The Supreme Court held amalgamated companies cannot claim set off of predecessor losses under Kerala Agricultural Income Tax Act without explicit provision. Dismissing Aspinwall appeals, it ruled such benefits require statutory backing and proper notice during amalgamation proceedings.
NEW DELHI: The Supreme Court has held that an amalgamated company cannot claim a set-off of accumulated losses incurred by the amalgamating company under the Kerala Agricultural Income Tax Act, 1991, unless the state legislation provides for it specifically and the process involves the required notice to the State during amalgamation.
A Bench of Justice Rajesh Bindal and Justice Vijay Bishnoi dismissed five appeals filed by Aspinwall and Co. Ltd., thereby upholding the Kerala High Court’s decisions. The Court noted that the appellant did not point to any provision in the Kerala law that authorises such a set-off, unlike the specific mechanism available under the Income Tax Act, 1961.
Background of the case
The main appeal (Civil Appeal No. 7796 of 2012) stemmed from a scheme of amalgamation approved in November 2006, with an appointed date of January 1, 2006. Under the scheme, ‘Pullangode Rubber & Produce Co. Ltd.’ (the amalgamating company) was merged into Aspinwall and Co. Ltd. (the amalgamated company).
The amalgamating company had accumulated losses shown in its balance sheet. The appellant sought to set off those losses against its own income, relying on Clause 14.2 of the amalgamation scheme, which stated that losses incurred by the amalgamating company would be treated as losses of the amalgamated company.
The Kerala Agricultural Income Tax and Sales Tax Appellate Tribunal and the Kerala High Court had previously rejected the claim.
Arguments of the parties
Appellant’s submissions
Senior Counsel Mr. S. Ganesh, for the appellant, argued that under Section 54 of the Kerala Agricultural Income Tax Act, 1991, the amalgamated company is the successor and therefore entitled to the set-off. He relied on the Supreme Court ruling in Dalmia Power Ltd. v. Assistant Commissioner of Income-Tax, contending that once an amalgamation scheme is sanctioned without objection, its clauses including those relating to loss set-off become binding.
Respondent’s submissions
Senior Counsel Mr. Pallav Shishodia, appearing for the Revenue, submitted that reliance on Dalmia Power was misplaced because the State of Kerala was not given notice during the amalgamation process. He also argued that Section 12 of the Kerala Act limits the carry forward/set-off of losses to the “assessee” who suffered them. Since the amalgamating company had ceased to exist, and because the Kerala Act lacked a provision comparable to Section 72A of the Income Tax Act, 1961, the benefit could not be transferred.
Court’s analysis:
The Court compared the relevant provisions of the Kerala Agricultural Income Tax Act, 1991 with those of the Income Tax Act, 1961. It observed that Section 72A of the Income Tax Act expressly provides for the carry forward and set-off of accumulated losses in amalgamation cases through a “deeming” provision. In contrast, the Kerala Act does not contain any similar enabling provision.
On the appellant’s reliance on Dalmia Power, the Court noted:
“Neither there is any statutory requirement for issuing notice to the State Government before any scheme of amalgamation is approved by the Court under the 1956 Act nor such notice was issued. Hence, to state that the judgment in Dalmia Power Ltd.’s case (supra) covers the case of the appellant, is misconceived and deserves to be rejected.”
The Bench further pointed out that Section 394-A of the Companies Act, 1956 requires notice to the Central Government (Income Tax Department), but no similar requirement existed for the State authorities under the Kerala agricultural income tax regime. The Court also referred to a factual constraint under Section 12 of the Kerala Act, which restricts carry forward of losses to a maximum of eight years. The High Court had found that the losses in question related to a period beyond that limit.
Final decision
The Supreme Court held that the appellant could not sustain its claim under the existing state law.
It concluded:
“Learned counsel for the appellant has not been able to refer to any provision under the Kerala Act in terms of which the losses suffered by amalgamating company can be set-off against the income of the amalgamated company.”
Finding no merit in the appeals, the Court dismissed them and affirmed the High Court’s view that the amalgamated company was not entitled to the sought-after tax benefit.
Case Title: Aspinwall and Co. Ltd. v. Inspecting Assistant Commissioner Civil Appeal No. 7796 of 2012
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