THE COMMISSIONER OF INCOME-TAX vs M/S. INDUS FILA LTD

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 18TH DAY OF SEPTEMBER 2020

PRESENT

THE HON’BLE MR. JUSTICE ALOK ARADHE

AND

THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD

I.T.A. NO.431 OF 2012 BETWEEN:

THE COMMISSIONER OF INCOME TAX

C.R. BUILDINGS, QUEENS ROAD

BANGALORE.

THE DY. COMMISSIONER OF INCOME TAX

CIRCLE-11(4), C.R. BUILDINGS

QUEENS ROAD, BANGALORE. ... APPELLANTS (BY Mr. K.V. ARAVIND, ADV.,)

AND:

M/S. INDUS FILA LTD., NO.107, INDUSTRIAL SUBURB II STAGE, YESHWANTHPUR BANGALORE-560022. ... RESPONDENT (BY Mr. S. PARTHASARATHI, ADV., A/W Ms. JINEETHA CHATTERJEE, ADV.,) - - -

THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 31.07.2012 PASSED IN ITA NO.1193/BANG/2011 FOR THE ASSESSMENT YEAR 2008-09, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO: (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN.

(I) ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY ITAT, BANGALORE IN ITA NO.1193/BANG/2011 DATED 31-07-2012 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-11(1), BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY.

THIS ITA COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING:

JUDGMENT

This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2008-09. The appeal was admitted by a bench of this Court vide order dated 19.02.2013 on the following substantial question of law: (i) Whether the Appellate Authorities were correct in allowing set off of losses of amalgamating company (M/s. Tulip Apparel) against the profits of assessee amalgamated company amounting to Rs.31.26 crores when the assessee has not substantiated the genuineness business purpose of amalgamation when the amalgamation was

approved by the transferee company on 31-01-2009 and the effect of amalgamation was from 31-03-2008 and recorded a perverse finding? (ii) Whether the Appellate Authorities were correct in holding that the set off of losses is permissible when both the companies have claimed the set off of same losses in their respective returns amounting to double claim of set off of same loss contrary to the provisions of the Act, and recorded an perverse finding?.

(iii) Whether the Appellate Authorities were correct in not examining the fact that no return was revised after the amalgamation by clubbing the books of accounts, P & L account and the financial statements and Form 62 was not filed as required u/s. 72A of the Act, and recorded a perverse finding?.”

Facts leading to filing of the appeal briefly stated are that assessee is in the business of manufacturing ready made garments. The assessee filed the return of income on 31.03.2009 for Assessment Year

2008-09 declaring income as ‘NIL’ after setting off, of loss of Rs.31,36,33,145/- in respect of M/s Tulip Apparels Private Limited, the amalgamating company. The Assessing Officer by an order dated 21.12.2010 inter alia did not accept the contention of the assessee that effective date of amalgamation was 31.03.2008. It was further held that amalgamating company got merged with the assessee only after 06.02.2010 i.e., the date on which the scheme of amalgamation was approved. The Assessing Officer therefore, disallowed the claim of set off of loss of M/s Tulip Apparel Private Limited under Section 72(A) of the Act. The assessee filed an appeal before the Commissioner of Income Tax (Appeals), who by an order dated 21.12.2010 inter alia held that effective date of amalgamation is 31.03.2008 and the addition made by the Assessing Officer was deleted. The appeal preferred by the assessee was allowed.

The revenue thereupon filed an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal' for short). The Tribunal by an order dated 31.07.2012 inter alia held that amalgamation takes effect from the appointed day as mentioned in the scheme of amalgamation. It was further held that finding of the Assessing Officer that scheme of amalgamation is a device to avoid taxes is without any basis and is in the realm of surmises and conjectures. It was held that the amalgamation is deemed to have been effected on 31.03.2008 and therefore, the claim of the assessee for set off is required to be allowed. Accordingly, the appeal preferred by the revenue was dismissed. In the aforesaid factual background, the revenue has preferred this appeal.

Learned counsel for the revenue submitted that in order to claim the benefit of Section 72A of the Act, the conditions prescribed in Section 72A(2)(b)(iii) have to be complied with and in the instant case, the

assessee failed to comply with the aforesaid conditions inasmuch as neither requirements contained in Rule 9C of the Income Tax Rules were complied with nor Form No.62 was submitted. It is also urged that as a consequence of amalgamation, revised return ought to have been filed and the only object of amalgamation was to evade payment of tax. It is further submitted that amalgamation of the companies was not for business purposes. It is also submitted that neither the Commissioner of Income Tax (Appeals) nor the Income Tax Appellate Tribunal has considered the issue whether or not the assessee had complied with the requirements of Rule 9C of the Rules, which is a mandatory requirement. In support of aforesaid contention, learned counsel for the revenue has placed reliance on division bench decision of this court in ‘COMMISSIONER OF INCOME-TAX, BELGAUM VS. SADASHIVA SUGARS LTD.’, (2017) 80 TAXMANN.COM 352 (KARNATAKA).

On the other hand, learned counsel for the assessee submitted that Commissioner of Income Tax (Appeals) as well as the Tribunal have concurrently held that the date of amalgamation is 31.03.2008. Attention of this court has also been invited to minutes of meeting of Board of Directors dated 11.03.2008. It is also pointed out that information with regard to amalgamation was given to Bombay Stock Exchange Limited as well as National Stock Exchange Limited on 12.03.2008. It is also pointed out that the scheme approved by this court mentions the appointed date as 31.03.2008, which has to be accepted as date of amalgamation. Learned counsel for the assessee has also referred to Section 230(5) of the Companies Act. It is also argued that there is no non compliance with provisions of Section 72A(2)(b)(iii) of the Act. In support of aforesaid submissions, reliance has been placed on decisions in ‘ENGINEERING INDS. LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX’, (2013) 218

TAXMAN 0259 (KARNATAKA), ‘MARSHALL SONS & CO. (INDIA) LTD. VS INCOME TAX OFFICER’, (1997) 223 ITR 0809, ‘ORISSA MINING CORPORATION LTD. VS. COMMISSIONER OF INCOME TAX’, (2007) 293 ITR 0502.

We have considered the submissions made by learned counsel for the parties and have perused the record. Before proceeding further, it is apposite to take note of relevant extract of the provisions viz., Section 72A(1)(2) & (3), which read as under: Provisions relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in amalgamation or demerger, etc. 72A. (1) Where there has been an amalgamation of— (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) 45 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 47 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.

Thus, from perusal of the aforesaid provision, it is axiomatic that in order to claim benefit of set off, of accumulated loss, the amalgamated company has to satisfy the conditions laid down in 71A(2)(a)(b) and (c). It is pertinent to note that Sub-Section (2) starts with a non obstante clause. In other words, it shall have effect notwithstanding other provisions of the Act. Thus, the compliance with the conditions prescribed in Section 71A(2) of the Act is mandatory. However, it is pertinent

to mention here that the Tribunal has not adverted to the aforesaid aspect of the issue and has not satisfied itself whether the assessee has complied with the conditions laid down in Section 71A(2) of the Act is sine qua non, to enable the assessee to claim the benefit of the set off under Section 71A of the Act. Since, the aforesaid aspect requires factual adjudication, therefore, we deem it appropriate to remit the matter to the Tribunal afresh for adjudication.

In view of preceding analysis, it is not necessary to answer the substantial questions of law framed by this court. In the result, the order passed by the Income Tax Appellate Tribunal is hereby quashed and the matter is remitted to the Tribunal to decide the issue afresh in the light of observations made in this order.

In the result, the appeal is disposed of.

Sd/- JUDGE

Sd/- JUDGE ss

THE COMMISSIONER OF INCOME-TAX vs. M/S. INDUS FILA LTD