The Supreme Court of India has held that an amalgamated company cannot claim a set-off of accumulated losses suffered by the amalgamating company under the Kerala Agricultural Income Tax Act, 1991, in the absence of specific statutory provisions or mandatory notice to the State during the amalgamation process.
A Bench comprising Justice Rajesh Bindal and Justice Vijay Bishnoi dismissed a batch of five appeals filed by Aspinwall and Co. Ltd., affirming the orders passed by the Kerala High Court. The Court observed that the appellant failed to point to any provision in the state legislation that permits such a set-off, unlike the specific provisions available under the Central Income Tax Act, 1961.
Background of the Case
The primary appeal (Civil Appeal No. 7796 of 2012) arose from a scheme of amalgamation sanctioned in November 2006, with an appointed date of January 1, 2006. Under this scheme, ‘Pullangode Rubber & Produce Co. Ltd.’ (the amalgamating company) was merged into Aspinwall and Co. Ltd. (the amalgamated company).
The amalgamating company had accumulated losses on its balance sheet. The appellant company sought to set off these losses against its own income, citing Clause 14.2 of the amalgamation scheme, which stated that all losses incurred by the amalgamating company would be deemed the losses of the amalgamated company. Both the Kerala Agricultural Income Tax and Sales Tax Appellate Tribunal and the Kerala High Court had previously rejected this claim.
Arguments of the Parties
Appellant’s Submissions: Senior Counsel Mr. S. Ganesh, appearing for the appellant, argued that under Section 54 of the Kerala Agricultural Income Tax Act, 1991, the amalgamated company acts as the successor and is entitled to the set-off. He relied on the Supreme Court’s decision in Dalmia Power Ltd. v. Assistant Commissioner of Income-Tax, arguing that once a scheme of amalgamation is approved without objection, all its clauses—including those relating to loss set-off—become binding.
Respondent’s Submissions: Senior Counsel Mr. Pallav Shishodia, representing the Revenue, contended that the Dalmia Power judgment was misplaced because the State of Kerala was never issued a notice during the amalgamation process. He further argued that Section 12 of the Kerala Act restricts the set-off of losses only to the “assessee” who sustained them. Since the amalgamating company had ceased to exist, and the Kerala Act lacked a provision similar to Section 72A of the Income Tax Act, 1961, the benefit could not be transferred.
Analysis of the Court
The Court meticulously compared the provisions of the Kerala Agricultural Income Tax Act, 1991 with the Income Tax Act, 1961. It noted that while Section 72A of the 1961 Act specifically provides for the carry forward and set-off of accumulated losses in cases of amalgamation through a “deeming” fiction, the Kerala Act contains no such enabling provision.
On the reliance placed by the appellant on the Dalmia Power case, the Court noted:
“Neither there is any statutory requirement for issuing notice to the State Government before any scheme of amalgamation is approved by the Court under the 1956 Act nor such notice was issued. Hence, to state that the judgment in Dalmia Power Ltd.’s case (supra) covers the case of the appellant, is misconceived and deserves to be rejected.”
The Bench emphasized that Section 394-A of the Companies Act, 1956, makes notice to the Central Government (Income Tax Department) mandatory, but no such mandate existed for the State Agricultural Income Tax authorities.
Furthermore, the Court addressed the factual limitation under Section 12 of the Kerala Act, which allows losses to be carried forward for a maximum of eight years. The High Court had found that the losses in question pertained to a period beyond this eight-year limit.
Final Decision
The Supreme Court concluded that the appellant could not justify the claim for set-off under the existing state law.
“Learned counsel for the appellant has not been able to refer to any provision under the Kerala Act in terms of which the losses suffered by amalgamating company can be set-off against the income of the amalgamated company.”
Finding no merit in the appeals, the Court dismissed them, confirming the High Court’s findings that the amalgamated company is not entitled to the requested tax benefit.
Case Details
- Case Title: Aspinwall and Co. Ltd. v. Inspecting Assistant Commissioner
- Case No.: Civil Appeal No. 7796 of 2012 (with connected matters)
- Bench: Justice Rajesh Bindal and Justice Vijay Bishnoi
- Date: April 13, 2026
