MARSHALL SONS AND CO. (INDIA) LTD.versusINCOME TAX OFFICER

A                MARSHALL SONS AND CO. (INDIA) LTD.
                                         v.
                            INCOME TAX OFFICER

                              NOVEMBER 27, 1996

B                 [B.P. JEEVAN REDDY AND S.C. SEN, JJ.]

          Income Tax Act, 1961 : Sections 139(2), 142( 1)-f'eriod for filing
    retum-Detennination of-Amalgamation of Company w.e.f 1.1.82 as per the
    Scheme-Scheme sanctioned by Company Court without specifying any other
C   date for amalgamation-Name of the Company strnck off from the register
    of Registrar of Companies on 21.1.1986-Notice to file retum for the period
    from 1.1.82 to 21.1.86-Held, in the circumstances of the case the date of
    amalgamation is 1.1.82, hence the notices issued by Income Tax Officer not
    wa"anted in law.

D         The accounting year of a company situated in Madras (hereinafter
    called Snbsidiary Company) was ending on December 31. The appellant
    company sitnated · in Calcutta, successor to the Subsidiary Company
    (hereinafter called Holding Company) had its acconnting year ending on
    June 30. The Subsidiary Company with intention to change its accounting
E   year sent letter to income tax authorities stating therein that it would wish
    to change its acconnting year and would wish to close its account on June
    30, 1983 for eighteen months. The change was permitted subject to certain
    conditions. Both the companies passed resolutions for a~algamation of
    Subsidiary .Company with the Holding Company. Scheme of Amalgama·
    tion was prepared wherein 1.1.82 was mentioned as date of transfer and it
F   was also mentioned that with effect from the date of transfer, the Sub-
    sidiary Company shall be deemed to have carried oii business for and on
    behalf of Holding Company.

          The Holding Company and the Subsidiary Company filed petitions
G   for amalgamation before the Company Courts at Calcutta and Madras
    respectively, and the scheme of amalgamation was sanctioned on 21.11.83
    and 11.1.83 respectively without specifying any other date for amalgama·
    tion. The name of the Subsidiary Company was struck off by the Registrar
    of Companies, Madras on 21.1.86.

H         Income Tax authorities gave notice u/s 139(2) of Income Tax Act, to
                                      216
                MARSHALL SONS AND CO. (I) LID. v. 1.T.O.               217
 the Subsidiary Company to file return for the Assessment Year 1984-85        A
 (for the year ending June, 1983) and for Assessment Year 1985-86 [for the
 year ending June, 1984). The Company replied to the authorities that since
 it amalgamated with the Holding Company w.e.f. 1.1.82, the question of
 filing returns for the years above-mentioned does not arise. Income Tax
 Officer then sent notice u/s 142(1), against which the company filed writ
                                                                              B
 petition in the High Court on the ground that Income Tax Officer had no
 authority to caII upon Subsidiary Company to file return for the period
 subsequent to the date on which it was amalgamated. The High Court
 dismissing the writ petition held that in absence of any date specified by
 the Company Court, the date of order passed by the Company Court shaII
 be taken as the date of amalgamation.                                        c
      In appeal to this Court, the appellant contended that unless the
Company court specifies otherwise, the date provided in the Scheme of
amalgamation is taken as the actual date of amalgamation, and that after
the date of amalgamation, the business carried on by the Subsidiary
Company was as an agent of and for and on behalf of the Holding D
Company. The respondent contended that the Subsidiary Company can be
said to have ceased to exist only wheil the name of the Subsidiary Company
was struck off from the Registrar of Companies, Madras.

      Allowing this appeal, this Court                                        E
       HELD : 1. The notices issued by the Income Tax Officer, were not
warranted in law. The business carried on by the Transferor Company
[Subsidiary Company] should be deemed to have been carried on for and
on behalf of the Transferee Company. This is the necessary and the logical
consequence of the Court sanctioning the scheme of amalgamation as            F
presented to it. The order of the Court sanctioning the Sche.me, the filing
of the certified copies of the orders of the Court before the Registrar of
Companies, the aIIotment of Shares etc. may have all taken place sub-
sequent to the date of amalgamation/transfer, yet the date of amalgama-
tion in the circumstances of this case would be January 1, 1982. [231-C-E]    G
      Reghubar Dayal v. The Bank of Upper India Ltd., AIR (1919) P.C., 9,
relied on.

       Sahayanidhi [Virudhnagarj Ltd. v.A.R.S. Subramaniam Nadar, (1950)
. 20 Company Cases 214; United India Life Assurance Company v. Commis-        H
     218                  SUPREME COURT REPORTS (1996) SUPP. 9 S.C.R.

A    sioner of Income Tax, (1963) 49 I.T.R. 965 and Commissioner of Income
     Tax; Pune v. Swastik Rubber Products Ltd., (1983) 140 I.T.R. 304, referred
     to.

           CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.1661-62
     of 1992.
B
          From the Judgment and Order dated 10.6.91 of the Madras High
     Court in W .P. No. 1908 of 1986.

          N.K. Poddar, B.V. Deasi, Ms. Radha Rangaswamy, P J. Mehta and
     Ms. Meeta Sharma for the Appellant.
c
        . Dr. R.R. Mishra7Ramesh and P. Parmeswaran for the Respon·
     dent.          ~_-"


           The Judgment of the Court was delivered by

 D          B.P. JEEVAN REDDY, J. These appeals are preferred by Marshall
     Sons and Company (India] Limited (hereinafter referred to as the "Holding
     Company"] as successors to Marshall Sons and Company (Manufacturing]
     Limited (hereinafter referred to as the "Subsidiary Company"] against the
     judgment and order of the Madras High Court dismissing the writ petitions
E    filed by them. The matter arises under the Income Tax Act.

           The Holding Company had its registered office at 33-A, Chowran·
     ghee Road, Calcutta while the Subsidiary Company had its registered office
     at Madras. For the purposes of assessment under the Income Tax Act,
     while the accounting year of the holding Company was the year ending on
.p   30th June, the accounting year of the Subsidiary Company was the calender
     year. On 1st December 1982, two letters were addressed by the Subsidiary
     Company to the Income Tax Officer stating that the company is desirous
     of effecting a change in the accounting year. They stated that they would
     wish to close their accounts on June 30, 1983 for the eighteen months'
G    period (January 1, 1982 to June 30, 1983] instead of closing the accounts
     on December 31, 1982. It was also ~lated that since the accounting year of
     the Holding Company ends on June 30, they too would like to follow the
     same practice. In response to said letters, the Income Tax Officer asked
     for certain particulars which were supplied. On February 3, 1983, the
     Income Tax Officer permitted the Subsidiary Company to change the
 H   accounting year from .December 12, 1982 to June 30, 1983 subject to the
   MARSHALLSONSANDCO.(I)LTD. v. l.T.O. [B.P.JEEVANREDDY,J.] 219

conditions mentioned therein, viz.:                                             A
        "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 asst!. year .
        1984-85. Any relief that may be withdrawn in the future legislation
        with effect from asst!. year 1984-85 will be made applicable to the
        entire income for the asst. year 1984-85 and depreciation will be · B
        allowed proportionately as per rules.

        The asst!. year 1983-84 which is slipped on account of the change ·
        of the previous year will, however, be treated as one Assessment
        year for the purposes of set off of carried forward losses, relief u/s. C
        80J of the Income Tax Act, 1961, if any."

       In December, 1982, the Subsidiary Company passed a resolution
proposing to amalgamate with the H aiding Company with effect from
January 1, 1982. An application was made to the Company Court and
pursuant to the orders of the Court, a meeting of the shareholders was held     D
on February 11, 1983 whereat a resolution was passed, approving the
amalgamation of the Subsidiary Company with the Holding Company. A
similar resolution was passed by the shareholders of the holding Company
on May 7, 1983. The Company Court [Madras High Court) sanctioned the
scheme of amalgamation by its order dated November 21, 1983 in C.P. No.         E
23 of 1983. On a similar application filed before the Calcutta High Court,
C.P. No. 284of1983, that High Court [Company Court) too sanctioned the
scheme of amalgamation by its order dated January 11, 1984. In both the
orders, it was ·directed that certified copies of the said orders shall be
delivered to the Registrars of Companies at Madras and Calcutta within
thirty days therefrom. Accordingly, certified copies of the orders were filed   F ··
before the Registrars of Companies on January 29, 1984 at Madras and on
February 24, 1984 at Calcutta. The name of the Subsidiary Company was
struck off the register of Companies, maintained by the Registrar of
Companies at Madras, on January 21, 1986.

      On November 25, 1984, a notice· under Section 139(2) of the Income G
Tax Act was issued to the Subsidiary Comp~ny calling upon it to file a ·
return of its income for the Assessment Years 1984-85 [for the·year ending
June 30, 1983) and for 1985-86 [year ending June 30, 1984]. The Subsidiary
Company replied stating that inasmuch as the Subsidiary Company has
been amalgamated with the. Holding Company under a scheme of amal- H
     220                   SUPREME COURT REPORTS [1996] SUPP. 9 S.C.R.
 A   gamation sanctioned by the Company Courts of Madras and Calcutta and
     because the said amalgamation was with effect from January 1, 1982, there
     was no question of the Subsidiary Company filing a return for the said two
     assessment years. There was exchange of notices/replies thereafter, which
   · it is not necessary to mention at this stage. Ultimately, the Income Tax
 B Officer issued a notice under s·ection 142{1} asking for compliance with it
     by February 7, 1986. At that stage, tlie appellant-company filed writ peti-
     tions in the Madras High Court .questioning the aforesaid notices.

            In the writ petitiOns filed by the appellant, the main ground urged
      was that inasmuch as the amalgamation has taken effect on and from
  C January 1, 1982, the Income Tax Officer had no·authority to call upon the
      Subsidiary Company to file a return for a.nY period subsequent thereto. It
      was submitted that the schem.e of amalgamation has been sanctioned by
      the Company Courts at Madras and Calcutta and that, therefore, any
      business which may have been carried on by the Subsidiary Company
  D subsequent to January 1, 19S2 was as an agent of the Holding Company
      and not on its own account. It was submitted that the Subsidiary Company
      had no income of its own - indeed no existence of is own in law on or after
      January 1, 1982. In the counter-Affidavit, filed by the Income Tax Officer,
      he submitted that the amalgamation becaine effective only when it was
      sanctioned by the Court .and after certified copies of the orders of the
  E Courts were filed with the Registrars of Companies. His case was that only
      when the name of the Subsidiary Company was struck off the register by
      the Registrar of Companies, Madras that the Subsidiary Company can be
      said to have Ceased to exist. The respondent also stated that as a matter
      of fact, the relevant clauses in the scheme of amalgamation themselves
  F indicate that the scheme was to take effect only when sanctioned by the
      court and only when the shares of the Holding Company are allotted to
      members of the Subsidiary Company. He submitted that this allotment of
      shares took place only in June, 1984. The Income Tax Officer further
      submitted in his counter-affidaVit that the said amalgamation was a device
      adopted to evade the tax legitimately due from the Subsidiary Company.
  G . He submitted that while the .Holding Company was incurring losses, the
     ·Subsidiary Company was making substantial profits and that the scheme of
      amalgamation was merely a device to avoid paying taxes on the income
    · earned by the Subsidiary Company. The idea behind the amalgamaticin,
      according to him, was to set off the accumulated losses of the Holding
· H Company against the profits of the Subsidiary Co~pany. He also raised
   MARSHALLSONSANDCO.(I)LID. v. I.T.O. [B.P.JEEVANREDDY,J.] 221

objection with respect to the maintainability of the writ petition on the         A
ground inter alia that the Income Tax Act provides adequate remedies to
agitate all the contentions urged in the said writ petition.

        The High Court dismissed the writ petition with the following find-
ings:
                                                                                  B
      (1) The date of amalgamation (January 1, 1982] specified in the
scheme of amalgamation is "totally artificial and arbitrary." Till the begin-
ning of December 1982, the amalgamation was not even in the contempla-
tion of either company. Only in December 1982, was the resolution of the
Directors passed proposing amalgamation. The shareholders meeting took            C
place sometime in February 1983. The scheme itself contemplates that it is
subject to and conditional upon the scheme being sanctioned by the court
under Section 391 of the Act and appropriate orders being made for
-implementation of the said scheme under Section 394. The scheme also
provides that its implementation is conditional upon the shareholders
holding not less than 9/lOth in value of the shares in the Subsidiary             D
Company becoming shareholders of th.e transferee company. In this view
of the matter, specifying the date of amalgamation as January 1, 1982 has
no relevance or meaning. The amalgamation becomes effective only when
the court approves the scheme of amalgamation and not at any earlier point
of time. In other words, the operative dates would be January 20, 1984 and        E
February 24, 1984, on which dates the Madras and Calcutta High Courts
approved the scheme. There is nothing in the orders of Courts to show that
the said orders were to be effective from January 1, 1982.

      (2) From the counter affidavit, it appears that the Subsidiary Com-
pany was borne on the register of companies upto January 21, 1986. This           F
shows that the company was in existence till that date and that it did not
cease to exist, as a fact, on January 1, 1982.

       (3) In view of the aforesaid findings, it is not necessary to go into or
express any opinion on the plea of the Income Tax Officer that the said           G
amalgamation was merely a device to evade the payment of taxes
legitimately due on the income of the Subsidiary Company. For the same
reason, no opinion need be expressed on the objection of the Income Tax
Officer with respect to the maintainability of the writ petition.

        Sri. N.K. Poddar, learned counsel for the appellant, urged a number H
    222                   SUPREME COURT REPORTS [1996] SUPP. 9 S.C.R.
A    of grounds in support of his attack upon the validity of the judgment under
    appeal. He submitted that the view taken by the Madras High Court in
     United India Life Assuance Company v. Commissioner of Income Tax
  •1(1963) 49 l.T.R. 965, which has been followed in the judgment under
    appeal does not represent the correct view of law. He submitted that the
    contrary view taken by the Bombay High Court in Commissioner of Income
B
    tax, Pu11e v.Swastik Rubber Products Limited (1983) 140 l.T.R. 304, (and
    followed in later decisions of that Court represents the correct view. In
    other words, the contention is that inasmuch as both the Madras and
    Calcutta High Courts [Company Courts] had approved the scheme of
    amalgamation as it stood, it means that the scheme of amalgamation is
C effective from January 1, 1982. No doubt, the scheme states that it is
    conditional upon being sanctioned by the Court but that only means that
    whenever it is sanctioned by the Court, the scheme as approved takes
    effect. The scheme specifically states that the scheme of amalgamation is
    effective from January 1, 1982. Learned counsel submitted that according
D to the well-accepted practice prevailing in this country, all schemes of
    amalgamation specify a particular date of amalgamation and unless the
    court specifies otherwise, the date provided in the scheme of amalgamation
    is taken as the actual date of amalgamation. Counsel submitted that
    subsequent to January 1, 1982, the SubsiJiary Company may have carried
    on business awaiting the orders of the Court but it could not do otherwise
E and that the business so carried on by it was as an agent of and for and
    on behalf of the Holding Company and not on its own account. Learned
    counsel also submitted that no balance-sheet was drawn for any period
    subsequent to January 1, 1982 for the Subsidiary Company. No Annual
    General Body Meeting of shareholders was held of the Subsidiary Com-
p pany after the said date and that, to all intents and purposes, the Subsidiary
    Company ceased to exist as an independent entity on and from January 1,
     1982. Counsel relied upon the language of Sections 391 and 394 and on
    certain decisions in support of this contention. Sri Poddar raised an
    alternate contention too, viz., if for ·any reason, it is held that the amal-
G gamation is not effective with effect from February 1, 1982, it must be held
    to be effective from February 11, 1983/May 7, 1983 [the date on which the
    shareholders' meetings were held]. Both these dates are prior to June 30,
     1983 - the last day of the accounting year [as sanctioned by the Income
    Tax Officer]; since the income of the company can be said to accrue only
     at the end of the year when the accounts are made up ' and not from day
H to day - it must be held that no income .accrued to Subsidiary Company at
       MARSHALLSONSAND CO. (!)LID. v. I.T.O. [B.P.JEEVANREDDY,J.] 223

    the end of the said accounting year (January 1, 1982 to June 30, 1983]; the A
    income accrued only on June 30, 1983 and it accrued only to the Holding
    Company.

           On the other hand, Dr. R.R. Misra, learned counsel for the Revenue,
    supported the reasoning and conclusion of the High Court. Learned coun-
    sel further submitted that the scheme of amalgamation was a mere device           B
    to evade the payment of taxes lawfully due according to law and that this
    is a good ground on which the Income Tax authorities can ignore the
    alleged amalgamation even if for any reason it can be held that it is effective
•   from January 1, 1982. Counsel also submitted that the writ petition filed by
    the appellant ought to have been dismissed summarily on the ground. that          c
    it was premature and that the appellant should have been directed to
    pursue the remedies provided by the Income Tax Act according to law.
    The High Court, he submits, ought not to have entered into the merits of
    several contentions raised by the appellant, all of which can be more
    satisfactorily gone into after the assessments are made wherein all the
    relevant facts could have been gathered.                ·                         D
         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 :

            "S.391. Power to compromise or make a"angements with creditors            E
            and members.- (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;                F

            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 is
            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          G
            the case may be, to be called, held and conducted in such manner
            as the Court directs.

            (2) If a majority in number representing three-fourths in value of
            the creditors, or class of creditors, or membe.rs, or class of mem-
            bers, as the case may be, present and voting either in person o;, H
    224                SUPREME COURT REPORTS (1996] SUPP. 9S.C.R.

A         where proxies are allowed under the rules made under Section
          643, by proxy, at the meeting, agree to any compromise or arran-
          gement, the compromise or arrangement shall, if sanctioned by the
          Court, be binding on all the creditors, all the creditors ofthe class,
          all the members, or all the members of the class, as the case may
          be, and also on the company, or, in the case of a company which ,
B         is being wound-up, on the liquidator and contributories of the
          company:

              Provided that no order sanctioning any compromise or arran-
          gement shall be made by the Court unless the Court is satisfied
c         that the company or any other person by whom an application has
          been made under sub-section (1) has disclosed to the Court, by
          affidavit or otherwise, all material facts relating to the company,
          such as the latest financial position of the company, the latest
          auditor's report on the accounts of the company, the pendency of
          any investigation proceedings in relation to the company under
D         sections 235 to 251, and the like.

          (3) An order made by the Court tmder sub-section (3) shall have
          no effect until a certified copy of the order h~s been filed with the
          Registrar.
E
          S.394. Provisions for facilitating reconstrnction and amalgamation of
          companies.-(1) Where an application is made to the Court under
          Section 391 for the sanctioning of a compromise or arrangement
          proposed between a company and any such persons as are men-
          tioned in that section, and it is shown to the Court-
F
          (a) that the compromise or arrangement has been proposed for
          the purposes of, or in connection with, a scheme for the reconstruc-
          tion of any company or companies or the amalgamation of any two
          or mo~e companies; and
G
          (b) that under the scheme the whole or any part of the undertaking,
          property or liabilities of any company concerned in the scheme (in
          this section referred to as a 'transferor company') is to be trans-
          ferred to another company (iil this section referred tri ·as 'the .
H         transferee company');
MARSHALLSONSANDCO.(l)LID. v. l.T.O.[B.P.JEEVANREDDY,J.] 225

    the Court may, either by the order sanctioniog the compromise or A
    arrangement or by a subsequent order, make provision for all or
    any of ~e following matters:-

    (i) the transfer to the transferee company of the whole or any part
    of the undertaking, property or liabilities of any transferor com-
    pany;                                                                  B

    (ii)the allotment or appropriation by the transferee company of
    any shares, debentures, policies, or other like interests in that
    company which, under the compromise or arrangement, are to be
    allotted or appropriated by that company to or for any person;
                                                                           c
    (iii) the continuation by or against the transferee company of any
    legal proceedings pending by or against any transferor company:

    (iv) the dissolution, without winding-up, of any transferor com-
    pany;                                                                  D

    (v) the provision to be made for any persons who, within such time
    and in such manner as the Court directs, dissent from the com-
    promise or arrangement; and

    (vi) such incidental, consequential and supplemental matters as        E
    are necessary to secure that the reconstruction or amalgamation
    shall be fully and effectively carried out :

        Provided that no compromise or arrangement proposed for the
    purposes of, or in connection with, a scheme or the amalgamation
    of a company, which is being wound-up, with any other company          F
    or companies, shall be sanctioned by the Court unless the Court
    has received a report from the Company Law Board or the
    Registrar that the affairs of the company have not been conducted
    io a manner prejudicial to the interests of its members or to public
    ioterest :                                                             G
        Provided further that no order for the dissolution of any trans- .
    feror company under clause (iv) shall be made by the Court unless
    the Official Liquidator has, on scrutioy of the books and papers
    of the company, made a report to the Court that the affairs of the
    company have not been conducted io a marmer prejudicial to tli.e H
    226                   SUPREME COURT REPORTS [1996) SUPP. 9 S.C.R.
A           interests of its members or to public interest.

            {2) Where an order under this section provides for the transfer of
            any property or liabilities, then, by virtue of the order, that property
            shall be transferred to and vest in, and those liabilities shall be
            transferred to and become the liabilities of, the transferee com-
B           pany; and in the case of any property, if the order so directs, freed
            from any charge which is, by virtue of the compromise or arran-
            gement, to cease to have effect.

            {3) Within thirty days after the making of an order under this
            section, every company in relation to which the order is made shall
c           cause a certified copy thereof to be filed with the Registrar for
            registration.

               If default is made in complying with this sub- section, the
            company, and every officer of the company who is in default, shall
D           be punishable with fine which may extend to fifty rupees.

            ( 4) In this section--

            (a) 'property' includes property, rights and powers of every
            description; and 1iabilities' includes duties of every description;
E           and

            (b) 'transferee company' does not include any company, other than
            a company within the meaning of this Act; but 'transferor company'
            includes any body corporate, whether a company within the mean-
            ing of this Act or not.'
F
          Section 394-A provides that on every application under Section 391
    or Section 394, the Court shall give notice of such application to the Central
    Government and .shall take into consideration the representations, if any,
    made to it by that government before passing any order under any of the
d   said sections. Jl.ules 67 to 87 of the. Companies [Court] Rules, 1959 deal
    with matters provided by. Sections 39\\to -394. The form in which several .
    notices contemplated by Sections 391 ·a;µi 394 and Rules 67 to 87 ·are to ·
    be issued are prescribed in Forms 33 to 42 appended to the Companies
    [Court] Rules.

H         The effect and scheme of the above provisions, insofar as it is
        MARSHALLSONSANDCO.(l)LID. v. l.T.0.[B.P.JEEVAN REDDY,J.] 227

     relevant to the facts of the case before us, may be summarized thus:           A
           (a) Where an amalgamation of two or more companies is proposed,
,    al! application has to be made to the Court for th.e purpose. Thereupon,
     the Court may call the meeting of members of the companies concerned.
     The order of the Court shall be in Form 35 prescribed by the Rules;
                                                                                    B
           (b) Such notice of the meeting has to be sent individually to all the
     members. (The notice and the explanatory statement under Section 393 are
     settled by the officer of the Court.)

           (c) Apart from individual notices, the notice of the meeting has also
     to be published in such newspapers as may be directed by the Court.            C
            (d) Only when a majority of the members representing three~ fourths
    .of the value of the members present and voting, either in person or. by
     proxy, approves the scheme, would the Court proceed to sanction the
     amalgamation arrangement. Such an order shall bin~ all concerned .. Of D
     course, the Court shall not sanction any such arrangement unless it is
     satisfied that the applicants have disclosed all material facts fully and truly;

           (e) the application for confirmation made under Sections 391(2) and
     394 is also required to be advertised in the same newspapers in which the
     notice of the meeting was advertis.ed and the notice is also required to be    E ·
     served on the Central. Government as provided by Section 394-A.

           (I) if the Court is satisfied that the statutory formalities have been
     duly complied with and the scheme is fair and a reasonable one and
     beneficial to the interests of the companies and its members, the Court may
     sanction the scheme. While sanctioning the scheme, the Court may also          F
     provide for all or any of the matters specified in clauses (i) to (vi) of
     sub-section (1) of Section 394. The two provisos appended to said sub-sec-
     tion provide for certain pre-conditions which too have to be observed by
     the Court. Sub-section (2) provides .that where the order sanctioning the
     amalgamation provides for any of the matters in clauses (i) to (vi)            G
     aforesaid, they shall take effect as provided in the order.

            (g) Within 30 days of the orde.r sanctioning the amalgamation arran·
    · gement, th~ company concerned shall file a certified copy of the order
      before the Registrar for registration. This is made mandatory by the second
      limb of sub-section (3) of 394.                                               H



                                                                  •
    228                  SUPREME COURT REPORTS [1996] SUPP. 9 S.C.R.
A         (h) The order sanctioning the scheme is required to be drawn up in
    accordance with Forms 41 and 42 of the Companies [Court] Rules. ·

        We may now refer to the scheme of amalgamation as passed at the
  meetings of the shareholders of both the Holding and the Subsidiary
B Companies. "Transferor company" is defined to mean the "Subsidiary com-
  pany" and the expression "Transferee Company is defined to mean the
  "Holding Company". The expression "this scheme" is defined to mean "this
  scheme in the present form or with any modifications approved or imposed
  by High Court of Judicature at Tamil Nadu and/or by the High Court of
  Judicature at Calcutta". The expression "the transfer date" is defined to
C mean "!st January, 1982" and the expression "the operative date" means the
  date on which the certified copies of the orders of the High Courts of Tamil
  Nadu and Calcutta under Sections 391(2)/394(2) of the Act shall have
  been filed with the Registrars of Companies in Tamil Nadu and Calcutta
  respectively. The expression "terminal date" is defined to mean the date
D immediately preceding the operative date. The scheme refers to the
  capital structure of the Transferor and the Transferee Companies, the
  object of the scheme underlying the agreement between the parties and
  then states :

             "l. The undertaking of the Transferor company shall, with effect
E          . from and including the transfer date and without further act or
             deed, be transferred to the Transferee Company pursuant to
             Sections 391(2) and 394(2) of the Act and vest in the Transferee
             Company with all the estate and interest of the Transferor Com-
             pany but subject, nevertheless, to all charges affecting the same
F            and ·on the said date, the Transferor Company shall be amal-
             gamated with the Transferee Company.

             6. (a) The excess of the value of the net assets of the Transferor
             Company, based on the Balance Sheet of the Transferor Company
             as at the date immediately preceding the transfer date over its
G            Subscribed and Paid· Up Capital shall, to the extent of the amount
             appearing as Development Rebate Reserve, Investment Allowance
             Reserve and Investment Allowance Reserve (Utilised) in such
             Balance Sheet of the Transferor Company, be the Development
             Rebate Reserve Investment Allowance and Reserve and Invest-
H            ment Allowance Reserve (Utilised) to the Transferee Company.
   MARSHALL SONS AND CO. (I) LID. v. LT.O. [B.P. JEEVAN REDDY, J:] 229

        (b) The transferor company shall, with effect from the Transfer A
        Date, be deemed to have carried on its business. for and on behalf
        of the Transferee Company, and accordingly the Profits and Losses
        of the Transferor Company for the period commencing from the
        Transfer Date shall be deemed to be the profits or. losses of the
        Transferee Company and shall be available to the Transferee B
        Company for disposal in any manner' including the declaration of
        any dividend by the Transferee Company after the Operative Date,
        subject to the provisions of the Act.

        7. The implementation of this sche(llc is conditional upon this
        Scheme being sanctioned under Section 391 of the Act and the       C
        appropriate orders for implementation of this Scheme being made
        under Section 394 of the Act by the High Courts of Tamil Nadu
        and Calcvtta.                          ·

        8. The implementation of this Scheme is conditional also upon      D
        shareholders holding not less than nine-tenths in val.ue of the
        shares in the Transferor Company (other than shares already held
        therein immediately before the amalgamation by the Transferee
        Company) becoming shareholders of the Transferee Company by
        virtue of the amalgamation."
                                                                           E
       A reading of the above clauses of the scheme 'shows that according
to the scheme, the entire undertaking of the Subsidiary Company shall be
transferred to the Holding Company with effect from the transfeTTed .date
and that the Subsidiary Company shall be amalgamated with the Holding
Company with effect from the said date. Clause (6) states clearly that the F
implementation of the said scheme "is conditional upon the scheme being
sanctioned under Section 391 of the Act and the appropriate orders for
the implementation of this scheme being made under Section 394 of the
Act by the High Courts of Tamil Nadu and Calcutta". Clause (8) further
provides that the implementation of the said scheme "is conditional also G
upon shareholders holding not less than nine-tenths in va!Ue of the shares
in the Subsidiary company becoming shareholders of the Holding Company
by virtue of the amalgamation." It is on the basis of the language of dauses
 (7) and (8) that the High Court has opined that the scheme takes effect
 only on and from the date it was sanctioned by the high Courts of Madras
and Calcutta coupled with the date on which the shareholders of the H
    230                   SUPREME COURT REPORTS (1996] SUPP. 9 S.C.R.

A Subsidiary Company become the shareholders of the Holding Company as
  provided in the sub-clauses. The High Court has opined that the transfer
  date mentioned in the scheme, viz., January 1, 1982 is "totally artificial and
  arbitrary" (for the reason that on the said date neither the company nor
  their shareholders had even thought of amalgamation] and that it has no
B legal significance. According to the High Court, therefore, the date on
  which the amalgamation should be deemed to have come into being is not
  January 1, 1982 but January 20, 1984/February 24, 1984, on which dates the
  Madras and Calcutta High Courts respectively approved the scheme. In
  other words, the High Court has taken the view that in the absence of any
  date being specified in the order of the High Court as the date of amal-
C gamation, the date of the order of the High Court [Company Courts] shall
  be taken as the date of the amalgamation. For arriving at the said view, the
  High Court followed an earlier Full Bench decision of that Court in
  Sahayanidhi (Vi1udhnagar) Ltd. v. A.R.S. Subramaniyam Nadar, [(1950) 20
  Company Cases 214]. The High Court also opined that the decision of the
D Bombay High Court in Swastik Rubber Products Ltd. is of no assistance to
  the appellant. On this basis, the High Court has upheld the validity of the
  notices issued by the Income Tax Officer, which notices were impugned in
  the writ petition, and dismissed the writ petition. The question is whether
  the view taken by the High Court is correct.

E       Every scheme of amalgamation has to necessarily provide a date
  with effect from which the amalgamation/transfer shall take place. The
  scheme concerned herein does so provide viz., January 1, 1982. It is true
  that while sanctioning the scheme, it is open to the Court to modify the
  said date and prescribe such date of amalgamation/transfer as it thinks
F appropriate in the facts and circumstances of the case. If the Court so
  specifies a date, there is little doubt that such date would be date of
  amalgamation/date of transfer. But where the Court does not prescribed
  any specific date but merely sanctions the scheme presented to it - as has
  happened in this case - it should follow that the rate of amalgamation/date
  of transfer. is the date specified in the scheme as "the transfer date'. It
G cannot be otherwise. It must be remembered that before applying to the
  Court under Section 391(1), a scheme has to be framed and such scheme
  has to contain a date of amalgamation/transfer. The proceedings before the
  court may take some time; indeed, they are bound to take some time
  because several steps provided by Sections 391 to 394-A and the relevant
H Rules have to be followed and complied with. During the period the
   MARSIIALLSONS AND CO. (I) LTD. v. I.T.O. [B.P. JEEVAN REDDY,J.] 231

proceedings are pending before the Court, both the amalgamation units, A
i.e., the Transferor Company and the Transferee Company may carry on
business, as has happened in this case but normally provision is made for
this aspect also in the scheme of amalgamation. In the present scheme,
clause 6(b) does expressly provide that with effect from the transfer date,
the Transferor Company (Subsidiary Company) shall be deemed to have B
carried on the business for and on behalf of the Transferee Company
 (Holding Company) with all attendant consequences. It is equally relevant
to notice that the Courts have not only sanctioned the scheme in this case
but have also not specified any other date as the date of transfer/amalgama-
tion. In such a situation, it would not be reasonable to say that the scheme
of amalgamation takes effect on and from the date of the order sanctioning C
the scheme. We are, therefore, of the opinion that the notices issued by
the Income Tax Officer (impugned in the writ petition) were not warranted
in Jaw. The business carried on by the Transferor Company (Subsidiary
Company) should be deemed to have been carried on for and on behalf of
the Transferee Company. This is the necessary and the logical consequence D
of the court sanctioning the scheme of amalgamation as presented to it.
            I
The order of the Court sanctioning the scheme, the filing of the certified
copies of the orders of the court before the Registrar of Companies, the
allotment of shares etc. may have all taken place subsequent to the date of
amalgamation/transfer, yet the date of amalgamation in the circumstances
of this case would be January 1, 1982. This is also the ratio of the decision E
of the Privy Council in Raghubar Dayal v. The Bank of Upper India Ltd.,
A.LR. (1919) P.C. 9, relied on.

       Counsel for the Revenue contended that if the aforesaid view is
adopted then several complications will ensue in case the Court refuses to F
sanction the scheme of amalgamation. We do not see any basis for this
apprehension. Firstly, an assessment can always be made and is supposed
to be made on the Transferee Company taking into account the income of
both the Transferor and Transferee Company. Secondly, and probably the
more advisable course from the point of view of the Revenue would be to
make one assessment on the Transferee Company taking into account the G
income of both; of Transferor or Transferee Cgmpanies and also to make
separate protective assessments on both the Transferor and Transferee
Companies separately. There may be a certain practical difficulty in adopt-
ing this course inasmuch as separate balance- sheets may not be available
for the Transferor and Transferee Companies. But that may not be an H
    232                  SUPREME COURT REPORTS [1996] SUPP. 9 S.C.R.

A insuperable problem inasmuch as assessment can always be made, on the
    available material, even without a balance-sheet. In certain cases, best-
    judgment assessment may also be resorted to. Be that as it may, we need
    not pursue this line of enquiry because it does not arise for consideration
    in these cases directly.

B         In the light of the view taken by us on. the principal question, it is
    not necessary to consider the alternate submission urged by Shri Poddar.

           For the above reasons, the appeals are accordingly allowed. The writ
    petitions filed by the appellant in the High Court shall be deemed to have
    been allowed. We, however, make it clear that we have not expressed any
C   opinion on the plea of the learned counsel for the Revenue that the
    amalgamation itself is a device designed to evade the taxes legitimately
    payable by the subsidiary company. If the Income Tax authorities think
    that, they are entitled to raise this question in the proceedings under the
    Income Tax Act, it is open to them to do so by way of a separate
D   proceeding according to law.

          No costs.

    K.K.T.                                                     Appeal allowed.