESSEE S ARGUMENTS IN PRINCIPLE ARE ACCEPTED IN I.T.A N O S . 2241 & 2516 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ADANI GAS LTD VS. ACIT 26 VIEW OF CLAUSES OF THE ABOVE STATED DEMERGER SCHEME, SECTI ONS 391 TO 394 OF THE COMPANIES ACT, SECTION 2(19AA) OF THE INCOME TAX ACT AND THE CASE LAW DISCUSSED HEREINABOVE. WE DIRECT THE ASSESSING OFFICER TO COMPUTE PRO RATA QUANTIFICATION OF THE DEMERGED UNDERTAKING MAT, TDS AND ADVANCE TAX CREDITS AS PER LAW A FTER AFFORDING ADEQUATE OPPORTUNITY OF HEARING. THE RELEVANT GROUNDS 5 TO 7 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ITA 2516/AHD/2011 IS PARTLY ACCEPTE D. 14. THE ASSESSEE S APPEAL ITA 2241/AHD/2011 IS DISMISSED AS NOT PRESSED AND ITA 2516/AHD/2 011 IS PARTLY ALLOWED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 18 - 01 - 201 6 SD/ - SD/ - ( PRAMOD KUMAR ) ( S. S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 18/01/2016 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,