ORDER
T. J. Joice, A.M.
1. This appeal by the Revenue is directed against the order of CIT(A), dt. 30th September, 1992, for asst. yr. 1989-90.
2. The grounds of appeals are as under :
1. On the facts and in the circumstances of the case and in law the CIT(A) erred in directing the AO :
(i) Not to invoke the provisions of s. 115J of the IT Act.
(iii) Not to charge interest under s. 234B & 234C of the IT Act.
3. For asst. yr. 1989-90 the assessee filed a return of income on 28th December, 1989, declaring a profit of Rs. 32,27,960 for 21 months from 1st July, 1987, to 31st March, 1989. Thereafter, the assessee filed a revised return declaring total income at Rs. 1,44,350 on 6th July, 1990, for a period of six months from 1st July, 1987, to 31st December, 1987. The revised return was filed because the assessee-company got amalgamated with M/s Farmson Pharmaceuticals (Gujarat) (P) Ltd. w.e.f. 1st January, 1988, as per the order of Gujarat High Court dt. 23rd April, 1990.
4. In the assessment order under s. 143(3) dt. 16th October, 1991, the AO computed the total income of the assessee at Rs. 2,07,660 after making certain adjustments to the returned income. In the second part of the assessment order, the AO has also separately computed the taxable profit of the company under the provisions of s. 115J. The taxable profit thus computed comes to Rs. 2,23,317.
5. Aggrieved by the above said order the assessee-company filed an appeal before the CIT(A) challenging the addition to the returned income and also the computation of income under s. 115J. The CIT(A) in the impugned order partly allowed the assessee’s appeal.
6. In the present appeal, we are only concerned with the computation of the chargeable profit under the provisions of s. 115J and the consequent levy of interest under s. 234B and under s. 234C. The CIT(A) directed the AO not to apply the provisions of s. 115J in the present case and also not to charge interest under s. 234B and 234C. The Revenue is aggrieved by this direction of the CIT(A).
7. The learned Departmental Representative heavily relied on the order of the AO and submitted that the computation of chargeable profit was made strictly in accordance with the provisions of s. 115J in the instant case. On the other hand, the learned counsel for the assessee objected to the application of s. 115J. It is pointed out that the company was having accounting year ending on 30th June upto the asst. yr. 1988-89. Thus the previous year of the company for asst. yr. 1988-89 ended on 30th June, 1987. On 1st January, 1988, the said company got amalgamated with another company by name Farmson Pharmaceuticals (Gujarat) (P) Ltd. As per the scheme of amalgamation, the respondent company got dissolved on the said date of amalgamation and ceased to have existence. The assessee-company, therefore, contended before the AO that as per the amended provisions of s. 3 of the IT Act, 1961, the previous year of the company for asst. yr. 1989-90 has to be taken into consideration from 1st July, 1987 to 31st March, 1989 (i.e. a period of 21 months) for the computation of profit under s. 115J and P&L a/c of the company for the relevant previous year has to be considered. The relevant previous year as per the amended definition would be the period from 1st July, 1987, to 31st March, 1989. Since the company was dissolved w.e.f. 1st January, 1988, the company was not in existence on the said date and it is impossible to prepare the P&L a/c of the previous year. It is, therefore, contended that whenever the computation provisions fail the charge also fails. Reliance in this connection is placed by the learned counsel on the decision of the Supreme Court in CIT vs. B. C. Srinivasa Setty (1981) 128 ITR 294 (SC). The computation provisions require the company to prepare the accounts upto 31st March, 1989. On the said date the company was not in existence and, therefore, the preparation of P&L a/c on the said date is impossible and hence the entire charge failed. It is further pointed out that the AO has also not disputed the fact that the company had ceased to exist on and from 31st December, 1987, as he has taken the previous year of the company upto a period of six months i.e., 1st July, 1987, to 31st December, 1987. If this view is taken into consideration, then the relevant previous year as per the definition of the previous year applicable till asst. yr. 1988-89, would be the asst. yr. 1988-89 and not 1989-90. Further if the new definition is to be applied then in that case the relevant previous year has to end on 31st March, 1989. In both the alternatives, the charge failed for asst. yr. 1989-90 and, therefore, the provisions should not be applicable to the respondent company. On the basis of these arguments, the learned counsel for the assessee supported the order of the CIT(A).
8. We have considered the rival submissions and the evidence on record. The question to be considered is whether the respondent assessee-company M/s Farmson Analgesic (P) Ltd. is liable to tax under the provisions of s. 115J for asst. yr. 1989-90. According to the assessee-company, the company was not in existence from 1st January, 1988, because on this date the company got amalgamated with Farmson Pharmaceuticals (Guj) (P) Ltd. For asst. yr. 1989-90, the previous year has ended on 31st March, 1989, as per the amended provisions of s. 3 and since the company was not in existence as on 31st March, 1989, the preparation of P&L a/c as on 31st March, 1989, is an impossibility. Consequently, the company cannot be made liable to the provisions of s. 115J, for asst. yr. 1989-90. This is the argument advanced by the assessee.
9. However, the above said argument of the company does not appear to be logical in view of the fact that the AO has proceeded to compute the total income of the assessee under s. 143(3) and also the chargeable profits under s. 115J on the basis of revised return filed by the assessee on 6th July, 1990. It may be recalled in this connection (as mentioned in para 3 above) that the assessee filed the original return of income on 28th December, 1989, for a period of 21 months ending on 31st March, 1989; whereas subsequently it filed a revised return on 6th July, 1990, for a period of six months, from 1st July, 1987, to 31st December, 1987. The assessee’s plea that it got amalgamated with Farmson Pharmaceuticals (Guj) (P) Ltd. w.e.f. 1st January, 1988, has been duly taken note of by the AO who has passed two different assessment orders for asst. yr. 1989-90 in the case of Farmson Analgesic (P) Ltd. (the respondent-assessee in the present case) and in the case of M/s Farmson Pharmaceuticals (Guj) (P) Ltd. In the case of the respondent company the assessment is seen made for a period of six months from 1st July, 1987 to 31st December, 1987. In the case of Farmson Pharmaceuticals (Guj) (P) Ltd. the assessment is for a period of 15 months ending on 31st March, 1989. Since the respondent company was assessed upto the period of 30th June, 1987, upto and inclusive of asst. yr. 1988-89, its income for the subsequent period till the date of amalgamation remained to be considered. This period is a period of six months from 1st July, 1987, to 31st December, 1987. It is well settled in law that the company is a distinct legal entity and under the IT Act also it is a distinct assessable entity. The assessee’s arguments with respect to the period after amalgamation can be accepted as valid proposition of the law because the company which got dissolved on 1st January, 1988, and got amalgamated with another company does not have any independent existence, from 1st January, 1988, onwards. The AO has rightly considered the assessment of the company Farmson Pharmaceuticals (Guj) (P) Ltd. for the previous year ended on 31st March, 1989, as it was the company which was in existence as on that date. However, it cannot be disputed that the respondent company prior to its amalgamation was in existence upto 31st December, 1987.
Since the respondent company had an independent existence it was distinctly and separately assessable to tax for the previous year ending on 31st December, 1987, excluding the period for which it had suffered taxes already. As made clear earlier, the assessment for asst. yr. 1988-89 was for the income relating to previous year ending on 30th June, 1987. Therefore, the income of the subsequent period namely 1st July, 1987, to 31st December, 1987, remained to be considered in the hands of the respondent company before its amalgamation. This is precisely what the AO has sought to do in the assessment order dt. 16th October, 1991. The assessee’s argument challenging the computation under s. 115J, is inconsistent with its own stand as reflected in the revised return filed for the period from 1st July, 1987, to 31st December, 1987.
10. In the light of our remarks in the preceding paragraph we hold that the AO was justified in making an assessment order under s. 143(3) for six months’ period from 1st July, 1987, to 31st December, 1987, as applicable to the assessee-company for the asst. yr. 1989-90. When the computation of income was made under s. 143(3), the AO also made a separate computation under s. 115J and since the income computed under s. 143(3), was less than 30 per cent of the book profit as computed under s. 115J, he held that the provisions of s. 115J were applicable to the assessee-company’s case. We do not find any impropriety in the action of the AO and we are not persuaded to agree with the reasoning of the CIT(A) that since the company ceased to exist w.e.f. 1st January, 1988, the provisions of s. 115J were not applicable as these provisions came into effect from 1st April, 1988. We are forced to remark that the CIT(A) has misconstrued the provisions of s. 115J in this connection. The relevant provisions of s. 115J(1) read as under :
“Sec. 115J(1) : Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee being a company (other than a company engaged in the business of generation or distribution of electricity) the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1988 (but before the 1st day of April, 1991) (hereinafter in this section referred to as the relevant previous year), is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent of such book profit.”
11. In the present case, as already stated the assessment year involved is 1989-90 and the accounting period is six months period from 1st July, 1987, to 31st December, 1987. Sec. 115J came into existence by the Finance Act, 1987, w.e.f. 1st April, 1988. It is true that the accounting period of the assessee in the present case falls before the said date of 1st April, 1988. However, s. 115J is applicable in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1988, but before the 1st day of April, 1991. Hence, the relevant provisions of s. 115J are squarely applicable to the facts of the present case. The AO was justified in invoking the said provision and the CIT(A) has clearly erred in law in misconstruing the provisions of the Act. In the circumstances the Revenue’s appeal is bound to succeed.
12. Accordingly we reverse the impugned order of the CIT(A).
13. In the result the appeal is allowed.