IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 23RD DAY OF FEBRUARY 2017 BEFORE THE HON’BLE MR.JUSTICE RAGHVENDRA S. CHAUHAN Company Application No.1789/2014 In Company Petition No.280/2013 C/w Company Application No.1996/2013 Between :
1. The Commissioner of Income Tax Belgaum, Office of the Commissioner of Income Tax, Opp. District Hospital, Dr. B. R. Ambedkar Road, Belgaum-590001.
2. The Regional Director Ministry of Corporate Affairs, South East Region, II Floor, Kendriya Sadan, Sultan Bazar, Koti, Hydrabad-500195. …Applicants (By Smt. Sowbhagya N. A., Advocate) And :
M/s. Sadashiva Sugars Limited Registered office at Venus Building, 3rd Floor, ½ Kalyanamantapa Road, Jakkasandra, Koramangala, Bangalore-560034. …Respondent (By Sri Saji P. John, & B. Rajashree, Advocates) This Company application is filed under order XLVII Rule 1 read with Section 114 read with Section 151 of the CPC and Rule 6 and 9 of the Companies (Court) Rules praying to review and recall the order of this Hon’ble Court dated 04.04.2014 passed in Company Petition No.280/2013 and etc.
This Company application coming on for Orders this day, the Court made the following :
ORDER The Income Tax Department has filed an application under Order XLVIII Rule 1, read with Section 114, and Section 151 of CPC, along with Rule 6 & 9 of the Companies (Court) Rules, for recalling the order dated 4.4.2014, whereby this Court had permitted the amalgamation of M/s. Sadashiva Sugars Ltd., with M/s. E.I.D. Parry (India) Ltd., 2. Briefly the facts of the case are that M/s. Sadashiva Sugars Ltd., (Transferor Company) had filed a Company Petition under Section 393 and 394 of the Companies Act, 1956 (`Act’ for short) for seeking the sanction of Scheme of Amalgamation between the Transferor Company, and M/s. E.I.D. Parry (India) Ltd., (Transferee Company). By order dated 4.4.2014, this Court had allowed the Scheme of Amalgamation. However, subsequently the Income Tax Department has filed the present Company Application seeking for recalling of the said order.
3. Ms. Sowbhagya N. A., the learned counsel for the applicant, submits that for the Assessment year 2009-10, 2010-11, 2012-13 and 2013-14, the Transferor Company has declared its income as `NIL’. Moreover, it has claimed carry forward of the losses for the above mentioned Assessment Years. Similarly, even the Transferee Company has been suffering losses for number of years, and has carried forward the same to the subsequent years. Therefore, according to the learned counsel, in case the amalgamation were permitted, it will lead to reduction in books of profit of the Transferee Company to the extent of Rs.10 Crores to Rs.12 Crores, for the current Financial Year. Therefore, the minimum alternative tax payable at the rate of 18.5% under Section 115JB of the Act, will be reduced accordingly. Moreover, the loss suffered by the Transferor Company to the tune of Rs.1,74,98,13,493/- would become the losses of the Transferee Company. The Transferee Company would be entitled to carry forward and set-off the accumulated losses of Transferor Company. Even if the Transferee Company makes good the profits, in future, and after the set off of its own accumulated losses, it would still be eligible for set-off of the accumulated losses of the Transferor Company. Therefore, it is the Revenue that will suffer loss as it cannot recover tax on the income of the Transferor Company. Lastly, under Section 72-A of the Act, which deals with carry forward and set off of the accumulated losses, the amalgamation cannot be permitted by this Court. Therefore, the amalgamation that was permitted by this Court by order dated 4.4.2014 should be recalled.
4. On the other hand, Mr. Saji P. John, the learned counsel for the Transferor Company, has pleaded that Section 72-A of the Act does not contain a bar which would prevent the Transferor Company from amalgamating with the Transferee Company. Section 72-A of the Act merely deals with carry forward and set off of accumulated loss, and unabsorbed depreciation which the company would be entitled to. Moreover, it demarcates the circumstances under which the said benefit can be denied to a company. But, by no stretch of imagination, does it prohibit the amalgamation of two companies which may be suffering losses.
Secondly, there is no bar either in the Companies Act, or in the Income Tax Act, which prevents the two companies, which are suffering losses, from amalgamating.
Thirdly, the benefits which would accrue to the companies accrues in accordance with the Act. Therefore, even if the Revenue Department were to claim that it will suffer, the said claim cannot be translated into a `bar’. Therefore, the order dated 4.4.2014 should not be recalled by this Court.
5. Heard the learned counsel for the parties.
6. The relevant extract of Section 72-A of the Act is as under :
“ 72A. Provisions relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in amalgamation or demerger, etc., (a) a Company owning an industrial undertaking or a ship or a hotel with another Company; or (b) a banking Company referred to in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949) with a specified bank; or (c) one or more public sector Company or companies engaged in the business of operation of aircraft with one or more public sector Company or companies engaged in similar business, then, notwithstanding anything contained in any other provision of this Act, the accumulated loss and the unabsorbed depreciation of the amalgamating company shall be deemed to be the loss or, as the case may be, allowance for unabsorbed depreciation of the amalgamated company for the previous year in which the amalgamation was effected, and other provisions of this Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly. (2) Notwithstanding anything contained in sub-section (1), the accumulated loss shall not be set off or carried forward and the unabsorbed depreciation shall not be allowed in the assessment of the amalgamated company unless— (a) the amalgamating company— (i) has been engaged in the business, in which the accumulated loss occurred or depreciation remains unabsorbed, for three or more years;
(ii) has held continuously as on the date of the amalgamation at least three-fourths of the book value of fixed assets held by it two years prior to the date of amalgamation;
(b) the amalgamated company— (i) holds continuously for a minimum period of five years from the date of amalgamation at least three-fourths of the book value of fixed assets of the amalgamating company acquired in a scheme of amalgamation;
(ii) continues the business of the amalgamating company for a minimum period of five years from the date of amalgamation;
(iii) fulfils such other conditions as may be prescribed to ensure the revival of the business of the amalgamating company or to ensure that the amalgamation is for genuine business purpose.
(3) In a case where any of the conditions laid down in sub-section (2) are not complied with, the set off of loss or allowance of depreciation made in any previous year in the hands of the amalgamated company shall be deemed to be the income of the amalgamated company chargeable to tax for the year in which such conditions are not complied with.
7. A bare perusal of the relevant extract clearly reveals that Section 72-A of the Act merely creates a legal fiction whereby the accumulated loss and the unabsorbed depreciation of the amalgamating company is deemed to be the loss, or as the case may be, allowance for unabsorbed depreciation of the amalgamated Company for the previous year in which the amalgamation was affected. Furthermore, it grants the benefit that the provisions of this Act relating to set off and carry forward of loss, and allowance for depreciation shall apply to the amalgamated Company.
8. However, sub-section (2) of Section 72A of the Act carves out an exception and describes the circumstances under which the benefit of set off and carry forward and allowance of depreciation will not be permitted to the amalgamated Company.
9. Sub-section (3) of Section 72A of the Act further states that in case any of the conditions laid down in sub- section (2) are not complied with, then, in fact, the set off of loss, or allowance of depreciation shall be deemed to be the income of the amalgamated Company chargeable to tax in the year in which such condition has not been complied with. Therefore, Section 72A of the Act, in fact, deals with the post-amalgamation scenario. By no stretch of imagination, does Section 72A of the Act debar two companies from amalgamating. In fact, Section 72A of the Act deals with the relationship between the Income Tax Department, and the assessee in the post-amalgamated period. Therefore, the contention being raised by the learned counsel for the Revenue that under Section 72A of the Act, amalgamation between two companies suffering from losses is prohibited, the said argument is highly misplaced.
10. Since Section 72A of the Act does entitle the amalgamated company to claim set off and carry forward of losses and allowance depreciation, therefore, if any benefit accrues to the amalgamated Company, that benefit cannot be denied ostensibly on the ground that it is the Revenue Department that would suffer. Hence, the contention being raised by the learned counsel for the Revenue that in case the amalgamation were allowed, it is the Revenue Department that would suffer, as it would not be able to recover the tax, as it will be entitled to, even the said argument is unacceptable.
11. Most importantly, almost three years have gone by since the amalgamation was permitted by this Court. To turn the historical clock back to the year 2014, may cause injustice to the amalgamated Company. Therefore, it is too late for the Revenue Department to argue that the order dated 4.4.2014 should be recalled by this Court.
Therefore, the application filed by the Revenue Department is, hereby, dismissed.
Sd/- JUDGE bk/-