Our amalgamation was sanctioned long after the deadline for a revised return. Must the department accept revised returns filed to give effect to the scheme?
Yes. The Supreme Court held that the department must receive the revised returns for assessment year 2016-17 and complete the assessment taking the sanctioned schemes into account. Section 139(5) did not apply, because the returns were not revised on account of an omission or wrong statement but because of the time taken to obtain the NCLT's sanction, and it was an impossibility to file them by the due date. Section 119(2)(b) and the Board's circular on condonation do not apply where the assessee has restructured with the prior approval of the NCLT and the department raised no objection. Section 170(1) required the successor to be assessed accordingly.
Decided by the Supreme Court (Supreme Court of India - Uday Umesh Lalit and Indu Malhotra JJ; judgment by Indu Malhotra J) on 2019-12-18, reported as AIRONLINE 2019 SC 1924; (2020) 1 SCALE 259; Civil Appeal Nos. 9496-99 of 2019 arising out of SLP (C) Nos. 19678-681 of 2019. It bears on section 139(5), section 119(2)(b), section 170(1), section 143(2) of the Income Tax Act 1961, in Assessment & Scrutiny matters.
This is the answer to the department's standard objection that a post-amalgamation revised return is time barred and needs the Board's condonation. The Court's reasoning gives the taxpayer three separate footings. First, section 139(5) is about the assessee's own omission or wrong statement and simply does not cover a return revised to give effect to a court-sanctioned scheme. Second, silence has consequences: notice of the scheme goes to the income tax authorities under section 230(5) of the Companies Act, and if no representation is made within thirty days it is presumed there is none, so a scheme sanctioned without objection binds in rem. Third, section 170(1) obliges the department to assess the successor on the income after the date of succession, which on Marshall Sons is the appointed date in the scheme. The Court also invoked the principle that rules of procedure are the handmaiden of justice and that the purpose of assessment is to determine liability correctly.
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Dalmia Power Limited and Dalmia Cement (Bharat) Limited filed original returns for assessment year 2016-17 on 30 September and 30 November 2016, declaring a loss of Rs 6,34,33,806 and nil income respectively. To restructure their businesses they entered into four interconnected schemes of arrangement and amalgamation with nine transferor companies, the appointed date being 1 January 2015 and the effective date 30 October 2018. Company petitions were transferred to the National Company Law Tribunal, which sanctioned the schemes by orders of the Guwahati bench on 18 May and 30 August 2017 and of the Chennai bench on various dates ending 20 April and 1 May 2018. Notices under section 230(5) of the Companies Act, 2013 had been served on the department, which raised no objection within thirty days. The appellants filed revised returns manually on 27 November 2018, claiming carried forward losses of Rs 2,44,11,837 and Rs 1105,93,91,494. The department issued a notice under section 143(2) on 4 December 2018 and recalled it the next day on the ground that condonation under section 119(2)(b) with the Board's circular of 9 June 2015 had not been obtained. A single judge of the Madras High Court quashed that order on 30 April 2019 and directed the department to receive the revised returns; a Division Bench reversed him on 4 July 2019, holding the scheme clause merely enabling and requiring compliance with the statutory procedure. The assessees appealed.
The appeals were allowed. The Division Bench's judgment of 4 July 2019 was set aside and the single judge's judgment of 30 April 2019 restored. The department was directed to receive the revised returns of income for assessment year 2016-17 and to complete the assessment for that year after taking into account the schemes of arrangement and amalgamation sanctioned by the National Company Law Tribunal. Section 139(5) was held inapplicable because the returns were not revised on account of an omission or wrong statement, the delay having occurred through the time taken to obtain sanction, and it was an impossibility to have filed by 31 March 2018 when the final sanction orders came in April and May 2018. Section 119(2)(b), which is for admitting an application or claim in cases of genuine hardship, was held inapplicable where an assessee has restructured its business and filed a revised return with the prior approval and sanction of the Tribunal and without objection from the department. Under section 170(1) the department is required to assess the income of the successor after taking the revised returns into account.
The Court began with the tax clauses of the schemes, which expressly entitled the transferee companies to file or revise their income tax and other returns as required to give effect to the schemes even if the prescribed time limits had lapsed, and without liability to interest, penalty or any other sum. It then set out the statutory machinery for notice: section 230(5) of the Companies Act, 2013 requires notice of the meeting with all documents to go to the Central Government and to the income tax authorities and other regulators, with representations to be made within thirty days, failing which it is presumed there are none; Rule 8(3) of the 2016 rules is to the same effect. The department received notice and raised no objection, so the schemes on sanction attained statutory force not only between the companies but in rem, and the amalgamating companies lost their separate identity and ceased to exist. On the date from which that operates, the Court applied Marshall Sons & Co: every scheme must provide a date from which the transfer takes place, and where the court merely sanctions the scheme presented, that transfer date is the date of amalgamation - and the assessment of the transferee must take into account the income of both transferor and transferee. Applying that, the transferors ceased to exist from 1 January 2015 and their assets, profits and losses passed to the appellants, so the recomputation bore on carried forward losses and unabsorbed depreciation. Reading section 139(5) as it then stood, the Court held it addressed to an omission or wrong statement discovered by the assessee, which was not this case. Reading section 119(2)(b), it held the power one to admit a late application or claim for exemption, deduction, refund or other relief in cases of genuine hardship, and not apt here. It added that rules of procedure are the handmaiden of justice and that the purpose of assessment proceedings is to assess the liability of an assessee correctly in accordance with law, and that section 170(1) made it incumbent on the department to assess the successor on the income after the date of succession.
it was an impossibility for the assessee companies to have filed the revised Returns of Income for the A.Y. 2016-2017 before the due date
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Handle my notice → Ask a CA on WhatsAppYes. The Supreme Court held that the department must receive the revised returns for assessment year 2016-17 and complete the assessment taking the sanctioned schemes into account. Section 139(5) did not apply, because the returns were not revised on account of an omission or wrong statement but because of the time taken to obtain the NCLT's sanction, and it was an impossibility to file them by the due date. Section 119(2)(b) and the Board's circular on condonation do not apply where the assessee has restructured with the prior approval of the NCLT and the department raised no objection. Section 170(1) required the successor to be assessed accordingly. This was decided by the Supreme Court (Supreme Court of India - Uday Umesh Lalit and Indu Malhotra JJ; judgment by Indu Malhotra J) and bears on section 139(5), section 119(2)(b), section 170(1), section 143(2) of the Income Tax Act 1961. It is reported as AIRONLINE 2019 SC 1924; (2020) 1 SCALE 259; Civil Appeal Nos. 9496-99 of 2019 arising out of SLP (C) Nos. 19678-681 of 2019. This is the answer to the department's standard objection that a post-amalgamation revised return is time barred and needs the Board's condonation. The Court's reasoning gives the taxpayer three separate footings. First, section 139(5) is about the assessee's own omission or wrong statement and simply does not cover a return revised to give effect to a court-sanctioned scheme. Second, silence has consequences: notice of the scheme goes to the income tax authorities under section 230(5) of the Companies Act, and if no representation is made within thirty days it is presumed there is none, so a scheme sanctioned without objection binds in rem. Third, section 170(1) obliges the department to assess the successor on the income after the date of succession, which on Marshall Sons is the appointed date in the scheme. The Court also invoked the principle that rules of procedure are the handmaiden of justice and that the purpose of assessment is to determine liability correctly. If it applies to you, the first step is this: Write the tax clause into the scheme itself, expressly permitting the filing or revision of returns after the prescribed time limits, and take the appointed date seriously - it is the date of succession.
Dalmia Power Limited and Dalmia Cement (Bharat) Limited filed original returns for assessment year 2016-17 on 30 September and 30 November 2016, declaring a loss of Rs 6,34,33,806 and nil income respectively. To restructure their businesses they entered into four interconnected schemes of arrangement and amalgamation with nine transferor companies, the appointed date being 1 January 2015 and the effective date 30 October 2018. Company petitions were transferred to the National Company Law Tribunal, which sanctioned the schemes by orders of the Guwahati bench on 18 May and 30 August 2017 and of the Chennai bench on various dates ending 20 April and 1 May 2018. Notices under section 230(5) of the Companies Act, 2013 had been served on the department, which raised no objection within thirty days. The appellants filed revised returns manually on 27 November 2018, claiming carried forward losses of Rs 2,44,11,837 and Rs 1105,93,91,494. The department issued a notice under section 143(2) on 4 December 2018 and recalled it the next day on the ground that condonation under section 119(2)(b) with the Board's circular of 9 June 2015 had not been obtained. A single judge of the Madras High Court quashed that order on 30 April 2019 and directed the department to receive the revised returns; a Division Bench reversed him on 4 July 2019, holding the scheme clause merely enabling and requiring compliance with the statutory procedure. The assessees appealed. The matter was decided on 2019-12-18 by the Supreme Court (Supreme Court of India - Uday Umesh Lalit and Indu Malhotra JJ; judgment by Indu Malhotra J). On those facts the Supreme Court held as follows. The appeals were allowed. The Division Bench's judgment of 4 July 2019 was set aside and the single judge's judgment of 30 April 2019 restored. The department was directed to receive the revised returns of income for assessment year 2016-17 and to complete the assessment for that year after taking into account the schemes of arrangement and amalgamation sanctioned by the National Company Law Tribunal. Section 139(5) was held inapplicable because the returns were not revised on account of an omission or wrong statement, the delay having occurred through the time taken to obtain sanction, and it was an impossibility to have filed by 31 March 2018 when the final sanction orders came in April and May 2018. Section 119(2)(b), which is for admitting an application or claim in cases of genuine hardship, was held inapplicable where an assessee has restructured its business and filed a revised return with the prior approval and sanction of the Tribunal and without objection from the department. Under section 170(1) the department is required to assess the income of the successor after taking the revised returns into account.
The Court began with the tax clauses of the schemes, which expressly entitled the transferee companies to file or revise their income tax and other returns as required to give effect to the schemes even if the prescribed time limits had lapsed, and without liability to interest, penalty or any other sum. It then set out the statutory machinery for notice: section 230(5) of the Companies Act, 2013 requires notice of the meeting with all documents to go to the Central Government and to the income tax authorities and other regulators, with representations to be made within thirty days, failing which it is presumed there are none; Rule 8(3) of the 2016 rules is to the same effect. The department received notice and raised no objection, so the schemes on sanction attained statutory force not only between the companies but in rem, and the amalgamating companies lost their separate identity and ceased to exist. On the date from which that operates, the Court applied Marshall Sons & Co: every scheme must provide a date from which the transfer takes place, and where the court merely sanctions the scheme presented, that transfer date is the date of amalgamation - and the assessment of the transferee must take into account the income of both transferor and transferee. Applying that, the transferors ceased to exist from 1 January 2015 and their assets, profits and losses passed to the appellants, so the recomputation bore on carried forward losses and unabsorbed depreciation. Reading section 139(5) as it then stood, the Court held it addressed to an omission or wrong statement discovered by the assessee, which was not this case. Reading section 119(2)(b), it held the power one to admit a late application or claim for exemption, deduction, refund or other relief in cases of genuine hardship, and not apt here. It added that rules of procedure are the handmaiden of justice and that the purpose of assessment proceedings is to assess the liability of an assessee correctly in accordance with law, and that section 170(1) made it incumbent on the department to assess the successor on the income after the date of succession. In the words reproduced by the source cited on this page: "it was an impossibility for the assessee companies to have filed the revised Returns of Income for the A.Y. 2016-2017 before the due date"
It was decided by the Supreme Court on 2019-12-18 and is reported as AIRONLINE 2019 SC 1924; (2020) 1 SCALE 259; Civil Appeal Nos. 9496-99 of 2019 arising out of SLP (C) Nos. 19678-681 of 2019. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 139(5), section 119(2)(b), section 170(1), section 143(2), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeals were allowed. The Division Bench's judgment of 4 July 2019 was set aside and the single judge's judgment of 30 April 2019 restored. The department was directed to receive the revised returns of income for assessment year 2016-17 and to complete the assessment for that year after taking into account the schemes of arrangement and amalgamation sanctioned by the National Company Law Tribunal. Section 139(5) was held inapplicable because the returns were not revised on account of an omission or wrong statement, the delay having occurred through the time taken to obtain sanction, and it was an impossibility to have filed by 31 March 2018 when the final sanction orders came in April and May 2018. Section 119(2)(b), which is for admitting an application or claim in cases of genuine hardship, was held inapplicable where an assessee has restructured its business and filed a revised return with the prior approval and sanction of the Tribunal and without objection from the department. Under section 170(1) the department is required to assess the income of the successor after taking the revised returns into account. It arises in Assessment & Scrutiny matters, on section 139(5), section 119(2)(b), section 170(1), section 143(2) of the Income Tax Act 1961, and was decided by Supreme Court of India - Uday Umesh Lalit and Indu Malhotra JJ; judgment by Indu Malhotra J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Keep proof that notice under section 230(5) was served on the income tax authorities and that no representation was made within thirty days; that is what made the scheme unanswerable here. File the revised return promptly after the sanction order and be able to show the chronology, in particular that the sanction came after the section 139(5) date. Do not concede that a condonation application under section 119(2)(b) is the only route; take the point that the provision is about genuine hardship in admitting a claim and is not engaged where the NCLT has sanctioned the restructuring.
Still good law. A reportable Supreme Court judgment of December 2019; the harvested page records it as cited in 6 later decisions, which I have not read. Note that the Court construed section 139(5) as it stood at the relevant time, when a revised return could be filed within one year from the end of the assessment year; the time limit has since been shortened, and section 170 has also been amended, so the statutory text for a later year must be checked. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The Court's conclusion rests on two features of this case that will not always be present: the schemes themselves contained express clauses permitting late filing or revision of returns, and the department, though served with notice under section 230(5), raised no objection within thirty days. The judgment does not decide what follows where either is absent. It also gives no direction on the merits of the claims made in the revised returns - the carried forward losses and unabsorbed depreciation are left to the assessment. The manual rather than electronic filing point was decided by the single judge whose judgment was restored, and is not separately reasoned in this judgment. The batch line listed sections 2(1B) and 230 to 232 of the Companies Act, which form the background but are not what the Court construed. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were allowed. The Division Bench's judgment of 4 July 2019 was set aside and the single judge's judgment of 30 April 2019 restored. The department was directed to receive the revised returns of income for assessment year 2016-17 and to complete the assessment for that year after taking into account the schemes of arrangement and amalgamation sanctioned by the National Company Law Tribunal. Section 139(5) was held inapplicable because the returns were not revised on account of an omission or wrong statement, the delay having occurred through the time taken to obtain sanction, and it was an impossibility to have filed by 31 March 2018 when the final sanction orders came in April and May 2018. Section 119(2)(b), which is for admitting an application or claim in cases of genuine hardship, was held inapplicable where an assessee has restructured its business and filed a revised return with the prior approval and sanction of the Tribunal and without objection from the department. Under section 170(1) the department is required to assess the income of the successor after taking the revised returns into account.
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