Supreme Court Allows Revised Income Tax Returns Post-Amalgamation: Dalmia Power Ltd. vs. ACIT (2019)

Date of the Judgment: 18 December 2019

Citation: (2019) INSC 1234

Judges: Uday Umesh Lalit, J. and Indu Malhotra, J.

Can a company file revised income tax returns after the statutory deadline if the delay is due to ongoing amalgamation proceedings? The Supreme Court of India recently addressed this question, focusing on whether the Income Tax Department should permit revised returns filed after the deadline, when the delay was caused by the pendency of amalgamation proceedings under Sections 230-232 of the Companies Act, 2013. The court had to determine if the statutory timelines under the Income Tax Act could be relaxed in such circumstances. The judgment was delivered by a two-judge bench comprising Justice Uday Umesh Lalit and Justice Indu Malhotra, with Justice Indu Malhotra authoring the opinion.

Case Background

The case involves two public limited companies, M/s Dalmia Power Limited (Appellant No. 1) and M/s Dalmia Cement (Bharat) Limited (Appellant No. 2), both based in Tamil Nadu. Appellant No. 1 is in the business of power and related investments, while Appellant No. 2 manufactures and sells cement, generates power, and manages rail systems. To restructure and consolidate their businesses, the Appellants initiated an amalgamation process with nine other companies. The appointed date for the amalgamation was January 1, 2015, with the scheme coming into effect on October 30, 2018. The companies filed their original income tax returns for the Assessment Year 2016-2017 on September 30, 2016, and November 30, 2016, respectively. Due to the ongoing amalgamation, they filed revised returns on November 27, 2018, after the National Company Law Tribunal (NCLT) sanctioned the scheme. These revised returns reflected the changes in income and tax liability due to the amalgamation. The Income Tax Department rejected these revised returns, stating they were filed after the due date and without prior permission from the Central Board of Direct Taxes (CBDT). The Appellants then filed writ petitions before the Madras High Court.

Timeline:

Course of Proceedings

The Madras High Court’s single judge initially ruled in favor of the Appellants, quashing the Income Tax Department’s order and allowing the revised returns. The single judge noted that Clause 64(c) of the scheme allowed for filing revised returns beyond the prescribed period, and the department could not override an approved scheme. The court also held that the department was not justified in rejecting the revised returns for being filed manually instead of electronically. However, a Division Bench of the Madras High Court reversed this decision, directing the Appellants to comply with the procedure for filing belated revised returns, stating that Clause 64 was merely an enabling clause and did not waive statutory requirements under the Income Tax Act. The Division Bench clarified that the NCLT, while sanctioning the schemes, required the Appellants to approach the relevant statutory authorities for necessary permissions and compliances. The department then informed the Appellants that if they did not file the revised returns within 60 days, the assessment for A.Y. 2016-2017 would be based on the original returns.

Legal Framework

The case primarily revolves around the interpretation of several key legal provisions:

• Section 139(5) of the Income Tax Act, 1961: This section allows an assessee to file a revised income tax return if they discover any omission or wrong statement in the original return. The revised return must be filed before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. The court noted, “If any person, having furnished a return under sub-section (1) or sub-section (4) of Section 139, discovers an omission or wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.”
• Section 119(2)(b) of the Income Tax Act, 1961: This section empowers the Central Board of Direct Taxes (CBDT) to authorize income tax authorities to admit applications or claims for exemptions, deductions, refunds, or other reliefs under the Act, even after the expiry of the specified period. The court quoted, “the Board may, if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by general or special order, authorise any income-tax authority, not being a Commissioner (Appeals) to admit an application or claim for any exemption, deduction, refund or any other relief under this Act after the expiry of the period specified by or under this Act for making such application or claim and deal with the same on merits in accordance with law.”
• Section 230(5) of the Companies Act, 2013: This section mandates that a notice of a proposed scheme of compromise or arrangement be sent to various authorities, including the Income Tax Department, and allows them to make representations within 30 days. The court noted, “A notice under sub-section (3) along with all the documents in such form as may be prescribed shall also be sent to the Central Government, the income-tax authorities, the Reserve Bank of India, the Securities and Exchange Board, the Registrar, the respective stock exchanges, the Official Liquidator, the Competition Commission of India established under sub-section (1) of section 7 of the Competition Act, 2002, if necessary, and such other sectoral regulators or authorities which are likely to be affected by the compromise or arrangement and shall require that representations, if any, to be made by them shall be made within a period of thirty days from the date of receipt of such notice, failing which, it shall be presumed that they have no representations to make on the proposals.”
• Section 170(1) of the Income Tax Act, 1961: This section deals with the assessment of income in cases of succession to a business, stating that the successor shall be assessed in respect of the income of the previous year after the date of succession. The court quoted, “Where a person carrying on any business or profession (such person hereinafter in this section being referred to as the predecessor) has been succeeded therein by any other person (hereinafter in this section referred to as the successor) who continues to carry on that business or profession,—(a) the predecessor shall be assessed in respect of the income of the previous year in which the succession took place up to the date of succession; (b) the successor shall be assessed in respect of the income of the previous year after the date of succession.”

These provisions are essential in understanding the legal obligations and rights of the parties involved in the case.

Arguments

Appellants’ Submissions:

• The Appellants argued that the revised returns were filed due to the amalgamation scheme, which had an appointed date of January 1, 2015, and was sanctioned by the NCLT on April 20, 2018, and May 1, 2018. They contended that it was impossible to file the revised returns before the March 31, 2018 deadline, as the NCLT orders came later.
• They relied on Clauses 63(c) and 64(c) of the amalgamation schemes, which allowed them to file revised returns even after the prescribed time limits, without incurring any liability for interest or penalty. These clauses were part of the scheme approved by the NCLT. The clauses stated, “DCBL [Appellant No. 2] shall be entitled to, amongst others, file/or revise its income tax returns…even if the prescribed time limits for filing or revising such returns have lapsed without incurring any liability on account of interest, penalty or any other sum” and “Amalgamated Company and Transferee [Appellant Nos. 1 and 2] Company shall be entitled to, amongst others, file/or revise its income tax returns…even if the prescribed time limited for filing or revising such returns have lapsed without incurring any liability on account of interest, penalty or any other sum.”
• The Appellants submitted that the Income Tax Department was notified of the scheme under Section 230(5) of the Companies Act, 2013, and did not raise any objections. Therefore, the scheme, having statutory force, should be binding on the department.
• They argued that Section 139(5) of the Income Tax Act was not applicable in this case, as the revised returns were not filed due to an omission or wrong statement in the original returns, but due to the amalgamation scheme.
• The Appellants contended that Section 170(1) of the Income Tax Act requires the Department to assess the total income of the successor (the Appellants) after the date of succession, which includes the income of the transferor companies.

Department’s Submissions:

• The Department argued that the Appellants should have sought permission from the CBDT for condonation of delay under Section 119(2)(b) of the Income Tax Act, 1961, read with CBDT Circular No. 9/2015, before filing the revised returns after the statutory deadline of March 31, 2018.
• The Department contended that the revised returns were filed belatedly on November 27, 2018, and therefore, the assessment should be based on the original returns filed by the Appellants.
• The Department submitted that Clause 64 of the scheme was merely an enabling clause and did not waive the statutory requirements under the Income Tax Act.
• They argued that the NCLT, while sanctioning the schemes, clarified that the Appellants would be required to approach the relevant statutory authorities for necessary permissions and compliances.

Innovativeness of the argument: The Appellants innovatively argued that the amalgamation scheme, being a court-approved process, should override the procedural requirements of the Income Tax Act, especially since the department was aware of the scheme and did not object.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether the Department ought to have permitted the assessee companies to file the revised Income Tax Returns for the Assessment Year 2016-2017 after the expiry of the due date prescribed under Section 139(5) of the Income Tax Act, 1961 on account of the pendency of proceedings for amalgamation of the assessee companies with other companies in the group under Sections 230-232 of the Companies Act, 2013.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

The Supreme Court used the following authorities in its reasoning:

• J.K. (Bombay) (P) Ltd. v. New Kaiser-I-Hind Spg. and Wvg. Co. Ltd. [CITATION]: The Court relied on this case to establish that a scheme of amalgamation, once sanctioned, has statutory force and is binding on all parties.
• Pr. Commissioner of Income Tax, New Delhi v. Maruti Suzuki India Limited [CITATION]: This case was used to emphasize that upon approval of a scheme of amalgamation, the amalgamating companies lose their separate identity and cease to exist.
• Marshall Sons & Co. (India) Ltd. v. ITO [CITATION]: The Court followed this precedent to determine that the date of amalgamation is the date specified in the scheme, and the assessment of the transferee company must include the income of both the transferor and transferee companies.
• Section 139(5) of the Income Tax Act, 1961: The Court held that this provision was not applicable to the case, as the revised returns were not filed due to an error or omission, but due to the amalgamation scheme.
• Section 119(2)(b) of the Income Tax Act, 1961: The Court held that this provision was not applicable as the assessee had restructured their business and filed a revised return with prior approval from NCLT.
• Section 230(5) of the Companies Act, 2013: The Court considered that the Income Tax Department was notified of the scheme under this section and did not raise any objections.
• Section 170(1) of the Income Tax Act, 1961: The Court used this section to support the argument that the Department is required to assess the income of the successor (the Appellants) after the date of succession, taking into account the revised returns.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Statutory Force of Amalgamation Scheme: The court emphasized that the amalgamation scheme, once sanctioned by the NCLT, had statutory force and was binding on all parties, including the Income Tax Department. The department’s failure to object to the scheme meant that it could not later reject the revised returns based on procedural grounds.
• Impossibility of Compliance: The court recognized that it was practically impossible for the Appellants to file the revised returns before the deadline, as the NCLT orders sanctioning the scheme were passed after the deadline.
• Merger of Identities: The court noted that upon amalgamation, the transferor companies ceased to exist, and their assets, liabilities, and income were transferred to the transferee companies. Therefore, the assessment should reflect this change.
• Purpose of Assessment: The court reiterated that the purpose of assessment proceedings is to assess the tax liability of an assessee correctly, in accordance with the law. The court held that the procedural rules should not be used to defeat the purpose of correct assessment.
• Section 170(1) of the Income Tax Act: The court emphasized that this provision requires the department to assess the income of the successor after the date of succession, which includes taking into account the revised returns filed after amalgamation.

Fact:Law Ratio Analysis: The court’s decision was influenced more by legal considerations (70%) than factual aspects (30%). The court emphasized the statutory force of the amalgamation scheme and the proper application of legal provisions.

The Court’s reasoning was based on the fact that the amalgamation scheme had statutory force, the department was aware of it, and it was practically impossible for the appellants to file the revised returns before the deadline. The court also emphasized that the procedural rules should not be used to defeat the purpose of correct assessment and that Section 170(1) of the Income Tax Act mandates the assessment of the successor’s income after the date of succession.

Key Takeaways

• Statutory Schemes Prevail: A scheme of amalgamation sanctioned by the NCLT has statutory force and is binding on all parties, including the Income Tax Department.
• Impossibility of Compliance: If it is impossible for an assessee to comply with a statutory deadline due to circumstances beyond their control, such as pending court proceedings, the court may relax the procedural requirements.
• Substance over Form: The court emphasized the importance of assessing the correct tax liability, rather than strictly adhering to procedural rules that may defeat the purpose of assessment.
• Successor’s Liability: In cases of business succession, the successor is liable to be assessed for the income of the previous year after the date of succession, and this must take into account the changes resulting from the succession.
• Department’s Role: The Income Tax Department must take into account the revised returns filed after amalgamation of the companies.

Potential Future Impact: This judgment provides clarity on the interplay between company law and tax law, particularly in cases of amalgamation. It clarifies that procedural requirements under the Income Tax Act cannot override a court-sanctioned scheme of amalgamation. This judgment will likely be relied upon in future cases where companies face similar situations due to corporate restructuring.

Directions

The Supreme Court directed the Income Tax Department to:

• Receive the revised Returns of Income for A.Y. 2016-2017 filed by the Appellants.
• Complete the assessment for A.Y. 2016-2017 after taking into account the Schemes of Arrangement and Amalgamation as sanctioned by the NCLT.

Specific Amendments Analysis

There were no specific amendments discussed in the judgment.

Development of Law

Ratio Decidendi: The ratio decidendi of this case is that a court-sanctioned scheme of amalgamation has statutory force and cannot be overridden by procedural requirements under the Income Tax Act, especially when the Income Tax Department has been duly notified and has not raised any objections. The revised returns filed due to the amalgamation should be accepted, and the assessment should be completed taking into account the revised returns.

Change in Previous Positions of Law: This judgment clarifies that the procedural requirements under Section 139(5) and 119(2)(b) of the Income Tax Act are not applicable in cases where the delay in filing revised returns is due to a court-sanctioned amalgamation scheme. It also emphasizes that the Income Tax Department must assess the income of the successor company in accordance with Section 170(1) of the Income Tax Act, which includes taking into account the revised returns filed after amalgamation.

Conclusion

The Supreme Court allowed the appeals filed by M/s Dalmia Power Limited and M/s Dalmia Cement (Bharat) Limited, setting aside the judgment of the Division Bench of the Madras High Court. The Court held that the Income Tax Department should have accepted the revised income tax returns filed by the Appellants, as the delay was due to the amalgamation proceedings sanctioned by the NCLT. The court emphasized that the sanctioned scheme had statutory force and the department’s failure to object meant that it could not later reject the revised returns. The court directed the department to complete the assessment for A.Y. 2016-2017 after taking into account the revised returns and the amalgamation scheme.

Category

Parent Category: Income Tax Act, 1961
Child Categories: Revised Income Tax Returns, Company Amalgamation, Section 139(5), Section 119(2)(b), Section 170(1), Section 230 of Companies Act, 2013, Supreme Court Judgments

Tags

Supreme Court, Income Tax, Revised Return, Amalgamation, Company Law, Section 139(5), Section 119(2)(b), Section 170(1), Section 230, Companies Act, Dalmia Power, Tax Assessment, NCLT, Statutory Scheme, Tax Law, Legal Analysis