Commissioner of Income Tax vs Mather and Platt (I) Ltd.

Mrs. Sujata Manohar, J.—The facts which are relevant to this application made u/s 256(2) of the income tax Act, 1961 (''the Act'') at the instance of the department are as follows :

Under an order of this Court dated 20-2-1979 the scheme of amalgamation of the assessee-company with Mather & Platt Ltd., U.K. was sanctioned at the instance of the transferee-company with effect from 1-7-1978. Similarly the Calcutta High Court by its order dated 18-1-1979 sanctioned the scheme of amalgamation at the instance of the transferor-company. Under the scheme of amalgamation the U.K. company transferred its entire business and undertaking in India to the assessee-company with effect from 1-7-1978 for a consideration of Rs. 1,77,18,784 to be paid in the shape of equity shares of the assessee-company of the value of Rs. 89,50,000 and Rs. 87,68,784 credit for an interest-free loan by the U.K. company, the loan being repayable in two instalments subject to the approval of the Reserve Bank of India. Although the scheme of amalgamation came into effect from 1-7-1978, the actual allotment of shares by the assessee-company, which were worth Rs. 89,50,000, was made on 3-5-1979. The assessee-company sought to include the shares allotted to the U.K. company in the capital base of the company as on 1-7-1978. The Tribunal has, for the purpose of calculation of statutory dues under the Companies (Profits) Surtax Act, 1964, allowed this inclusion. The application by the department to the Tribunal for raising the following question of law and referring it to us for adjudication has been rejected:

"Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the value of equity shares worth Rs. 89,50,000 allotted to Mather & Platt Ltd.. U.K. in the scheme of amalgamation in the subsequent year as on 31-12-1969 must relate back to 1-1-1969 in view of specific directions of High Court and should be included in the capital of the company as on 1-1-1978 being the first day of the previous year relevant to this assessment year for surtax purposes ?"

Hence the present application which is made before us u/s 256(2).

There are obvious factual errors in the question which was formulated and which we would like to point these out at the outset. The date of allotment is wrongly mentioned as 31-12-1969. The correct date of allotment of these shares is 3-5-1979. The relation back of this allotment is not as on 1-1-1969 but it should be as on 1-7-1978. These dates appear to have been wrongly reproduced from the order passed in another case. Moreover, the statement that the allotment took place in the subsequent year is also incorrect. The actual allotment which took place on 3-5-1979 is in the same previous year. The inclusion of the capital of the company should be as on 1-7-1978 and not 1-1-1978. The Tribunal has held that it relates back to the date of amalgamation, viz., 1-7-1978.

The scheme of amalgamation as per the order of the Bombay High Court and the Calcutta High Court was admittedly approved with effect from 1-7-1978.

The amount of capital for the purpose of surtax is to be computed as on the first date of the accounting year. In the present case this would be 1-7-1978. The scheme of amalgamation is with effect from 1-7-1978 and hence the shares worth Rs. 89,50,000, which were required to be issued under the scheme of amalgamation, which came into operation on 1-7-19.78, formed part of the capital as on 1-7-1978. In the case of Commissioner of Income Tax, Pune-I Vs. Swastik Rubber Products Ltd., , a Division Bench of this Court held that the order of the Court sanctioning the scheme of amalgamation in that case clearly provided that the entire undertaking and the business and property of the assessee-company would stand transferred to the transferee-company with effect from the appointed date in the scheme of amalgamation which in that case was 1-7-1971. After referring to the provisions of sections 391 and 394 of the Companies Act, 1956, the Court said that the legal effect of the order sanctioning the scheme of amalgamation was that the provisions of the scheme would come into operation from the appointed date.

Similarly in the case of Mafatlal Gagalbhai & Co. (P.) Ltd. v. CIT [1992] 193 ITR 188, a Division Bench of this Court held that from the appointed date under the scheme of amalgamation the transferor-company amalgamated with the transferee-company and that any dividend, which was declared thereafter by the transferor-company and which had been paid to the transferee-company in respect of shares which the transferee-company originally held in the transferor-company, could not be treated as income of the transferee-company because after coming into operation of the scheme of amalgamation the transferee-company could not receive dividend on its own shares.

In the premises, in our view, looking to the appointed date, the value of the shares issued by the assessee-company in favour of the U.K. company must, therefore, form a part of the capital base of the assessee-company from the appointed date. The answer, therefore, to the question, in our view, is obvious and no useful purpose will be served, looking to the relevant facts, by directing the Tribunal to frame the question and refer it to us.

Rule is, therefore, discharged. No order as to costs.