Ponni Sugars (Erode) Ltd. v. The Assistant Commissioner of Income-tax, Company Circle V(2), Chennai
[Citation -2020-LL-1016-52]

Citation 2020-LL-1016-52
Appellant Name Ponni Sugars (Erode) Ltd.
Respondent Name The Assistant Commissioner of Income-tax, Company Circle V(2), Chennai
Court HIGH COURT OF MADRAS
Relevant Act Income-tax
Date of Order 16/10/2020
Assessment Year 2005-06
Judgment View Judgment
Keyword Tags industrial development • scheme of amalgamation • scheme of arrangement • transfer of property • depreciation claim • written down value • satisfaction • debentures • demerger
Bot Summary: A Scheme of Arrangement for demerging Erode Unit by spinning it off to Ponni Sugars Limited was conceived in order to restructure the operations and revive the prospects of PEL. Accordingly, a Scheme of Arrangement was arrived and in accordance with the provisions of Sections 391 to 394 of the Companies Act, 1956, Company Petition Nos.118 and 119 of 2000 was filed before this Court and on 10.09.2001, the Scheme was sanctioned by the Company Court. The statement, as required under Section 393 of the Companies Act states, inter-alia, that the Scheme involving transfer of Erode Unit is not one of 'demerger' within the meaning of Section 2(19AA) or a slump sale under Section 2(42C) of the Income Tax Act 1961 and that the Transferee Company, upon transfer of Erode Unit to it at fair value, will be entitled to claim depreciation in its Tax Returns on the basis of fair market value of fixed assets as on 01.04.1999 arrived at on the basis of independent valuation to be undertaken by the Transferee Company. Mr.A.L.Somayaji, learned Senior Counsel appearing for the petitioner submitted that the Company Court order sanctioning a Scheme of Arrangement pursuant to Sections 391 to 394 of the Companies Act, 1956 is a code by itself and when the scheme is sanctioned with effect from a particular date, it is binding on everyone, including the statutory authorities. To such a submission, Mrs.Hema Muralikrishnan, learned Standing Counsel appearing for the respondent submitted that there was no explicit pronouncement in the sanction ordered by the Company Court to the effect that the transaction is not a demerger and that the income tax implications referred to in the statement under Section 393 of the Companies Act will not form a part of the Scheme of Arrangement and therefore, the Scheme itself is to be treated as one of 'demerger' under Section 2(19AA) of the Income Tax Act. J.K. Private Ltd. has held that, a scheme under Sections 391 and 392 of the Companies Act, 1956 framed by the Court in respect of a company, to pay of its creditors, would be binding upon the creditors and the shareholders of such company. In Clause-22 of the Explanatory Statement under Section 393 of the Companies Act, which forms part of the scheme clearly reveals that since the company could not fulfill all the norms set by the RBI, the RBI vide its letter dated 11.5.2000 has prohibited the company from accepting of fresh public deposits, renewing existing deposits on maturity or alienating any assets of the company without the permission of RBI. 23. On a conjecture that the Scheme is one of Demerger under Section 2(19AA), the Assessing Officer had disallowed the depreciation claim made by the petitioner and thereby restricted the claim for depreciation only on the WDV of the assets transferred from PSCL to PEL. The Company Court, while considering the petition for sanction under the Companies Act, had approved the Scheme of Demerger and the statement under Section 393 of the Companies Act.


IN HIGH COURT OF JUDICATURE AT MADRAS RESERVED ON : 14.09.2020 PRONOUNCED ON : 16.10.2020 CORAM: HONOURABLE MR. JUSTICE M.S. RAMESH W.P.Nos.12510 & 12511 of 2004, 12255 of 2006, 3830 of 2007, 1054 of 2008 & 2629 of 2009 and WMP.Nos.132825 of 2006, 14637 & 14636,1725 & 1726 of 2004 & M.P.Nos.1 of 2007, 1 of 2008 & 1 of 2009 In W.P.No.12510 of 2004 M/s. Ponni Sugars (Erode) Ltd., No.13, Seevaram Vllage, Perungudi, Chenna-600096. Petitioner Vs. Assistant Commissioner of Income-Tax, Company Circle V(2), Chennai-600034. Respondent PRAYER: Writ Petition filed under Article 226 of Constitution of India, praying to issue Writ of Certiorari, calling for records in P.A.No.AACCP2779A dated 28.12.2007 relating to Assessment Year 2005-06 on file of respondent and to quash same. 1/28 http://www.judis.nic.in For Petitioner : Mr.A.L.Somayaji, Sr. Advocate for M/s.Mallika Srinivasan & Mr.N.Muthukumar For Respondent :Mrs.Hema Muralikrishnan Standing counsel for IT COMMON ORDER With consent of both parties, Writ Petitions are taken up and heard through Video Conferencing. 2. brief facts of case are as follows: M/s.Ponni Sugars & Chemicals Limited (PSCL) had set up Erode Sugar Mill in Tamil Nadu in year 1984. Subsequently, another Sugar Mill was set up in Orissa in 1994. In view of losses to Sugar Mill at Orissa, PSCL became 'sick industrial company'. Consequently, Scheme of Arrangement for demerging Erode Unit by spinning it off to Ponni Sugars (Erode) Limited (PEL) was conceived in order to restructure operations and revive prospects of PEL. Accordingly, Scheme of Arrangement was arrived and in accordance with provisions of Sections 391 to 394 of Companies Act, 1956, Company Petition Nos.118 and 119 of 2000 was filed before this Court and on 10.09.2001, Scheme was sanctioned by Company Court. Some of salient features of scheme sanctioned by Company Court are as follows:- 2/28 http://www.judis.nic.in i. Erode Undertaking of PSCL was transferred to PEL with effect from 01.04.1999; ii. consideration for transfer shall be for aggregate value of Rs.7500 lakhs; iii. All contingent liabilities shall vest only with PSCL; iv. Term debts and bank borrowings are transferred that include transfer of debts specifically contracted for Bolangir unit to Erode Undertaking of Transferee Company; v. part of debit balance (Rs.923 lakhs) in P&L A/c was transferred to PEL; vi. part of General Reserve (Rs.1004 lakhs) was transferred to PEL; vii. Sugar stocks were recorded in PSCL Books at net selling price. This, however, was recorded in books of PEL as per reinstated value (lower of cost or net selling price) in accordance with Accounting Standard-2 (Inventories) of Institute of Chartered Accountants of India; viii. Pursuant to Scheme, proportionate shares of PEL were issued to shareholders of PSCL in ratio of 3:5. In addition, Scheme also provides for conversion of part of debt (funded interest) contracted for Bolangir Unit but getting 3/28 http://www.judis.nic.in transferred to PEL. Accordingly, additional 18,40,000 Equity Shares are issued to FIs besides issue of 0% Optionally Fully Convertible Debentures or Term Loans by PEL to FIs aggregating Rs.1183 lakhs. 3. statement, as required under Section 393 of Companies Act states, inter-alia, that Scheme involving transfer of Erode Unit is not one of 'demerger' within meaning of Section 2(19AA) or slump sale under Section 2(42C) of Income Tax Act 1961 and that Transferee Company, upon transfer of Erode Unit to it at fair value, will be entitled to claim depreciation in its Tax Returns on basis of fair market value of fixed assets as on 01.04.1999 arrived at on basis of independent valuation to be undertaken by Transferee Company. relevant portion is extracted hereunder:- INCOME TAX IMPLICATIONS 14. information on income-tax implications is given based on interpretation of Law as prevailing and per legal advice received. This cannot be construed as final and binding. (a) Scheme involving transfer of EU is 4/28 http://www.judis.nic.in not one of 'demerger' within meaning of section 2(19AA) or slump sale under Section 2(42C) of Income Tax Act,1961. (b) transfer of EU in terms of this Scheme will not give rise to taxable income or gain in hands of TRANSFEROR COMPANY. (c) issue and allotment of equity shares by TRANSFEREE COMPANY to members of TRANSFEROR COMPANY and also concurrent change in corresponding number of shares for members in TRANSFEROR COMPANY will not give rise to any tax liability in hands of members. However members are advised to seek independent tax advice as they would consider relevant and necessary in matter. (d) balance of unabsorbed loss/depreciation as at EFFECTIVE DATE and upon completion of Scheme shall in entirely vest with TRANSFEROR COMPANY and continue to enure for its set-off in future as permissible. (e) TRANSFEREE COMPANY , upon transfer of EU to it at fair value will be entitled to claim depreciation in its Tax Returns on basis of fair market value of fixed assets as of EFFECTIVE DATE arrived at on basis of independent valuation to be undertaken by TRANSFEREE 5/28 http://www.judis.nic.in COMPANY at appropriate time for this purpose. 4. When PEL filed its returns of income for assessment year 2000-01, transfer of Erode undertaking was for aggregate consideration of Rs.7500 lakhs and itemised value of fixed assets comprising land, building and plant & machinery was determined based on Chartered Engineer's Certificate. Accordingly, it claimed depreciation on buildings, plant & machinery, based on value of assets so acquired/transferred in terms of Scheme. Assessing Officer had disallowed depreciation claim by treating Scheme as one of 'demerger' under Section 2(19AA) of Income Tax Act, thereby restricting claim for depreciation only on Written Down Value (WDL) of assets being transferred from PSCL to PEL. 5. same stand was adopted by Department for subsequent years also. All these assessment orders and notices, treating Scheme as 'demerger' under Section 2(19AA) of Act and disallowing claim for depreciation, are put under challenge in these Writ Petitions. 6/28 http://www.judis.nic.in 6. Mr.A.L.Somayaji, learned Senior Counsel appearing for petitioner submitted that Company Court order sanctioning Scheme of Arrangement pursuant to Sections 391 to 394 of Companies Act, 1956 is code by itself and when scheme is sanctioned with effect from particular date, it is binding on everyone, including statutory authorities. According to learned Senior Counsel, since proceeding for sanction of Scheme under Sections 391 to 394 of Act is code by itself, proceedings, as well as order sanctioning Scheme, is judgment in rem. 7. To such submission, Mrs.Hema Muralikrishnan, learned Standing Counsel appearing for respondent submitted that there was no explicit pronouncement in sanction ordered by Company Court to effect that transaction is not demerger and that income tax implications referred to in statement under Section 393 of Companies Act will not form part of Scheme of Arrangement and therefore, Scheme itself is to be treated as one of 'demerger' under Section 2(19AA) of Income Tax Act. 7/28 http://www.judis.nic.in 8. Before addressing core issue involved in these writ petitions, it would be appropriate to touch upon preliminary issued raised by learned Standing Counsel for respondent on maintainability of writ petitions, on ground of non-availment of alternate statutory appeal remedy. 9. issue with regard to non-availment of alternate remedy as bar to file writ petition, has been dealt in various decisions of Hon'ble Supreme Court, by holding that presence of alternate remedy is not absolute bar in entertaining writ petition and that exceptions with regard to violation of principles of natural justice, lack of jurisdiction, manner of exercise of power by statutory authorities, correctness and propriety of decision making process, etc., have been spelt out as grounds for entertaining writ petition under Article 226 of Constitution of India. 10. Madras High Court in case of Nokia India Private Ltd. Vs Deputy Commissioner (CT)-IV reported in (2015) 79 VST 137 (Mad), has made consolidated reference to some of decisions of Hon'ble Supreme Court and held that non- 8/28 http://www.judis.nic.in availment of statutory appeal remedy will not be bar for filing writ petition. relevant portion of order reads as follows:- 26.In light of above facts and contentions raised by both sides, this Court is of view that petitioner need not be relegated to avail alternate remedy as it has been held in all cases that necessity to avail alternative remedy may not arise and it is not bar to exercise jurisdiction under Article 226 of Constitution of India. As regards objection of Revenue that alternative remedy is available to petitioner, it is no doubt true that Act provides for alternative remedy of filing appeal. In recent decision reported in [2011] 5 SCC 697 (Union of India (UOI vs.Tantia Construction Private Limited), on issue of maintainability of writ petition in face of alternative remedy provided under Act, apex court held that presence of alternative remedy is not absolute bar in entertaining writ petition. apex court considered decisions reported in [2003] 2 SCC 107 Harbanslal Sahnia v. Indian Oil Corporation Ltd.), [2001] 10 SCC 491 (Modern Steel Industries v. State of U.P.), [2010] 3 SCC 321 (Hindustan Petroleum Corporation 9/28 http://www.judis.nic.in Limited v. Super Highway Services), [2009] 14 SCC 451 (National SampleSurvey Organization v. Champa Properties Limited) as well as [1998] 8 SCC 1 (Whirlpool Corporation v. Registrar of Trade Marks ) and held that rule of exclusion of writ jurisdiction by availability of alternative remedy, is rule of discretion and not one of compulsion and there could be contingencies in which jurisdiction under article 226 of Constitution of India could be exercised in spite of availability of alternative remedy. question to be decided is relating to jurisdiction, manner of exercise of power by Assessing Officer and correctness and propriety of decision making process and whether principles of natural justice was adhered. Therefore, it is held that Writ Petitions are maintainable and cannot be rejected solely on ground that as against impugned assessment orders, statute provides for alternate remedy. Accordingly, issue No.1 is decided in favour of petitioner. 10/28 http://www.judis.nic.in 11. grounds raised in present writ petitions are some of exceptions cited in aforesaid decision for maintaining writ petition without availing alternate remedy and hence, I am of view that petitioner can maintain writ petitions without availing statutory appeal remedy. 12. core issue involved in present writ petitions is as to whether statement under Section 393 of Companies Act, 1956 would form part of Scheme of Arrangement and if so, whether proceedings for sanctioning of Scheme under Sections 391 to 394 would be proceeding in rem? 13. proposition that sanction of Scheme will have binding effect on statutory authorities, is not seriously disputed. Nevertheless, for sake of clarity, I deem it appropriate to explicate legal position with regard to binding effect of sanction of Scheme of Arrangement on statutory authorities and such sanction is judgment in rem. 11/28 http://www.judis.nic.in 14. In Marshall Sons & Co. (India) Ltd. Vs Income Tax Officer reported in (1997) 223 ITR 809 (SC), it was held that sanction of Scheme under provisions of Companies Act is binding on all concerned. This ratio decidendi came to be followed by this Court in Pentamedia Graphics Ltd. Vs Income Tax Officer reported in (2011) 236 CTR 204 (Mad) in following manner:- In this connection, principle laid down by Supreme Court in decision reported in Marshall Sons & Co. (India) Ltd. v. ITO (supra) needs reference. Dealing with question of relevancy of effective date in scheme sanctioned by Court, apex Court held that once scheme had been sanctioned with effect from particular date, it is binding on everyone including statutory authorities. Having regard to law declared by apex Court as to effect of scheme sanctioned by Court, only course open to Revenue would be to act as per scheme sanctioned effective from 1st Jan., 2004, which means that tax authorities are bound to take note of state of affairs of applicant as on 1st Jan., 2004 and return filed reflecting same cannot be ignored on strength of s. 139(5) of 12/28 http://www.judis.nic.in IT Act. merits or otherwise on returns filed, however, is matter of assessment for authorities to consider and pass order in accordance with law. 15. Calcutta High Court in Maan concast Pvt. Ltd. & anr. Vs West Bengal Industrial Development Corporation Ltd. & Ors. Reported in (2017) SCC Online Cal 19426 also took similar view in following manner:- transfer which takes place by operation of law, therefore, need not meet requirement of provisions of Transfer of Property Act, 1882 or Indian Registration Act, 1908. J.K. (Bombay) Private Ltd. (supra) has held that, scheme under Sections 391 and 392 of Companies Act, 1956 framed by Court in respect of company, to pay of its creditors, would be binding upon creditors and shareholders of such company. It has held that, scheme sanctioned by Court does not operate as mere agreement between parties. It becomes binding on company, creditors and shareholders and has statutory force. ....... scheme of amalgamation or arrangement 13/28 http://www.judis.nic.in documents compromise arrived at between parties to scheme inter vivos. scheme may be between two or more companies. It may also be between company and its shareholders or creditors. proceeding for sanction of scheme relating to company under Companies Act, 1956 is proceeding in rem. 16. Similarly, in Bhavita Jitendra Mehta Vs Sudera Enterprises Private reported in (2004) 51 SCL 290 Cal, it was held that order of amalgamation passed by Company Court is judgment in rem. 17. In Dalmia Power Ltd. Vs Assistant Commissioner of Income Tax, Circle-1, Trichy reported in (2019) 418 ITR 221 (Mad), Hon'ble Supreme Court had referred to one of its own decisions and held that such Schemes sanctioned under Companies Act has statutory force and order is judgment in rem. relevant portion of observation reads as hereunder:- 4.6 Pursuant thereto, Schemes were sanctioned by NCLT, Chennai vide Orders 16.10.2017, 20.10.2017, 26.10.2017, 14/28 http://www.judis.nic.in 28.12.2017, 10.01.2018, 20.04.2018 and 01.05.2018; and, vide Orders dated 18.05.2017 and 30.08.2017 by NCLT, Guwahati. Accordingly, Schemes attaines statutory force J.K. (Bom.) (P.) Ltd. v. New Kaiser-I-Hind Spg. & Wvg. Co. Ltd. [1970] 40 Comp. Cas. 689 not only inter se Transferor and Transferee Companies, but also in rem, since there was no objection raised either by statutory authorities, Department, or other regulators or authorities, likely to be affected by Schemes. 18. On comprehensive enumeration of aforesaid judicial precedents, it can be summarised and held that order sanctioning Scheme of Arrangement pursuant to Sections 391 to 394 of Companies Act will have statutory force, binding on all concerned and sanction of Court would operate as judgment in rem. 19. Above all, Company Court, while sanctioning Scheme of arrangement through its order dated 10.09.2001 in C.P.Nos.118 & 119 of 2000, had held in paragraph 5 that Scheme of Arrangement between transferor and transferee companies, shall form part of order. 15/28 http://www.judis.nic.in 20. core objection of respondent is to effect that statement under Section 393 of Companies Act, 1956 will not form part of Scheme of Arrangement sanctioned by Court and Scheme would be one of 'demerger', as defined under Section 2(19AA) of Income Tax Act. 21. Assessing Officer had disallowed depreciation claim made by petitioner and treated Scheme as one of 'demerger' under Section 2(19AA), thereby restricting claim for depreciation, only on Written Down Value (WDV) of assets being transferred from PSCL to PEL, for assessment year 2000-01. This stand was maintained by Assessing Officer in respect of subsequent assessment years, namely 2001-02, 2002-03, 2004-05, 2005-06 and 2006-07 also. 22. learned Senior Counsel appearing for petitioner would submit that provisions of Sections 391 to 394 of Companies Act is code by itself and that statement under Section 393 of Act would be part of order sanctioning Scheme. For such proposition, only reliance placed was on decision of 16/28 http://www.judis.nic.in learned Single Judge of Karnataka High Court in case of Reserve Bank of India Vs Tulunadu Finance and Developments Ltd., reported in ILR 2010 Kar 4328. On this proposition, learned Senior counsel fairly stated that, finding by learned Single Judge therein that statement under Section 393 of Companies Act would form part of Scheme, is not supported by reasons. Karnataka High Court had made such observation, in following manner:- 19. ....... In Clause-22 of Explanatory Statement under Section 393 of Companies Act, which forms part of scheme clearly reveals that since company could not fulfill all norms set by RBI, RBI vide its letter dated 11.5.2000 has prohibited company from accepting of fresh public deposits, renewing existing deposits on maturity or alienating any assets of company without permission of RBI. (emphasis supplied) 23. Apart from above observation, no ratio has been formulated in entire decision to render proposition that statement under Section 393 of Act will have statutory force, as 17/28 http://www.judis.nic.in ratio decidendi. At most, observation of Karnataka High Court could be termed as obiter dictum. 24. In Sanjay Singh & Anr. Vs U.P. Public Service Commission reported in (2007) 3 SCC 720, Hon'ble Supreme Court had held that it is ratio decidendi of judgment and not final order of judgment, which forms precedent. Likewise, in Rajbir Singh Dalal Vs Chaudhari Devilal University reported in (2008) 9 SCC 284, it was observed that mere casual observations or directions, without laying down any principles of law and without giving reasons would not amount to precedent. Thus, decision of Karnataka High Court may not have persuasive effect, for purpose of this proposition and hence its imperative to analyse scope and object of proposition. Barring reliance placed on Karnataka High Court's decision in Tulunadu F & D Ltd., (supra), no other decisions were relied upon by either side on this proposition. 25. In Scheme of Arrangement between PSCL and PEL, transfer and vesting of Erode Undertaking (EU) in PEL, was for aggregated value of Rs.7,500 lakhs. In statement under Section 393 of Companies Act, 1956, Income Tax implications were 18/28 http://www.judis.nic.in explained, whereby, scheme involving transfer of EU was construed to be not one of Demerger , within meaning of Section 2(19AA). statement also explained that PEL, upon transfer of EU to it at fair value, will be entitled to claim depreciation in its tax returns on basis of fair market value or fixed assets as of effective dates arrived at on basis of independent valuation undertaken by PEL, at appropriate time for this purpose. Company Court, had taken note of this aspect in paragraph 4 of its order dated 10.09.2001 in C.P.Nos.118 & 119 of 2000 while sanctioning arrangement, by observing that transfer of EU is contemplated at fair value reckoned at Rs.7,500 lakhs, based on valuation report of Chartered Accountants and surplus arising to transferor companies on EU being transferred to PEL, shall be used to write-off deferred revenue expenditure and to improve its financial position. 26. Though income tax implications has been explained to creditors or members in statement under Section 393 of Act, objections of respondent is that Company Court has not explicitly pronounced that transaction is not Demerger. It is argument of respondent that sanction of Scheme of Arrangement will not include statement under Section 393 of 19/28 http://www.judis.nic.in Act. 27. Section 393 of Companies Act, 1956 reads as follows:- 393. Information as to compromises or arrangements with creditors and members.-- 1) Where meeting of creditors or any class of creditors, or of members or any class of members, is called under section 391,- a)with every notice calling meeting which is sent to creditor or member, there shall be sent also statement setting forth terms of compromise or arrangement and explaining its effect; and in particular, stating any material interests of directors, managing director, managing agent, secretaries and treasurers or manager of company, whether in their capacity as such or as members or creditors of company or otherwise, and effect on those interests, of compromise or arrangement, if, and in so far as, it is different from effect on like interests of other persons; and b) in every notice calling meeting which is given by advertisement, there shall be included either such statement as aforesaid or notification of place at which and manner 20/28 http://www.judis.nic.in in which creditors or members entitled to attend meeting may obtain copies of such statement as aforesaid. 2) Where compromise or arrangement affects rights of debenture holders of company, said statement shall give like information and explanation as respects trustees of any deed for securing issue of debentures as it is required to give as respects company' s directors. 3) Where notice given by advertisement includes notification that copies of statement setting forth terms of compromise or arrangement proposed and explaining its effect can be obtained by creditors or members entitled to attend meeting, every creditor or member so entitled shall, on making application in manner indicated by notice, be furnished by company, free of charge, with copy of statement. 4) Where default is made in complying with any of requirements of this section, company, and every officer of company who is in default, shall be punishable with fine which may extend to five thousand rupees; and for purpose of this sub- section any liquidator of company and any trustee of deed for securing 21/28 http://www.judis.nic.in issue of debentures of company shall be deemed to be officer of company: Provided that person shall not be punishable under this sub- section if he shows that default was due to refusal of any other person, being director, managing director, managing agent, secretaries and treasurers, manager or trustee for debenture holders, to supply necessary particulars as to his material interests. 5) Every director, managing director, managing agent, secretaries and treasurers or manager of company, and every trustee for debenture holders of company, shall give notice to company of such matters relating to himself as may be necessary for purposes of this section; and if he falls to do so, he shall be punishable with fine which may extend to five hundred rupees. 28. statement referred to in Section 393 is mandatory statement to be served on creditors or members, along with notice calling meeting under Section 391. object of statement under Section 393 is to explain to all members of proposed meeting about nuances and implications of terms of arrangement and its effect. Unless, it is established to 22/28 http://www.judis.nic.in subjective satisfaction of Court that such statement under Section 393 has been sent to creditors and members along with notice calling meeting under Section 391, sanction itself may not be granted. 29. provision also indicates limitations on contents of statement. It shall contain terms of compromise or arrangement and effects of such terms could be explained. In other words, contents of statement should be in conformity with main Scheme of Arrangement and cannot bring in such terms that are not in conformity with scheme. Thus, proceedings sanctioning Scheme of Arrangement under Sections 391 to 394 of Companies Act, 1956 is Code by itself. As such, when it is settled proposition that Scheme of Arrangement would also form part of order of Court sanctioning scheme and such sanction acts as judgment in rem , statement under Section 393 of Act would also merge with Scheme of Arrangement and thus, be part of order of Court sanctioning scheme. Since object behind statement under Section 393 is to explain to stakeholders on effect of proposed terms of settlement, such explanatory statement cannot be contradictory to scope of 23/28 http://www.judis.nic.in Scheme of arrangement. 30. As stated earlier, under Scheme of Arrangement, value of EU for transfer, was for aggregate value of Rs.7,500 lakhs and this aspect has also been taken note of by Company Court, while sanctioning Scheme. income tax implications have been explained to creditors or members in statement under Section 393, to effect that scheme involving transfer of EU is not one of Demerger. Upon transfer of EU to PEL at fair value, PEL will be entitled to claim depreciation on basis of fair market value of fixed assets. In view of legal principles unequivocally settled by Hon'ble Supreme Court in Dalmia's case (supra), as well as, various other decisions dealt with in earlier portion of this order, Scheme of Arrangement between PSCL and PEL, which expressly states that Scheme is not Demerger, within meaning of Income Tax Act, has attained finality and statutory force not only inter se PSCL or PEL but also in rem . Accordingly, Scheme, that includes Income Tax implications given in statement and which explanatory statements are in conformity with scope of terms of arrangement, would be binding on Tax Department. 24/28 http://www.judis.nic.in 31. On conjecture that Scheme is one of Demerger under Section 2(19AA), Assessing Officer had disallowed depreciation claim made by petitioner and thereby restricted claim for depreciation only on WDV of assets transferred from PSCL to PEL. Company Court, while considering petition for sanction under Companies Act, had approved Scheme of Demerger and statement under Section 393 of Companies Act. As held in preceding paragraphs, statements, being in conformity with scope of terms of Scheme of Arrangement, becomes integral part of Scheme, which was sanctioned by Company Court, and thus, transfer of undertakings will not be considered to be one of Demerger within meaning of Section 2(19AA) of IT Act. As such, basis of impugned proceedings itself is fallacious and further proceedings thereon, cannot be sustained. 32. Accordingly, impugned proceedings dated 23.03.2004, 27.03.2006, 28.12.2006, 28.12.2007 & 20.01.2009 respectively are quashed. concerned Assessing Authority shall taken into consideration of findings of this Court that Scheme of Arrangement is not Demerger, within meaning of Section 2 (19AA) and take further course of proceedings, in accordance with law. 25/28 http://www.judis.nic.in 33. Writ Petitions stands allowed. Consequently, connected Miscellaneous Petition(s) are closed. No costs. 16.10.2020 Index:Yes Order: Speaking DP/hvk 26/28 http://www.judis.nic.in To Assistant Commissioner of Income-Tax, Company Circle V(2), Chennai-600 034. 27/28 http://www.judis.nic.in M.S.RAMESH.J, DP ORDER MADE IN W.P.Nos.12510 & 12511 of 2004, 12255 of 2006, 3830 of 2007, 1054 of 2008 & 2629 of 2009 and WMP.Nos.132825 of 2006, 14637 & 14636, 1725 & 1726 of 2004 & M.P.Nos.1 of 2007, 1 of 2008 & 1 of 2009 16.10.2020 28/28 http://www.judis.nic.in Ponni Sugars (Erode) Ltd. v. Assistant Commissioner of Income-tax, Company Circle V(2), Chennai
Report Error