Revised Returns filed belatedly after amalgamation of companies was held to be valid by the Supreme Court in view of section 170(1) of the Income Tax Act
ABCAUS Case Law Citation:
ABCAUS 3199 (2019) (12) SC
Important case law relied upon by the parties:
Marshall Sons & Co. (India) Ltd. v. ITO (1997) 2 SCC 302
Kailash v Nankhu (2005) 4 SCC 480;
State of Punjab v Shamlal Murari (1976) 1 SCC 719
National Thermal Power Co. Ltd. v. Commissioner of Income Tax, (1997) 7 SCC 489
In the instant case, the question before the Hon’ble Supreme Court was whether the Income Tax Department ought to have permitted the assessee companies to file the revised Income Tax Returns for the relevant Assessment Year after the expiry of the due date prescribed under Section 139(5) of the Income Tax Act, 1961 (the Act) on account of the pendency of proceedings for amalgamation of the assessee companies with other companies in the group under Sections 230/232 of the Companies Act, 2013?
In the said case, both the appellant companies (Transferee Companies /Amalgamated Companies) had filed their original Return of Income u/s 139 (1) of the Act. Subsequently they entered into Schemes of Arrangement and Amalgamation with 9 companies (Transferor Companies/ Amalgamating Companies).
The Schemes were duly approved and sanctioned by the NCLT.
Later, the Appellants/ Transferee Companies manually filed revised Returns of Income with the IT Department after the Schemes were sanctioned and approval was granted by the NCLT. The revised Returns were based on the revised and modified computation of total income and tax liability of the Transferor/Amalgamated Companies. In the revised Returns of Income, the Appellants claimed losses in the current year to be carried forward.
Though the ITD initially issued a Notice under Section 143(2) of the Act to give effect to the approval of the Scheme, it vide order recalled the Notice on the ground that the Appellants had belatedly filed their revised Returns without obtaining permission from the CBDT for condonation of delay u/s 119(2)(b) of the Act read with CBDT Circular No. 9/2015 dated 09.06.2015.
The Single Judge of the Hon’ble High Court allowing the Writ Petitions filed by the Appellants quashed the Order passed by the Department. The Single Judge held that Clause 64(c) of the Scheme enabled the Appellants to file their revised Returns beyond the prescribed period under the Income Tax Act. The Department could not override an approved Scheme of Arrangement and Amalgamation, which has statutory force, by rejecting the revised Returns of Income filed by the Appellants as being invalid.
However, the Division Bench of the High Court reversed the Judgment of the Single Judge. The Division Bench directed the Appellants to comply with the procedure for filing belated revised Returns of Income.
Aggrieved by the Judgment of the Division Bench, the Appellants had filed common Civil Appeals before the Hon’ble Supreme Court.
The Hon’ble Supreme Court went through the Clause 63(c) and 64(c) of the Scheme of Arrangement and Amalgamation, Section 230 of the Companies Act 2013, Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.
Revised Returns filed belatedly after amalgamation of companies valid
The Hon’ble Supreme Court observed that with effect from the appointed date, the Transferor /Amalgamating Companies ceased to exist, and the assets, profits and losses etc. were transferred to the books of the Appellants/ Transferee Companies/Amalgamated Companies.
The Hon’ble Supreme Court also noted that the Schemes incorporated provisions for filing the revised Returns beyond the prescribed time limit since the Schemes would come into force retrospectively from the Appointed Date. Accordingly, the appellants filed their Revised Returns belatedly. The recomputation would have a bearing on the total income of the Appellants particularly on matters in relation to carrying forward losses, unabsorbed depreciation etc
The Hon’ble Supreme Court opined that the section 139(5) of the Act was not applicable to the facts and circumstances of the case since the revised Returns were not filed on account of an omission or wrong statement or omission contained therein. The delay occurred on account of the time taken to obtain sanction of the Schemes of Arrangement and Amalgamation from the NCLT. It was impossible for the appellants to file revised returns before the due date.
With regard to the contention of the Department that the Appellants ought to have made a representation to CBDT u/s 119(2)(b) of the Act for condonation of delay while filing revised Returns, The Hon’ble Supreme Court opined that Section 119(2)(b) is applicable in cases of genuine hardship to admit an application, claim any exemption, deduction, refund or any other relief under the Act after the expiry of the stipulated period.
The Hon’ble Supreme Court stated that a plain reading of Section 119(2)(b), shows that this provision would not be applicable where an assessee has restructured their business, and filed a revised Return of Income with the prior approval and sanction of the NCLT, without any objection from the Department.
The Hon’ble Supreme Court reiterated that Rules of procedure have been construed to be the handmaiden of justice. The purpose of assessment proceedings is to assess the tax liability of an assessee correctly in accordance with law
The Hon’ble Supreme Court further stated that subsection (1) of Section 170 of the Act makes it clear that it is incumbent upon the Department to assess the total income of the successor in respect of the previous assessment year after the date of succession. In the present case, the predecessor companies/transferor companies had been succeeded by the Appellants/ transferee companies who had taken over their business along with all assets, liabilities, profits and losses etc.
The Hon’ble Supreme Court held that in view of the provisions of Section 170(1) of the Income Tax Act, the Department was required to assess the income of the Appellants after taking into account the revised Returns filed after amalgamation of the companies.
The Hon’ble Supreme Court held that the Single Judge had rightly allowed the Writ Petitions of the appellants. Accordingly the impugned Judgment passed by the Division Bench was set aside and the judgment passed by the Single Judge was restored..
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