Kerala Agriculture Income Tax | Amalgamating Company's Loss Can't Be Set-Off From Income Of Amalgamated Company : Supreme Court

The Supreme Court has observed that a loss suffered by an amalgamating company cannot be set off against the income of an amalgamated company upon amalgamation unless permitted by a statute.

A bench of Justice Rajesh Bindal and Justice Vijay Bishnoi dismissed a batch of appeals filed against the Kerala High Court's judgment, which declined the plea for setting off a loss of the amalgamating company out of the income of the amalgamated company.

The Court said in the absence of any provision contained under the Kerala Agricultural Income Tax Act, 1991, a set-off of a loss of an amalgamating company is impermissible from the income of an amalgamated company.

“…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.”, the court said.

The Court conceded to the Respondent's argument that when “the amalgamating company has ceased to exist, the appellant (amalgamated company) cannot claim any set-off of the losses suffered by it.”

The Case

The dispute arose after an amalgamating company was amalgamated with the Appellant company pursuant to a court-approved scheme effective from January 1, 2006. The amalgamating company had accumulated agricultural income losses in its books. The scheme of amalgamation contained a clause stating that such losses would be treated as losses of the amalgamated company.

Relying on this clause, Appellant sought to set off these past losses against its own agricultural income under the Kerala Agricultural Income Tax Act

However, the tax authorities rejected the claim. The Kerala Agricultural Income Tax Appellate Tribunal and the High Court affirmed the rejection, prompting the Appellant to appeal to the Supreme Court.

The principal question before the Court was whether, upon amalgamation, the successor company could carry forward and set off the losses of the amalgamating company under state agricultural income tax law.

The appellant relied on the scheme of amalgamation and the ruling in Dalmia Power Ltd. v. Assistant Commissioner of Income-Tax, (2020) 420 ITR 339, to argue that once a scheme is sanctioned, all its clauses, including those allowing loss set-off, become binding.

The Court, however, rejected this contention, holding that reliance on Dalmia Power was misplaced. It noted that in Dalmia Power, notice of the amalgamation had been duly served on the tax authorities, who did not object, and the benefit was consequently recognised. In the present case, however, no such notice was ever issued to the State Government, and therefore, the appellant could not claim parity with that decision.

Resultantly, the appeals were dismissed.

Cause Title: ASPINWALL AND CO. LTD. VERSUS INSPECTING ASSISTANT COMMISSIONER

Citation : 2026 LiveLaw (SC) 371

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Appearance:

For Appellant(s) : M/S. K J John And Co, AOR Mr. S. Ganesh, Sr. Adv. Mr. Amarjit Singh Bedi, Adv. Ms. Surekha Raman, Adv. Mr. Shreyash Kumar, Adv. Mr. Sidharth Nair, Adv. Mr. Harshit Singh, Adv.

For Respondent(s) : Mr. M. T. George, AOR Mr. Pallav Shishodia, Sr. Adv. Mr. C. K. Sasi, AOR Dr. K K Geetha, Adv. Ms. Meena K Poulose, Adv.