Landmark Cases on Company and Corporate Restructuring

A transaction of gift cannot be brought to tax. Corporations can give and accept gifts, and these are considered capital receipts, not taxable under Section 28(iv).

Once a scheme of arrangement is approved by a court and is within the bounds of the law, it is binding on tax authorities.

Section 2(22)(e) of the Income-tax Act cannot be invoked unless the assessee receiving the loan is a shareholder of the company from which the loan is received.

A payment made by a company by way of advance or loan must be understood in the context of the object of Section 2(22)(e), with the meaning of 'advance' and 'loan' being influenced by each other.

Appeals filed by a corporate debtor before the Tribunal are dismissed as infructuous when proceedings cannot continue against the corporate debtor after an NCLT order, due to the moratorium period under the IBC Code.

An assessment order passed in the name of an amalgamating company, after the amalgamation has become effective and despite the Assessing Officer being informed, is void ab initio.

An assessment framed in the name of a company that no longer exists due to amalgamation is a nullity and cannot be cured by Section 292B. The assessment proceedings are void if notice is not issued to the transferee company.

Qualified Institutional Buyers (QIBs) are to be regarded as 'Public' for the purposes of the Securities Contracts (Regulation) Rules, 1957 and SEBI Guidelines.

Proceedings against a corporate debtor cannot continue after an order by the NCLT initiating Corporate Insolvency Resolution Process (CIRP) under the Insolvency & Bankruptcy Code, 2016.

A partition of family property does not constitute a transfer, and therefore, no gift tax liability arises from an unequal partition where consideration is given in recognition of pre-existing rights.

After the Hindu Succession Act, 1956, an HUF does not automatically come into existence merely by inheriting ancestral property.

When a loan given by a company to a shareholder is treated as deemed dividend under section 2(22)(e), it is to be considered as paid out of accumulated profits and must be adjusted against them when determining accumulated profits.

An assessment framed in the name of an amalgamated and dissolved company is a procedural defect that can be cured, not a nullity.

Claims not made during the Corporate Insolvency Resolution Process (CIRP) and before the approval of a resolution plan are extinguished, and the corporate debtor starts with a clean slate post-approval, as per Section 238 of the IBC overriding other laws.

In cases of amalgamation effective during the financial year, the amalgamating company is eligible for deductions under Section 80J for the period it operated the undertaking, and the amalgamated company is eligible for deductions for the period it operated the undertaking post-amalgamation.

A family arrangement or settlement does not give rise to any income. This is because it represents the working out of existing rights among family members rather than a transfer of property.

Deemed dividend under section 2(22)(e) is taxable in the hands of an individual shareholder, not in the hands of a firm in which the shareholder is a partner, if the firm itself is not a shareholder in the lending company.

A sum set apart to redeem debentures is considered a 'provision' and not a 'reserve' when calculating the capital of an assessee company for surtax purposes, and the argument of no present liability to debenture holders is not necessarily determinative.

When two companies are merged, amalgamated, or one is absorbed into another, the amalgamating company loses its legal entity.

An assessment order passed in the name of a non-existent entity, following an amalgamation, is null and void ab initio. This is because the entity ceased to exist as a legal entity upon its merger.

The Income Tax Act, 1922, Section 2(6A)(e) requires a shareholder to be registered on the company's register of members for its provisions to apply. This principle was also considered in relation to the Income Tax Act, 1961, Section 2(22)(e).

Trade advances in the nature of commercial transactions are not considered loans or advances under section 2(22)(e), thus falling outside the purview of deemed dividend provisions.

When specific categories are added to a definition, only those additional categories are included, not others. This principle is affirmed by subsequent Supreme Court decisions.

Succession to business requires the successor to take over the whole or substantially the whole of the predecessor's business and continue it. A successor to only a part of the business, resulting from disintegration, is not considered a successor to the original business.

A company, being a juristic person, cannot claim to profess, practice, or follow any religion or faith.

Proceedings against a non-existent entity are void if the revenue was aware of the amalgamation before issuing the assessment order. The court distinguished the Mahagun Realtors case based on the facts, upholding the principle from Maruti Suzuki.

Reserves created under a scheme of amalgamation are capital in nature and do not arise from normal business activity, therefore cannot be taxed as business income. Amounts reflected in 'reserves and surplus' cannot be treated as a benefit or perquisite arising from business.

Loans or advances given by a company to shareholders are not deemed dividends under section 2(22)(e) if they are given in return for an advantage conferred on the company, such as being for business purposes like the purchase of an asset. This also applies if the payment is not out of accumulated profits or is a trade advance made as consideration for goods received or asset purchase.

Amalgamation, involving a compromise or arrangement sanctioned by the court, is a foundational basis for passing an order of amalgamation, and the subsequent acquisition of assets by the other undertaking signifies the loss of identity and ownership of the earlier concern.

The Gauhati High Court followed a previous decision regarding the transfer of assets to form an undertaking, asserting that if new plant and machinery are used and constructed for production, it is incorrect to claim prior used assets were transferred.

An active Permanent Account Number (PAN) for a non-existent entity, post-amalgamation, does not justify reassessment proceedings against that entity. The revenue cannot rely on an active PAN to dilute established legal principles regarding the assessment of merged entities.

The transaction of a partner receiving an amount on retirement from a firm, even if it involves the value of goodwill, is not a distribution of capital assets upon dissolution of the firm.

The issuance of bonus shares is merely a capitalization of profits and does not constitute a distribution of profits or a gift to shareholders, as they are essentially receiving certificates entitling them to participate in the company's reserves as part of the capital.

A scheme of demerger, even if it results in tax benefits or avoidance, can be approved if it has commercial rationale and is backed by government directives, especially for separating business assets.

Deemed dividend under Section 2(22)(e) can only be taxed in the hands of a shareholder of the lender company and not in the hands of a person who is not a shareholder. A deposit received from a company by an entity that does not own shares in the company is an inter-corporate deposit and not deemed dividend.

Current year's business profits cannot be included as part of accumulated profits for determining the amount of deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961, as such profits accrue only at the end of the accounting year.

A successful resolution applicant under the Insolvency and Bankruptcy Code cannot be faced with undecided claims after the approval of a resolution plan, as this would create uncertainty regarding payable amounts and undermine the 'clean slate' principle.

Shares bought back by a company are not considered the property of the assessee for the purpose of Section 56(2)(viia), as a company cannot hold its own shares as property.

A loan or advance from a company to a shareholder is considered a deemed dividend under Section 2(22) only if the shareholder holds shares representing 10% voting power and is the beneficial owner of those shares. If the shareholder has divested their interest in the shares, the provision is inapplicable.