Introduction
In a significant ruling that clarifies the interplay between company law amalgamation schemes and income tax procedural requirements, the Supreme Court of India in Dalmia Power Limited & Anr. vs. Assistant Commissioner of Income Tax (Civil Appeal Nos. 9496-99 of 2019) delivered a landmark judgment on December 18, 2019. The case, presided over by Justices Uday Umesh Lalit and Indu Malhotra, addressed whether the Income Tax Department must accept revised Income Tax Returns (ITRs) filed beyond the statutory deadline under Section 139(5) of the Income Tax Act, 1961, when such filing is necessitated by an NCLT-sanctioned scheme of amalgamation. The Supreme Court ruled in favor of the assessee, holding that NCLT-approved schemes with explicit tax provisions create binding obligations that override procedural requirements under the Income Tax Act, particularly when the Department had the opportunity to object but remained silent. This case commentary explores the facts, legal reasoning, and implications of this pivotal decision for taxpayers and tax authorities alike.
Facts of the Case
The appellants, Dalmia Power Limited and Dalmia Cement (Bharat) Limited, were public limited companies engaged in power and cement businesses, respectively. For the Assessment Year (AY) 2016-2017, they filed their original ITRs under Section 139(1) of the Income Tax ActāAppellant No. 1 declaring a loss of Rs. 6,34,33,806/- on September 30, 2016, and Appellant No. 2 declaring nil income (after setting off brought-forward losses) on November 30, 2016.
To restructure their businesses, the appellants entered into four interconnected Schemes of Arrangement and Amalgamation with nine other companies, with the appointed date being January 1, 2015. The schemes were approved by the National Company Law Tribunal (NCLT), Chennai and Guwahati, between May 2017 and May 2018. Crucially, Clause 63(c) of the scheme explicitly allowed the appellants to file revised ITRs “even if the prescribed time limits for filing or revising such returns have lapsed.”
After the NCLT’s final approval on May 1, 2018, the appellants manually filed revised ITRs on November 27, 2018āwell after the March 31, 2018 deadline under Section 139(5). The Department initially issued a notice under Section 143(2) but later recalled it, arguing that the revised returns were invalid without prior condonation of delay under Section 119(2)(b) of the Income Tax Act read with CBDT Circular No. 9/2015. The Department subsequently passed an Assessment Order under Section 143(3) on December 28, 2018, treating the assessment proceedings as infructuous.
The appellants challenged this before the Madras High Court. A Single Judge quashed the Department’s order, but a Division Bench reversed this decision, directing the appellants to follow the condonation procedure. Aggrieved, the appellants appealed to the Supreme Court.
Reasoning of the Supreme Court
The Supreme Court, in a judgment authored by Justice Indu Malhotra, focused on the statutory force of NCLT-sanctioned schemes under the Companies Act, 2013. The Court observed that Clause 63(c) of the amalgamation scheme explicitly permitted the filing of revised returns beyond statutory deadlines. Under Section 230(5) of the Companies Act, 2013, the Income Tax Department was required to be served with notices of the scheme and had a 30-day window to raise objections. The Department, having received such notices, chose not to object, thereby impliedly accepting the scheme’s terms.
The Court held that once the NCLT sanctions a scheme, it has statutory force and binds all parties, including statutory authorities. The Department could not unilaterally override the scheme’s provisions by insisting on compliance with procedural requirements under the Income Tax Act, such as Section 139(5) or Section 119(2)(b). The Court distinguished between procedural requirements and substantive rights, emphasizing that the scheme created substantive rights for the assessee to file revised returns, which could not be defeated by procedural technicalities.
The Supreme Court also noted that the Department’s reliance on CBDT Circular No. 9/2015 was misplaced, as the circular dealt with general condonation of delays, not with situations where an NCLT-sanctioned scheme specifically authorized belated filings. The Court further held that the Division Bench of the Madras High Court erred in treating Clause 63(c) as merely “enabling” rather than binding, and in requiring the appellants to approach the CBDT for condonation.
Conclusion
The Supreme Court allowed the appeals, setting aside the Division Bench’s judgment and restoring the Single Judge’s order. The Court directed the Income Tax Department to accept the revised ITRs filed by the appellants on November 27, 2018, and complete the assessment for AY 2016-2017 in accordance with law. This judgment establishes a critical precedent: when an NCLT-sanctioned amalgamation scheme contains specific provisions regarding tax filings, and the Department fails to object within the statutory notice period, the Department must honor such provisions, even if they override procedural deadlines under the Income Tax Act. For taxpayers, this ruling provides clarity on the binding nature of NCLT-approved schemes and the importance of timely objections by tax authorities. For the Department, it underscores the need to carefully review and object to scheme provisions during the notice period, as silence implies consent.