Supreme Court upholds validity of belated revised returns filed by amalgamated companies

This Tax Alert summarizes a decision of the Supreme Court (SC), dated 18 December 2019, in the case of Dalmia Power Ltd. and Dalmia Cement (Bharat) Ltd. (“amalgamated companies” or “Taxpayers”), on the issue of the validity of revised return of income (ROI) filed by the amalgamated companies, beyond the statutorily prescribed time limit, pursuant to sanction of scheme of amalgamation after such date.

The Division Bench (DB) of the Madras High Court (HC) held that the Tax Authority was not bound to accept the revised ROIs filed post sanction of amalgamation without following the due procedure laid down in the Indian Tax Laws (ITL) of seeking prior approval from the Central Board of Direct Taxes (CBDT) for filing revised ROI beyond the statutory due date.

Overruling the Madras HC DB ruling, the SC held that there existed an impossibility of performance on the part of the Taxpayers to meet the statutory time limit for filing revised ROI for the relevant tax year, as the schemes, with a retrospective appointed date (AD), were sanctioned by the National Company Law Tribunal (NCLT) post the expiry of such time limit. The SC held that the purpose of tax assessment is to assess the tax liability of taxpayers correctly in accordance with law and the rules of procedure are only subservient to justice. The SC also held that the procedure of seeking the CBDT’s approval, as prescribed in the ITL, was not applicable to the present case where the amalgamation scheme was sanctioned by the NCLT after giving an opportunity to the Tax Authority. The Tax Authority had not raised any objections to the schemes which, inter alia, contained a clause that the amalgamated companies shall be entitled to file revised ROI even beyond the statutory due date.

In case of succession of business (otherwise than on death of the taxpayer), the ITL provides that the predecessor shall be assessed for income up to the date of succession and the successor shall be assessed in respect of the income after the date of succession. Considering the mandate of this provision, the Tax Authority is required to assess the income of the amalgamating and amalgamated companies after taking into account the revised ROIs filed after the amalgamation of the companies. Accordingly, the SC directed the Tax Authority to complete the assessment of the Taxpayers on the basis of the revised ROI filed post the amalgamation, even though it was filed beyond the statutory due date.