NEW DELHI: The Supreme Court on Tuesday held that a company does not die upon amalgamation with a transferee company which can be fastened with the income tax liabilities of the amalgamated firm depending upon the terms of amalgamation and facts of each case.
A bench comprising justices U U Lalit and S Ravindra Bhat dealt with the crucial legal question as to which firm whether a transferor or a transferee company, which died due to its amalgamation, would be liable to pay income taxes.
The bench relied upon a previous judgement and held that "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."
"Before concluding, this Court notes and holds that 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..., but would depend on the terms of the amalgamation and the facts of each case," Justice Bhat, writing the judgement, said.
The bench, which was hearing the appeal of the IT department, remanded its income tax case against Mahagun Realtors Private Limited (MRPL) to the Income Tax Appellate Tribunal (ITAT) for fresh adjudication saying it was disallowed on the ground that amalgamated company, which is not in existence, cannot be made liable.
The bench dealt with the concept of amalgamation in its judgement and said it was 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 live on but within a new corporate residence, i.e., the transferee company. It is, therefore, essential to look beyond the mere concept of the destruction of corporate entity which brings to an end or terminates any assessment proceedings," it said.
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, it said.
As per the facts of the case, MRPL had amalgamated with Mahagun India Private Limited (MIPL), and the Assessing Officer on August 11, 2011, had issued the assessment order for income of over Rs 8 crore after making several additions of Rs 6.47 crore.
The Commissioner of Income Tax partly allowed the plea of the real estate firm by setting aside some amounts brought to tax by the IT department.
It dismissed the plea of the IT department.
The ITAT and the Delhi High Court both dismissed the appeal of the IT department.