Case Name : CIT Vs. Mahindra & Mahindra Ltd.
Citation : 144 ITR 225 (SC)
Court : Supreme Court
Section : 70 TO 79
Meaning : The expression ‘financially non-viable’ has not been defined in the act but the finance minister’s speech, the notes on clauses of the finance (no. 2) Bill, 1977 and the memorandum explaining the provisions thereof make it clear that the financial non-viability of an undertaking has been equated with the ‘sickness’ of such undertaking and in the context of its revival by a sound undertaking, the sickness must be of a temporary character and not any basic or permanent sickness. An undertaking which is basically or potentially non-viable will ordinarily be incapable of revival and would face a closure; in other words, the financial non-viability spoken of by the section must refer to sickness brought about by temporary adverse financial circumstances that disables the unit to stand and work on its own. This is also made clear by the provision contained in clause (a) of sub-section (1) of section 72a which states that the financial non-viability of the amalgamating company has to be judged by reference to ‘its liabilities, losses and other relevant factors’. Moreover, since the expression is occurring in a taxing statute in the context of amalgamation of companies, it will have to be understood in its popular sense, that is to say, the sense or meaning that is attributed to it by men of business, trade or commerce and by persons or institutions interested in or dealing with companies. Where all the three parameters – profitability, liquidity and solvency – show positive figures, the unit’s financial viability will be sound; where one of the three parameters shows a negative figure, the unit could be regarded as ‘tending towards sickness’; when two of the three parameters show negative figures, it would be a case of ‘incipient sickness’ and when all the three parameters show negative figures, the unit is ‘sick’. This being the true concept of financial non-viability as understood by men of business and commerce and by financial institutions, it is by reference to these several tests or criteria adopted by them that the question has to be decided whether a particular undertaking is financially non-viable at a given point of time.