Supreme Court Examines Amalgamation Effective Date in Income Tax Act Case. Court Considers Whether Scheme of Amalgamation Sanctioned by Company Courts Operates Retrospectively from Specified Date Under Sections 391 and 394 of Companies Act, 1956.

Writ petitions filed under the Income Tax Act challenging notices issued to the Subsidiary Company after its amalgamation with the Holding Company.

The appellant sought quashing of notices under Section 139(2) and Section 142(1) of the Income Tax Act, 1961 issued to the Subsidiary Company for assessment years 1984-85 and 1985-86, contending that the Subsidiary Company ceased to exist upon amalgamation.

The Income Tax Officer issued notices to the Subsidiary Company for filing returns for periods after the amalgamation; the Subsidiary Company refused, claiming no separate existence after the amalgamation effective date of January 1, 1982.

The Madras High Court dismissed the writ petitions, holding that the amalgamation became effective only on the dates of court orders (January 20, 1984 and February 24, 1984), not from January 1, 1982, and that the Subsidiary Company remained on the register until January 21, 1986.

Whether a scheme of amalgamation sanctioned by the Company Court under Sections 391 and 394 of the Companies Act, 1956 becomes effective from the date specified in the scheme, even if the court order is later. Whether the Income Tax Officer could call upon the Subsidiary Company to file returns for assessment years after the amalgamation effective date. Whether the writ petition was maintainable despite alternative remedies under the Income Tax Act. Whether the amalgamation was a device to evade tax.

The appellant argued that the scheme of amalgamation was effective from January 1, 1982, as specified, and once sanctioned by the courts, the scheme operated from that date; business carried on thereafter was as agent of the Holding Company; no income accrued to the Subsidiary Company after that date. The appellant alternatively argued that even if not effective from January 1, 1982, it was effective from February 11/May 7, 1983, dates of shareholders' meetings, which were before June 30, 1983; income accrued only at year end and belonged to the Holding Company. The Revenue argued that amalgamation became effective only when sanctioned by the court and certified copies filed with the Registrar; the subsidiary company existed until its name was struck off on January 21, 1986; the scheme was conditional and shares were allotted only in June 1984. The Revenue contended that the amalgamation was a device to evade tax by setting off the Holding Company's losses against the Subsidiary Company's profits, and that the writ petition was premature.

Not mentioned in the provided judgment excerpt; the text includes only the High Court's findings and the parties' arguments, not the Supreme Court's final ratio.

As a consequence to the change, the income of the period of 18 months from 1.1.82 to 30.6.83 will be assessed for the asstt. year 1984-85. The amalgamation becomes effective only when the Court approves the scheme of amalgamation and not at any earlier point of time. inasmuch as the amalgamation has taken effect on and from January 1, 1982, the Income Tax Officer had no authority to call upon the Subsidiary Company to file a return for any period subsequent thereto.

The Subsidiary Company sought change of accounting year to end June 30, 1983 covering 18 months from January 1, 1982; the Income Tax Officer permitted the change on February 3, 1983 subject to conditions. In December 1982, the Subsidiary Company passed a resolution proposing amalgamation with the Holding Company effective January 1, 1982. Shareholders' meetings approving the scheme were held on February 11, 1983 (Subsidiary) and May 7, 1983 (Holding). The Madras High Court sanctioned the scheme on November 21, 1983, and the Calcutta High Court on January 11, 1984. Certified copies were filed with the Registrars of Companies on January 29, 1984 (Madras) and February 24, 1984 (Calcutta). The Subsidiary Company's name was struck off the register on January 21, 1986. On November 25, 1984, the Income Tax Officer issued a notice under Section 139(2) to the Subsidiary Company for assessment years 1984-85 and 1985-86; the Subsidiary Company replied that it had no obligation due to amalgamation. The Income Tax Officer later issued a notice under Section 142(1) requiring compliance by February 7, 1986. The appellant filed writ petitions in the Madras High Court, which were dismissed. The appellant then appealed to the Supreme Court.

• Income Tax Act, 1961: 139(2), 142(1), 80J
• Companies Act, 1956: 391, 394