1. This appeal is directed against the order of the Commissioner under Section 263 of the Income-tax Act, 1961 ('the Act'), in respect of the assessment year 1977-78, holding that the order of the ITO allowing carry forward of business loss and unabsorbed depreciation of Rs. 1,15,126 to the assessee-company was erroneous and prejudicial to the interests of the revenue and directing him to withdraw the said benefit allowed to the assessee and increase the total income of the assessee for the aforesaid assessment year by the corresponding amount so that it will ultimately stand assessed at Rs. 1,70,274.
2. The circumstances in which the Commissioner interfered with the order of the ITO may be noted. Sidley Dooars Tea Co. Ltd. and Eastern Dooars Tea Co. Ltd. evolved a scheme of amalgamation of the former company with the latter and, accordingly, the shareholders of the two companies passed resolutions. The scheme formulated for amalgamation between the two companies was ultimately put up for the approval of the Hon'ble High Court of Calcutta who vide their order dated 21-12-1976 approved the scheme of amalgamation as proposed. The scheme in question was held by their Lordships to be binding with effect from 1-1-1976.
The relevant part of the High Court's order may be extracted at this stage for ready reference as follows : 1. That all the properties, rights and powers of the said transferor company specified in the first, second and third parts of the Schedule B hereto and all the other properties, rights and powers of the said transferor company be transferred without further act or deed to the said transferee company and, accordingly, the same shall pursuant to Section 394(2) of the Companies Act, 1956, be transferred to and vest in the transferee company for all the estate and interest of the transferor company but subject nevertheless to all charges now affecting the same and 2. That all the liabilities and duties of the said transferor company be transferred without further act or deed to the said transferee company and, accordingly, the same shall pursuant to Section 394(2) of the Companies Act, 1956, be transferred to and become the liabilities and duties of the said transferee company and 3. That all proceedings and/or suits and/or appeals now pending by or against the said transferor company be continued by or against the said transferee company and 4. That the said transferee company do allot to every shareholder and/or member of the said transferor company who shall require it to do so for Sub-divided equity shares of Rupees ten each fully paid-up in the said transferee company for every one equity share of Rupees fifty each fully paid-up and held by him/her/it in the said transferor company and 5. That upon allotment of the shares as stated in Clause (4) above every member of the said transferor company shall surrender his/her/its respective share certificate or certificates to the said transferee company for cancellation thereof and 6. That the said transferor company and the said transferee company do within thirty days after the date of this order cause certified copies of this order to be delivered to the Registrar of Companies, West Bengal, for registration and on such certified copies being so delivered the said transferor company shall be dissolved and the said Registrar of Companies, West Bengal, shall place all documents relating to the said transferor company and registered with him on the file kept by him in relation to the said transferee company and the files relating to the said two companies shall be consolidated accordingly and....
3. The accounting period of the assessee-company for the assessment year 1977-78 ended on 31-12-1976. In the assessment for the aforesaid accounting period the assessee-company showed its return of income on a consolidated basis, incorporating the working results of both the companies and claimed therefrom deduction for the losses of the earlier years pertaining to the amalgamated company, namely, Sidley Dooars Tea Co. Ltd. The ITO accepted the assessee's claim by making, inter alia, the following observations : During the previous year the Sidley Dooars Tea Co. Ltd. was amalgamated with the Eastern Dooars Tea Co. Ltd. by virtue of the High Court's order. A copy of which has been filed and, therefore, Sidley Dooars Tea Co. Ltd. ceased to exist and now there is only income of, namely, Eastern Dooars Tea Co. Ltd. and the loss of the Sidley Dooars Tea Co. Ltd. for the earlier years is set off against the income of the current year arising in the hands of the Eastern Dooars Tea Co. Ltd. The loss pertaining to the aforesaid amalgamating company was Rs. 1,15,126.
4. Subsequently, the Commissioner called for the records of the assessee-company and after noting the aforesaid action of the ITO he felt that the said order was erroneous and prejudicial to the interests of the revenue 'as the unabsorbed loss and depreciation to the extent of Rs. 1,15,126 had been wrongly allowed in the assessment of the assessee-company...'. According to the Commissioner, the assessee-company was a different entity from the amalgamating company and, therefore, the unabsorbed loss and unabsorbed depreciation could not be brought forward in its hands and given benefit thereof to it. A notice under Section 263 was, therefore, given by the Commissioner to the assessee-company which opposed the proposed action of the Commissioner and pleaded before him that the business loss and unabsorbed depreciation to the extent of Rs. 1,15,126 had been rightly allowed in the hands of the assessee-company under the provisions of Section 72 of the Act. It was also pleaded that only the orders not in accordance with law could be held as prejudicial to the interests of the revenue within the meaning of Section 263 and that inasmuch as the order of the ITO was in accordance with law, the Commissioner could not interfere with the order of the ITO. Reliance was placed for the above proposition on the decision of the Gujarat High Court in the case of Addl. CIT v. Mukur Corporation  111 ITR 312.
5. It was also claimed before the Commissioner that in the peculiar facts of the present case, the allowance of unabsorbed depreciation and loss was justified because the assessee-company and Sidley Dooars Tea Co. Ltd. were having gardens side by side, the tea grown in both the gardens was processed and manufactured at a common factory and some of the machinery and other fixed assets had been jointly owned, some of the expenses had been shared by both the companies and that due to the above factors, same business had been continued by both the companies and the loss and unabsorbed depreciation were rightly set off. The Commissioner rejected both the contentions of the assessee-company. He pointed out to the provisions of Sub-section (2) of Section 78 of the Act and observed that 'where any person carrying on any business or profession has been succeeded in such capacity by another person otherwise than by inheritance, nothing in Chapter VI of the Act shall entitle any person other than the person incurring the loss to have it carried forward and set off against his income. In view of this specific provision, it is clear that the assessee-company was not entitled to get this loss and depreciation to be set off against this year's income...'. As to the second limb of the assessee's argument the Commissioner pointed out that 'both the companies were having their separate entity in which public were substantially interested and at no occasion any shares of Sidley Dooars Tea Co. Ltd. were held by Eastern Dooars Tea Co. Ltd. The position of the gardens or sharing of the manufacturing process or expenses would not wipe out the separate identity of the two different assessees. The loss and depreciation which were determined in the case of Sidley Dooars Tea Co. Ltd. could be allowed to be carried forward and set off in the case of the same company and it having lost its identity, the right to carry forward and set off was also lost'. In the event the Commissioner held 'that the assessment order is erroneous and prejudicial to the interests of the revenue to the extent, it was held that there should be carry forward business loss and unabsorbed depreciation of Rs. 1,15,126. This set off will be withdrawn and the total income would be increased by this amount and would be determined at Rs. 1,70,274'.
6. The aforesaid order of the Commissioner has been assailed before us' by the learned counsel for the assessee who pointed out that the Commissioner had apparently misunderstood 'amalgamation' to mean 'succession'. In his opinion, amalgamation was not the same thing as succession and as a result of amalgamation, as the very name suggests, the two companies merge with each other and it is not as if one company comes to an end and another company gets born. The notion of 'succession' was altogether different from that of 'amalgamation'.
Whereas amalgamation was a peculiar feature of the company law, succession was known to the income-tax law and as per Section 170 of the Act, succession always implied a successor and a predecessor, both subsisting together. But under amalgamation, the amalgamated company disappears altogether by merger with the amalgamated company and there is no predecessor and no successor and, therefore, according to the learned counsel for the assessee, the provisions of Sub-section (2) of Section 78, on which the Commissioner has placed reliance, did not at all apply to the facts of the present case. According to the learned counsel for the assessee, there was noting in law specifically prohibiting carry forward of the business loss of the amalgamating company to the assessment of the amalgamated company. In fact, the process of amalgamation meant that all the assets and liabilities of the amalgamating company were taken over by the amalgamated company and such assets and liabilities will naturally include the losses of the amalgamating company and by the process of amalgamation even such losses and the corresponding liabilities would also be passed on to the amalgamated company and the business losses would naturally become losses of the amalgamated company and so the amalgamated company will be able to claim set off for such losses also. May be that there were earlier losses of the amalgamating company but by the process of amalgamation the losses got transferred to the amalgamated company and as amalgamation meant merger of the two identities rather than the take over of the business of one identity by another, the same principles which will govern the case of succession could not be made applicable to the case of amalgamation.
7. On behalf of the revenue, the order of the Commissioner was stoutly supported and our attention was invited not only to the provisions of Sub-section (2) of Section 78, on which reliance was placed by the Commissioner, but also on the observation of Kanga and Palkhivala in Law and Practice of Income-tax, vol. 1, to the following effect : ... In any case of amalgamation, whether falling under Section 2(1A) onot, if the company which merges into another has unabsorbed depreciation or carried forward losses from earlier years, the right to carry them forward would be lost and the company into which the loss-making entity is merged (hereinafter called 'the transferee company') cannot claim to carry forward the unabsorbed depreciation or the past losses of the merged company which was a different assessee. This rule cannot be circumvented in cases of amalgamation falling under Section 2(1A) by an Indian transferee company taking over the assets of the merged company at a value higher than the written down value, since Explanation 2A to Section 43(6) provides that the written down value to the Indian transferee company of the capital assets in such cases should be taken to be the same as it would have been in the case of the merged company. On the other hand, the right to carry forward unabsorbed development rebate is available to the transferee company in cases of amalgamation falling within Section 2(1A)....(p. 385) 8. In rejoinder the learned counsel for the assessee submitted that the opinion of a commentator could not be equated with the opinion of a Court and, therefore, it was not binding on the appellate authorities.
The entire case, according to him, should be examined in the perspective of the peculiar notion of 'amalgamation' known to the company law which was certainly different from what the concept of 'succession' implied wherein by definition the business undertaking of one person was acquired by another person.
9. We have carefully examined the facts on record and the rival submissions. 'Amalgamation' as been defined under Clause (1A) of Section 2 of the Act reads as follows : (1A) 'amalgamation', in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that- (i) all the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation ; (ii) all the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation ; (iii) shareholders holding not less than nine-tenths in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation, otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of the distribution of such property to the other company after the winding up of the first mentioned company ; As the above definition indicates, the amalgamation implies the merger of one or more companies with another company or the merger of two or more companies to form one company. As a result of the merger, corporate existence of amalgamating companies comes to an end and the corporate existence of the amalgamated company, if it is a new one, comes into being. Thus, till the moment of amalgamation, the corporate existence of the amalgamating companies remains intact but as soon as the proposed amalgamation is complete, their independent existence comes to an end and they are dissolved and a new entity comes into being which has its own independent corporate existence. It is true that it comes into existence on account of the merger of two or more companies when, however, other companies merge with an existing company, the amalgamated company does not come into existence on account of the amalgamation of the amalgamating companies but it has already been in existence and the amalgamating companies merge with it leaving their assets and liabilities with the amalgamated companies. In either condition, the amalgamated company is an independent corporate entity different from the corporate entities of the amalgamating companies.
10. For the purpose of assessment of income-tax, each corporate entity will have separate existence and will be subjected to tax in terms of Section 4 of the Act separately. The various benefits with regard to the allowances, exemptions, etc., will be allowed to it in its own assessment. Such benefits and exemptions may not be transferable to another entity except through a specific provision of law. Under Section 28 of the Act, it is the profits and gains of business or profession carried on by an assessee during the previous year, which have to be determined. Under Section 32 of the Act depreciation is allowable to an assessee carrying on business, provided it can be shown that the buildings, machinery, plant or furniture, in respect of which depreciation was claimed by the assessee, were used by it for the purposes of business or profession during the previous year and further that the same were owned by the assessee during the previous year. The unabsorbed depreciation is carried forward to the succeeding year in terms of Sub-section (2) of Section 32. The relevant part of the said Sub-section read as follows : Where, in the assessment of the assessee (or, if the assessee is a registered firm or an unregistered firm assessed as a registered firm, in the assessment of its partners) full effect cannot be given to any allowance...in any previous year owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, . . . the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year and so on for the succeeding previous years.
From the plain words of the aforesaid Sub-section it is clear that the benefit of the carry forward has to be given 'in the assessment of the assessee'. There is no indication in the aforesaid Sub-section that the benefit of the carry forward may be given to a person other than the assessee say, for example, to the amalgamated company instead of the amalgamating companies, after the amalgamation of the amalgamating companies in the amalgamated company.
11. Section 32A of the Act deals with investment allowance. Under Sub-section (1) of the aforesaid section this benefit is also to be given to an assessee in respect of a ship or an aircraft or machinery or plant specified in Sub-section (2), which is owned by the assessee and is wholly used for the purposes of the business carried on by him.
But under Sub-section (6) of Section 32A a special provision has been made for dealing with the case of amalgamation. According to the aforesaid Sub-section, where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers to the amalgamated company any ship, aircraft, machinery or plant, in respect of which investment allowance has been allowed to the amalgamating company and there is some outstanding balance of investment allowance, in the case of the amalgamating company in respect of such ship, aircraft, machinery or plant, such balance 'shall be allowed to the amalgamated company in accordance with the provisions of Sub-section (3)....
12. (i) It will be seen from the aforesaid provisions of Sub-section (6) of Section 32A that it expands the scope of allowance of investment allowance ; and the unabsosbed investment allowance, if any, could be carried forward, not only in the case of the assessee itself but, if it is a case of amalgamation, the unabsorbed investment allowance of the amalgamating company could be carried forward to the assessment of the amalgamated company in the same manner as if it belonged to the amalgamated company ; (ii) it is, however, worth notice that the benefit of Sub-section (6) will be available not to every amalgamated company but only to such amalgamated company as matches the definition of 'amalgamation' as given in Section 2(1A), particularly the condition (iii) laid down in the Sub-clause. If the list of the shareholders of the amalgamated company does not include nine-tenths of the shareholders of the amalgamating company or companies, it would not be a case of amalgamation for the purpose of the Act, even though it may be a perfectly valid amalgamation under the Companies Act, 1956 and the benefit of Sub-section (6) of Section 32A will not be available to such an amalgamated company. The benefit of carry forward of outstanding investment allowance of the amalgamating companies to the assessment of the amalgamated company is, thus, not automatically available to every case of amalgamation. It should be an amalgamation as defined under Section 2(1A) to enable the amalgamated company to take advantage of the aforesaid Sub-section (6) of Section 32A ; (iii) Sub-section (6) is, thus, clearly a special provision, which has been deliberately incorporated by the Legislature in Section 32A but which has not been incorporated by it in Section 32(2), even though Section 32A was placed on the statute book later than Section 32(2) and, apparently, if the Legislature wanted to apply the aforesaid principle in the case of unabsorbed depreciation also, there was no reason as to why they could not have incorporated in Section 32 also a special provision of the same type as the one contained in Sub-section (6) of Section 32A.13. Section 33 of the Act deals with development rebate and here again we note that there is a special provision in Section 33 in the form of Sub-section (3) whereby unabsorbed development rebate of the amalgamating company is allowed to be carried forward in the assessment of the amalgamated company, provided certain conditions are fulfilled.
14. Section 33 A of the Act deals with development allowance and here again the Legislature has deemed it expedient to incorporate the aforesaid special provision through Sub-section (5) of Section 33A permitting carry forward of unabsorbed development allowance of an amalgamating company in the assessment of the amalgamated company on the fulfilment of certain conditions.
15. It is significant to note that the aforesaid special treatment regarding carry forward of unabsorbed allowances of one assessee in the hands of another assessee has been given by the Legislature not only in the case of amalgamation but also in the case where 'a firm is succeeded to by a company in the business carried on by it is a result of which the firm sells or otherwise transfers to the company any ship, aircraft, machinery or plant.... Reference may be made in this connection to the provisions of Sub-section (7) of Section 32A, Sub-section (4) of Section 33 and Sub-section (6) of Section 33A. But for the aforesaid special provisions, the unabsorbed investment allowance, development rebate or development allowance of a firm could never have been carried forward in the assessments of succeeding companies.
16. The provisions dealing with the carry forward of business loss are contained in Section 72. Here again, carry forward is to be allowed to an assessee provided it carries on business or profession in the previous year to which the carry forward is done. The relevant part of Sub-section (1) of Section 72 reads as follows : Where for any assessment year, the net result of the computation under the head 'Profits and gains of business or profession' is a loss to the assessee,...and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of Section 71, so much of the loss as has not been so set off ...shall,... be carried forward to the following assessment year, and- (i) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year : Provided that the business or profession for which the loss was originally computed continued to be carried on by him in the previous year relevant for that assessment year ;....
From the parts italicized by us it would be manifest that loss which is to be carried forward should have been incurred by the assessee and it can be set off against the profits and gains, if any, of a business or profession carried on by the assessee. There is no provision either under Section 32 or under Section 72, whereby a special provision of the type mentioned in Sub-section (6) of Section 32A, Sub-section (3) of Section 33 and Sub-section (5) of Section 33A might have provided for the benefit of the unabsorbed loss of the assessee to be given to another assessee on amalgamation.
In the absence of such provision it does not appear to be possible to us to deviate from the principle incorporated by the Legislature in Section 72 and in Section 32, namely, that the unabsorbed depreciation should be carried forward to the succeeding years in the case of the same assessee. When the assessee claimed that the unabsorbed loss of Sidley Dooars Tea Co. Ltd. should be given to the assessee-company which was undoubtedly a separate assessable entity from Sidley Dooars Tea Co. Ltd., it was for the assessee-company to point out the law which would permit it the necessary benefit or concession. The only provision under which the unabsorbed depreciation is carried forward is contained in Sub-section (2) of Section 32 and those in accordance with which the unabsorbed loss is carried forward are contained in Section 72 and in neither of them, as we have seen above, the special provisions regarding the benefit of the unabsorbed losses and depreciation of amalgamating company to be given to amalgamated company has been incorporated by the Legislature. In contrast, as we have noted above, are the provisions of Sub-section (6) of Section 32A, Sub-section (3) of Section 33 and Sub-section (5) of Section 33A.17. Sub-section (2) of Section 78 may be speaking of 'succession' and the concept of 'succession' may be different from that of 'amalgamation', but for that reason it cannot be said that the amalgamating company is not a 'transferor' company and the amalgamated company is not the 'transferee' company. The simultaneous existence, after the succession, of the successor and the predecessor ad infinitum is not necessary to constitute succession. It is enough for the purpose of succession if it can be shown that the business up to the moment of succession belonged to one entity and after the moment of succession it belonged to another entity. That the transferor or the predecessor should subsist ad infinitum after the moment of succession is not the sine qua non of succession. The predecessor may subsist or may not subsist. Sub-section (2) of Section 170 in fact visualizes the situation 'when the predecessor cannot be found...'. This aspect of 'succession' is, in our opinion, common to the process of 'amalgamation' also. Up to the moment of amalgamation, the amalgamating company subsists independently of the amalgamated company and the assets and liabilities belonging to the amalgamating company are, by definition, transferred to the amalgamated company to bring to fruition the process of amalgamation. The order of the Hon'ble High Court in the present case illustrates this point. It refers to the 'transferor company', the 'transferee company' and to the 'transfer' of assets and liabilities of the transferor company to the transferee company. The transferee company would subsist, even after the High Court's order and the transfer of its assets and liabilities to the transferee company till the order of the High Court is delivered to the Registrar of Companies, which in the present case should have been delivered after 24-2-1977. Therefore, till the moment of amalgamation, the independent existence of the amalgamating and amalgamated company is ex hypothesis there. The amalgamating company comes to an end only after the order of the High Court is delivered to the Registrar of Companies. Thus, the independent existence of the amalgamating company, after the process of transfer of its assets to the amalgamated company is over, may continue till it is dissolved. But to constitute 'transfer' of the business as a whole from the amalgamating company to the amalgamated company, the continued existence of the amalgamated company and the transferor company is not a condition precedent to constitute the succession of the business of the amalgamating company by the amalgamated company for the purpose of Sub-section (2) of Section 78. The point of distinction, which Dr. Pal visualises in the concept of 'succession' and 'amalgamation' on this account does not appear to us to be real or substantial, justifying the inference which he wanted to draw from the admitted distinction between the two concepts. The general scheme of the Act, as pointed out above, appears to be that the various concessions visualised under the provisions of the Act regarding computation of income of an assessee are allowable to the assessee concerned, who is carrying on business, etc. Exceptions to this general principle are there but all of them have been statutorily incorporated in the various sections. Unless an assessee is able to bring its case within the exception statutorily provided, it cannot claim the benefit of the said exception. In the present case, as we have noted above, the learned counsel for the assessee has not been able to bring to our attention any such provision as might be carving out exception to the general principles regarding carry forward of unabsorbed depreciation and unabsorbed losses as contained in Sub-section (2) of Section 32 and Section 72, respectively. In the absence of this, carry forward of loss and unabsorbed depreciation will be governed by the plain meaning of the language used in Sections 72 and 32(2).
18. The learned authors, Kanga and Palkhivala, have also expressed the view which corresponds with the above discussion. The said view may not constitute the authority of a judgment of the Hon'ble High Court or the Supreme Court but it is an opinion of an expert and may be looked at for assistance. The Hon'ble Punjab and Haryana High Court referred to the views of Kanga and Palkhivala in Addl. CIT v. Kamail Singh V.Kaleran  94 ITR 505 and accepted them. There is, therefore, no substance in Dr. Pal's contention that Kanga and Palkhivala's views cannot be looked at.
19. In view of what we have stated above, we have no option in the matter but to uphold the order of the Commissioner and to reject the assessee's appeal. Accordingly, we do so.