Marshall Sons and Co (India) v. ITO 

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Facts

  • Marshall Sons and Co. (Mfg) Ltd.[1], Ambattur, a subsidiary company of Marshall Sons and Co. (India) Ltd. registered under the Companies Act, was engaged in the manufacture and sale of cranes and other road-making machinery.
  • The company was an assessee under the jurisdiction of the respondent herein and the return of income for the assessment year 1982-83 was filed on June 30, 1982, and the assessment was completed on March 28, 1985. 
  • The company applied to the concerned Income-tax Officer on December 1, 1982, for an adjustment in the previous year from December 31 to June 30, and wanted to close the books on June 30, 1983, for the period from January 1, 1982, to June 30, 1983. This was provided on the condition that the income for the 18-month period from January 1, 1982, to June 30, 1983, be measured and This was provided on the condition that the profits for the 18-month period between January 1, 1982, and June 30, 1983, be measured for the assessment year 1984-85.
  • A resolution authorising the subsidiary company’s amalgamation with its parent company, Marshall Sons and Co. (India) Ltd, was passed at a meeting of the subsidiary company’s shareholders on February 11, 1983.
  • Similarly, the petitioner-shareholders company’s passed a resolution regarding the merger of Marshall Sons and Co. (Mfg.) Ltd. with the petitioner at a meeting held on May 7, 1983, and, in due course, a scheme of amalgamation was finalised, the terms of which will be discussed later.
  • Marshall Sons and Co. (Mfg.) Ltd. lodged a civil motion for the sanctioning of the amalgamation scheme, which was granted on November 21, 1983. C.P. No. 294 of 1983 was also filed in the High Court of Calcutta for the sanctioning of the amalgamation scheme, which was ordered on January 11, 1984. 
  • The transferor and transferee-companies were directed to send certified copies of the orders sanctioning the scheme to the Registrar of Companies in Madras and Calcutta within 30 days of the court orders sanctioning the scheme. 
  • The Companies’ merger scheme was finalised in December 1982, and a resolution was passed proposing to incorporate with effect from January 1, 1982. The scheme and asset transfer were approved by the Madras and Calcutta High Courts on November 21, 1983 and November 11, 1984, respectively.
  • The date of amalgamation was not specified in the orders authorising the scheme. On 21-1-1986, the assessee’s name was taken from the registry of companies. For the AYs 1984-85 and 1985-86, the AO sent a notice to the subsidiary-company under section 142(1).
  • The holding firm, claiming to be the assessee’s successor, filed writs against the assessment proceedings, claiming that the assessee had ceased to exist on January 1, 1982, when it was amalgamated with it. The petition was rejected by the High Court, which held that the merger became successful only after the Court approved the plan, not before.
  • The High Court held that the operative dates would be 20-1-1984 and 24-2-1984, the dates on which the Madras and Calcutta High Courts approved the scheme, and that because the order was silent as to the effective date of 1-1-1982, the subsidiary company was in the register of companies until 21-1-1986, and it did not cease to exist in fact on 1-1-1982.
  • The transferor and transferee-companies were directed to send certified copies of the orders sanctioning the scheme to the Registrar of Companies in Madras and Calcutta within 30 days of the court orders sanctioning the scheme.
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Issue

Should the date stated in the scheme of amalgamation be taken as the “transfer date” if the scheme of amalgamation is properly accepted by Company Court without specifying any other date? 

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  • According to the arrangement, the subsidiary company’s entire undertaking will be transferred to the holding company as of the transition date, and the subsidiary company will be merged with the holding company as of the same date. Any amalgamation scheme must provide a date from when the amalgamation will take effect.
  • The scheme in question, namely 1-1-1982, provides for this. Real, the Court has the authority to change the said date and recommend whatever date of amalgamation/transfer it deems necessary in the facts and circumstances of the case while sanctioning the scheme.
  • If the Court specifies a date, it is almost certain that that date will be the amalgamation/transfer date. However, where the Court does not specify a particular date but simply approves the scheme submitted to it, as in this case, the date of amalgamation/transfer should be the date designated in the scheme as “the transfer date.”

Held

  • On appeal, the Court reversed the judgement, holding that when a date of amalgamation is stated in a scheme of amalgamation and the scheme is properly accepted by the Court without specifying any other date, the date specified in the scheme should be considered the transition date. 
  • The terms of the amalgamation scheme seem to have been finalised in December, well after the transition date of January 1, 1982, as stipulated in the scheme. There is no hint in the scheme’s terms as to why the date of January 1, 1982, was chosen.
  • It’s unclear how the transition date was moved back to January 1, 1982, since there was no scheme of amalgamation in the works until at least the beginning of December 1982. The date of January 1, 1982, seems to us to be completely arbitrary and unrelated to the other provisions of the scheme of amalgamation, and it has no bearing on the scheme of amalgamation.
  • As a result, the date January 1, 1982, contained in the scheme appears to have little significance to the scheme of amalgamation, particularly because the concept of amalgamation was perhaps farthest from the minds of the amalgamated and amalgamating companies on January 1, 1982.
  • In this case, it has already been mentioned that neither the Madras nor the Calcutta courts indicated a specific date in their orders, but instead continued to approve the scheme found in the annexure to the petition.
  • In Commissioner Of Income-Tax v. K.M Jagannathan[2], the theory of this decision was adopted and implemented.
  • The Court therefore, dismissed the writ petition.

[1] Marshall Sons and Co (India) v. ITO (1996) 88 Taxman 619/(1997) 223 ITR 809/138 CTR 1(SC)/2 SCC 302.

[2] Commissioner Of Income-Tax v. K.M Jagannathan, (1989) 180 ITR 191 (Mad).

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