Amalgamated Company Not Entitled To Pre-Merger Tax Loss Set-Off: Supreme Court

The Supreme Court recently dismissed a batch of appeals filed by Aspinwall and Co. Ltd., holding that losses incurred by a company before amalgamation cannot be treated as losses of the successor company merely because the scheme of amalgamation contains such a clause. Court upheld the concurrent findings of the Kerala High Court and the Kerala Agricultural Income Tax and Sales Tax Appellate Tribunal.

The Bench of Justices Rajesh Bindal and Vijay Bishnoi was dealing with appeals arising from assessments under the Kerala Agricultural Income Tax Act, 1991 following the amalgamation of Pullangode Rubber & Produce Co. Ltd. with Aspinwall and Co. Ltd.

Why Did Aspinwall Seek Set-Off Of Pullangode Rubber's Losses?

The dispute arose after Pullangode Rubber & Produce Co. Ltd. was amalgamated with Aspinwall and Co. Ltd. under a scheme approved in November 2006 with effect from January 1, 2006.

According to Aspinwall, the amalgamating company had accumulated losses which could be adjusted against its future profits. The company relied heavily on Clause 14.2 of the approved amalgamation scheme, which stated that all profits, income, expenditure and losses of the transferor company would be treated as those of the transferee company from the appointed date.

The company also cited the Supreme Court's decision in Dalmia Power Ltd. v. Assistant Commissioner of Income Tax (2019), contending that once an amalgamation scheme is approved, all its clauses become binding and enforceable.

Does The Kerala Agricultural Income Tax Act Allow Transfer Of Losses After Amalgamation?

Answering this question in the negative, the Supreme Court held that the Kerala Agricultural Income Tax Act contains no provision authorising an amalgamated company to claim the losses suffered by another company before amalgamation.

Court examined Sections 12, 48 and 54 of the Act and found that while Section 12 permits carry forward of losses, the benefit is available only to the person or assessee that actually sustained those losses. The statute does not deem the losses of an amalgamating company to be the losses of the amalgamated company.

The Bench contrasted the Kerala law with Section 72A of the Income Tax Act, 1961, which specifically provides that accumulated losses and unabsorbed depreciation of an amalgamating company shall be deemed to be those of the amalgamated company in certain situations. No such provision exists under the Kerala Agricultural Income Tax Act, the Court noted.

Why Did The Supreme Court Reject Reliance On The Dalmia Power Judgment?

Court held that Dalmia Power was distinguishable on facts and law.

It observed that in Dalmia Power, the Income Tax Department had been given notice of the proposed amalgamation and had not objected to the scheme despite an opportunity to do so. Consequently, the approved scheme was treated as binding on the department.

In the present case, however, no notice had been issued to the State of Kerala during the amalgamation proceedings. Therefore, the State could not be bound by a clause in the scheme granting a tax benefit not otherwise available under the statute.

Court further noted that the appellant had failed to point to any provision in the Kerala Act enabling such a set-off.

Court's Verdict On The Tax Benefit Claim

The Supreme Court also took note of the Kerala High Court's finding that the losses sought to be adjusted related to a period beyond the eight-year limitation prescribed under Section 12 of the Act. That finding had not been specifically challenged before the Supreme Court.

Holding that the appellant had failed before every forum and had not established any statutory entitlement to the claimed benefit, Court found no merit in the appeals.

The Bench accordingly dismissed all five appeals and upheld the orders of the High Court and the Tribunal, with no order as to costs.

Case Title: Aspinwall and Co Ltd Vs Inspecting Assistant Commissioner

Bench: Justices Rajesh Bindal and Vijay Bishnoi

Date of Judgment: April 13, 2026