Amalgamated Company Entitled to Carry Forward and Set Off MAT Credit of Amalgamating Entities

ORDER

Om Prakash Kant, Accountant Member.- This appeal by the assessee is directed against order dated 26^th March passed by the Ld. National Faceless Appeal Centre, Delhi [hereinafter shall be referred to as ‘Ld. CIT(A)] for assessment year 2018-19, raising following grounds:

2. The Assessee has raised the following grounds of appeal:

2. Briefly stated, the assessee, a non-listed company, is engaged in the business of investment in equity shares and mutual funds and leasing of real estate properties. For the year under consideration, the assessee filed its return declaring total income of Rs. 16,57,31,650/-, which was subsequently revised to Rs.16,62,32,400/-. The return was selected for scrutiny and statutory notices under the Income-tax Act, 1961 (in short the ‘Act’) were issued and complied with. During scrutiny proceedings, the Assessing Officer noted that during the relevant previous year, eleven companies amalgamated with the assessee pursuant to a scheme sanctioned by the National Company Law Tribunal (“NCLT”) with effect from 1 October 2016 and the assessee claimed set-off of MAT credit aggregating to Rs.3,30,53,802/- pertaining to those amalgamating companies.

3. But the Assessing Officer disallowed the set off for the reasons that in assessment year 2017-18 carry forward of the said aggregate MAT credit was denied by the Assessing Officer holding that there was no specific provision in the Act for allowing the claim of unutilized MAT credit available in the credit of the amalgamating companies to be claimed in the hands of the amalgamated company. Accordingly, in the assessment order passed on 16/02/2021 u/sec. 143(3) of the Act, though the Assessing Officer accepted the returned income but disallowed the claim of the set off of MAT credit of Rs.3,30,53,802/-. Aggrieved, the assessee filed appeal before the Ld. CIT(A) raising the primary ground of denial of set off of MAT credit resulting into interest u/sec. 234A, 234B and 234D of the Act.

4. The learned CIT(A) upheld the disallowance. According to him, section 115JAA permits carry forward and utilisation of MAT credit by the assessee which had paid the tax in the earlier year, and contains no express provision permitting transfer of such credit to the amalgamated company. He accordingly held that, unlike the specific statutory provision governing carry forward of losses in cases of amalgamation, the MAT credit could not be transferred by implication. The consequential grounds relating to refund, demand and interest under sections 234A, 234B and 234D were also dismissed.

5. Before us, the learned Counsel for the assessee explained that the assessee had brought forward the MAT credit pertaining to amalgamating companies from AY 2017-18 and had claimed set off of the same in the return of income since the Appellant during the year under consideration had to pay tax under normal provisions of the Act. The break-up of the amount of MAT credit claimed pertaining to amalgamating companies was stated as under:

6. The ld Counsel supported his claim, firstly, on the reasoning that the scheme of amalgamation sanctioned by the NCLT expressly provided that all taxes paid by the amalgamating companies, including MAT under sections 115JA/115JB and unutilised MAT credit, would be deemed to have been paid for and to the credit of the amalgamated company. It was submitted that, upon amalgamation, the assessee stepped into the shoes of the amalgamating companies and succeeded to their assets, liabilities, rights and obligations, including the MAT credit. The relevant extracts of the Scheme are reproduced as under:

“8.1 Upon the coming into effect of the Scheme, benefits of all taxes paid including but not limited to Minimum Alternate Tax paid under Section 115JA/115JB of the Income-tax Act, 1961, advance taxes and tax deducted at source, right to carry forward and set off unabsorbed losses and depreciation, unutilized Minimum Alternate Tax credit under the provisions o f the IT Act, by the respective Transferor Companies from the Appointed Date, regardless of the period to which they relate, shall be deemed to have been paid for and on behalf of and to the credit of the Transferee Company as effectively as if the Transferee Company had paid the same and shall be deemed to be the rights/claims of the Transferee Company.”

7. It was further submitted that the scheme sanctioned by the NCLT had statutory force and expressly recognised the right of the transferee company to the MAT credit of the transferor companies. The learned Counsel also sought support from the broader principle that, upon amalgamation, the successor succeeds to the tax attributes, rights and obligations of the predecessor, referring in this context to the treatment of bad debts, remission or cessation of liabilities and other tax credits.

8. The learned Counsel further submitted that section 115JAA contains a specific prohibition against utilisation of MAT credit only in the case of conversion of a private or unlisted public company into an LLP under sub-section (7), but contains no corresponding restriction in the case of amalgamation. According to him, the absence of such a prohibition in the case of amalgamation is significant and the Revenue could not read into the provision a restriction which Parliament had not enacted. In support of the above contention, reliance was particularly placed upon the decision of the coordinate Bench in Capgemini Technology Services India Ltd. v. Dy. CIT [ IT Appeal Nos.1857 & 1935 (Pune) of 2017, dated 30-8-2022], wherein, on materially similar facts and upon consideration of section 115JAA, it was held that MAT credit of the amalgamating company was allowable in the hands of the amalgamated company. Reliance was also placed upon the decision in Convergys India Services (P.) Ltd. v. DCIT [ITA No. 782 (Del) of 2021, dated 1-8-2022], taking a similar view. Further reliance in this regard is placed on the following judicial precedents

9. Further, learned counsel also drawn similarity between the allowability of the bad debt u/sec. 36(1)(vii) of the Act, tax credit and section 41(1) of the Act as a consequence, of amalgamation in the hands of the amalgamated company.

10. The learned Departmental Representative, on the other hand, relied upon the orders of the lower authorities.

11. We have heard the rival submissions and perused the material available on record. The short question for our consideration is whether the unutilised MAT credit pertaining to the amalgamating companies can be carried forward and set off by the amalgamated company pursuant to the scheme of amalgamation.

12. The issue is no longer res integra before us. The coordinate Bench in Macrotech Developers Ltd. (supra), while considering an identical controversy, examined the effect of amalgamation and the provisions of section 115JAA and held that MAT credit of the amalgamating companies was allowable in the hands of the amalgamated company. The relevant finding of the Coordinate Bench is reproduced as under:

“110. The learned authorized representative vehemently submitted that on amalgamation, all assets and liabilities of the amalgamating companies are transferred to amalgamated company and one of the assets is the minimum alternative tax credit, which is also transferred to the amalgamated company, and therefore the credit should be allowed. He vehemently referred to the decision of coordinate bench in ITA number 1857/pune/2017 for 14 dated 30/8/2022 assessment year 2013 wherein at Para number 48 of 11 ground number 11 of the appeal of the assessee the coordinate bench has held that mat credit of amalgamating company has to be allowed in the hands of the amalgamated company.

111. The learned departmental representative submitted that the provisions of section 72A of the act clearly prohibit such set of. He specifically referred to number 49 of the decision referred by the learned AR. It was further submitted that there is no provision in the act itself to grant any such credit under section 115JAA of the act.

112. We have carefully considered the contentions of the parties and find that when the effective date of merger is 1/4/2017 whereby 11 companies merged with the assessee company by the order of the National company law Tribunal. since pursuant to an ‘amalgamation’.”

13. The coordinate Bench in Capgemini Technology Services India Ltd. (supra) had reached the same conclusion, observing that section 115JAA specifically prohibits succession to MAT credit in the case of conversion of a company into an LLP, but contains no corresponding prohibition in the case of amalgamation. Relevant finding of the Tribunal (supra) is reproduced as under:

“49. We have heard the rival submissions and scanned through the relevant material on record. The AO has denied the claim, at the threshold, on the ground that the MAT credit of the amalgamating company is not covered u/s 72A of the Act. He has not referred to the non-fulfillment of any other eligibility condition for claiming such credit.

50. The facts of this ground are materially similar to the ground of not allowing set off of long term capital loss available in the hands of the amalgamating company discussed supra. While allowing such ground above, we have found that the eligible business of the amalgamating company continued and thus got transferred to the amalgamated company. The business, as such, did not cease to exist. All the benefits and privileges available to the amalgamating company have been held to pass on to the successor amalgamated company. In view of the fact that the Hon’ble High Court approved the Scheme of amalgamation by also specifically providing that credit for minimum alternate tax shall be claimed by the Transferee company, there remains no doubt whatsoever that MAT credit of the amalgamating company has to be allowed in the hands of the amalgamated company.

51. Now, we will examine if the Act contains any restriction on the allowability of the MAT credit in the hands of the amalgamating company. Section 115JAA deals with tax credit in respect of tax paid on deemed income relating to certain companies. Sub-section (2) provides that where any amount of tax is paid u/s.115JA by an assessee, being, a company for an assessment year, then credit in respect of tax so paid shall beallowed to him in accordance with the provisions of this Act.

Because of the assessee-amalgamated company stepping into the shoes of the amalgamating company, it will satisfy the requirement of allowing credit to ‘him’ in accordance with the provisions of this section. The above position of allowing MAT credit of the amalgamating company in the hands of the amalgamated company seems to have been accepted by the legislature when we read sub-section (7) of section 115JAA containing a specific prohibition, which provides that: “In case of conversion of a private company or unlisted public company into a limited liability partnership under the Limited Liability Partnership Act, 2008 (6 of 2009), the provisions of this section shall not apply to the successor limited liability partnership.” This provision indicates that the Parliament wanted to restrict the allowing of MAT credit to the successor only on conversion of a company into LLP and not any other case of succession, including the amalgamation. Had the intention of the legislature been not to allow MAT credit of the amalgamating company, it would have specifically covered the cases to amalgamation in addition to the cases of conversion of a company into LLP. In view of the specific provision contained in sub-section (7) prohibiting the MAT credit only in case of a conversion of a private company into a limited liability partnership and not extending such prohibition to the cases of amalgamation, there is no doubt that the MAT credit earned by the amalgamating company has to be allowed in the hands of the amalgamated company. We, therefore, hold that the MAT credit of the amalgamating company has to be allowed in the hands of the amalgamated company.

This ground is, therefore, allowed.”

10. Reliance in this regard is placed on the decision of the Hon’ble Mumbai Tribunal in the case of Capgemini Technology Services India Limited (ITA No.1857/pUN/2017) dated 30 August 2022 (Refer pages 149 to 154 of the legal paperbook) wherein it has been held that:

“49. We have heard the rival submissions and scanned through the relevant material on record. The AO has denied the claim, at the threshold, on the ground that the MAT credit of the amalgamating company is not covered under section 72A of the Act. He has not referred to the non-fulfilment of any other eligibility condition for claiming such credit.

50. The facts of this ground are materially similar to the ground relating to nonallowance of set-off of long-term capital loss available in the hands of the amalgamating company, discussed hereinabove. While allowing such ground, we have found that the eligible business of the amalgamating company continued and thus stood transferred to the amalgamated company. The business, as such, did not cease to exist. All the benefits and privileges available to the amalgamating company have been held to pass on to the successor amalgamated company. In view of the fact that the Hon’ble High Court approved the Scheme of Amalgamation by specifically providing that the credit for Minimum Alternate Tax (MAT) shall be claimed by the transferee company, there remains no doubt whatsoever that the MAT credit of the amalgamating company has to be allowed in the hands of the amalgamated company

51. We shall now examine whether the Act contains any restriction on the allowability of MAT credit in the hands of the amalgamated company. Section 115JAA deals with tax credit in respect of tax paid on deemed income relating to certain companies. Sub-section (2) provides that where any amount of tax is paid under section 115JA by an assessee, being a company, for any assessment year, credit in respect of such tax paid shall be allowed to it in accordance with the provisions of the Act. Since the amalgamated company has stepped into the shoes of the amalgamating company, it satisfies the requirement of allowing such credit to “him” in accordance with the provisions of this section. The above position, namely, allowing MAT credit of the amalgamating company in the hands of the amalgamated company, also appears to have been accepted by the legislature when sub-section (7) of section 115.JAA is considered. This provision specifically stipulates that: “In case of conversion of a private company or unlisted public company into a limited liability partnership under the Limited Liability Partnership Act, 2008 (6 of 2009), the provisions of this section shall not apply to the successor limited liability partnership.” This provision clearly indicates that Parliament intended to restrict the carry forward and allowance of MAT credit to a successor only in cases involving conversion of a company into an LLP, and not in any other mode of succession, including amalgamation. Had it been the intention of the legislature not to allow MAT credit of the amalgamating company to the amalgamated company, it would have specifically included cases of amalgamation in addition to cases of conversion into an LLP. In view of the specific prohibition contained in sub-section (7), which applies only to conversion of a private company or unlisted public company into a limited liability partnership, and in the absence of any corresponding prohibition in cases of amalgamation, there is no doubt that MAT credit earned by the amalgamating company must be allowed im the hands of the amalgamated company.

We, therefore, hold that the MAT credit of the amalgamating company is allowable in the hands of the amalgamated company”

14. The Hon’ble Delhi Tribunal in the case of Convergys India Services Pvt. Ltd. (supra) has held that

“17. The Id. DRP unfortunately concurred with the view of the AO and confirmed that non-allowance MAT credit. When all assets and liabilities, rights and obligation of Convergys Infowavz stood transferred to the assessee with effect from April 01, 2015 the MAT credit being an asset of the earlier company would be available to the assessee at its disposal for utilization. There cannot be any dispute on the utilization of the assets of the amalgamated company by the amalgamating company. No doubt MAT credit is one of such assets. Hence, the appeal of the assessee on this ground is allowed.”

15. We find no reason to take a different view. The scheme of amalgamation sanctioned by the NCLT specifically provides that the benefit of taxes paid by the amalgamating companies, including unutilised MAT credit under the Income-tax Act, shall accrue to and be available to the transferee company. More importantly, section 115JAA itself does not contain any prohibition against succession to MAT credit in a case of amalgamation. On the contrary, sub-section (7) expressly excludes the benefit of the section in the case of conversion of a private or unlisted public company into an LLP. The deliberate specification of one mode of succession, without extending the prohibition to amalgamation, cannot be enlarged by implication.

16. The contention of the Revenue, therefore, that the claim must fail merely because section 115JAA does not contain an express enabling provision for amalgamation cannot be accepted. The assessee, upon amalgamation, succeeded to the rights and liabilities of the amalgamating companies in accordance with the sanctioned scheme, and the MAT credit forming part of those rights cannot be denied merely on the ground that the statute does not separately provide for its transfer in the event of amalgamation. We respectfully follow the aforesaid decisions of the coordinate Benches.

17. Accordingly, we set aside the finding of the learned CIT(A) on this issue and direct the Assessing Officer to allow the MAT credit of Rs. 3,30,53,802/- in the hands of the assessee, subject to verification of the quantum and its availability in accordance with law. Ground No. 1 is accordingly allowed.

18. The remaining grounds relating to refund, demand and levy of interest under sections 234A, 234B and 234D are consequential to the determination of the MAT credit. The same are accordingly restored to the file of the Assessing Officer for recomputation in accordance with law and after giving effect to our decision hereinabove. The assessee shall be entitled to consequential relief, if any, in accordance with law.

19. In the result, the appeal of the assessee is partly allowed for statistical purpose.