Assessment order in the name of non-existent amalgamating company void. Supreme Court put the controversy to rest once for all
ABCAUS Case Law Citation:
ABCAUS 3082 (2019) (07) SC
Important Case Laws Cited/relied upon by the parties:
Spice Entertainment Ltd. v Commissioner of Service Tax 2012 (280) ELT 43 (Del.)
Skylight Hospitality LLP v Assistant Commissioner of Income Tax (2018) 405 ITR 296 (Delhi)
Kunhayammed v State of Kerala (2000) 6 SCC 359
Saraswati Industrial Syndicate Ltd. v CIT (1990) 186 ITR 278 (SC)
The instant appeal was filed against the judgment of a Division Bench of the High Court which upheld the decision of the Income Tax Appellate Tribunal (Tribunal) that the assessment made in the name of a company that had been amalgamated, was a nullity.
It is interesting to note that against the decision of the High Court the Special Leave Petition was dismissed by a two judge Bench of the Hon’ble Supreme Court for the assessment year preceding to the assessment year in question and hence the respondent urged that in view of the dismissal of the SLP previously, the same course of action must follow in the present year also.
The Hon’ble Supreme Court observed the following facts:
(i) The income which is sought to be subjected to the charge of tax was the income of the erstwhile entity prior to amalgamation.
(ii) Under the approved scheme of amalgamation, the transferee had assumed the liabilities of the transferor company, including tax liabilities;
(iii) The consequence of the scheme of amalgamation approved under Section 394 of the Companies Act 1956 is that the amalgamating company ceased to exist.
(iv) Upon the amalgamating company ceasing to exist, it could not be regarded as a person under Section 2(31) of the Act 1961 against whom assessment proceedings could be initiated or an order of assessment passed;
(v) The notice u/s 143 (2) was issued to the amalgamating company, which was followed by a notice to it under Section 142(1);
(vi) Prior to the date on which the jurisdictional notice under Section 143 (2) was issued, the scheme of amalgamation had been approved by the High Court under the Companies Act 1956
(vii) The assessing officer assumed jurisdiction to make an assessment in pursuance of the notice under Section 143 (2). The notice was issued in the name of the amalgamating company in spite of the fact that amalgamated company had addressed a communication to the assessing officer intimating the fact of amalgamation.
The Hon’ble Supreme Court opined that in the above conspectus of the facts, the initiation of assessment proceedings against an entity which had ceased to exist was void ab initio.
The Hon’ble Supreme Court observed that a Division Bench of the Delhi High Court dealt with the question as to whether an assessment in the name of a company which has been amalgamated and has been dissolved is null and void or, whether the framing of an assessment in the name of such company is merely a procedural defect which can be cured.
The Hon’ble Supreme Court noted that the High Court held that upon a notice under Section 143 (2) being addressed, the amalgamated company had brought the fact of the amalgamation to the notice of the assessing officer. Despite this, the assessing officer did not substitute the name of the amalgamated company and proceeded to make an assessment in the name of a non-existent company which renders it void. This, in the view of the High Court, was not merely a procedural defect. Moreover, the participation by the amalgamated company would have no effect since there could be no estoppel against law.
The Hon’ble Supreme Court further noted that following the said decision, the High Court had quashed several assessment orders which were framed in the name of the amalgamating companies.
It was also noted that against the said judgment, a batch of Appeals was filed before the Supreme Court . However they were dismissed with the remark that there was no reason to interfere with the impugned judgment(s) and therefore there was no merit in the appeals and related special leave petitions. Thus as per the doctrine of merger, the settled legal position is that the judgment of the Delhi High Court stood affirmed.
The Hon’ble Supreme Court observed that the order of the earlier assessment year in the case of the respondent was set aside by the High Court on the same ground and the Special Leave Petition was dismissed by the Court.
The Hon’ble Supreme Court pointed out that while dismissing the said SLP, reasons had been assigned for rejecting the Special Leave Petition and therefore, the law declared would attract the applicability of Article 141 of the Constitution.
However, the Revenue draw attention to the judgment of a two judge Bench of the Hon’ble Supreme Court had held that the wrong name given in the notice was merely a clerical error which could be corrected under Section 292B of the Income Tax Act.
However, the Hon’ble Supreme Court dealt in with details to illustrate that that it was the peculiar facts of the case that weighed with the Court in coming to this conclusion that there was only a clerical mistake within the meaning of Section 292B and there is no conflict between the two decisions of the Court.
The Hon’ble Supreme Court opined that in the present case, despite the fact that the assessing officer was informed of the amalgamating company having ceased to exist as a result of the approved scheme of amalgamation, the jurisdictional notice was issued only in its name. The basis on which jurisdiction was invoked was fundamentally at odds with the legal principle that the amalgamating entity ceases to exist upon the approved scheme of amalgamation. Participation in the proceedings by the appellant in the circumstances cannot operate as an estoppel against law.
The Hon’ble Supreme Court declined to take a different view. The Hon’ble Supreme Court stated that there is a value which the court must abide by in promoting the interest of certainty in tax litigation. The view which has been taken by the Court in relation to the respondent for earlier assessment year must be adopted in respect of the present appeal. Not doing so will only result in uncertainty and displacement of settled expectations.
The Hon’ble Supreme Court opined that there is a significant value which must attach to observing the requirement of consistency and certainty. Individual affairs are conducted and business decisions are made in the expectation of consistency, uniformity and certainty. To detract from those principles is neither expedient nor desirable.
Accordingly, the appeal was dismissed.
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