Income tax - Whether when company has been dissolved and amalgamated with different company, it can be said to be incumbent upon Revenue to substitute name of successor company in place of old one in assessment order - YES: HC
By TIOL News Service
NEW DELHI, NOV 04, 2014: THE issue before the Bench is - Whether when a company has been dissolved and amalgamated with a different company, it can be said to be incumbent upon the Revenue to substitute the name of the successor company in place of the old one in the assessment order. And the verdict goes against the Revenue.
Facts of the case
The assessee company is engaged in the business of manufacturing garments and clothing. Upon filing of its return, the assessment was carried on by the AO taking into account the A.Ys from 2003-04 till 2008-09. In the meanwhile, the assessee was dissolved and was amalgamated with another company by virtue of an order of the jurisdictional High Court u/s 391(2) & 394 of the Companies Act, 1956. However, the AO ignoring the said fact, continued with the assessment. On appeal, the CIT(A) observed that the assessee had ceased to exist on the date on which the assessment was passed and accordingly held that the assessment of a company amalgamated u/s 391 & 394 is invalid. On further appeal, the Tribunal confirmed the order of the CIT(A). On further appeal before the High Court, the counsel for revenue submitted that by virtue of Sections 170(1) and 170(2) of the I-T Act, in cases of succession of business, where the predecessor could not be found, the assessment that would otherwise have been made upon the predecessor, should instead be made upon the successor in a like manner. It was submitted that the assessment was justified because the liabilities of the amalgamating company accrue to the amalgamated company, as the text of Section 170(2) had made it clear that the assessment must be made on the successor.However, the counsel for assessee contended that the text and phraseology of Sections 170 (1) and (2) did not support the revenue's arguments, relying on the decision of Spice Entertainment Ltd. vs. CIT, decided by a Division Bench of this Court.
Having heard the parties, the High Court held that,
++ it is seen that the Supreme Court in case of Saraswati Industrial Syndicate held that after the amalgamation of the two companies, the transferor company ceased to have any entity and the amalgamated company acquired a new status and it was not possible to treat the two companies as partners or jointly liable in respect of their liabilities and assets. Similarly, with respect to the specific issue of assessment, in Vived Marketing Servicing Pvt. Ltd., the Supreme Court has observed that Section 176 of the IT Act, which contains provisions pertaining to a discontinuation of business, does not apply to a case of amalgamation/dissolution. At the same time, Section 159 of the Act, which provides for tax liability to be attached to the legal representatives of a deceased person, only applies to natural persons, and cannot be extended, through a legal fiction, to the dissolution of companies. It is also seen that this Court in case of Spice Entertainment Ltd., observed that:
["....Section 481 of the Companies Act provides for dissolution of the company. The effect of the dissolution is that the company no more survives and it puts an end to the existence of the company. After the sanction of this scheme, even if the assessee/company had filed the returns, it became incumbent upon the IT authorities to substitute the successor in place of the said "dead person‟. When notice u/s 143(2) was sent, the assessee or the amalgamated company appeared and brought this fact to the knowledge of the AO. He, however, did not substitute the name of the assessee on record and instead made the assessment in the name of assessee which was non existing entity on that day. In such proceedings and assessment order passed in the name of the assessee would clearly be void. Such a defect cannot be treated as procedural defect and mere participation by the assessee would be of no effect...."]
++ the authority of the this precedent binds this court and we see no reason to differ from the logic and reasoning of this case. The other aspect is as to the applicability of Section 292-B of the Act, which provides that no return of income assessment, notice, summons or other proceedings furnished or made shall be invalid or shall be deemed to be invalid merely by reasons of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceedings is in substance and effect in conformity with or according to the intent and purpose of this Act. The Revenue argues that the assessment was in substance and effect in conformity with the Act, because the AO had used correct nomenclature in writing the name of the assessee, along with the fact that it had amalgamated, as well as the correct address of the amalgamated company. The question of whether an assessment upon an amalgamated company is a mistake within the meaning of Section 292B was also raised and answered by this Court in case of Spice Entertainment. This Court has held that it becomes incumbent upon the IT Authorities to substitute the successor in place of the said "dead person" and such a defect cannot be treated as procedural defect. Once it is found that assessment is framed in the name of non-existing entity it does not remain a procedural irregularity of the nature which could be cured by invoking the provisions of Section 292B;
++ therefore, every contentions of revenue needs to be rejected as no interference is required in the decision of the Tribunal. Accordingly, this court upheld the same.
Regards
Prarthana Jalan
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