http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 12  

PETITIONER: MARSHALL SONS & CO. [INDIA] LTD.

       Vs.

RESPONDENT: INCOME TAX OFFICER

DATE OF JUDGMENT:       27/11/1996

BENCH: B.P.JEEVAN REDDY, SUHAS  C.SEN

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T      B.P. JEEVAN REDDY, J.      These  appeals  are  preferred  by  Marshall  Sons  and Company [India]  Limited [hereinafter  referred  to  as  the "Holding  Company"]  as  successors  to  Marshall  Sons  and Company [Manufacturing]  Limited [hereinafter referred to as the "Subsidiary  Company"] against the judgment and order of the Madras High Court dismissing the writ petitions filed by them. The matter arises under the Income Tax Act.      The Holding  Company had its registered office at 33-A, Chowranghee Road,  Calcutta while the Subsidiary Company had its  registered  office  at  Madras.  For  the  purposes  of assessment under  the Income  Tax Act,  while the accounting year of  the Holding  Company was  the year  ending on  30th June, the  accounting year of the Subsidiary Company was the calendar year.  On 1st  December,  1982,  two  letters  were addressed by  the  Subsidiary  Company  to  the  Income  Tax Officer stating  that the company is desirous of effecting a change in  the accounting  year. They stated that they would wish to  close their  accounts on  June  30,  1983  for  the eighteen months’  period [January  1, 1982 to June 30, 1983] instead of closing the accounts on December 31, 1982. It was also stated  that since  the accounting  year of the Holding Company ends  on June  30, they too would like to follow the same practice.  In response  to said letters, the Income Tax Officer asked  for certain  particulars which were supplied. On February  3, 1983,  the Income  Tax Officer permitted the Subsidiary  Company  to  change  the  accounting  year  from December 12, 1982 to June 30, 1983 subject to the conditions mentioned therein, viz.:      "As a  consequence to  the  change,      the income  of  the  period  of  18      months from  1.1.82 to 30.6.83 will      be assessed  for  the  asstt.  year      1984-85. Any  relief  that  may  be      withdrawn in the future legislation      with effect  from asstt. year 1984-      85 will  be made  applicable to the      entire income  for the  asst.  year      1984-85 and  depreciation  will  be

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 12  

    allowed  proportionately   as   per      rules.      The asstt.  year 1983-84  which  is      slipped on account of the change of      the previous year will, however, be      treated as  one assessment year for      the purposes  of set off of carried      forward losses,  relief u/s.80J  of      the Income Tax Act, 1961, if any."      In December,  1982, the  Subsidiary  Company  passed  a resolution proposing  to amalgamate with the Holding Company with effect from January 1, 1982. An application was made to the Company Court and pursuant to the orders of the Court, a meeting of  the shareholders  was held  on February 11, 1982 whereat a  resolution was  passed approving the amalgamation of the  Subsidiary Company with the Holding Company, similar resolution was  passed by  the shareholders  of the  Holding Company on  May 7,  1983. The  Company  Court  [Madras  High Court] sanctioned  the scheme  of amalgamation  by its order dated November  21, 1983 in C.P. No.23 of 1983. On a similar application filed  before  the  Calcutta  High  Court,  C.P. No.284  of   1983,  that   High  Court  [Company  court]  to sanctioned the  scheme of  amalgamation by  its order  dated January 11,  1984. In  both the  orders,it was directed that certified copies  of the  said orders  shall be delivered to the Registrars  of Companies  at Madras  and Calcutta within thirty days  therefrom. Accordingly, certified copies of the orders were  filed before  the Registrars  of  Companies  on January 29,  1984 at  Madras and  on February  24,  1984  at Calcutta. The  name of the Subsidiary Company was struck off the register  of Companies,  maintained by  the Registrar of Companies at Madras, on January 21, 1986.      On November  25, 1984, a notice under Section 139(2) of the Income  Tax Act  was issued  to the  Subsidiary  Company calling upon  it to  file a  return of  its income  for  the Assessment Years 1984-85 [for the year ending June 30, 1983] and for  1985-86 [year ending June 30, 1984]. The Subsidiary Company replied  stating that  inasmuch  as  the  Subsidiary Company has  been amalgamated with the Holding Company under a scheme of amalgamation sanctioned by the Company Courts of Madras and  Calcutta and  because the  said amalgamation was with effect  from January  1, 1982, there was no question of the Subsidiary  Company filing  a return  for the  said  two assessment years.  There  was  exchange  of  notices/replies thereafter, which  it is  not necessary  to mention  at this stage Ultimately,  the Income  Tax Officer  issued a  notice under Section  142(1)  asking  for  compliance  with  it  by February 7, 1986. At that stage, the appellant-company filed writ petitions  in the  Madras High  Court  questioning  the aforesaid notices.      In the  writ petitions filed by the appellant, the main ground urged was that inasmuch as the amalgamation has taken effect on  and from  January 1, 1982, the Income Tax Officer had no authority to call upon the Subsidiary Company to file a return for any period subsequent thereto. It was submitted that the  scheme of  amalgamation has been sanctioned by the Company Courts  at Madras  and Calcutta and that, therefore, any  business   which  may  have  been  carried  on  by  the Subsidiary Company  subsequent to  January 1, 1982 was as an agent of  the Holding Company and not on its own account. It was submitted  that the  Subsidiary Company had no income of its own  - indeed no existence of its own in law on or after January 1,  1982. In  the  counter-affidavit  filed  by  the Income Tax  Officer,  he  submitted  that  the  amalgamation became effective  only when  it was  sanctioned by the Court

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 12  

and after  certified copies of the orders of the Courts were filed with  the Registrars  of Companies.  His case was that only when  the name of the Subsidiary Company was struck off the register  by the Registrar of Companies, Madras that the Subsidiary Company  can be said to have ceased to exist. The respondent also  stated that,  as  a  matter  of  fact,  the relevant clauses  in the  scheme of  amalgamation themselves indicate that  the scheme  was  to  take  effect  only  when sanctioned by  the court  and only  when the  shares of  the Holding Company  are allotted  to members  of the Subsidiary Company. He  submitted that  this allotment  of shares  took place only  in June,  1984. The  Income Tax  Officer further submitted  in   his  counter   affidavit   that   the   said amalgamation  was   a  device   adopted  to  evade  the  tax legitimately due  from the  Subsidiary Company. He submitted that while  the Holding  Company was  incurring losses,  the Subsidiary Company  was making  substantial profits and that the scheme  of amalgamation  was merely  a device  to  avoid paying taxes on the income earned by the Subsidiary Company. The idea  behind the  amalgamation, according to him, was to set off  the  accumulated  losses  of  the  Holding  Company against the  profits of  the  Subsidiary  Company.  He  also raised objection  with respect to the maintainability of the writ petition  on the  ground inter alia that the Income Tax Act  provides   adequate  remedies   to  agitate   all   the contentions urged in the said writ petition.      The High  Court dismissed  the writ  petition with  the following findings: (1) The  date of amalgamation [January 1, 1982] specified in the  scheme  of  amalgamation  is  "totally  artificial  and arbitrary".  Till   the  beginning  of  December  1982,  the amalgamation was  not even  in the  contemplation of  either company. Only  in December  1982, was  the resolution of the Directors passed  proposing amalgamation.  The  shareholders meeting took  place sometime  in February  1983. The  scheme itself contemplates  that it  is subject  to and conditional upon the  scheme being sanctioned by the court under Section 391 of  the  Act  and  appropriate  orders  being  made  for implementation of  the said  scheme under  Section 394.  The scheme also  provides that its implementation is conditional upon the  shareholders holding not less than 9/10th in value of  the   shares  in   the   Subsidiary   Company   becoming shareholders of  the transferee company. In this view of the matter, specifying  the date  of amalgamation  as January 1, 1982 has  no relevance  or meaning. The amalgamation becomes effective  only  when  the  Court  approves  the  scheme  of amalgamation and  not at any earlier point of time. In other words, the  operative dates  would be  January 20,  1984 and February 24,  1984, on  which dates  the Madras and Calcutta High Courts  approved the  scheme. There  is nothing  in the orders of  Courts to  show that  the said  orders were to be effective from January 1, 1982. (2)  From   the  counter-affidavit,   it  appears  that  the Subsidiary Company  was borne  on the  register of companies upto January  21, 1986.  This shows  that the company was in existence till that date and that it did not cease to exist, as a fact, on January 1, 1982. (3)  In view  of the aforesaid findings, it is not necessary to go  into or express any opinion on the plea of the Income Tax Officer  that the  said amalgamation was merely a device to evade the payment of taxes legitimately due on the income of the  Subsidiary Company.  For the same reason, no opinion need be expressed on the objection of the Income Tax Officer with respect to the maintainability of the writ petition.      Sri N.K.  Poddar, learned  counsel for  the  appellant,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 12  

urged a  number of grounds in support of his attack upon the validity of the judgment under appeal. He submitted that the view taken  by the  Madras High  Court in  United India Life Assurance Company  v. Commissioner  of Income Tax [(1963) 49 I.T.R. 956],  which has  been followed in the judgment under appeal does  not represent  the  correct  view  of  law.  He submitted that  the contrary  view taken  by the Bombay High Court in  Commissioner of Income Tax, Pune v. Swastik Rubber Products Limited  [(1983) 140  I.T.R.304) (and  followed  in later decisions  of that Court) represents the correct view. In other  words, the contention is that inasmuch as both the Madras  and   Calcutta  High  Courts  [Company  Courts]  had approved the  scheme of  amalgamation as  it stood, it means that the scheme of amalgamation is effective from January 1, 1982. No  doubt, the  scheme states  that it  is conditional upon being  sanctioned by the Court but that only means that whenever it  is sanctioned  by  the  Court,  the  scheme  as approved takes  effect. The  scheme specifically states that the scheme  of amalgamation  is effective  from  January  1, 1982. Learned  counsel submitted that according to the well- accepted practice prevailing in this country, all schemes of amalgamation specify  a particular  date of amalgamation and unless the  court specifies  otherwise, the date provided in the scheme  of amalgamation  is taken  as the actual date of amalgamation. Counsel  submitted that  subsequent to January 1, 1982, the Subsidiary Company may have carried on business awaiting the  orders of  the  Court  but  it  could  not  do otherwise and  that the  business so carried on by it was as an agent of and for and on behalf of the Holding Company and not on  its own account. Learned counsel also submitted that no balance-sheet  was drawn  for any  period  subsequent  to January 1,  1982  for  the  Subsidiary  Company.  No  Annual General  Body  Meeting  of  shareholders  was  held  of  the Subsidiary Company  after the  said date  and that,  to  all intents and purposes, the Subsidiary Company ceased to exist as an  independent entity  on  and  from  January  1,  1982. Counsel relied upon the language of Sections 391 and 394 and on certain  decisions in  support  of  his  contention.  Sri Poddar raised  an alternate contention too, viz., if for any reason, it  is held  that the  amalgamation is not effective with effect  from February  1, 1982,  it must  be held to be effective from  February 11,1983/May  7, 1983  [the date  on which the  shareholders’ meetings  were  held].  Both  these dates are  prior to  June 30,  1983 -  the last  day of  the accounting year  [as sanctioned  by the Income Tax Officer]; since the  income of  the company can be said to accrue only at the  end of  the year when the accounts are made up - and not from day to day - it must be held that no income accrued to Subsidiary Company at the end of the said accounting year [January 1,  1982 to June 30, 1983]; the income accrued only on June 30, 1983 and it accrued only to the Holding Company.      On the  other hand, Dr. R.R. Misra, learned counsel for the Revenue,  supported the  reasoning and conclusion of the High Court.  Learned  counsel  further  submitted  that  the scheme of  amalgamation was  a  mere  device  to  evade  the payment of taxes lawfully due according to law and that this is a  good ground  on which  the Income  Tax authorities can ignore the  alleged amalgamation  even if  for any reason it can be  held that  it is  effective from  January  1,  1982. Counsel also  submitted that  the writ petition filed by the appellant ought  to have  been dismissed  summarily  on  the ground that  it was  premature and that the appellant should have been  directed to  pursue the  remedies provided by the Income Tax Act according to law. The High Court, he submits, ought not  to  have  entered  into  the  merits  of  several

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 12  

contentions raised  by the  appellant, all  of which  can be more satisfactorily gone into after the assessments are made wherein all the relevant facts could have been gathered.      Let us  first examine  the position  obtaining in  this behalf under  the Companies  Act. Sub-sections  (1). (2) and (3) of  Section 391  (relevant for  our purpose) and Section 394 read:      "S. 391.  Power  to  compromise  or      make  arrangements  with  creditors      and member.- (1) Where a compromise      or arrangement is proposed--      (a)  between   a  company  and  its      creditors or any class of them; or      (b)  between   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  s  being      wound-up, of  the liquidator, order      a meeting 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,  or  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 the meeting, agree to      any compromise  or arrangement, the      compromise 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 being wound-up,      on     the      liquidator      and      constributories 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  been  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  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  company   under      sections 235 to 251, and the like.      (3) An  order  made  by  the  Court      under sub-section (3) shall have no

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 12  

    effect until  a certified  copy  of      the order  has been  filed with the      Registrar.      S.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      mentioned 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 companies; 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  referred 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 or any part of      the   undertaking,    property   or      liabilities   of   any   transferor      company;      (iii)     the      allotment     or      appropriation  by   the  transferee      company of  any shares, debentures,      policies, or  other like  interests      in that  company which,  under  the      compromise or  arrangement, are  to      be allotted or appropriated by that      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;      (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:

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 12  

    Provided  that   no  compromise  or      arrangement   proposed    for   the      purposes of, or in connection with,      a scheme  or the  amalgamation of a      company, which  is being  wound-up,      with   any    other   company    or      companies, shall  e  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 interests of its      members or to public interest:      Provided further  that no order for      the dissolution  of any  transferor      company under  clause (iv) 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      interests  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  virtue 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  the  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’  includes  property,      rights   and    powers   of   every      description;   and    ‘liabilities’      includes    duties     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   company’

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 12  

    includes   any    body   corporate,      whether  a   company   within   the      meaning of this Act or not."      Section 394-A  provides that on every application under Section 391  or Section  394, the Court shall give notice of such application  to the  Central Government  and shall take into consideration  the representations,  if any, made to it by that government before passing any order under any of the said sections.  Rules 67  to 87  of  the  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  Forms 33  to 42  appended  to  the  Companies [Court] Rules.      The effect  and scheme of the above provisions, insofar as it is relevant 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 companies concerned. The order of the Court shall be in Form 35 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 of 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  and  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  Section 391(2) and 394 is also required to be advertised in the same newspapers in which the notice of the meeting was advertised and the  notice is also required to be served on the Central Government as provided by Section 394-A. (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 said  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-section (3) of Section 394. (h)  The order  sanctioning the  scheme is  required  to  be drawn up in accordance with Forms 41 and 42 of the companies [Court] Rules.      We may  now refer  to the  scheme  of  amalgamation  as passed at  the meetings  of the  shareholders  of  both  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 12  

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 scheme  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 expression "the operative  date" means  the date on which the certified copies of  the orders  of the  High Courts of Tamil Nadu and Calcutta under  Sections 391(2)/394(2) of the Act 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  the Transferee  Companies, the object of the scheme underlying the agreement between the parties 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  vest  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 charges  affecting the same and      on the  said date,  the  Transferor      Company shall  be amalgamated  with      the Transferee Company.      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   proceeding  the      transfer date  over its  Subscribed      and Paid  Up Capital  shall, to the      extent of  the 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    Allowance     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  and on  behalf of the      Transferee Company, and accordingly      the  Profits   and  Losses  of  the      Transferor Company  for the  period      commencing from  the Transfer  Date      shall be  deemed to  be the profits      or losses of the Transferee Company      and  shall   be  available  to  the      Transferee Company  for disposal in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 12  

    any    manner     including     the      declaration of  any dividend by 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 391  of  the  Act  and  the      appropriate       orders        for      implementation of this Scheme being      made under  Section 394  of the Act      by the  High courts  of Tamil  Nadu      and Calcutta.      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  the 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. Clause (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 one 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  becomes  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.,  January 1,  1982 is  "totally  artificial  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 January  1, 1982 but January 20, 1984/February 24, 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  Court in  Sahayanidhi (Virudhnagar) Ltd.  v. A.R.S.  Subramanivam Nadar [(1950) 20 Company Cases  214]. The  High Court  also opined  that  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 12  

decision of the Bombay High Court in Swastik Rubber Products Ltd. is  of no  assistance to  the appellant. On this basis, the High Court has upheld the validity of the notices issued by the  Income Tax  Officer, which  notices were impugned in the writ  petition, and  dismissed the  writ  petition.  The question is  whether the  view taken  by the  High Court  is correct.      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   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 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 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". 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-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 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 affect  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 the certified copies of  the   orders  of  the  court  before  the  Registrar  of Companies, the  allotment or  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].      Counsel for the Revenue contended that if the aforesaid view is  adopted when  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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 12  

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  balance- sheet. In  certain cases,  best-judgment assessment may also be resorted  to. Be that as it may, we need not purpose this line of  enquiry because it does not arise for consideration in these cases directly.      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.      For the  above reasons,  the  appeals  are  accordingly allowed. The  writ petitions  filed by  the appellant in the High Court  shall  be  deemed  to  have  been  allowed.  We, however, make  it clear  that  we  have  not  expressed  any opinion on  the plea  of the learned counsel for the Revenue that the  amalgamation itself  is a device designed to evade the taxes legitimately payable by the subsidiary company. If the Income  Tax authorities think that, they are entitled to raise this  question in the proceedings under the Income Tax Act, it  is open  to them  to do  so by  way of  a  separate proceeding according to law. No costs.