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Revised Return of Income of companies to be accepted by the authorities which are in case of scheme of arrangement for amalgamation etc.

It is incumbent upon Department to assess total income of successor in respect of previous assessment year after date of succession. Thus, where predecessor companies/transferor companies had been succeeded by appellants / transferee companies who had taken over their business along with all assets, liabilities, profits and losses etc. in the scheme of amalgamation, in view of provisions of section 170(1), Department was required to assess income of appellants after taking into account revised Returns filed after amalgamation of companies.

-         Vide Decision of Supreme court of India in Dalmia Power Limited Vs. Assistant Commissioner of Income Tax

Facts of the case:

  1. Appellants are M/s Dalmia power limited and M/s Dalmia Cement (bharat) Limited.
  2. The Appellant No.1 filed its original Return of Income under Section 139 (1) of the Income Tax Act on 30.09.2016 for A.Y. 2016-2017 declaring a loss of Rs. 6,34,33,806/-. Similarly, Appellant No.2 filed its original Return of Income under Section 139 (1) of the Income Tax Act on 30.11.2016 for A.Y. 2016-2017 declaring NIL income (after setting off Brought Forward Loss amounting to Rs. 56,89,83,608/- against Total income of Rs. 56,89,83,608/-).
  3. With a view to restructure and consolidate their businesses, and enable better realisation of the potential of their businesses, which would yield beneficial results, and enhanced value creation for their shareholders, better security to their creditors and employees, the Appellants (also referred to as "Transferee Companies" or "Amalgamated Companies") entered into 4 interconnected Schemes of Arrangement and Amalgamation with 9 companies viz. DCB Power Ventures Ltd., Adwetha Cement Holdings Ltd., Odisha Cement Ltd., OCL India Ltd., Dalmia Cement East Ltd., Dalmia Bharat Cements Holdings Ltd., Shri Rangam Securities & Holdings Ltd., Adhunik Cement Ltd., Adhunik MSP Cement (Assam) Ltd. (also referred to as "Transferor Companies" or "Amalgamating Companies") and their respective shareholders and creditors.
  4. The Appointed Date of the Schemes was 01.01.2015, and would come into effect from 30.10.2018.
  5. The Transferor and Transeree companies filed Company petitions under section 391 to 394 of the companies act, 1956 before madras and Guwahati high courts. On the coming into force of the companies act, 2013, the Company Petitions were transferred to NCLT, Chennai and NCLT, Guwahati.
  6. The Schemes were duly approved and sanctioned by the NCLT.
  7. The Appellants/ Transferee Companies manually filed revised Returns of Income on 27.11.2018 with the Department after the Schemes were sanctioned and approval was granted by the NCLT. The revised Returns were based on the revised and modified computation of total income and tax liability of the Transferor/Amalgamated Companies. In the revised Returns of Income, the Appellant No.1 claimed losses in the current year to be carried forward amounting to Rs.2,44,11,837/-; whereas Appellant No.2 claimed losses in the current year, to be carried forward, amounting to Rs.1105,93,91,494/-.
  8. The Appellants submit that the revised Returns were filed after the due date for filing revised Returns of Income u/S. 139(5) for the Assessment Year 2016-2017 since the NCLT passed the final Order on 01.05.2018. Consequentially, it was an impossibility to file the revised Returns before the prescribed date of 31.03.2018.
  9. On 04.12.2018, the Department issued a Notice under Section 143(2) of the Income Tax Act to give effect to the approval of the Scheme.
  10. On 05.12.2018, the Department recalled the Notice dated 04.12.2018 on the ground 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) of the Income Tax Act, 1961 read with CBDT Circular No. 9/2015 dated 09.06.2015.
  11. On 28.12.2018, the Department passed an Assessment Order u/S. 143(3) of the Income Tax Act, stating that in view of the Scheme of Arrangement and Amalgamation, the notice issued under Section 143(2), and the assessment proceedings for A.Y. 2016-2017 had become infructuous with respect to Appellant No.2.
  12. The Appellants filed Writ Petitions before the Madras High Court praying for quashing of the Order dated 05.12.2018, and for a direction to the Department to complete the assessment for A.Y. 2015-2016 and A.Y. 2016-2017 after taking into account the revised Income Tax Returns filed on 27.11.2018, as well as the Orders dated 20.04.2018 and 01.05.2018 passed by the NCLT, Chennai approving the Schemes of Arrangement and Amalgamation.
  13. The learned Single Judge of the Madras High Court vide common Judgment and Order dated 30.04.2019 allowed the Writ Petitions filed by the Appellants, and quashed the Order dated 05.12.2018 passed by the Department. The Single Judge held that Clause 64 (c) of the Scheme enabled the Appellants to file their revised Returns of Income beyond the prescribed period under the Income Tax Act. The Department could not override an approved Scheme of Arrangement and Amalgamation, which has statutory force, by rejecting the revised Returns of Income filed by the Appellants as being invalid.
  14. The Department did not object to the Schemes notified under Section 230(5) of the Companies Act, 2013. Sections 139(5) and 119(2)(b) of the Income Tax Act as well as the Circular No. 9/2015 issued by the CBDT are not applicable to a case where a revised Return of Income has been filed pursuant to a Scheme of Arrangement and Amalgamation, which has been approved and sanctioned by the NCLT.
  15. The Department was not justified in rejecting the revised Return of Income on the ground that it had been filed manually, instead of being filed electronically. Rule 12(3) of the Income Tax Rules requires filing of revised Returns of Income electronically, which is not applicable where revised Returns of Income are filed by the assessee pursuant to a Scheme of Arrangement and Amalgamation approved and sanctioned by the NCLT.
  16. Accordingly, the Single Judge directed the Department to receive the revised Returns filed pursuant to the approval of the Schemes of Arrangement and Amalgamation by the NCLT, Chennai and complete the assessment for A.Y. 2015-2016 and A.Y. 2016-2017 in accordance with law within a period of 12 weeks.
  17. The Department filed Writ Appeals under Clause 15 of the Letters Patent Act challenging the Judgment & Order dated 30.04.2019 passed by the Single Judge.
  18. A Division Bench of the Madras High Court vide the impugned Judgment dated 04.07.2019 allowed the Writ Appeals, and reversed the Judgment of the Single Judge. The Division Bench directed the Appellants to comply with the procedure for filing belated revised Returns of Income, and held that Clause 64 of the Scheme can only be construed as an enabling clause. It cannot be inferred that the Department agreed to consider the revised Returns of Income, irrespective of whether it complies with the procedural and statutory requirements under the Income Tax Act, merely because Clause 64 of the Scheme was not objected to the Department. The NCLT, while sanctioning the Schemes, clarified that the Appellants would be required to approach the relevant statutory authorities for obtaining necessary permissions and compliances.
  19. The Department did not consent to waive the procedures or statutory requirements prescribed under S.139(5) and 119(2)(b) of the Income Tax Act in respect of filing of revised Returns of Income.
  20. The Department vide letter dated 11.07.2019 informed the Appellants that in case they fail to file the revised Returns before the expiry of the limitation period prescribed for completion of assessment in accordance with Explanation 1 to Section 153 r.w. Proviso (1) i.e. 60 days from the date of the impugned Judgment, the assessment for A.Y. 2016-2017 would be conducted on the basis of the original Returns filed by them.
  21. The Appellants made a representation on 22.07.2019 stating that subsequent to the approval and sanction of the Scheme of Arrangement and Amalgamation, the income of the Transferor companies merged in the hands of the Appellants w.e.f. 01.01.2015, being the Appointed Date as the "date of succession" under S. 170 of the Act. Accordingly, the Appellants requested the Department to give cognizance to the Scheme, and accept the revised Return of Income filed on 27.11.2018, while completing the assessment for the A.Y. 2016-2017.
  22. 9 The Department informed the Appellants on 05.08.2019 that since the revised Returns were not in accordance with Sections 139(5), 139(3) of the Act r.w. Rule 12(3) of the Income Tax Rules, 1962, the revised Returns were invalid, and could not be considered in view of the procedural requirement under Section 119(2)(b) read with CBDT Circular No. 9 of 2015.
  23. Aggrieved by the Judgment of the Division Bench, the Appellants have filed the present common Civil Appeals on 09.08.2019 before Supreme Court of India.

Judgement:

The honourable Supreme Court of India held the case as follows:

  1. NCLT had passed last orders granting approval and sanction of schemes only on 22-4-2018 and 1-5-2018, it was an impossibility for assessee companies to have filed revised Returns of Income for assessment year 2016 - 17 before due date of 31-3-2018.
  2. Hence, Department was to be directed to receive revised Returns of Income for assessment year 2016 - 17 filed by appellants on 27-11-2018, and complete assessment after taking into account the Schemes of Arrangement and Amalgamation as sanctioned by NCLT.
  3. In light of the aforesaid discussion, we find that the learned Single Judge had rightly allowed the Writ Petitions. We accordingly set aside the impugned Judgment and Order dated 04.07.0219 passed by the learned Division Bench, and restore the judgment dated 30.04.2019 passed by the learned Single Judge. Accordingly, the Civil Appeals are allowed.

The Department is directed to receive the revised Returns of Income for A.Y. 2016-2017 filed by the Appellants, and complete the assessment for A.Y. 2016-2017 after taking into account the Schemes of Arrangement and Amalgamation as sanctioned by the NCLT.

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