2022 (3) TMI 1641 - AT - Income Tax

Assessment against non existent entity - Company that had ceased to exist due to a merger - HELD THAT - The facts being identical in the present case before us also as held in the case of Maruti Suzuki India Ltd. 2019 (7) TMI 1449 - SUPREME COURT we quash the orders of lower authorities i.e. CIT(A) and that of the AO which has been made on non-existent company and allow the jurisdictional issue in favour of assessee.

Summary

The core legal question considered by the Tribunal was whether the assessment framed under section 143(3) of the Income Tax Act, 1961, in the name of a company that had ceased to exist due to a merger was valid or void for lack of jurisdiction. Specifically, the issues presented and considered were:

1. Whether the assessment made in the hands of a non-existent company, post-merger and dissolution without winding up, is without jurisdiction and hence bad in law.

2. The applicability of the legal principles concerning succession in business under section 170 of the Income Tax Act, 1961, and the effect of merger schemes sanctioned by High Courts on the continuity of tax proceedings.

3. The treatment of participation by the amalgamated company in tax proceedings and whether it estops the Revenue from contesting jurisdictional issues.

4. Whether the assessment framed in the name of the dissolved company could be treated as a procedural defect curable under the Act or whether it is a fundamental nullity.

5. Ancillary issues raised in the Revenue's appeal and the assessee's cross objection on merits, which were not adjudicated due to the primary jurisdictional issue being decided.

Issue-wise Detailed Analysis:

Issue 1: Validity of Assessment Against a Non-Existent Company Post-Merger

Relevant Legal Framework and Precedents: The Tribunal relied extensively on the Supreme Court's ruling in Maruti Suzuki India Ltd., which followed the decision in CIT vs. Spice Entertainment. These decisions held that once a company has been amalgamated and ceased to exist, any assessment framed in its name is void and not merely a procedural defect. The principle is that the successor company assumes all liabilities and duties of the transferor company from the effective date of merger, as per the scheme sanctioned by the High Courts.

Section 170 of the Income Tax Act, 1961, dealing with succession to business otherwise than on death, was pivotal. It provides that the predecessor is assessable for income up to the date of succession, and the successor thereafter. If the predecessor cannot be found, the successor is liable to be assessed for the predecessor's income for the relevant period.

Court's Interpretation and Reasoning: The Tribunal noted that the assessee had informed the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) (CIT(A)) about the merger of Narmada Infrastructure Construction Enterprise Ltd. (NICE) with L&T Infrastructure Development Projects Limited (L&T IDPL) effective from 1 April 2013. The merger scheme was sanctioned by the Hon'ble Madras High Court and Bombay High Court, which provided that the transferor company (NICE) would stand dissolved without winding up and that all proceedings, including tax proceedings, pending or arising after the effective date, shall be continued/enforced in the hands of the transferee company (L&T IDPL).

Despite this, the AO framed the assessment for the assessment year 2013-14 in the name of NICE, a non-existent company after the merger date. The Tribunal held that such an assessment order is void for want of jurisdiction, as the AO failed to substitute the successor company's name and continued proceedings against an entity that ceased to exist. The Tribunal emphasized that participation by the amalgamated company in the proceedings cannot estop the Revenue from raising the jurisdictional defect, as there can be no estoppel against law.

The Tribunal cited the Supreme Court's observations that the assessment framed in the name of a dissolved company is not a procedural irregularity curable under section 292B of the Act but a fundamental nullity.

Key Evidence and Findings: The assessee's letters dated 4 September 2014, submitted to the AO and CIT(A), clearly informed about the merger and requested that all proceedings be continued in the name of L&T IDPL. The merger scheme orders from the Madras and Bombay High Courts were annexed, confirming the effective date and terms of amalgamation.

Application of Law to Facts: The Tribunal applied the binding precedent of the Supreme Court and the statutory provisions of section 170 to hold that the AO had no jurisdiction to frame assessment against NICE post-merger. The successor company, L&T IDPL, was the proper entity before the tax authorities for all proceedings after 1 April 2013.

Treatment of Competing Arguments: The Revenue's Senior DR opposed the assessee's contention but could not overcome the binding Supreme Court precedent. The Tribunal rejected the Revenue's arguments and held that the jurisdictional defect was fatal.

Conclusion: The Tribunal quashed the assessment order framed in the name of the dissolved company NICE and held that the jurisdictional issue was in favour of the assessee.

Issue 2: Effect of Participation by the Amalgamated Company in Proceedings

Relevant Legal Framework and Precedents: The Tribunal referred to the Supreme Court's ruling in Spice Entertainment and Maruti Suzuki India Ltd., which clarified that participation by the amalgamated company in proceedings does not cure the jurisdictional defect or create estoppel against law.

Court's Interpretation and Reasoning: Even though NICE participated in the assessment proceedings and before the CIT(A), the Tribunal held that such participation cannot validate an assessment made in the name of a non-existent entity. The legal principle is that jurisdiction cannot be conferred by estoppel, and the Revenue must proceed against the correct legal entity.

Key Evidence and Findings: The assessee's participation was recorded, but the AO failed to substitute the successor company's name despite being informed of the merger.

Application of Law to Facts: The Tribunal applied the principle that jurisdictional defects cannot be cured by participation and that the assessment is void ab initio if framed against a dissolved company.

Treatment of Competing Arguments: The Revenue argued that participation should validate the proceedings, but the Tribunal rejected this based on binding Supreme Court authority.

Conclusion: Participation by the amalgamated company does not cure the jurisdictional defect of assessing a non-existent entity.

Issue 3: Applicability of Section 170 of the Income Tax Act on Succession

Relevant Legal Framework: Section 170 governs succession in business and provides that the predecessor is assessable up to the date of succession, and the successor thereafter. If the predecessor cannot be found, the successor is liable for assessment for the predecessor's income.

Court's Interpretation and Reasoning: The Tribunal noted that the scheme of merger transferred all liabilities and duties of the transferor company to the transferee company without any further act or deed. The transferor company ceased to exist without winding up, and the successor company was liable for all tax proceedings post-merger.

Key Evidence and Findings: The merger scheme explicitly stated that the transferor company was dissolved without winding up and that all proceedings would continue in the name of the transferee company.

Application of Law to Facts: The Tribunal held that the AO should have proceeded against the successor company in accordance with section 170 and the merger scheme. The assessment against the transferor company was invalid.

Treatment of Competing Arguments: The Revenue did not dispute the applicability of section 170 but contended on other grounds which were rejected.

Conclusion: The legal framework under section 170 supports the conclusion that the successor company is the proper party for assessment post-merger.

Issue 4: Procedural Defect or Fundamental Jurisdictional Defect

Relevant Legal Framework and Precedents: The Supreme Court in Spice Entertainment and Maruti Suzuki India Ltd. held that framing assessment in the name of a dissolved company is a jurisdictional defect and not a procedural irregularity curable under section 292B.

Court's Interpretation and Reasoning: The Tribunal emphasized that such an error goes to the root of jurisdiction and renders the assessment void ab initio.

Application of Law to Facts: The AO's failure to substitute the successor company's name and continuing assessment against a non-existent entity was a fundamental defect.

Conclusion: The assessment order was void and could not be cured as a procedural defect.

Issue 5: Other Grounds Raised in Revenue's Appeal and Assessee's Cross Objection

The Tribunal did not adjudicate on other grounds raised in the Revenue's appeal or the assessee's cross objection on merits, as the primary jurisdictional issue was determinative. Since the assessment itself was held void, further examination of merits was unnecessary.

Significant Holdings:

"After the sanction of the scheme on 11th April, 2004, the Spice ceases to exit w.e.f. 1st July, 2003. Even if Spice had filed the returns, it became incumbent upon the Income tax authorities to substitute the successor in place of the said 'dead person'. When notice under Section 143 (2) was sent, the appellant/amalgamated company appeared and brought this fact to the knowledge of the AO. He, however, did not substitute the name of the appellant on record. Instead, the Assessing Officer made the assessment in the name of M/s Spice which was non existing entity on that day. In such proceedings an assessment order passed in the name of M/s Spice would clearly be void. Such a defect cannot be treated as procedural defect. Mere participation by the appellant would be of no effect as there is no estoppel against law."

Core principles established include:

- An assessment framed in the name of a company that has ceased to exist due to merger and dissolution without winding up is void for want of jurisdiction.

- Participation by the amalgamated company in proceedings does not cure the jurisdictional defect or create estoppel.

- The successor company assumes all liabilities and duties of the transferor company from the effective date of merger, as per the scheme sanctioned by the High Courts and section 170 of the Income Tax Act.

- Such jurisdictional defects cannot be treated as procedural irregularities curable under section 292B of the Act.

Final determinations:

- The assessment framed in the name of the non-existent company NICE for the assessment year 2013-14 was held without jurisdiction and void.

- The orders of the AO and CIT(A) were quashed on this jurisdictional ground.

- The Revenue's appeal was dismissed, and the assessee's cross objection was allowed.