Facts
As per the Scheme, about 9 companies merged with 2 companies. The Appointed Date of the Schemes was 01.01.2015. The Schemes were duly approved and sanctioned by the NCLT, Guwahati vide Orders dated 18.05.2017 and 30.08.2017. NCLT, Chennai sanctioned the Schemes vide Orders dated 16.10.2017, 20.10.2017, 26.10.2017, 28.12.2017, 10.01.2018, 20.04.2018 and 01.05.2018.
Transferee Companies manually filed revised Returns of Income for AY 2016-17 on 27.11.2018. The revised Returns were based on the revised and modified computation of total income and tax liability of the Transferor/Amalgamated Companies. Revised Returns were filed claiming losses, beyond time limit of sec 139(5) i.e.31.03.2018.
The assessee companies submitted that the revised Returns were filed after the due date for filing revised Returns of Income under section 139(5), since the NCLT passed the final Order on 1-5-2018. Consequently, it was an impossibility to file the revised Returns before the prescribed date of 31-3-2018.
The AO initially issued notices under sec 143(2) but later recalled notice vide Order dated 05.12.2018 saying returns are non est. The AO contended that the appellants had belatedly filed their revised Returns without obtaining permission from the Central Board of Direct Taxes (CBDT) for condonation of delay under section 119(2)(b), read with CBDT Circular No. 9/2015, dated 9-6-2015.
The Appellants filed Writ Petitions before the Madras High Court praying for quashing of the Order, dated 5-12-2018, and for a direction to the Department to complete the assessment after taking into account the revised Income Tax Returns filed on 27-11-2018.
The Single Judge of Madras HC allowed the Writ Petitions filed by the appellants, directed the Department to receive the revised Returns filed pursuant to the approval of the Schemes of Arrangement and Amalgamation by the NCLT, and complete the assessment. On appeal, a Division Bench of the Madras High Court reversed the Judgment of the Single Judge.
The Supreme Court held as follows:
Scheme as sanctioned provided that transferee companies are entitled to file revised Returns of Income, after the prescribed time limit for filing or revising the returns had lapsed, without incurring any liability on account of interest, penalty or any other sum
Section 230(5) of the Companies Act, 2013 requires that a notice of the meeting under sub-section (3) of Section 230 along with all the documents pertaining to the scheme, shall be sent to the Central Government, and statutory authorities such as the Income Tax Department, RBI, SEBI, ROC etc. and such other sectoral regulators or authorities, which are likely to be affected by the compromise or arrangement.
The statutory authorities could raise objections within 30 days from the date of receipt of the notice, failing which, it would be presumed that they had no representation to make on the proposed schemes of compromise, arrangements and amalgamations. Rule 8(3) of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 provides that any representation made to the statutory authorities notified under Section 230(5), shall be sent to the NCLT within a period of thirty days from the date of receipt of such notice, and a copy of such representation shall simultaneously be sent to the concerned companies.
In case no representation is received within thirty days, it shall be presumed that the statutory authorities have no representation to make on the proposed scheme of compromise or arrangement. The Department did not raise any objection within the stipulated period of 30 days despite service of notice.
The Supreme Court observed that the Department did not raise any objection within the stipulated period of 30 days despite service of notice.
The Supreme Court observed that on sanction of Schemes by the NCLT, Schemes attained statutory force {J.K. (Bom.) (P.) Ltd. v. New Kaiser-I-Hind Spg. & Wvg. Co. Ltd. [1970] 40 Comp. Cas. 689} not only inter se the Transferor and Transferee Companies, but also in rem, since there was no objection raised either by the statutory authorities, the Department, or other regulators or authorities, likely to be affected by the Schemes.
The Supreme Court observed that the Appointed Date as per the Schemes was 1-1-2015. Consequently, the Transferor/Amalgamating Companies ceased to exist with effect from the Appointed Date, and the assets, profits and losses etc. were transferred to the books of the appellants/Transferee Companies/Amalgamated Companies.
The Supreme Court held that section 139(5) which will apply in the case of omission or a wrong statement and it would not apply to the instant case. The delay occurred on account of the time taken to obtain sanction of the Schemes of Arrangement and Amalgamation from the NCLT.
The Supreme Court observed that in the facts of the instant case, it was an impossibility for the assessee companies to have filed the revised Returns of Income for AY 2016-17, before the due date of 31-3-2018, since the NCLT had passed the last orders granting approval and sanction of the Schemes only on 22-4-2018 and 1-5-2018.
The Supreme Court also rejected the contention of the Department that the appellants ought to have made a representation to the Board under section 119(2)(b) for condonation of delay while filing the revised Returns. The SC held that the provisions of section 119(2)(b), 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 SC observed 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.
Referring to the provisions of section 170(1), the Supreme Court held tat the Department is required to assess the income of the appellants after taking into account the revised Returns filed after amalgamation of the companies.
The Supreme Court finally concluded that the Department is directed to receive the revised Returns of Income for AY 2016-17, filed by the appellants and complete the assessment for assessment year 2016-17, after taking into account the Schemes of Arrangement and Amalgamation as sanctioned by the NCLT.
Comments:
Some important findings of SC in this case:
- Court recognises the principle – lex non cogid ad impossibilia.
- Amalgamation is covered by Section 170.
- When the department does not object in the course of amalgamation, it is estopped from raising objections subsequently.
- Provisions of Section 119(2)(b) would not to apply in case of business restructuring and assessee can file return manually even post time limit.
- The purpose of assessment proceedings is to assess the tax liability of an assessee correctly in accordance with law