Law: Income Tax Act, 1961

Section: 104

Income-tax----Company in which public are not substantially interested---Additional tax on undistributed profits---Amalgamation of companies---Failure of amalgamating company to distribute statutorily prescribed amount as dividends--Amalgamated company is liable to pay additional tax under S.104---Indian Income Tax Act, 1961, S.104---Indian Companies Act, 1956, S.394. An order of amalgamation made by the High Court under the provisions of section 394 of the Companies Art, 1956, is not an order which is meant to relieve either of the legal entities which are parties to the scheme of amalgamation, from the liability for, payment of tax. An order of amalgamation is intended to facilitate reconstruction and amalgamation of the companies expeditiously in a manner, which is beneficial to the company and -the shareholders of the two companies so long as such amalgamation is not opposed to public interest. None of the provisions of the Companies Act, 1956, providing for amalgamation, nor any other provision in the Act, confers immunity from payment of tax to either of the entities, which are parties to the order of amalgamation. That is the reason why the scheme of amalgamation invariably includes a provision for taking over by the amalgamated company of all liabilities and assets of the amalgamating company. In cases where such liabilities are not taken over, the company. Court would have to be satisfied that suitable provision is made for the payment of liabilities before the assets are allowed to be transferred from the amalgamating company to the amalgamated company. The procedure prescribed for amalgamation of companies also provides for convening a meeting of creditors besides considering the wishes of the shareholders, the object being that by reason of amalgamation the claims of creditors against the two companies involved in the scheme are not to be adversely affected solely by reason of amalgamation. What is true; for the creditors is true in even greater measure with regard to the statutory liabilities, particularly income-tax. It is not open to the amalgamated company which has taken over all assets and liabilities of the amalgamating company to claim that…

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