* IN HIGH COURT OF DELHI AT NEW DELHI + INCOME TAX APPEAL NO. 35/2002 Reserved on: 8th September, 2014 Date of decision: 23rd December, 2014 COMMISSIONER OF INCOME TAX, DELHI-IV.. Appellant Through Mr. Rohit Madan, Sr. Standing Counsel. versus M/S D.C.M. LIMITED ..... Respondent Through Mr. S. Ganesh, Sr. Advocate with Mr. V.P. Gupta & Mr. Anunav Kumar, Advocates. CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE V. KAMESWAR RAO SANJIV KHANNA, J.: This appeal by Revenue under Section 260A of Income Tax Act, 1961 (Act, for short) stands admitted for adjudication on following substantial question of law:- Whether Tribunal was right in holding that there was no transfer within meaning of S.32A(5) of Act under Scheme of Arrangement of assessee company and, therefore, Assessing Officer erred in withdrawing investment allowance granted earlier under Section 155 (4A) of Act? 2. respondent-assessee is company and during period 1983-84 to 1990-91 had availed of and was granted benefit of investment allowance or carried forward of investment allowance under Section 32A of Act. 3. Under scheme of arrangement under Sections 391 and 394 of Companies Act, 1956 which came into effect on 1st April, 1990, 9 out of 13 industrial units held by respondent company were transferred to three ITA No. 35/2002 Page 1 of 28 newly formed companies, namely, M/s DCM Shriram Industries Limited, M/s DCM Shriram Consolidated Limited and M/s DCM Shriram Industrial Enterprises Limited. Relying upon sub-section (5) to Section 32A and treating transfer of assets and liabilities, including plant and machinery as sale or otherwise transfer , Assessing Officer passed order under Section 32A(5) read with Section 155(4A) and 154 of Act withdrawing benefit of investment allowance or carried forward of investment allowance. First appeals were dismissed by two separate orders, passed by Commissioner of Income Tax (Appeals) dated 19th September, 1994 in relation to Assessment Years 1987-88, 1988-89, 1989-99 and 1990-91 and order dated 21st October, 1994 in respect of Assessment Years 1983-84, 1984-85 and 1985-86. assessee, however, succeeded by impugned order passed by Income Tax Appellate Tribunal ( Tribunal , for short) dated 1st August, 2001, inter alia, holding that scheme of arrangement did not result in transfer under sub-section (5) to Section 35A. Tribunal preferred to give purposive interpretation to expression otherwise transfer used in Section 32A(5) of Act. Scheme of arrangement it stands observed should not be construed as violating negative mandate which prohibits transfer. Sub-section (5) to Section 32A of Act was not enacted to bar such schemes as purpose behind Section 32A was to promote industrial growth and production, which was not adversely effected. 4. In order to appreciate controversy, we would like to first reproduce relevant portions of Section 32A, i.e., sub-section (1), (5), (6) and (7) of Section 32A of Act, which read:- 32A. (1) In respect of ship or aircraft or machinery or plant specified in sub-section (2), which is owned by assessee and is wholly used for purposes of business carried on by him, there shall, in accordance with and subject to provisions of this section, be allowed deduction, in ITA No. 35/2002 Page 2 of 28 respect of previous year in which ship or aircraft was acquired or machinery or plant was installed or, if ship, aircraft, machinery or plant is first put to use in immediately succeeding previous year, then, in respect of that previous year, of sum by way of investment, allowance equal to twenty-five per cent of actual cost of ship, aircraft, machinery or plant to assessee: Provided that in respect of ship or aircraft or machinery or plant specified in sub-section (8B), this sub-section shall have effect as if for words "twenty-five per cent", words "twenty per cent" had been substituted : Provided further that no deduction shall be allowed under this section in respect of (a) any machinery or plant installed in any office premises or any residential accommodation, including any accommodation in nature of guest house; (b) any office appliances or road transport vehicles; (c) any ship, machinery or plant in respect of which deduction by way of development rebate is allowable under section 33; and (d) any machinery of plant, whole of actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing income chargeable under head "Profits and gains of business or profession" of any previous year. Explanation : For purposes of this sub-section, "actual cost" means actual cost of ship, aircraft, machinery or plant to assessee as reduced by that part of such cost which has been met out of amount released to assessee under sub-section (6) of section 32AB. xxx (5) Any allowance made under this section in respect of any ship, aircraft, machinery or plant shall be deemed to have been wrongly made for purposes of this Act (a) if ship, aircraft, machinery or plant is sold or otherwise transferred by assessee to any person at any time before expiry of eight years from end of previous year in which it was acquired or installed; or (b) if at any time before expiry of ten years from end of previous year in which ship or aircraft was acquired or machinery or plant as installed, assessee does not utilise amount credited to reserve account under sub-section (4) for purposes of acquiring new ship or new aircraft or new machinery or plant [other than machinery or plant of nature referred to in clauses (a), (b) and (d) of ITA No. 35/2002 Page 3 of 28 second proviso to sub-section (1)] for purposes of business of undertaking; or (c) if at any time before expiry of ten years aforesaid, assessee utilises amount credited to reserve account under sub- section (4) for distribution by way of dividends or profits or for remittance outside India as profits or for creation of any assets outside India or for any other purpose which is not purpose of business of undertaking, and provisions of sub-section (4A) of section 155 shall apply accordingly : Provided that nothing in clause (a) shall apply (i) where ship, aircraft, machinery or plant is sold or otherwise transferred by assessee to Government, local authority, corporation established by Central, State or Provincial Act or Government company as defined in section 617 of Companies Act, 1956 (1 of 1956); or (ii) where sale or transfer of ship, aircraft, machinery or plant is made in connection with amalgamation or succession, referred to in sub-section (6) or sub-section (7). (6) Where in scheme of amalgamation, amalgamating company sells or otherwise transfers to amalgamated company any ship, aircraft, machinery or plant, in respect of which investment allowance has been allowed to amalgamating company under sub-section (1), (a) amalgamated company shall continue to fulfil conditions mentioned in sub-section (4) in respect of reserve created by amalgamating company and in respect of period within which such ship, aircraft, machinery or plant shall not be sold or otherwise transferred and in default of any of these conditions, provisions of sub-section (4A) of section 155 shall apply to amalgamated company as they would have applied to amalgamating company had it committed default; and (b) balance of investment allowance, if any, still outstanding to amalgamating company in respect of such ship, aircraft, machinery or plant, shall be allowed to amalgamated company in accordance with provisions of sub-section (3), so, however, that total period for which balance of investment allowance shall be carried forward in assessments of amalgamating company and amalgamated company shall not exceed period of eight years, specified in sub-section (3) and amalgamated company shall be treated as assessee in respect of such ship, aircraft, machinery or plant for purposes of this section. (7) Where firm is succeeded to by company in business carried on by it as result of which firm sells or otherwise transfers to company any ship, aircraft, machinery or plant, provisions of clauses (a) and (b) of sub-section (6) shall, so far as may be, apply to firm and company. ITA No. 35/2002 Page 4 of 28 Explanation : provisions of this sub-section shall apply only where (i) all property of firm relating to business immediately before succession becomes property of company; (ii) all liabilities of firm relating to business immediately before succession become liabilities of company; and (iii) all shareholders of company were partners of firm immediately before succession. xxx 5. At this stage, we would also like to reproduce definition of term transfer in Section 2(47) of Act. said clause, it must be noted, is in relation to capital asset and reads:- 2. In this Act, unless context otherwise requires, xxx (47) "transfer", in relation to capital asset, includes, (i) sale, exchange or relinquishment of asset; or (ii) extinguishment of any rights therein; or (iii) compulsory acquisition thereof under any law; or (iv) in case where asset is converted by owner thereof into, or is treated by him as, stock-in-trade of business carried on by him, such conversion or treatment; or (v) any transaction involving allowing of possession of any immovable property to be taken or retained in part performance of contract of nature referred to in section 53A of Transfer of Property Act, 1882 (4 of 1882); or (vi) any transaction (whether by way of becoming member of, or acquiring shares in, co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has effect of transferring, or enabling enjoyment of, any immovable property. Explanation : For purposes of sub-clauses(v) and (vi), "immovable property" shall have same meaning as in clause (d) of section 269UA (48) xxx ITA No. 35/2002 Page 5 of 28 (The provisions reproduced in paragraph Nos.4 and 5 are as they existed on 1st April, 1990, i.e., date on which scheme of arrangement became effective and 9 out of 13 units owned by respondent-assessee were transferred to three newly incorporated companies.) 6. Sub-section (5) uses two expressions sold or is otherwise transferred . Scheme of amalgamation or reconstruction under Sections 391 and 394 of Act whereby assets or units/undertakings were transferred would be covered by expression otherwise transferred in sub-section (5). We do not think by adopting purposive or applying said principle of interpretation, it can be held that scheme did not result in transfer of assets. decision of Tribunal to this extent should not be accepted. If reasoning given by Tribunal is to be accepted, then sub-section (6) to Section 35A of Act would become redundant and otiose. It will stand erased. said sub-section carves out exception to sub-section (5) and states that sub-section (5) would not apply to cases of amalgamation provided two conditions stipulated therein are satisfied. On reading of sub-section (6), it is clear that scheme of amalgamation is treated and would constitute transfer under sub-section (5) of Section 32A of Act. two provisions have to be read harmoniously. Any other interpretation would be clearly contrary to express language and stipulations of Section itself and, therefore, would be unacceptable. 7. word transfer and its purport was examined by Supreme Court in Commissioner of Income Tax, Lucknow versus Narang Dairy Products, Lucknow, [1996] 219 ITR 478 (SC) with reference to Sections 33 and 34 of Act in following words:- Even assuming that transaction may not be transfer as defined under Section 2(47) of Act, in our view, definition section is inclusive one and does not exclude contextual or ordinary meaning ITA No. 35/2002 Page 6 of 28 of word, transfer . There are different shades of meaning to word transfer , vis-., to make over possession of to another , delivery of title or property from one person to another , to displace from one surface to another , removal , handover , make over possession of property to another , change , displace , etc. In said case, assessee, partnership firm had transferred by way of lease, possession and enjoyment of machinery or plant to third person. It was held that grant of lease by itself would be covered by expression otherwise transferred for purpose of Sections 33 and 34 of Act . said decision, however, did not examine or answer whether scheme of amalgamation or arrangement, has effect of alienation of assets and can be treated as transfer in eyes of law. However, said aspect is not res integra as per affirmative pronouncements of Supreme Court. Whether amalgamation results or constitutes transfer of assets was examined in some detail by this Court in Commissioner of Income Tax-II, New Delhi vs. Mira Exim Ltd. (2013) 359 ITR 70 (Del), in following manner:- 9. Thus, we do not agree with findings recorded by tribunal that it is not case of amalgamation; or merger and amalgamation are different or it is case of purchase of business as going concern and, therefore, different principles apply. In present case, there was transfer, as merger or amalgamation results in transfer. 10. Term merger or amalgamation has no precise legal meaning but it involves blending of two or more existing undertaking into one. In case of merger, there is complete blending of merged undertaking into other company, but this does result in transfer of assets from merged undertaking. Assets are acquired by other undertaking. Upon merger, earlier concern or undertaking loses its identity and ownership in asset. (see Saraswati Industrial Syndicate Limited versus Commissioner of Income Tax, [(1990) 186 ITR (SC)]. In Hindustan Lever versus State of Maharashtra, (2004) 9 SCC 438 expounding on concept of amalgamation and whether it amounts to transfer, it was held as under:- ITA No. 35/2002 Page 7 of 28 9. Section 394 provides that application and order of amalgamation under Section 394 is based on compromise or arrangement which has been proposed for purpose of amalgamation of two or more companies. amalgamation scheme, which is agreement between companies is presented before court and court passes appropriate order sanctioning compromise or arrangement. foundation or basis for passing order of amalgamation is agreement between two or more companies. Under scheme of amalgamation, whole or any part of undertaking, properties or liability of any company concerned in scheme is to be transferred to other company. company whose property is transferred would be transferor company and company to whom property is transferred would be considered as transferee company. scheme of amalgamation has its genesis in agreement between prescribed majority of shareholders and creditors of transferor company with prescribed majority of shareholders and creditors of transferee company. intended transfer is voluntary act of contracting parties. transfer has all trappings of sale. transfer is effected by order of court. proposed compromise or arrangement is subject to verification by court as provided therein. First is that scheme of compromise or arrangement proposed for purposes of amalgamation or in connection therewith, shall not be sanctioned unless court has received report from Company Law Board or Registrar that affairs of company have not been conducted in manner prejudicial to interest of its members or to public interest; and secondly, that order of resolution of transfer of company shall not be made unless official liquidator on scrutiny of books and papers of company makes report to court that affairs of company had not been conducted in manner prejudicial to interest of its members or to public interest. 11. Similar view was taken earlier in case of Singer India Limited versus Chander Mohan Chadha, (2004) 7 SCC 1 wherein following extract from Halsbury s Laws of England (4th Edn., Vol. 7) paragraph 1539 was quoted:- Amalgamation is blending of two or more existing undertakings into one undertaking, shareholders of each blending company becoming substantially shareholders in company which is to carry on blended undertakings. There may be amalgamation either by transfer of two or more undertakings to new company, or by transfer of one or more undertakings to existing company. Strictly ITA No. 35/2002 Page 8 of 28 amalgamation does not, it seems, cover mere acquisition by company of share capital of other companies which remain in existence and continue their undertakings, but context to which term is used may show that it is intended to include such acquisition. question whether winding up is for purposes of reconstruction or amalgamation depends upon whole of circumstances of winding up. 12. In case of Singer India Limited (supra), question arose whether upon amalgamation tenancy rights were transferred and whether there was subletting. It was held that there was transfer and tenancy or right to occupation of transferor company got vested in transferee company. Thus, there was subletting. law on subletting under Delhi Rent Control Act, 1958 did not make any exception in favour of lessee, who may have adopted course of action of amalgamation. Similar view has been taken in Speedline Agencies versus T. Stanes & Company Limited, (2010) 6 SCC 257. 13. In Commissioner of Income Tax versus Mrs. Grace Collis, (2001) 248 ITR 323 (SC) pursuant to scheme of arrangement, assets and liabilities of amalgamating company became assets and liabilities of amalgamated company. Shareholders of amalgamating company were issued shares of amalgamated company in lieu of shares held by them in amalgamating company. assessee had sold shares of amalgamated company and question related to purchase cost of shares of amalgamated company. question raised was whether there was transfer within meaning of Section 2(47), when assessee acquired shares in amalgamated company. It was observed by Supreme Court that definition of transfer in Section 2(47) was wider and broader than even its ordinary, common and natural meaning. word transfer as defined in Section 2(47) includes extinguishment of any right and it was further observed that said expression i.e. extinguishment of any right would include extinguishment of right in capital asset, independent of and otherwise than on account of transfer. 8. aforesaid ratio is apposite and would negate contention raised by assessee and finding recorded by Tribunal to contrary, that scheme of arrangement or amalgamation would not result in transfer of ITA No. 35/2002 Page 9 of 28 assets from earlier owner to new or amalgamated company. Transfer in law upon amalgamation can take place. In Section 32A, Legislature has not used term sale , i.e. conveyance alone, but consciously and deliberately used expression otherwise transferred . Unlike 1922 Act, expression transfer is now defined in sub-section (47) to Section 2 which specifically refers to sale, exchange, relinquishment, extinguishment of any right in asset, compulsory acquisition, conversion by owner of asset into stock in trade etc. term transfer is defined in Section 2(47) of Act is very broad and wide and goes much beyond legal term sale . Besides aforesaid definition is inclusive definition and it would not be appropriate to give restrictive interpretation of term of such wide denotation. 9. We have already quoted expression transfer as defined in relation to capital assets in Section 2(47), which refers to extinguishment of rights, which is very broad and wide approach. In these circumstances, we are unable to accept submission of assessee that scheme of arrangement or reconstruction in present case did not result in transfer of 9 units of assessee to three newly formed companies. said three companies were in fact separate juristic entities in law. expression otherwise transfer according to us cannot be given narrow meaning to exclude all transfers as result of merger, amalgamation, etc. 10. decision of Supreme Court in Malabar Fisheries Company versus CIT, [1979] 120 ITR 49 (SC) is not applicable in present factual matrix as it was case of dissolution of firm and firm it is well known is not juristic entity in law. We have also noticed distinguishing features in case of Narang Dairy Products (supra), but have held that in case of amalgamation or merger, transfer in law can take place and, therefore, ITA No. 35/2002 Page 10 of 28 legislature had incorporated saving and ameliorative provision in form of sub-section (6) to Section 32A of Act. Reliance placed on certain judgments under Chapter XX-C of Act is not apposite as said Chapter related to entirely different concept of pre-emptive purchase to curtail black money menace in sale and purchase of immovable properties. In Mustafa Umar versus Appropriate Authority, [2001] 248 ITR 436 (Ker) transfer was made by owner to its 100% subsidiary company. 11. No doubt that Section 32A(5) of Act is negative provision, which may be penal, but when legislative intention and requirement is clear in form of sub-section (6), it would be difficult to ignore legislative mandate and hold that amalgamation or merger would not result and constitute transfer within expression otherwise transfer used in sub-section (5) to Section 32A of Act. 12. However, assessee, we feel is entitled to succeed on their alternative submission that aforesaid arrangement is protected being covered under sub-section (6) to Section 32A. We may record that after arguments were heard on 2nd September, 2014, appeal was re-listed for hearing on said aspect on 8th September, 2014, when counsel for parties were heard on whether scheme of arrangement would be covered under sub-section (6) to Section 32A of Act. Accordingly, we deem it appropriate to frame following additional substantial question of law: Whether scheme of arrangement/reconstruction can be regarded as amalgamation and protected under sub-section (6) to Section 32A of Income Tax Act, 1961? 13. We have already quoted sub-section (6) to Section 32A, but at this stage would like to reproduce term amalgamation as defined in Section 2(1B) of Act (as on 1st April, 1990) which reads:- ITA No. 35/2002 Page 11 of 28 2. In this Act, unless context otherwise requires, xxx (1B) "amalgamation", in relation to companies, means merger of one or more companies with another company or merger of two or more companies to form one company (the company or companies which so merge being referred to as amalgamating company or companies and company with which they merge or which is formed as result of merger, as amalgamated company) in such manner that (i) all property of amalgamating company or compa- nies immediately before amalgamation becomes property of amalgamated company by virtue of amalgamation; (ii) all liabilities of amalgamating company or companies immediately before amalgamation become liabilities of amalgamated company by virtue of amalgamation; (iii) shareholders holding not less than nine-tenths in value of shares in amalgamating company or companies (other than shares already held therein immediately before amalgamation by, or by nominee for, amalgamated company or its subsidiary) become shareholders of amalgamated company by virtue of amalgamation, otherwise than as result of acquisition of property of one company by another company pursuant to purchase of such property by other company or as result of distribution of such property to other company after winding up of first-mentioned company; xxx 14. expression demerger is defined in Section 2(19AA) and was inserted by Finance Act, 1999 with effect from 1 st April, 2000. Undoubtedly, in case scheme of arrangement had been implemented with effect from 1st April, 2000, it would have been treated as scheme of demerger. In present case, as noticed above, arrangement had been implemented and applied decade earlier, as it was effective from 1st April, 1990. It can be argued with some merit and conviction that Act did not move with time to accommodate and deal with amalgamation of nature which were taking place in corporate world. However, we would not like to base our decision on said submission/argument, albeit we ITA No. 35/2002 Page 12 of 28 have used said argument to interpret sub-section (6) to Section 32A of Act. 15. We have referred to definition clause 2(1B) of Act, which defines term amalgamation in relation to companies to mean merger of one or more companies into another or merger of two or more companies into one. Section 2(1B), therefore, postulates extinction of company upon merger with amalgamated company. Clause (i) to Section 2(1B) states that all properties of amalgamating company immediately before amalgamation should become properties of amalgamated company and similarly liabilities of amalgamating company should become liabilities of amalgamated company. There should be complete and absolute merger and integration of amalgamating company with amalgamated company. In clause (iii), shareholders not less than nine-tenth in value in amalgamating company subject to certain other conditions, should become shareholders of amalgamated company by virtue of amalgamation. 16. Section 2(1B) seeks to define word amalgamation for purpose of Act and statutory definition stands enacted should be applied when interpreting word in section. However, this rule is subject to qualification mentioned in beginning of definition section unless context otherwise requires . Repugnancy of definition would be accepted if statutory definition is not in agreement with subject or context. Statutory definitions or abbreviations must necessarily be read subject to this qualification expressed in definition clause itself. It is possible that word defined in definition clause could have somewhat different meaning in different sections of Act, depending upon subject or context. Thus, Legislature has prefixed ITA No. 35/2002 Page 13 of 28 qualifying words in Section 2. Therefore, one would ordinarily apply definition clause but this is not inflexible rule and definition clause can be departed from on account of subject or context in which word is used in particular section. In Vangaurd Fire and General Insurance Co. Ltd., Madras versus Fraser & Ross, AIR 1960 SC 971, it was observed: It is well settled that all statutory definitions or abbreviations must be read subject to qualification variously expressed in definition clauses which created them and it may be that even where definition is exhaustive inasmuch as word defined is said to mean certain thing, it is possible for word to have somewhat different meaning in different sections of Act depending upon subject or context. That is why all definitions in statutes generally begin with qualifying words, similar to words used in present case, namely, unless there is anything repugnant in subject or context . Therefore in finding out meaning of word "insurer" in various sections of Act (Insurance Act, 1938), meaning to be ordinarily given to it is that given in definition clause. But this is not inflexible and there may be sections in Act where meaning may have to be departed from on account of subject or context in which word has been used and that will be giving effect to opening sentence in definition section, namely, unless there is anything repugnant in subject or context . In view of this qualification, court has not only to look at words but also to look at context, collocation and object of such words relating to such matter and interpret meaning intended to be conveyed by use of words under circumstances. 17. G.P. Singh in Principles of Statutory Interpretation, 13th Edition, 2012, at page 191 has discussed definition clauses and effect of reference to context in following words:- And as recently stated by Lord Lowry: If Parliament in statutory enactment defines its terms (whether by enlarging or by restricting ordinary meaning of word or expression), it must intend that, in absence of clear indication to contrary, those terms as defined shall govern what is proposed, authorised or done under or by reference to that enactment. But where context makes definition given in interpretation clause inapplicable, defined word when used in body of statute may have to be given meaning different from that ITA No. 35/2002 Page 14 of 28 contained in interpretation clause all definitions given in interpretation clause; all definitions given in interpretation clause are therefore normally enacted subjected to qualification unless there is anything repugnant in subject or context , or unless context otherwise requires . Even in absence of express qualification to that effect such qualification is always implied. However, it is incumbent on those who contend that definition given in interpretation clause does not apply to particular section to show that context in fact so requires. argument based on contrary context which will make inclusive definition inapplicable to any provision in Act cannot be accepted as it would make definition entirely useless. Repugnancy of definition arises only when definition does not agree with subject or context; any action not in conformity with definition will not obviously make it repugnant to subject or context of provision containing term defined under which such action is purported to have been taken. When application of definition to term in provision containing that term makes it unworkable and otiose, it can be said that definition is not applicable to that provision because of contrary context 18. aforesaid observations and decisions are apposite and relevant when we minutely examine sub-sections (5) and (6) to Section 32A. Sub- section (5) to Section 32A fixates and makes pointed reference to allowance made under said Section in respect of any ship, aircraft, machinery or plant. allowance is deemed to be wrongly made if aforesaid assets are sold or otherwise transferred at any time before expiry of eight years from end of previous year in which it was acquired or installed or at any time before expiry of ten years amount credited to reserve account is not utilized for purposes of acquiring new ship, aircraft, machinery or plant or is used for payment of dividend of profits or remittances out of India as profits or for creation of asset outside India, etc. core focus and convergence, therefore, is on assets, namely, ship, aircraft, machinery or plant. asset created should not be transferred and reserve created should be used for purchase and installation of said assets. Sub-section (6) refers to scheme of amalgamation and states that if amalgamating company sells or otherwise transfers to amalgamated company, ship, aircraft, machinery ITA No. 35/2002 Page 15 of 28 or plant in respect of which investment allowance has been allowed to amalgamating company, then amalgamated company shall continue to fulfil conditions mentioned in sub-section (4) in respect of unexpired lock-in period of sale/transfer or reserve created by amalgamating company and provisions of Section 4A of Section 155 shall apply to amalgamated company as would have applied to amalgamating company if it would have committed default. sub-section (6), therefore, talks of sale or otherwise transfer by amalgamating to amalgamated company of ship, aircraft, machinery or plant. It does not speak and refer to any stipulation with regard to transfer of all properties or assets or liabilities of amalgamating company being transferred to amalgamated company. It does not speak of complete merger, extinction or absorption of amalgamating company into amalgamated company. Clause (b) of sub-section (6) stipulates that balance of investment allowance, if any, still standing to amalgamating company in respect of such ship, aircraft or machinery shall be allowed to amalgamated company in accordance with provisions of sub-section (3) for total period for which balance investment allowance shall be carried forward. Clause (b) clearly supports view that amalgamating company need not extinguish or cease to exist pursuant to scheme of amalgamation. Sub-Section (6) to Section 32A does not, therefore, refer to taking over of all assets and liabilities. In these circumstances, we do not think it would be appropriate and proper to fully apply Section 2(1B) of Act, when we interpret sub-section (6) to Section 32A. legislative intent of Sections 32A(5) and 32A(6) of Act is to contrary. 19. word amalgamation is used in Sections 32A, 33(3), 33A(4) & (5), 34(3)(b), proviso, 35(5), 35A(6), 35D(5), 35DD, 35E(7), 41(2), 41(4) (Explanation 2), 43(1) (Explanation 7), 43(6) (Explanation 2), 43C, 47(vi) ITA No. 35/2002 Page 16 of 28 and (vii), 49(1)(iii)(e), 49(2), 72A, and 72AA (some of Sections stand deleted). Thus, word amalgamation finds mention in number of sections. It may not have universal and similar meaning in all places where it occurs. While interpreting said word in particular provision, language, context and purpose of provision has to be given due recognition and kept in mind. universal or broad brush application without reference to context can result in interpretational error for it may negate very purpose and objective of Legislation in enacting provision. 20. reason for enacting sub-section (5) to Section 32A is to prevent instances of abuse of concession of investment allowance. Investment allowance was allowed at rate specified on cost of acquisition of new machinery and plant installed after particular date. To prevent abuse, statutory requirement stipulated creation of reserve and in case reserve was not utilized for purpose of acquiring new machinery or plant within stipulated time, investment allowance should be withdrawn. In this manner, section ensured that assessee engaged in priority industries adequately provided for renewal or renovation and, therefore, employment and industrial growth was not jeopardized. stipulation provided stimulus to growth and modernization and reduced dependence of assessee on financial institutions. 21. purpose and object of providing limited umbrella protection under sub-sections (6) and (7) of Section 32A, shows flexible and realistic approach in cases of business reorganization which normally are treated as tax neutral, unless there is ulterior motive of tax evasion, abusive tax avoidance or possibly even tax arbitrage. Thus, cases of business reorganization in nature of amalgamation or conversion of partnership ITA No. 35/2002 Page 17 of 28 firm into company stand excluded from effect of sub-section (5) to Section 32A of Act, provided conditions of relevant sub-sections are satisfied. 22. expression amalgamation does mean amalgamation of two or more companies which are merged into one. It has effect of arrangement by which one of companies involved absorbs business, all assets and liabilities of another with latter being dissolved or in alternative two or more companies being absorbed into one company, formed for that purpose. (Refer Heavy Head & Co. versus Ropre Holding Ltd., 1952 CH 154). Therefore, term amalgamation contemplates state of things under which two companies are joined so as to form third entity or one company is absorbed or blended with other company. Amalgamating company, thereupon, loses its entity and ceases to exist. But there are instances or arrangements under which there is transfer of one or more undertakings to new company or to another existing company. In these cases, amalgamating company continues to exist and is not dissolved as it does not get fully merged. Such arrangements are also treated as amalgamation. Halsbury s Laws of England (5th Edition, Volume 15, at p.700) reads as under:- 1435. Meanings of reconstruction and amalgamation . Neither reconstruction nor amalgamation has precise legal meaning. Where undertaking is being carried on by company and is in substance transferred, no to outsider, but to another company consisting substantially of same shareholders with view to its being continued by transferee company, there is reconstruction. It is nonetheless reconstruction because all assets do not pass to new company, or all shareholders of transferor company are not shareholders in transferee company, or liabilities of transferor company are not taken over by transferee company. ITA No. 35/2002 Page 18 of 28 Amalgamation is blending of two or more existing undertakings into one undertaking, shareholders of each blending company becoming substantially shareholders in company which is to carry on blended undertakings. There may be amalgamation either by transfer of two or more undertakings to new company, or by transfer or one or more undertakings to existing company. Strictly amalgamation does not, it seems, cover mere acquisition by company of share capital of other companies which remain in existence and continue their undertakings, but context in which term is used may show that it is intended to include such acquisition. (emphasis supplied) Such schemes are treated as scheme of reconstruction or reorganization or scheme of arrangement. term amalgamation as such is broad to include said schemes. term amalgamation , it has been observed, should not be given any definite legal meaning. Charlesworth similarly observes that neither word reconstruct nor amalgamation has any definite legal meaning. reconstruction is where company transfers its assets to new company with substantially same shareholding. Both, reconstruction and amalgamation are permissible under Companies law. Section 391 read with Section 394 state that scheme may take form of arrangement or reconstruction . They are akin and would broadly fall and treated as amalgamation. 23. Thus, amalgamation as term can include transfer of one or more undertakings to another company without really blending of one or more existing companies into transferee/amalgamated company. All assets of transferor/amalgamating company need not be transferred to new or other company. purpose and objective behind sub-section (6) to Section 32A is to facilitate reconstruction and amalgamation and not to obstruct genuine transactions of such nature. emphasis in sub-section (6) to Section 32A is on sale or transfer of ship, aircraft, machinery or plant, subject matter of investment allowance in connection with amalgamation or ITA No. 35/2002 Page 19 of 28 reconstruction. There is also reference to reserves. emphasis in sub- section (6) is not upon blending or merger of existing company, which has availed of benefit under Section 32A into another or new company. At same time, appropriate and required conditions have been incorporated in sub-section (6) to Section 32A to ensure that there is no abuse of conditions applicable to amalgamating company, both with regard to reserve and time stipulation on sale or otherwise transfer of assets is applied and adhered to. Violation thereof would cause and result in negative and penal consequences. 24. There is another way of looking sub-section (6) to Section 32A as it uses expression in scheme of amalgamation . expression scheme of amalgamation can be interpreted as is commercially and legally understood in terms of Sections 391 to 394 of Companies Act, 1956. Section 394 of Companies Act, 1956 in heading uses phrase provisions for facilitating reconstruction and amalgamation of companies . Under Section 394(1)(b), Legislature besets and includes scheme which refers to transfer of whole or part of undertaking, property or liabilities of company concerned between transferor/amalgamating and transferee/amalgamated company. In such cases, scheme would not generally involve winding up or dissolution of transferor/amalgamating company. 25. Thus, defined term would not apply if contrary intention appears from provision of Act. Further, contrary intention may apply only to part of definition and not whole. There could be restricted application of definition clause (see Francis Bennion, Interpretation of Statutes, Third Edition, at page 433 Section 199, Statutory definitions, paragraphs 3 and 4). said text also states that whatever meaning may be ITA No. 35/2002 Page 20 of 28 expressly attached to term, it is important to realise that its dictionary meaning is likely to exercise some influence over way definition will be understood by Court. It may not be possible to cancel ingrained emotion of word merely by announcement. Therefore, it is possible that term defined in definition provisions of Act may have different meaning even, when used within same Act. In R versus Lynsey, (1995) 3 All England Reporter 654, it was observed:- interpreter needs to remember that drafters are fallible. In stipulating meaning for word, writer demands that his reader shall understand word in that sense whenever it occurs in that work. writer thereby lays upon himself duty of using word only in that sense, and tacitly promises to do so, and tacitly prophesies that he will do so. But sometimes writer does not use word only in sense he has stipulated. 26. In NWL Limited versus Woods, (1979) 1 WLR 294, Lord Scarman had observed:- It is wrong to attempt to construe any section or subsection of these Acts without reference to their legislative purpose. And it is also necessary to have regard to history of statute law and case law since 1906 for full understanding of them. This history I would summarise as shifting pattern of Parliamentary assertions and judicial responses, legal point counterpoint which has been more productive of excitement than of harmony. judges have been, understandably, reluctant to abandon common law and equitable principles, unless unambiguously told to do so by statue. Parliament has created ambiguity not through any lack of drafting skill but by its own changes of mind. words are not deployed in vacuum, but in context of their setting and to help interpreter to arrive at meaning intended. 27. There is another reason why we feel that this interpretation given to sub-section (6) to Section 32A of Act. In present case, 9 out of 13 undertakings of respondent assessee were taken over by three new companies, while earlier company, i.e. present assessee, continues to exist. case set up by Revenue is that in case assessee had ceased to ITA No. 35/2002 Page 21 of 28 exist and had merged, conditions mentioned in Section 2(1B) of Act would be satisfied. In other words, in case scheme of arrangement had postulated creation of fourth company to which four units which continued to remain with respondent-assessee had been transferred, requirement of Section 2(1B) of Act would have been satisfied. Thus, it is matter of not selecting correct taxable event, possibly due to inability and lack of foresight in comprehending objection that could be raised. This would not be in consonance with object, aim and purpose behind Sub-Section (6) to Section 32A of Act. In our decision in ITA No.41 of 2002, dated 22nd December, 2014, titled Commissioner of Income Tax versus Shiv Raj Gupta, we have held:- 50. assessed is well within his right to choose any one event between two or more events and select event to minimize or reduce his tax liability. Act, i.e. Income Tax Act, 1961, imposes and saddles tax liability on chosen tax event. Act per se, unless provision so stipulates, does not restrict or curtail right of choice. Tax is determined and gets crystallized on tax event adopted by assessee. For example, in Vodafone s case (supra), assessed had several options and therefore, right to choose particular tax event. As long as choice is within framework of law, Assessing Officer cannot disturb tax effect or liability, which is consequence of event. choice of assessee is not abrogated or invalidated. For example, company has several legal options, and therefore, right to choose how to dispose of capital asset, as in Vodafone s case (supra). Similarly, assessee can opt for and has multiple options for raising debt to finance business expansion plans. assessed may have several legally permissible alternatives to effect and divide assets on partition. Such examples are numerous. choice might result in mitigation of tax liability, but tax effect would not classify or help us differentiate between tax avoidance and abusive tax avoidance. Any attempt to minimize or eliminate tax liability would not make choice of tax payer abusive tax avoidance. foundation of said principle is that tax code by its nature differentiates between different types of actions, transactions, arrangements and activities and then identifies and stipulates consequences. tax code, i.e. Income Tax Act, 1961 is rule based and complex. Act is not entirely principle based. provisions are read and applied. Principle of purposive interpretation both in favour of Revenue or assessed can be applied but within four corners of law. In fact, in some cases, assessed may ITA No. 35/2002 Page 22 of 28 find themselves taxed at higher liability for failure to choose more tax friendly event. But right of choice is hedged with one significant condition. event selected, as noticed above and subsequently, should be real and not colourable device, sham and deceit. 28. submission of Revenue that assessee was not covered by Section 2(1B), we feel in context of Section 32A and specially sub- section (6) thereof, should not be accepted because it does not promote object, aim and purpose behind Section 32A and restriction or bar created in sub-section (5) and exception which has been carved out in sub-section (6). object and purpose of provision as is discernible is to promote and encourage industrialization. restriction of sale or transfer is to ensure that assessee who avails of investment allowance does not sell or otherwise transfer plant and equipment after obtaining tax benefit as it would be contrary to intention and purpose behind enactment of Section. Sub-section (6) is exception to sub-section (5) as legislature did not want to obstruct and withdraw benefit of investment allowance in cases of genuine arrangements required and necessary for business and commercial expediency and good reasons. intention was not to control and put unnecessary fetters on manner and method of conducting business but to ensure that investment allowance provisions are not misused by first claiming tax benefit and then selling or transferring plant and machinery. legislature also intended that amalgamated company must be bound by terms and conditions, which were applicable to amalgamating company even when there was transfer or sale of relevant asset. In this context, we would like to reproduce passage from CIT versus Podar Cement (P) Ltd, [1997] 226 ITR 625 wherein while interpreting word owner in context of Section 22 of Act principle of updating construction of words used in statute was expounded in following words:- ITA No. 35/2002 Page 23 of 28 In State (Through CBI/New Delhi) v. S. J. Choudhary, AIR 1996 SC 1491, 1494; [1996] 2 SCC 428, this court has quoted following passage with approval in support of updating construction (page 433 of [1996] 2 SCC): Statutory Interpretation by Francis Bennion, 2nd edn. Section 288 with heading Presumption that updating construction to be given states one of rules thus (page 617): (2) It is presumed that Parliament intends court to apply to ongoing Act construction that continuously updates its wording to allow for changes since Act was initially framed (an updating construction). While it remains law, it is to be treated as always speaking. This means that in its application on any date, language of Act, though necessarily embedded in its own time, is nevertheless to be construed in accordance with need to treat it as current law. In comments that follow it is pointed out that ongoing Act is taken to be always speaking. It is also, further, stated thus (pp. 618-19): In construing ongoing Act, interpreter is to presume that Parliament intended Act to be applied at any future time in such way as to give effect to true original intention. Accordingly interpreter is to make allowances for any relevant changes that have occurred, since Act s passing, in law, social conditions, technology, meaning of words, and other matters. Just as US Constitution is regarded as living Constitution , so ongoing British Act is regarded as living Act . That today s construction involves supposition that Parliament was catering long ago for state of affairs that did not then exist is no argument against that construction. Parliament, in wording of enactment, is expected to anticipate temporal developments. drafter will try to foresee future, and allow for it in wording. enactment of former days is thus to be read today, in thelight of dynamic processing received over years, with such modification of current meaning of its language as will now give effect to original legislative intention. reality and effect of dynamic processing provides gradual adjustment. It is constituted by judicial interpretation, year in and year out. It also comprises processing by executive officials . (emphasis supplied) ITA No. 35/2002 Page 24 of 28 29. principle of updating construction is premised on doctrine that Acts are always speaking and are intended to apply over period of time. There is, therefore, need to interpret and construct them with reference to contemporary understanding. construction should be continuously updated to allow for changes, after Act was written. This would be intention of Legislature, as it is not expected that Legislature will intervene every now and then, when Act is intended to apply over long time. Act is living Act and not relic. Therefore, it may not be true and correct that language of statute must always be understood in sense it was understood when it was passed. 30. Referring to principle of purposive construction to meet ends of justice, G.P. Singh in Principles of Statutory Interpretation at page 127 had stated:- In context of purposive construction Sinha J.* recommends: To interpret statute in reasonable manner court must place itself in chair of reasonable legislator/author. So done rules of purposive construction have to be resorted to which would require construction of Act in such manner as to see that object of Act is fulfilled. He then quotes passage from Barak from his work on Purposive Construction which refers to two elements of objectivity in process of construction as introduces by Hart and Sachs: first interpreter should assume that legislature is composed of reasonable people seeking to achieve reasonable goals in reasonable manner; and second interpreter should accept non-rebuttable presumption that members of legislative body sought to fulfill their constitutional duties in good faith. This formulation allows interpreter to inquire not into subjective intent of author, but rather intent author would have had, had he or she acted reasonably. (emphasis supplied) (*in New India Assurance Co. Ltd v. Nusli Nerille Wadia, (2008) SCC 279, para 51) 31. Supreme Court in K.P. Verghese versus ITO [1981] 131 ITR 597 while adjudicating on scope of Section 52(2) of Act relating ITA No. 35/2002 Page 25 of 28 under-statement of consideration received on transfer capital asset elaborated on purposive construction in following words:- task of interpretation of statutory enactment is not mechanical task. It is more than mere reading of mathematical formulae because few words possess precision of mathematical symbols. It is attempt to discover intent of Legislature from language used by it and it must always be remembered that language is at best imperfect instrument for expression of human thought and, as pointed out by Lord Denning, it would be idle to expect every statutory provision to be "drafted with divine prescience and perfect clarity". We can do no better than repeat famous words of judge Learned Hand when he said: it is true that words used, even in their literal sense, are primary and ordinarily most reliable source of interpreting meaning of any writing: be it statute, contract or anything else. But it is one of surest indexes of mature and developed jurisprudence not to make fortress out of dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is surest guide to their meaning. We must not adopt strictly literal interpretation of s. 52, sub-s. (2), but we must construe its language having regard to object and purpose which Legislature had in view in enacting that provision and in thecontext of setting in which it occurs. We cannot ignore contextand collocation of provisions in which s. 52, sub-s. (2), appears,because, as pointed out by judge Learned Hand in most felicitous language: ... meaning of sentence may be more than that of separate words, as melody is more than notes, and no degree of particularity can ever obviate recourse to setting in which all appear, and which all collectively create. 32. Therefore, when we examine, read and interpret sub-section (6) to Section 32A, we do not think that it would be proper to assert and hold that legislature intentionally kept out schemes of part merger from protection of Section 32A(6) of Act. Sub-section (6) to Section 32A is broad enough and would include any scheme of merger provided legislative stipulations in sub-section (6) are met. We do not think it is necessary and required under sub-section (6) to Section 32A that ITA No. 35/2002 Page 26 of 28 amalgamating company should have been dissolved or fully merged. expression amalgamation as understood in law and in common parlance is very broad and wide expression. It would include any type of corporate restructuring or reorganisation and is not restricted to only cases where amalgamating company/companies get merged into another entity and cease to thereafter exist. It is not necessary that scheme of amalgamation must postulate complete merger of company with assets and liabilities. Part or partial merger would equally be cases of amalgamation. It is in this context in case of Singer India Limited versus Chander Mohan Chadha, (2004) 7 SCC 1, aforesaid definition in Halsbury s Laws of England has been accepted and quoted with approval. In context of sub-section (6), we think that term amalgamation used was intended to include such amalgamations. 33. In paragraph 25 above, we have referred to Francis Bennion and observed that contrary intention may apply to part of definition and not whole. When we apply purposive interpretation for benefit of respondent-assessee, it is equally important to ensure that assessee complies and does not negate purpose of Legislation, be it in form of conditions stipulated in Section 2(1B) and specific stipulations of Section 32A sub-section (6). Conformity and fulfilment of conditions when applicable to cases of amalgamation have to be satisfied. Thus, assessee should be able to show and establish that liabilities associated with plant, machinery, ship or aircraft were transferred to amalgamated company by virtue of amalgamation (Clause (ii) of Section 2(1B) of Act) as also condition that shareholders not holding less than nine- tenth in value of shares (Clause (iii) of Section 2(1B) of Act) was satisfied. Similarly, stipulations of sub-section (6) to Section 32A must be met and satisfied. As these aspects have not been examined, we pass ITA No. 35/2002 Page 27 of 28 order of remit to Tribunal to examine said aspects. We would request Tribunal to go into said aspects and if facts are required to be clarified, ask respondent-assessee to furnish relevant data and details and seek report from Assessing Officer. Only if it is not possible on basis of said exercise to decipher and decide correct factual position, appropriate orders for further remand may be passed. We have made this request as present appeal pertains to Assessment Year 1990-91 and if possible, another round of litigation from first stage should be avoided. 34. substantial question of law framed on 24th September, 2002 is accordingly answered holding that there was transfer within meaning of Section 32A(5) of Act. substantial question of law framed in paragraph 12 above is partly decided in favour of respondent assessee and against appellant Revenue. assessee would be entitled to protection under sub-section (6) to Section 32A of Act if conditions specified in said sub-section as well as clauses (ii) and (iii) of Section 2(1B) of Act are satisfied. Stipulations under Section 32A(6) of Act should also be satisfied. For examination of these two aspects, order of remand is being passed. To cut short delay, parties will appear before Tribunal on 10th February, 2015, when date of hearing will be fixed. appeals are accordingly disposed of. No costs. (SANJIV KHANNA) JUDGE (V. KAMESWAR RAO) JUDGE DECEMBER 23rd , 2014 VKR/kkb/NA ITA No. 35/2002 Page 28 of 28 Commissioner of Income-tax , Delhi-IV v. M/s D.C.M. Limited