Corporate restructuring through amalgamation often creates complicated intersections between company law and income tax law. A recurring issue arises when amalgamation schemes are sanctioned years after the appointed date, leaving companies struggling with statutory filing deadlines that have long expired.
This case, concerning Dalmia Power Limited and Dalmia Cement (Bharat) Limited, tested the boundaries of Section 139(5), Rule 12(3), and Section 119(2)(b) of the Income-tax Act. The transferee companies attempted to file revised returns for AY 2015-16 and AY 2016-17 in November 2018, well past the statutory deadlines, and in paper form since electronic filing was not possible. The department refused to accept them, arguing they were time-barred and procedurally defective.
The dispute travelled from a Single Bench of the Madras High Court, which favoured the assessees, to a Division Bench that reversed the view, and ultimately to the Supreme Court, which upheld the validity of the revised returns. The judgment makes it clear that court-sanctioned amalgamation schemes prevail over procedural limits, offering much-needed clarity for companies caught between timelines and restructuring processes.
1. Brief overview
Dalmia Power Limited and Dalmia Cement (Bharat) Limited entered into connected amalgamation schemes with nine other group entities. The appointed date in all schemes was fixed as 1 January 2015, although the schemes were sanctioned much later by different NCLT benches: Guwahati (August 2017) and Chennai (May 2018). The schemes became effective on 30 October 2018.
After the schemes became effective, the transferee companies were required to consolidate income of transferor companies and file revised returns. Accordingly, they submitted revised returns for AY 2015-16 and AY 2016-17 in November 2018.
However, by that time, the statutory window under Section 139(5) for revising returns had expired. Electronic filing portals did not allow such belated returns, so they were filed manually.
The department rejected them on three grounds:
- They were filed after the statutory deadline under Section 139(5).
- They were filed in paper form, violating Rule 12(3) which mandates electronic filing.
- No condonation of delay application was filed under Section 119(2)(b).
The companies filed writ petitions before the Madras High Court, arguing that once the NCLT had approved the schemes, the department was bound to give effect to them, irrespective of procedural deadlines.
2. Ruling by the Court (Single Bench)
The Single Bench supported the companies’ position. It reasoned that:
- The amalgamation schemes specifically contained clauses permitting filing of revised returns beyond prescribed timelines.
- Since the department had not appealed or objected to the schemes, those clauses became binding and enforceable.
- Section 119(2)(b), which allows condonation of delay in genuine hardship, was not applicable, because this was not a case of hardship but one of statutory recognition of a restructuring process.
- Rule 12(3), which prescribes electronic filing, was a matter of procedure. Procedural law cannot override substantive rights flowing from a court-sanctioned scheme.
The Court relied on Marshall Sons & Co. (India) Ltd. v. ITO, where the Supreme Court held that the “appointed date” in a scheme governs taxation, even if sanction is obtained years later.
Thus, the Single Bench directed the department to accept the revised returns filed by the transferee companies.
3. Ruling by the Court (Division Bench)
The department appealed to a Division Bench, which reversed the earlier decision.
The Division Bench ruled that:
- Clauses in the amalgamation scheme permitting late filing were only enabling provisions. They did not override statutory law or allow companies to bypass explicit requirements.
- Section 119(2)(b) could not be ignored. If the companies wanted to file belated revised returns, they should have sought condonation from the CBDT.
- Accepting the companies’ view would mean the NCLT was effectively exercising powers reserved for income-tax authorities, something the legislature never intended.
The Division Bench concluded that the revised returns were invalid and could not be accepted without following the statutory condonation process.
4. Ruling by Supreme Court
The matter reached the Supreme Court, which settled the issue in favour of the assessees.
The Supreme Court’s key findings were:
- Once a scheme of amalgamation is sanctioned and no objection is raised by the tax department within the statutory period, the scheme is binding on all authorities, including income tax.
- Section 139(5) deadlines cannot apply rigidly in cases of amalgamation, since delays are caused by the sanctioning process of NCLT, not by fault of the companies.
- Section 119(2)(b) deals with hardship cases. It does not apply where the revised return flows directly from a court-approved restructuring scheme.
- Under Section 170(1), the successor company must be assessed for the income of the transferor companies from the appointed date. This statutory provision overrides procedural timelines.
Accordingly, the Court directed the department to accept the revised returns and complete the assessments in line with the amalgamation scheme.
5. Concluding remarks
The Supreme Court ruling resolves a critical conflict between substantive rights under amalgamation schemes and procedural restrictions under income tax law. It confirms that:
- Court-sanctioned amalgamation schemes enjoy statutory force and must be honoured in taxation matters.
- Procedural requirements like electronic filing and time limits cannot nullify rights arising from such schemes.
- Taxpayers are protected from being penalised for delays inherent in judicial or regulatory approval processes.
However, the judgment also has wider implications. Tax authorities may become more vigilant in examining amalgamation schemes before allowing them to become final, especially where revenue is at stake. Future schemes may face more objections at the NCLT stage, as departments seek to preserve their rights.
For companies, the ruling underscores the importance of ensuring that schemes include explicit clauses on tax filings, and that documentation is watertight to withstand scrutiny. Ultimately, this case strengthens the principle that substantive justice under a scheme must prevail over procedural technicalities.
