Our scheme said the merger takes effect from 1 January but the NCLT only sanctioned it two years later. The Assessing Officer has issued notices to the transferor company for the two years in between. Which date governs?
The date specified in the scheme, unless the Court fixed another one. The Supreme Court held that every scheme of amalgamation has necessarily to provide a date with effect from which the amalgamation or transfer shall take place; that it is open to the Court while sanctioning the scheme to modify that date and prescribe such date as it thinks appropriate, in which case that date governs; but that where the Court does not prescribe any specific date and merely sanctions the scheme presented to it, it should follow that the date of amalgamation or transfer is the date specified in the scheme as the transfer date. On that footing the notices issued to the transferor company for the intervening period were not warranted in law, and the business carried on by the transferor in the meantime is to be deemed to have been carried on for and on behalf of the transferee.
Decided by the Supreme Court (B.P. Jeevan Reddy, J. and Suhas C. Sen, J.) on 1996-11-27, reported as Appeals against the judgment and order of the Madras High Court dismissing the appellant's writ petitions; counsel Sri N.K. Poddar for the appellant and Dr R.R. Misra for the Revenue; assessment years 1984-85 and 1985-86. It bears on section 139(2), section 142(1), section 2(1B) of the Income Tax Act 1961, in Assessment & Scrutiny and How Tax Law Is Read matters.
This decides who is assessed for the interregnum — the period between the transfer date in the scheme and the day the sanction order is made and filed — and that interregnum is where most of the wrong-person notices in reorganisation cases are generated. Three things in the reasoning are worth carrying. First, the Court squarely rejected the High Court's view that the appointed date was 'totally artificial and arbitrary' merely because the amalgamation was not in contemplation on that date and the scheme was conditional on sanction; it reasoned that a scheme must contain a transfer date before the application is made, that proceedings are bound to take time, and that during that time both companies may carry on business, for which schemes normally provide. Second, it pointed to the specific clause in the scheme before it — clause 6(b), providing that with effect from the transfer date the transferor shall be deemed to have carried on the business for and on behalf of the transferee — so the drafting of the scheme is doing work here and a scheme without such a clause is not on all fours. Third, and this is the part practitioners on the Revenue side should note, the Court gave the department a route: an assessment can always be made on the transferee taking into account the income of both companies, and 'probably the more advisable course' would be one assessment on the transferee taking in both companies' income together with separate PROTECTIVE assessments on both companies. Two limits. The Court expressly reserved the Revenue's plea that the amalgamation was a device to evade tax, saying it had expressed no opinion on it and that the department could raise it in separate proceedings under the Act. And the Court was construing sections 391 and 394 of the Companies Act, 1956; it says nothing about whether the scheme satisfies section 2(1B) of the Income-tax Act, and this pass did not examine the corresponding provisions of the Companies Act, 2013.
Binding on every court and authority in India.
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Marshall Sons and Company (India) Limited was the Holding Company, with its registered office in Calcutta and an accounting year ending 30 June; Marshall Sons and Company (Manufacturing) Limited was the Subsidiary Company, with its registered office in Madras and a calendar-year accounting period. On 1 December 1982 the Subsidiary Company asked the Income-tax Officer to allow a change of accounting year so as to close its accounts on 30 June 1983 for an eighteen-month period from 1 January 1982, to match the Holding Company; the Income-tax Officer permitted the change on 3 February 1983. In December 1982 the Subsidiary Company resolved to amalgamate with the Holding Company with effect from 1 January 1982. Shareholders' meetings were held and the Madras High Court sanctioned the scheme by order dated 21 November 1983 in C.P. No. 23 of 1983, the Calcutta High Court by order dated 11 January 1984 in C.P. No. 284 of 1983; certified copies were filed with the Registrars of Companies on 29 January 1984 at Madras and 24 February 1984 at Calcutta, and the Subsidiary Company's name was struck off the register at Madras on 21 January 1986. On 25 November 1984 a notice under section 139(2) was issued to the Subsidiary Company for assessment years 1984-85 and 1985-86; it replied that, the amalgamation being effective from 1 January 1982, there was no question of its filing returns. After further exchanges the Income-tax Officer issued a notice under section 142(1), and the company filed writ petitions in the Madras High Court. The Income-tax Officer's case was that the amalgamation became effective only on sanction and filing with the Registrars, that the scheme itself made it conditional on sanction and on allotment of shares (which occurred only in June 1984), and that the amalgamation was a device to set off the Holding Company's accumulated losses against the Subsidiary Company's profits. The High Court dismissed the writ petitions, holding that the date of 1 January 1982 was 'totally artificial and arbitrary', that the amalgamation became effective only on the Court's approval, and that the Subsidiary Company was on the register until 21 January 1986; it expressed no opinion on the device plea or on maintainability.
The appeals were allowed, the writ petitions filed in the High Court deemed to have been allowed, and no costs ordered. The Supreme Court held that where the Court sanctioning a scheme of amalgamation does not prescribe any specific date but merely sanctions the scheme presented to it, the date of amalgamation or transfer is the date specified in the scheme as the transfer date; that the notices issued by the Income-tax Officer, impugned in the writ petitions, were not warranted in law; and that the business carried on by the transferor company should be deemed to have been carried on for and on behalf of the transferee company, that being the necessary and logical consequence of the Court sanctioning the scheme as presented to it. The Court made it clear that it expressed no opinion on the Revenue's plea that the amalgamation was itself a device designed to evade taxes, and that the income-tax authorities were free to raise that question by way of a separate proceeding according to law.
The Court reasoned that every scheme of amalgamation must necessarily provide a date with effect from which the amalgamation or transfer shall take place, and that the scheme before it did so — 1 January 1982. While sanctioning the scheme it is open to the Court to modify that date and prescribe such date as it thinks appropriate, and if it does so that date is the date of amalgamation. But where the Court does not prescribe any specific date and merely sanctions the scheme presented to it, it should follow that the date of amalgamation is the transfer date specified in the scheme, and it cannot be otherwise: a scheme has to be framed with a transfer date before the application is made under section 391(1), the proceedings are bound to take time because of the steps required by sections 391 to 394-A and the Rules, and during that period both units may carry on business, for which schemes normally provide. In the scheme before the Court, clause 6(b) expressly provided that with effect from the transfer date the transferor company should be deemed to have carried on the business for and on behalf of the transferee company with all attendant consequences. The Courts had sanctioned the scheme and had not specified any other date as the date of transfer or amalgamation. In that situation it would not be reasonable to say that the scheme takes effect on and from the date of the order sanctioning it; the order of the Court, the filing of certified copies with the Registrar of Companies and the allotment of shares may all have taken place after the date of amalgamation, yet the date of amalgamation in the circumstances of the case would be 1 January 1982. The Court noted that this is also the ratio of the Privy Council decision in Raghubar Dayal v. The Bank of Upper India Ltd., A.I.R. 1919 P.C. 9. It answered the Revenue's apprehension that complications would follow if the Court refused to sanction a scheme by pointing out that an assessment can always be made on the transferee company taking into account the income of both companies, and that probably the more advisable course from the Revenue's point of view would be to make one assessment on the transferee taking into account the income of both companies and also to make separate protective assessments on both companies; the absence of separate balance-sheets is not an insuperable problem since an assessment can be made on the available material and, in certain cases, best-judgment assessment resorted to. Having decided the principal question, the Court found it unnecessary to consider the appellant's alternative submission.
But where the Court does not prescribe any specific date but merely sanctions the scheme presented to it - as has happened in this case - it should follow that the date of amalgamation/date of transfer is the date specified in the scheme as "the transfer date".
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Handle my notice → Ask a CA on WhatsAppThe date specified in the scheme, unless the Court fixed another one. The Supreme Court held that every scheme of amalgamation has necessarily to provide a date with effect from which the amalgamation or transfer shall take place; that it is open to the Court while sanctioning the scheme to modify that date and prescribe such date as it thinks appropriate, in which case that date governs; but that where the Court does not prescribe any specific date and merely sanctions the scheme presented to it, it should follow that the date of amalgamation or transfer is the date specified in the scheme as the transfer date. On that footing the notices issued to the transferor company for the intervening period were not warranted in law, and the business carried on by the transferor in the meantime is to be deemed to have been carried on for and on behalf of the transferee. This was decided by the Supreme Court (B.P. Jeevan Reddy, J. and Suhas C. Sen, J.) and bears on section 139(2), section 142(1), section 2(1B) of the Income Tax Act 1961. It is reported as Appeals against the judgment and order of the Madras High Court dismissing the appellant's writ petitions; counsel Sri N.K. Poddar for the appellant and Dr R.R. Misra for the Revenue; assessment years 1984-85 and 1985-86. This decides who is assessed for the interregnum — the period between the transfer date in the scheme and the day the sanction order is made and filed — and that interregnum is where most of the wrong-person notices in reorganisation cases are generated. Three things in the reasoning are worth carrying. First, the Court squarely rejected the High Court's view that the appointed date was 'totally artificial and arbitrary' merely because the amalgamation was not in contemplation on that date and the scheme was conditional on sanction; it reasoned that a scheme must contain a transfer date before the application is made, that proceedings are bound to take time, and that during that time both companies may carry on business, for which schemes normally provide. Second, it pointed to the specific clause in the scheme before it — clause 6(b), providing that with effect from the transfer date the transferor shall be deemed to have carried on the business for and on behalf of the transferee — so the drafting of the scheme is doing work here and a scheme without such a clause is not on all fours. Third, and this is the part practitioners on the Revenue side should note, the Court gave the department a route: an assessment can always be made on the transferee taking into account the income of both companies, and 'probably the more advisable course' would be one assessment on the transferee taking in both companies' income together with separate PROTECTIVE assessments on both companies. Two limits. The Court expressly reserved the Revenue's plea that the amalgamation was a device to evade tax, saying it had expressed no opinion on it and that the department could raise it in separate proceedings under the Act. And the Court was construing sections 391 and 394 of the Companies Act, 1956; it says nothing about whether the scheme satisfies section 2(1B) of the Income-tax Act, and this pass did not examine the corresponding provisions of the Companies Act, 2013. If it applies to you, the first step is this: Read the sanction order first. If the Court or Tribunal has itself fixed a date of amalgamation or transfer, that date governs and this decision does not help you.
Marshall Sons and Company (India) Limited was the Holding Company, with its registered office in Calcutta and an accounting year ending 30 June; Marshall Sons and Company (Manufacturing) Limited was the Subsidiary Company, with its registered office in Madras and a calendar-year accounting period. On 1 December 1982 the Subsidiary Company asked the Income-tax Officer to allow a change of accounting year so as to close its accounts on 30 June 1983 for an eighteen-month period from 1 January 1982, to match the Holding Company; the Income-tax Officer permitted the change on 3 February 1983. In December 1982 the Subsidiary Company resolved to amalgamate with the Holding Company with effect from 1 January 1982. Shareholders' meetings were held and the Madras High Court sanctioned the scheme by order dated 21 November 1983 in C.P. No. 23 of 1983, the Calcutta High Court by order dated 11 January 1984 in C.P. No. 284 of 1983; certified copies were filed with the Registrars of Companies on 29 January 1984 at Madras and 24 February 1984 at Calcutta, and the Subsidiary Company's name was struck off the register at Madras on 21 January 1986. On 25 November 1984 a notice under section 139(2) was issued to the Subsidiary Company for assessment years 1984-85 and 1985-86; it replied that, the amalgamation being effective from 1 January 1982, there was no question of its filing returns. After further exchanges the Income-tax Officer issued a notice under section 142(1), and the company filed writ petitions in the Madras High Court. The Income-tax Officer's case was that the amalgamation became effective only on sanction and filing with the Registrars, that the scheme itself made it conditional on sanction and on allotment of shares (which occurred only in June 1984), and that the amalgamation was a device to set off the Holding Company's accumulated losses against the Subsidiary Company's profits. The High Court dismissed the writ petitions, holding that the date of 1 January 1982 was 'totally artificial and arbitrary', that the amalgamation became effective only on the Court's approval, and that the Subsidiary Company was on the register until 21 January 1986; it expressed no opinion on the device plea or on maintainability. The matter was decided on 1996-11-27 by the Supreme Court (B.P. Jeevan Reddy, J. and Suhas C. Sen, J.). On those facts the Supreme Court held as follows. The appeals were allowed, the writ petitions filed in the High Court deemed to have been allowed, and no costs ordered. The Supreme Court held that where the Court sanctioning a scheme of amalgamation does not prescribe any specific date but merely sanctions the scheme presented to it, the date of amalgamation or transfer is the date specified in the scheme as the transfer date; that the notices issued by the Income-tax Officer, impugned in the writ petitions, were not warranted in law; and that the business carried on by the transferor company should be deemed to have been carried on for and on behalf of the transferee company, that being the necessary and logical consequence of the Court sanctioning the scheme as presented to it. The Court made it clear that it expressed no opinion on the Revenue's plea that the amalgamation was itself a device designed to evade taxes, and that the income-tax authorities were free to raise that question by way of a separate proceeding according to law.
The Court reasoned that every scheme of amalgamation must necessarily provide a date with effect from which the amalgamation or transfer shall take place, and that the scheme before it did so — 1 January 1982. While sanctioning the scheme it is open to the Court to modify that date and prescribe such date as it thinks appropriate, and if it does so that date is the date of amalgamation. But where the Court does not prescribe any specific date and merely sanctions the scheme presented to it, it should follow that the date of amalgamation is the transfer date specified in the scheme, and it cannot be otherwise: a scheme has to be framed with a transfer date before the application is made under section 391(1), the proceedings are bound to take time because of the steps required by sections 391 to 394-A and the Rules, and during that period both units may carry on business, for which schemes normally provide. In the scheme before the Court, clause 6(b) expressly provided that with effect from the transfer date the transferor company should be deemed to have carried on the business for and on behalf of the transferee company with all attendant consequences. The Courts had sanctioned the scheme and had not specified any other date as the date of transfer or amalgamation. In that situation it would not be reasonable to say that the scheme takes effect on and from the date of the order sanctioning it; the order of the Court, the filing of certified copies with the Registrar of Companies and the allotment of shares may all have taken place after the date of amalgamation, yet the date of amalgamation in the circumstances of the case would be 1 January 1982. The Court noted that this is also the ratio of the Privy Council decision in Raghubar Dayal v. The Bank of Upper India Ltd., A.I.R. 1919 P.C. 9. It answered the Revenue's apprehension that complications would follow if the Court refused to sanction a scheme by pointing out that an assessment can always be made on the transferee company taking into account the income of both companies, and that probably the more advisable course from the Revenue's point of view would be to make one assessment on the transferee taking into account the income of both companies and also to make separate protective assessments on both companies; the absence of separate balance-sheets is not an insuperable problem since an assessment can be made on the available material and, in certain cases, best-judgment assessment resorted to. Having decided the principal question, the Court found it unnecessary to consider the appellant's alternative submission. In the words reproduced by the source cited on this page: "But where the Court does not prescribe any specific date but merely sanctions the scheme presented to it - as has happened in this case - it should follow that the date of amalgamation/date of transfer is the date specified in the scheme as "the transfer date"."
It was decided by the Supreme Court on 1996-11-27 and is reported as Appeals against the judgment and order of the Madras High Court dismissing the appellant's writ petitions; counsel Sri N.K. Poddar for the appellant and Dr R.R. Misra for the Revenue; assessment years 1984-85 and 1985-86. 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(2), section 142(1), section 2(1B), 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 writ petitions filed in the High Court deemed to have been allowed, and no costs ordered. The Supreme Court held that where the Court sanctioning a scheme of amalgamation does not prescribe any specific date but merely sanctions the scheme presented to it, the date of amalgamation or transfer is the date specified in the scheme as the transfer date; that the notices issued by the Income-tax Officer, impugned in the writ petitions, were not warranted in law; and that the business carried on by the transferor company should be deemed to have been carried on for and on behalf of the transferee company, that being the necessary and logical consequence of the Court sanctioning the scheme as presented to it. The Court made it clear that it expressed no opinion on the Revenue's plea that the amalgamation was itself a device designed to evade taxes, and that the income-tax authorities were free to raise that question by way of a separate proceeding according to law. It arises in Assessment & Scrutiny and How Tax Law Is Read matters, on section 139(2), section 142(1), section 2(1B) of the Income Tax Act 1961, and was decided by B.P. Jeevan Reddy, J. and Suhas C. Sen, 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. If the order merely sanctions the scheme as presented, produce the scheme and point to the transfer date it specifies; on this decision that is the date of amalgamation. Check the scheme for a clause equivalent to clause 6(b) in this case — that from the transfer date the transferor is deemed to have carried on business for and on behalf of the transferee. The Court relied on it expressly. Do not be deflected by the dates of the order, the filing of certified copies with the Registrar of Companies, the allotment of shares, or the striking off of the transferor's name; the Court held those may all post-date the amalgamation without altering it. If you act for the Revenue, take the course the Court itself suggested: one assessment on the transferee taking in the income of both companies, with separate protective assessments on the transferor and the transferee. Keep the device or colourable-transaction allegation separate. The Court expressly expressed no opinion on it and left the department to raise it by separate proceedings under the Act. For an order issued on or after 1 April 2023, use section 170A and file the modified return in Form ITR-A within six months from the end of the month of the order rather than relying on this decision alone; and for proceedings during the pendency of the succession from 1 April 2022, check section 170(2A).
Still good law. This is the settled authority on the effective date of a court-sanctioned amalgamation and is applied in both company and tax matters; nothing in the judgment suggests doubt and I checked no later authority. Two things to check separately. The scheme here was sanctioned under sections 391 and 394 of the Companies Act 1956; the corresponding provisions are now in the Companies Act 2013 and mergers are dealt with by the National Company Law Tribunal, so a reader should read the current provisions and the sanction order itself. And the Court's proposition depends on the court not having fixed a different date, so the order in your own case must be examined before this case is applied. On a later pass this judgment was re-read in full and the entry above was rewritten from that reading. That pass ran no citator search of its own, so the label here rests on the earlier later-treatment check recorded in the first paragraph. Its own note read: Validity check could not be completed, and the label is 'unverified' rather than 'good law' for two reasons that a reader should weigh. First, I did NOT run a later-treatment search on this decision this pass; no case following, distinguishing or doubting it was located because none was looked for. Second, and more important, the Court was construing sections 391 and 394 of the Companies Act, 1956. The corresponding provisions of the Companies Act, 2013, under which schemes are now sanctioned by the National Company Law Tribunal, were NOT retrieved or read this pass, and I do not state whether they alter the position on the appointed date; that is the single most important check a later pass must run before this decision is applied to a scheme sanctioned under the 2013 Act. Note also that the Court expressly reserved the Revenue's contention that the amalgamation was a device to evade tax, so the decision is no answer to a colourable-transaction case. Nothing in this decision bears on whether a transaction is an 'amalgamation' within section 2(1B) of the Income-tax Act; the tax definition is independent of the company-law sanction and was not before the Court. 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 judgment was read in full this pass from https://indiankanoon.org/doc/1647347/?type=print, which returned what is plainly the raw report — the bench of B.P. Jeevan Reddy and Suhas C. Sen, JJ., counsel's names, and optical-recognition artefacts such as 'with affect from the transfer date' and 'we need not purpose this line of enquiry'. The operative sentence was independently corroborated through https://indiankanoon.org/docfragment/1647347/?formInput=%22but%20merely%20sanctions%20the%20scheme%20presented%20to%20it%22, which returned it in the same words. STRUCTURE, established by transcribing the whole judgment rather than by asking about it: the report has NO numbered paragraphs at all, running from the opening sentence through the High Court's three numbered FINDINGS (which are the High Court's numbering, reproduced in this judgment, and are not paragraphs of the Supreme Court's judgment) to the closing disposal and 'No costs.' No paragraph locator is or can be given for any passage in this entry, and any citation of this judgment by paragraph number should be treated as suspect. The judgment does print the statutory extract it introduces. After the words 'Let us first examine the position obtaining in this behalf under the Companies Act. Sub-sections (1). (2) and (3) of Section 391 (relevant for our purpose) and Section 394 read:' the source sets out 'S. 391. Power to compromise or make arrangements with creditors and member.- (1) Where a compromise or arrangement is proposed-- (a) between a company and its creditors or any class of them; or (b) between a company and its members or any class of them; the Court may, on the application of the company or of any creditor or member of the company, or in the case of a company which s being wound-up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the Court directs.' and continues with the rest of sections 391 and 394. That extract is the Companies Act, 1956 as reproduced in a 1996 judgment; it is legislative history, it is NOT the Companies Act, 2013, and nothing in this entry is taken from it. (An exact-phrase check on 'compromise or arrangement is proposed between a company and its creditors' returns nothing on this document because the sentence breaks into lettered clauses part-way through — a nil phrase-index return is not proof of absence.) The report also contains an internal date inconsistency in the narration of facts — it states that the Company Court at Madras sanctioned the scheme on 21 November 1983 and the Calcutta High Court on 11 January 1984, but the High Court's first finding, as reproduced, gives the operative dates as 20 January 1984 and 24 February 1984 (which are the dates certified copies were filed with the Registrars); and Sri Poddar's alternative contention is recorded once as 'February 1, 1982' where the transfer date given throughout is 1 January 1982. Those are inconsistencies in the source, they are flagged rather than smoothed over, and nothing in this entry turns on them. The Court expressly left undecided whether the amalgamation was a device to evade tax, so nothing here protects a scheme against that allegation. It also declined to consider the appellant's alternative submission, which the judgment does not set out. The observations on protective assessments were offered without deciding the point, the Court saying the line of enquiry did not directly arise. The harvested text has transcription errors, including in dates - the sanction dates appear both as 21 November 1983 and 11 January 1984, and elsewhere as 20 January 1984 and 24 February 1984 - so dates should be checked against the report at (1997) 223 ITR 809. I have not read the Madras High Court judgment or the decisions of the Bombay and Madras High Courts discussed. 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 writ petitions filed in the High Court deemed to have been allowed, and no costs ordered. The Supreme Court held that where the Court sanctioning a scheme of amalgamation does not prescribe any specific date but merely sanctions the scheme presented to it, the date of amalgamation or transfer is the date specified in the scheme as the transfer date; that the notices issued by the Income-tax Officer, impugned in the writ petitions, were not warranted in law; and that the business carried on by the transferor company should be deemed to have been carried on for and on behalf of the transferee company, that being the necessary and logical consequence of the Court sanctioning the scheme as presented to it. The Court made it clear that it expressed no opinion on the Revenue's plea that the amalgamation was itself a device designed to evade taxes, and that the income-tax authorities were free to raise that question by way of a separate proceeding according to law.
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