The Short Question Which Falls For Consideration Iswhether The Commissioner Of Income Tax (Appeals)-20, Kolkata (Inshort Cit(A)) Was Justified In Deleting The A v. M/S. Mahaluxmi Marketing Pvt Ltd

Form No.(J2) IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE Present : THE HON’BLE JUSTICE T.S. SIVAGNANAM A N D THE HON’BLE JUSTICE HIRANMAY BHATTACHARYYA IA NO.GA/2/2020 ITAT/51/2020 PRINCIPAL COMMISSIONER OF INCOME TAX, CENTRAL-1, KOLKATA-Versus-M/S. MAHALUXMI MARKETING PVT. LTD. For the Appellant: Mr. S. N. Dutta, Adv. Mr. Asok Bhowmick, Adv. For the Respondent: Mr. Agnibesh Sengupta, Adv. Heard on : 07.02.2022 Judgment on : 07.02.2022 T. S. SIVAGANANAM, J. : This appeal of revenue filed underSection 260A of the Income Tax Act, 1961 (the ‘Act’ in brevity) isdirected against the order dated 12 December, 2018 passed by theIncome Tax Appellate Tribunal, Kolkata “B” Bench (the ‘Tribunal’in short) in IT(SS)A No.118/Kol/2017 for the assessment year 2012-13. The revenue has raised for the following substantialquestions of law for consideration: “(a) Whether on the facts and in the circumstances of thecase, the Learned Income Tax Appellate Tribunal wasright in law in upholding the order of the Commissionerof Income Tax (Appeals) deleting the addition made underSection 69 of the Act on the ground that the assesseecompany is different juristic entity cannot be taxed byapplying Section 68 of the Act for the share capital andpremium which these 14 amalgamating companies have showntheir respective books from Financial Year 2008-09onwards ? (b)Whether the Learned Income Tax Appellate Tribunal erredin law as well as in facts in dismissing the appeal ofthe revenue by deleting an addition ofRs.1,53,60,07,000/- wrongly assuming that this additionhas been made under section 68 while the AssessingOfficer made addition on account of unexplainedinvestment in share capital and the applicable sectionis Section 69 of the Income Tax Act, 1961 and,therefore, the Income Tax Appellate Tribunal erred inlaw in holding otherwise ? We have heard Mr. S. N. Dutta, learned counsel assisted byMr. Asok Bhowmick, learned advocate for the appellant/revenue andMr. Agnibesh Sengupta, learned counsel for therespondent/assessee. The short question which falls for consideration iswhether the Commissioner of Income Tax (Appeals)-20, Kolkata (inshort CIT(A)) was justified in deleting the addition made by the Assessing Officer under Section 68 of the Act and as to whetherthe Tribunal was right in affirming such an order. The legalissue which arises for consideration in the instant case iswhether after the process of amalgamation the remission/cessationof trading liability can be taxed in the hands of the assesseecompany. In this regard it would be beneficial to refer to thedecision of the Hon’ble Supreme Court in Saraswati IndustrialSyndicate Ltd. vs. Commissioner of Income Tax reported in [1990]186 ITR 278 (SC). In the said decision the Hon’ble Supreme Courthas discussed the law on the subject i.e. after an order ofamalgamation is approved by the concerned High Court. It would bebeneficial to refer to paragraph 5 of the judgment which reads asfollows: “Generally, where only one company is involved in changeand the rights of the shareholders and creditors arevaried, it amounts to reconstruction or reorganisation orscheme of arrangement. In amalgamation two or morecompanies are fused into one by merger or by taking overby another. Reconstruction or ‘amalgamation’ has noprecise legal meaning. The amalgamation is a blending oftwo or more existing undertakings into one undertaking,the shareholders of each blending company becomesubstantially the shareholders in the company which is tocarry on the blended undertakings. There may beamalgamation either by the transfer of two or moreundertakings to a new company, or by the transfer of oneor more undertakings to an existing company. Strictly “Generally, where only one company is involved in changeand the rights of the shareholders and creditors arevaried, it amounts to reconstruction or reorganisation orscheme of arrangement. In amalgamation two or morecompanies are fused into one by merger or by taking overby another. Reconstruction or ‘amalgamation’ has noprecise legal meaning. The amalgamation is a blending oftwo or more existing undertakings into one undertaking,the shareholders of each blending company becomesubstantially the shareholders in the company which is tocarry on the blended undertakings. There may beamalgamation either by the transfer of two or moreundertakings to a new company, or by the transfer of oneor more undertakings to an existing company. Strictly ‘amalgamation’ does not cover the mere acquisition by acompany of the share capital of other company whichremains in existence and continues its undertaking but thecontext in which the term is used may show that it isintended to include such an acquisition. See Halsbury’sLaws of England, Fourth Edn., Vol.7, paragraph 1539. Twocompanies may join to form a new company, but there may beabsorption or blending of one by the other, both amount toamalgamation. When two companies are merged and are sojoined, as to form a third company or one is absorbed intoone or blended with another, the amalgamating companyloses its entity.” It would also be of relevance to note an earlier decisionof the Hon’ble Supreme Court in the case of Commissioner of IncomeTax vs. Hukumchand Mohanlal reported in [1971] 82 ITR 624 (SC),more appropriately the decision of the High Court of Delhi inCommissioner of Income Tax, Delhi-VI vs. Usha Stud AgriculturalFarms Ltd. reported in [2008] 301 ITR 384 (Delhi) can be referredto as the facts in the said case would match with that of thefacts in the case on hand. As in the case of the assessee beforeus in Usha Stud Agricultural Farms Ltd. the CIT(A) had recorded afinding of fact that the credit balance appearing in the accountsof the assessee does not pertain to the year under considerationand accordingly held that the assessing officer was not justifiedin making the addition under Section 68 of the Act. Mr. S. N. Dutta vehemently contends that the substantialamount of funds are involved in the matter and the Tribunalproceeded to decide the matter only on technicalities.To test the correctness of the said submission we have notonly gone through the order passed by the Tribunal but also theorder passed by the CIT(A) dated 15[th] June, 2017. The CIT(A) aswell as he Tribunal not only took note of the legal position butalso the factual position. The Tribunal held that the legaleffect after amalgamation of the 14 companies with the assesseecompany is that the amalgamating companies loses its identity andsince the assessee company is different juristic entity, cannot betaxed by applying Section 68 of the Act for the share capital andpremium which these 14 amalgamating companies have shown in theirrespective books from financial year 2008-09 onwards.Furthermore, the Tribunal as well as the CIT(A) noted that theassessee company being a different corporate entity cannot besaddled with the share capital introduced by 14 differentamalgamating companies in the financial year 2008-09. That apart,the Tribunal also considering the legal position namely, thedecision in Saraswati Industrial Syndicate vs. Commissioner ofIncome Tax reported in [1990] 53 taxman 92 (SC), in the case ofHukumchand Mohanlal (supra) and Usha Stud Agricultural Farms Ltd.(supra) dismissed the appeal filed by the revenue. We find that there is no error committed by the Tribunalin affirming the decision of the CIT(A). Thus, for the abovereasons, the appeal filed by the revenue (ITAT/51/2020) isdismissed. In the result, the substantial questions of law areanswered against the revenue. The connected application for stay being GA/2/2020 standsdismissed. (T.S. SIVAGNANAM, J.) I agree. (HIRANMAY BHATTACHARYYA, J.) A/s./pa