# PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL) - 2 v. M/S. MAHAGUN REALTORS (P) LTD

- **Citation:** [2022] 4 S.C.R. 502
- **Court:** Supreme Court of India
- **Decided:** 2022-04-05
- **Case number:** Civil Appeal No. 2716 of 2022
- **Bench:** Uday Umesh Lalit, S. Ravindra Bhat
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/principal-commissioner-of-income-tax-central-2-v-m-s-mahagun-realtors-p-ltd-36054
- **Pages:** 34

## Headnote

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
PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL) - 2 v.
M/S. MAHAGUN REALTORS (P) LTD.
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504
SUPREME COURT REPORTS
[2022] 4 S.C.R.
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

## Text

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[2022] 4 S.C.R.
[2022] 4 S.C.R. 502
502
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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E
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G
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503
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
PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL) - 2 v.
M/S. MAHAGUN REALTORS (P) LTD.
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504
SUPREME COURT REPORTS
[2022] 4 S.C.R.
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.
PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL) - 2 v.
M/S. MAHAGUN REALTORS (P) LTD.
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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
5 2019 SCCOnline SC 928
PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL) - 2 v.
M/S. MAHAGUN REALTORS (P) LTD. [S. RAVINDRA BHAT, J.]
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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.
M/S. MAHAGUN REALTORS (P) LTD. [S. RAVINDRA BHAT, J.]
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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
PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL) - 2 v.
M/S. MAHAGUN REALTORS (P) LTD. [S. RAVINDRA BHAT, J.]
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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
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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
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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 balancesheet. 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.
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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.