• Jan
  • 31
  • 2013

Amalgamation not comes within scope of transfer u/s. 2(47)

HIGH COURT OF KARNATAKA

Commissioner of Income-tax, Central Circle, Bangalore

Versus

Bhuwalka Steel Industries Ltd.

IT APPEAL NO. 922 OF 2006

DECEMBER 3, 2012

JUDGMENT

1. Appeal by the revenue under Section 260A of the Income Tax Act, 1961 [for short, the Act], raising the following substantial question of law:

Whether the Appellate Authorities were correct in holding that the assessee would be entitled to claim deduction over the industrial undertaking taken over from M/s. A.A. Alloys Ltd., despite the prohibition contained in sub-section (2) of Section 801 which would amount to reconstruction of already existing business or plant previously used for any purpose.

as question arising from the order dated 16-12-2005 passed by the income tax appellate tribunal, Bangalore Bench, Bangalore in ITA No 122/Bang/2003 relating to assessment year 1995-96 of the respondent-assessee company.

2. Appeal has been admitted for examination.

3. Brief facts leading to the above appeal are that: The assessee is a limited company and for the assessment year in question viz., 1995-96 i.e. accounting period from 1-4-1994 to 31-3-1995, to be precise, on 1-4-1994, an industrial undertaking which was being run in the name and style of M/s AA Alloys Ltd., a limited company, got amalgamated with the assessee company in terms of a scheme of amalgamation propounded between the assessee company and the other company before this court and which was approved by this court as per order dated 8-8-1995. There is no dispute about this factum. In its return for the accounting period relating to assessment year 1995-96, the assessee company claimed the benefit of the provisions of Section 80-I of the Act in respect of a sum of Rs. 21,90,823/- on the premise that this was the profit earned by the industrial undertaking which was hitherto being run by the amalgamating company namely M/s AA Alloys Ltd., which activity has been carried on by the assessee company on and after 1-4-1994 etc.

4. The assessing officer was of the opinion that the claim of the assessee company as had been admitted earlier was not correct and therefore reopened the assessment for the year concerned by issue of notice under Section 148 of the Act. The assessing officer was of the view that the assessee company was not eligible for the deduction under Section 80-I in view of the restriction imposed under clause (ii) of sub-section (2) of Section 80-I of the Act. Sub-section (2) of Section 80-I of the Act reads as under:

80-I. Deduction in respect of profits and gains from industrial undertakings after a certain date, etc.

(1)**

**

**

(2) This section applies to any industrial undertaking which fulfils all the following conditions, namely :-

  (i)  it is not formed by the splitting up, or the reconstruction, of a business already in existence;

 (ii)  it is not formed by the transfer to a new business of machinery or plant previously used for any purpose;

(iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India, and begins to manufacture or produce articles or things or to operate such plant or plants, at any time within the period of ten years next following the 31st day of March, 1981, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking;

(iv)  in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power :

Provided that the condition in clause (i) shall not apply in respect of any industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in Section 33-B, in the circumstances and within the period specified in that section:

Provided further that the condition in clause (iii) shall, in relation to a small-scale industrial undertaking, apply as if the words “not being any article or thing specified in the list in the Eleventh Schedule” had been omitted.

Explanation 1 – For the purposes of clause (ii) of this sub-section, any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely :-

(a)  such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India;

(b)  such machinery or plant is imported into India from any country outside India; and

(c)  no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee.

Explanation 2 – Where in the case of an industrial undertaking, any machinery or plant or any part, thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with.

Explanation 3 – For the purposes of this sub-section, “small-scale industrial undertaking” shall have the same meaning as in clause (b) of the Explanation below sub-section (8) of Section 80HHA.

While the assessing officer was of the view that it is a case of transfer of machinery to a new business, it was claim of the assessee that it was not a transfer but it was a case of amalgamation of earlier company with the assessee company and therefore not hit by the provisions of sub-section (2) of Section 80-I of the Act.

5. The assessment was finalized on such premise. The assessee company appealed on this aspect to the Commissioner of income tax (appeals) and met with success., as the Appellate Commissioner was of the view that amalgamation of a company does not come within the scope of sub-section (47) of Section 2, in the definition section of the Act, defining ‘transfer’ and therefore allowed the appeal on this aspect of the matter and held that the view taken by the assessing officer was not correct.

6. Aggrieved by this order of the Appellate Commissioner, the revenue took up the matter further by way of appeal to the income tax appellate tribunal by filing ITA No 122(Bang)/2003, amongst other aspects. The tribunal, purporting to follow the judgment of this court in the case of CIT v. Master Raghuveer Trust [1985] 151 ITR 368, took the view that amalgamation does not amount to transfer within the meaning of Section 2(47) of the Act. The tribunal further observed that the revenue’s challenge to this order by way of a special leave petition to the Supreme Court being not successful, affirmed the view taken by the Appellate Commissioner and dismissed the appeal of the revenue.

7. It is aggrieved by this order, the present appeal on the substantial question of law as already quoted above.

8. We have heard Sri G Kamaladhar, learned standing counsel for the revenue and Sri M V Javali, learned counsel for respondent-assessee.

9. Submission of Sri G Kamaladhar is that there was transfer of the assets of the erstwhile company to the assessee-company and therefore it is hit by the provisions of clause-(ii) of sub-section (2) of Section 80-I of the Act. Alternative submission is that the assessee company cannot claim a deduction under Section 80-I of the Act in respect of the income of the erstwhile company namely M/s AA Alloys Ltd. In support of such submissions, Sri Kamaladhar has placed reliance on the decision of the Supreme Court in the case of Saraswati Industrial Syndicate Ltd v. CIT [1990] 186 ITR 278.

10. However, learned standing counsel also brought to our notice and fairly submits that the Madras High Court in the case of CIT v. Silical Metallurgic Ltd. [2010] 324 ITR 29 (Mad.) has taken a view that amalgamation is not transfer within the meaning of Section 2(47) of the Act while it was examining the claim of an assessee relating to the benefits under Sections 80HH and 80-I of the Act.

11. On the other hand, learned counsel for respondent-assessee has submitted that amalgamation does not amount to transfer and such is the consistent view taken by all courts including Supreme Court and for such submission has placed reliance on the decision of this court in the case of Master Raghuveer Trust (supra). He has also placed reliance on the very decision of the Supreme Court in the case of Saraswati Industrial Syndicate Ltd (supra).

12. A perusal of the judgment of this court in Master Raghuveer Trust (supra) does indicate that the allotment of shares without consideration on amalgamation of a company in which the assessee has shareholding does not amount to transfer within the meaning of Section 2(47) of the Act for the purpose of levying capital gains tax.

13. Both learned counsel for the revenue and the assessee have placed reliance on the decision of the Supreme Court in the case ofSaraswati Industrial Syndicate (supra). We find on a perusal of this judgment that the ratio of this case only supports the view canvassed by the assessee and not as canvassed by the revenue. Moreover, in the present case, the income is only of the very assessee and not of the other company namely M/s AA Alloys Ltd., as the said company ceased to be in existence as on 1-4-1994 and there is no income attributable to this company after this date, but industrial dealing part of the assessee company and its profits and gains are to be examined and brought to tax only in the hands of the respondent-assessee company and therefore the assessee while can claim benefit of Section 80-I of the Act, if otherwise eligible, unless it is hit by non-fulfilment of any of the requirement in terms of sub-section (2) of Section 80-I of the Act.

14. On this aspect, as we have found that the amalgamation does not come within the scope of ‘transfer’ as defined in Section 2(47) of the Act and such being the view taken not only by this court, but Madras High Court and also the Supreme Court, there is no question of holding that the assessee disentitles the benefit of Section 80-I of the Act. The question framed is accordingly answered in the affirmative and therefore the appeal of the revenue is dismissed.


Leave a Reply

GET FREE EMAIL UPDATES