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The Supreme Court on belated filing of Revised Returns by Amalgamated Companies

In a recent judgment delivered by Hon’ble Judge Indu Malhotra in the case of Dalmia Power Limited and Ors. Vs. The Assistant Commissioner of Income Tax, Circle 1, Trichy[1], the Supreme Court of India (“Court“) upheld the validity of filing of revised returns by an amalgamated company beyond the time limit prescribed under the Income Tax Act, 1961 (“IT Act“).

Background

M/s. Dalmia Power Limited and M/s. Dalmia Cement (Bharat) Limited both public limited companies (“Appellants“)filed their original return of income under Section 139(1) of the IT Acton September 30,2016 and November 30, 2016 respectively for Assessment Year (“AY“) 2015-2016. Thereafter, the Appellants had entered into four (4) interconnected Schemes of Arrangement and Amalgamation (“Schemes“) with nine (9) companies and their respective shareholders and creditors (“Amalgamated Companies“). The appointed date of the Schemes was January 1, 2015 which would come into effect from October 30, 2018. The Schemes were duly approved and sanctioned by the National Company Law Tribunal (“NCLT“), Guwahati vide orders dated May 18, 2017 and August 30, 2017.Further, NCLT Chennai sanctioned the Schemes vide orders dated October 16, 2017, October 20, 2017, October 26, 2017, December 28, 2017, January 10, 2018, April 20, 2018 and May 1, 2018. Subsequently after the Schemes were sanctioned and approval was granted by the NCLT, the Appellants manually filed revised returns of income on November 27, 2018 with the Income Tax Department (“Department“). The revised returns were based on the revised and modified computation of total income and tax liability of the Amalgamated Companies.

Issue

The issue which arose for consideration was whether the Department ought to have permitted the Appellants to file the revised income tax returns for the AY 2016-2017 after the expiry of the due date prescribed under Section 139(5) of the IT Acton account of pendency of proceedings for amalgamation of the Appellant companies with other companies under the Companies Act, 2013 (“Companies Act“).

Reasoning of the Court

  1. On a perusal of the Schemes, the Court observed that the Schemes contained clauses/provisions which enabled the Appellants to file revised return seven after the prescribed time limit for filing or revising such returns had lapsed, without incurring any liability on account of interest, penalty or any other sum.
  2. Section 230(5) of the Companies Act requires that a notice of a meeting, as may be ordered by the NCLT, along with documents pertaining to the Schemes, shall be sent to the Central Government, statutory authorities such as the Income Tax Department, RBI, SEBI etc. and any other sectoral regulators or authorities that are likely to be affected by the compromise or arrangement. Similarly, Rule 8(3) of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 provides that any representation made to the statutory authorities notified under Section 230(5), shall be sent to the NCLT within a period of thirty days (30) from the date of receipt of such notice, and a copy of suchre presentation shall simultaneously be sent to the concerned companies. In case nore presentation is received within thirty (30) days, it shall be presumed that the statutory authorities have no representation to make on the proposed scheme of compromise or arrangement.The Court observed that the Department did not raise any objection within the stipulated time period of thirty (30) days. In view thereof, the Schemes attained statutory force not only inter set he transferor and transferee companies, but also in rem, as no objection(s) were raised by any of the statutory authorities, the Department or any other regulators/authorities likely to be affected by the Schemes. 
  3. The Court further clarified that when the companies merged and amalgamated, they lost their separate identity and character and ceased to exist upon the approval of the Schemes.Every scheme of arrangement and amalgamation must provide for an appointed date. The appointed date is the date on which the assets and liabilities of the transferor company vest in, stand transferred to the transferee company. The schemes come into effect from the appointed date. In the present case, the Schemes came into effect from January 1, 2015. 
  4. Section 139 of the IT Act states that where an assessee furnishes a return and later discovers an omission or mistake therein, he/she may furnish a revised return at any time before the expiry of one (1) year from the end of the relevant AYor before the completion of the assessment, whichever is earlier. In the present case, the Court was of the view that this provision is not applicable to the facts and circumstances of the case as the Appellants did not file revised returns on account of any omission. Instead, a delay had occurred on account of time taken to obtain sanction of the Schemes from the NCLT. 
  5. In view of the above, the Court was of the view that it was impossible for the Appellants to file the revised returns of income for the AY 2016-2017 before the due date i.e. March 31, 2018, since orders were passed by the NCLT for granting approval and sanction of the Schemes only on April 22, 2018 and May 1, 2018. 
  6. The Court also highlights and clarifies that Section 170(1) of the IT Act provides that the successor of an assessee shall be assessed in respect of the income of the previous year after the date of succession. In the present case, the predecessor/transferor companies have been succeeded by the Appellants/transferee companies who have taken over their business along with all assets, liabilities, profits and losses etc. 

Conclusion

The Court directed the Department to receive the revised returns of income for AY 2016-2017 filed by the Appellants and complete the assessment for AY 2016-2017 after taking into account the Schemes as sanctioned by the NCLT, thereby upholding the validity of belated revised returns filed by Amalgamated Companies.

[1]Civil Appeal Nos. 9496-99 of 2019 (Arising out of SLP (C) Nos. 19678-681 of 2019)

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