Case Law Details
Recently, the Chennai bench of Income Tax Appellate Tribunal, in the case of ACIT Vs TVS Motors Co. Ltd. [2010] 36 DTR 89 (Chennai) held that, a composite scheme of arrangement cannot be denied the tax benefits if all the conditions for amalgamation under the Income Tax Act, 1961 (the Act) are fulfilled.
Facts of the case
TVS, an Indian company held 66.07 percentage share capital of Lakshmi Auto Components Ltd (LAC). Under a composite scheme of arrangement, the rubber and plastic divisions of LAC are transferred to Sundaram Auto Components Ltd. (SAC) with effect from (w.e.f.) 1 April 2003 and LAC along with the remaining business, consisting of the engine components business, investments in equity shares of SAC (including the shares received upon slump sale) and other investments, was amalgamated with TVS w.e.f. 2 April 2003. The scheme was sanctioned by the Madras High Court vide order dated 23 March 2004.
The Assessing Officer (AO) denied the benefits of tax neutrality arising from the amalgamation of LAC with TVS. The AO observed that the scheme was only a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956 and not a true amalgamation as all the assets and liabilities were not transferred by LAC to TVS under the said scheme and hence, all conditions of section 2(1B)(i) of the Act are not fulfilled.
Based on aforesaid the AO made the following additions/ dis allowances:
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