M/S. MCDOWELL & COMPANY LTD. versus COMMISSIONER OF INCOME-TAX, KARNATAKA CENTRAL, BANGALORE

Citation: [2017] 2 S.C.R. 856 · Decided: 09-03-2017 · Supreme Court of India · Bench: A.K. SIKRI · Disposal: Dismissed

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Judgment (excerpt)

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[20 I 7] 2 S.C.R. 856 
MIS. MCDOWELL & COMPANY LTD. 
v. 
COMMISSIONER OF INCOME-TAX, KARNATAKA CENTRAL, 
BANGALORE 
(Civil Appeal No. 3893 of2006) 
MARCH 09, 2017 
[ A. K. SIKRI AND ASHOK BHUSHAN, JJ.J 
Income Tax Act, 1961 - s. 72A - Provisions relating to carry 
forward and set off of accumulated loss_. and unabsorbed 
depreciation allowance in certain cases of amalgamation - Benefit 
of provisions of s. 72A - Grant of - Waiver of interest by financial 
institutions, if to be ·treated as income of assessee company, which 
took·over sick company through scheme of amalgamation - Tribunal 
granted benefit of provisions of s. 72A and also held that waiver of 
interest by financial institutions would not be treated as income of 
assessee uls. 41(/) - Said order set aside by the High Cozirt - On 
appeal, held: Assessee took over the sick company-HPL and"HPL 
ceased to have any identity - Since the benefit of interest accrued 
after the company had ceased to exist and was in fact, availed of 
by assessee, the assessee company was allowed to· set off the 
amalgamated losses of the company amalgamated with it :.... When 
assessee is allowed the benefit of the accumulated loses, while 
computing those loses, the income which accrued to it had to be 
adjusted and only thereafter net losses could have been allowed to 
be set off by the assessee co111pany - It cannot be said that the 
assessee would be entitled to take advalllage of the accumulated 
loses but while calculating these accumulated loses at the hands of 
amalgamated company, the inco111e accrued uls. 41 (/) at the hands 
of HPL would not be accounted for - Order passed by the High 
Court upheld. 
Dismissing the appeal, the Court 
HELD: 1.1 Tl!e High Court took note of the fact that the 
assessee had taken over the sick company-HPL through the 
scheme of amalgamation and that the HPL ceased to have any 
identity as it did not remain a 'person' either in fact or in law after 
856 
MIS. MCDOWELL & COMPANY LTD. v. COMMISSIONER OF 
INCOME-TAX 
amalgamation. However, rights are determined in terms of the 
scheme of amalgamation and since the benefit of interest had 
accrued after the company had ceased to exist, it was, in fact, 
availed of by the assessee company. The assessee company was 
allowed to set off the amalgamated losses of the company 
amalgamated with HPL. This was the benefit which accrued to 
the assessee under section 72A of the Income Tax Act. When 
the assessee is allowed the benefit of the accumulated loses, while 
computing those loses, the income which accrued to it had to be 
adjusted a:nd only thereafter net losses could have been allowed 
to be set off by the assessee company. Calculations to this effect 
are given by the Assessing Officer in his assessment order and 
there is no dispute about the same. [Para 10] [862-E-H] 
1.2 The assessee was given the benefit of accumulated loses 
of the amalgamated company. The effect thereof is that though 
these loses were suffered by the amalgamated company they were 
deemed to be treated as lose~ of the assessee company by virtue 
of Section 72A. 1t·caunot be said that the assessee would be 
entitled to take advantage of the accumulated loses but while 
calculating these accumulated loses at the hands of amalgamated 
company, i.e., HPL, the income accrued under section 41(1) at 
the hands·of HPL would not be accounted for. That had to be 
necessarily adjusted in order to see what are the actual 
accnmnlated loses, the benefit whereof is to be extended to the 
assessee. Thus, the High Court's analysis of Section 41(1) along 
with Section 72A, is concurred with. [Para 10] [863-B-D] 
Sara~wati Industrial Syndicate v. CIT (1990) Supp. SCC 
§75 : (1990] Suppl. SCR 332 - distinguished. 
Case Law Reference· 
[1990] Suppl. SCR 332 
distin~uished 
Para 10 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3893 
857 
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From the Judgment and Order dated 05 .04.2005 of the High Court 
ofKarnataka at Bangalore in l.T.R.C. No. 12 of2002. 
Jaideep Gupta, Sr. Adv., Kuna! Chatterji, Ms. Maitrayee Banerjee, 
Advs. for the Appellant. 
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SUPREME COURT REPORTS 
(2017) 2 S.C.R. 
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Y. P. Adhyaru, Sr. Adv., Rupesh Kumar, S. A. Haseeb, Mrs. Anil 
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Katiyar, Advs. for the Respondent. 
The Judgment of the Court was delivered by 
A. K. SIKRI, J. I. This appeal is preferred against judgment 
dated 05.04.2005 of the High Court of Karnataka whereby the appeal 
of Com

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