Section 391 and 394 of the Companies Act, 1956 — the law in short
What the courts have decided on section 391 and 394 of the Companies Act, 1956, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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Saraswati Industrial Syndicate Ltd v CIT
Supreme CourtHelps taxpayerSuperseded by amendment
A company we absorbed by amalgamation had been allowed a trading liability as a deduction. When that liability ceased in our hands, can section 41(1) tax us on it?
No, on the section as it then stood. The Supreme Court held that section 41(1) taxes the assessee to whom the allowance or deduction was made, so the identity of the assessee in the earlier year and in the later year must be the same. On amalgamation the transferor company loses its entity and ceases to exist in the eye of law from the date the amalgamation takes effect; the amalgamated company acquires a new status. The High Court's view that the two corporate personalities continue in a blended form was held unsustainable, and the allowance made to the transferor could not be taxed in the transferee's hands.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.