{"id":265085,"date":"2022-04-06T13:00:16","date_gmt":"2022-04-06T07:30:16","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=265085"},"modified":"2022-04-08T13:27:36","modified_gmt":"2022-04-08T07:57:36","slug":"amalgamation-does-not-necessarily-nullifies-tax-assessment-as-only-the-outer-shell-of-the-amalgamating-company-gets-destroyed-but-the-business-and-the-adventure-lives-on-sc","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2022\/04\/06\/amalgamation-does-not-necessarily-nullifies-tax-assessment-as-only-the-outer-shell-of-the-amalgamating-company-gets-destroyed-but-the-business-and-the-adventure-lives-on-sc\/","title":{"rendered":"Amalgamation does not necessarily nullify tax assessment as only the outer shell of the amalgamating company gets destroyed but the business and the adventure lives on: SC"},"content":{"rendered":"

Supreme Court<\/strong>: The bench of UU Lalit and S. Ravindra Bhat*,<\/strong> JJ has held that whether corporate death of an entity upon amalgamation per se invalidates a tax 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.<\/p>\n

Facts Background<\/strong><\/span><\/h4>\n

The Court was deciding an appeal against the order of the Delhi High Court rejecting the appeal, by the revenue and affirming the order of the Income Tax Appellate Tribunal (ITAT) which quashed the assessment order against the assessee Mahagun Realtors Private Limited (MRPL).<\/p>\n

MRPL, a real estate company, amalgamated with Mahagun India Private Limited (MIPL) on 01.04.2006. The Assessing Officer (AO), issued an assessment order on 11.08.2011, assessing the income of \u20b9 8,62,85,332\/- after making several additions of \u20b9 6,47,00,972\/- under various heads. The assessment order showed the assessee as \u201cMahagun Relators Private Ltd, represented by Mahagun India Private Ltd\u201d.<\/p>\n

It was argued before the Court that the assessment framed in the name of amalgamating company which was ceased to exist in law, was invalid and untenable in terms of Section 170(2) of the Income Tax Act, 1961.<\/p>\n

Analysis <\/strong><\/span><\/h4>\n

Section 170 of Income Tax Act, 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.<\/p>\n

Further, there are not less than 100 instances 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-\u00e0-vis the transfer to the transferee 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.<\/p>\n

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, 1956, 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.<\/p>\n

Reading Section 394 (2) of the Companies Act, 1956, Section 2 (1A) and various other provisions of the Income Tax Act together, the Court reached to the conclusion 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<\/em>.<\/p>\n

The Court observed,<\/p>\n

\n

\u201cAmalgamation, 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 \u2013 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 \u2013 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.\u201d<\/p>\n<\/blockquote>\n

Ruling on facts <\/strong><\/span><\/h4>\n

The Court specifically noticed that, in the present case,<\/p>\n