TMI Blog2016 (5) TMI 1319X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 50 is confined to the computation of capital gains only and cannot be extended beyond that. Thirdly, section 54E does not make any distinction between depreciable asset and non-depreciable asset and, therefore, the exemption available to the depreciable asset under section 54E cannot be denied by referring to the fiction created under section 50. Section 54E specifically provides that where capital gain arising on transfer of a long-term capital asset is invested or deposited (whole or any part of the net consideration) in the specified assets, the assessee shall not be charged to capital gains. Therefore, the exemption under section 54E of the Income-tax Act cannot be denied to the assessee on account of the fiction created in section 50. The benefit of section 54E will be available to the assessee irrespective of the fact that the computation of capital gains is done either under sections 48 and 49 or under section 50. The contention of the Revenue that by amendment to section 50 the longterm capital asset has been converted into a short-term capital asset is also without any merit. As stated hereinabove, the legal fiction created by the statute is to deem the capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .147 is valid and as per law. 4. So far as the merit of the case is concerned, it was submitted that the fiction created u/s.50 cannot be extended to the provisions of section 72 of the I.T. Act. It was argued that carried forward business loss can very much be set off against income u/s.50 of the I.T. Act. However, the AO was not satisfied with the explanation given by the assessee. He referred to provisions of section 72 of the I.T. Act which clearly says that business loss can be carried forward for 8 subsequent years and can only be set off from the income from business and profession. Nowhere it is mentioned that the carried forward business loss can be set off from the income shown u/s.50 of the I.T. Act. He further noted that the income shown u/s.50 does not fall under the computation of income for business and profession and it falls under the head capital gains. He therefore rejected the arguments of the assessee for setting off of such capital gain from the business income. The AO accordingly withdrew setting off of business loss of ₹ 45,62,557/- from the short term capital gain as allowed in the earlier year and made addition of the same to the total income of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of the Law, it be held that, issue of the notice u/s.148 after company was dissolved and its name struck off of Registrar of companies is without jurisdiction, invalid and unlawful in the eyes of Law. The notice and the proceedings in pursuance of said notice are not tenable. Just in proper relief may granted to the appellant on this score. 2. On facts circumstances prevailing in the case and as per the provisions of the Law, it be held that the issue of notice u/s.148 issued only on the basis of Audit Objection is also unwarranted, unlawful not tenable in the eyes of Law. The proceedings u/s.143(3) r.w.s. 147 be cancelled. 3. The appellant prays to be allowed to add, amend, modify, rectify, delete, raise any grounds of appeal at the time of hearing. 10. The Ld. Departmental Representative at the outset relied on the order of the AO. He submitted that the income earned by way of sale of factory building, plant and machinery shown u/s.50 does not fall under the business income and it falls under the head capital gains. There is no provision in the Act that carry forward business losses can be set off against income shown u/s.50 of the I.T. Act. As per s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that restriction was limited to the computation of capital gains and not the exemption provisions. Accordingly, it was held that the exemption u/s.54E could not be denied to the assessee on account of the fiction created in section 50. He accordingly submitted that the order of the CIT(A) on the issue of set off brought forward business loss from the short term capital gain should be upheld. 12. So far as the validity of reopening u/s.148 after the company was dissolved and its name struck off the register of registrar of companies as per the ground in the CO is concerned, the Ld. Counsel for the assessee referring to the decision of the Delhi Bench of the Tribunal in the case of Impsat Pvt. Ltd. Vs. ITO reported in 276 ITR 136 (AT) submitted that the Tribunal in the said decision has held that there is no provision in Income-tax to assess a company which has been dissolved. When a company is not in existence at the time of making assessment, there is no question of assessing it for Income-tax. The dissolved company filing return and participating in assessment proceedings does not confer jurisdiction upon the AO to assess it. He accordingly submitted that the notice issued u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench of the Tribunal in the case of Impsat Pvt. Ltd. (Supra) had an occasion to decide such an issue. In that case, the assessee was a Private Limited Company incorporated to implement the V-Sat Project in India, in collaboration with Corporation Impsa S.A. of Argentina. Vide order dated 18-09-2001 the name of the company was struck off the register of the Registrar of Companies. On 29-10-2001 the assessee filed return of income declaring a loss of ₹ 84,290/-. The AO passed the order u/s.143(3) and made certain additions which was upheld by the CIT(A). Before the Tribunal the assessee took a ground that the revenue authorities have erred in framing an assessment of the company which had been dissolved on 18-09- 2001. It was argued that the assessee did not exist in the eyes of law on the date when the assessment order was passed and also did not exist when the CIT(A) passed the impugned order. The Tribunal accepted the above plea of the assessee. The relevant observations of the order of the Tribunal is as under : 12. Section 178 of the 1961 Act deals with a company that has gone into liquidation. The general principle in law is that a company under liquidation is still ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company on the other. This has been brought out by the Supreme Court in Hari Prasad Jayantilal's case (supra). At page 798, Hon'ble Justice Shah, speaking for the court observed: On the passing of a special resolution by the company that it be would up voluntarily under the Companies Act, 1956 (1 of 1956), the company does not stand dissolved. That is so expressly provided by Section 487 of the Companies Act. A company which has resolved to be voluntarily wound up may be dissolved in the manner provided by Section 497(5): till then the company has corporate existence and corporate powers. The property of the company does not vest in the liquidator; it continues to remain vested in the company. 16. The quoted observations show that dissolution is a stage subsequent to the winding up or liquidation, the end of the existence of the company. Till dissolution, the corporate existence continues. It follows, per contra, that once a company is dissolved, its corporate existence comes to an end. It is no longer in existence; it is dead. 17. A reference to page 1901 of A. Ramaiya's commentary on the Companies Act, 1956 (12th Edition by Hon'ble Justice Y.V. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med to be an assessee. Sub-section (4) makes each and every legal representative personally liable for the tax payable by him in such capacity and Sub-section (6) says that such liability will however be limited to the extent to which the estate is capable of meeting the liability. This section, in the very nature of things and considering the language employed in Sub-section (1), can apply only to individuals or natural persons. In CWT v. G.E. Narayana (193 ITR 41 @ 49) the Karnataka High Court held, while interpreting Section 19 of the Wealth Tax Act which is in pari material with Section 159 of the IT Act, that the word dies is normally referrable to the life of a living person, animal or plant and in the absence of any statutory fiction cannot be extended to cover a case of a disruption of a joint family. Similarly, it cannot also cover a case of a dissolution of a company, and there is no statutory fiction extending Section 159 to a case of dissolution of a company under Section 560 of the Companies Act. In the above judgment, it was held (@ page 48 that a specific provision is necessary to make an order of assessment against a taxable entity which does not exist on the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITO v. Ram Prasad and Ors. (86 ITR 145). These are cases of an individual and a joint family respectively, but the ratio is that there can be no assessment on a dead person. Just as an individual ceases to exist on death and a joint Hindu family ceases to exist on being disrupted, a company cases to exist on being dissolved under Section 560 of the Companies Act. We have already noted the judgment of the Supreme Court in Hari Prasad Jayantilal (supra) as to the effect of dissolution and the treatise of A. Ramaiya on Company Law in this behalf. If the company is not in existence at the time of making the assessment, no order of assessment can be validly passed upon it under the Income Tax Act and if one is passed, it must be a nullity. 22. The next question for our consideration is whether by filing the return of income in October 2001 the assessee-company can be said to have admitted that it continued to be in existence so that the assessment made upon it may be held to be valid. This raises the question whether the assessee can consent to the AO making an assessment upon it, though there is no provision in theIncome Tax Act to do so. In Asit Kumar Ghose v. Commissioner of Agri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on merit we find the issue has to be decided in favour of the assessee. We find the Hon ble Bombay High Court in the case of Ace Builders Pvt. Ltd. reported in 281 ITR 210 has held that there was nothing in section 50 to suggest that the fiction created in section 50 is not only restricted to sections 48 and 49 but also applies to other provisions. On the contrary this section makes it explicitly clear that the deeming fiction created in sub-section (1) and (2) is restricted only to the mode of computation of capital gains contained in section 48 and 49. The legal fiction is to deem the capital gain as short-term capital gain and not to deem the asset as short-term capital asset. Section 50 does not convert a long-term capital asset into a short-term capital asset. Though section 50 was enacted with the object of denying multiple benefits to owners of depreciable assets, yet that restriction was limited to the computation of capital gains and not the exemption provisions. Thus, the Hon ble High Court held that exemption under section 54E cannot be denied to the assessee on account of the fiction created in section 50. The relevant observation of the Hon ble High Court from para 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod of six months after the date of such transfer. In the present case it is not in dispute that the assessee fulfils all the conditions set out in section 54E to avail of the exemption, but the exemption is sought to be denied in view of fiction created under section 50. 25. In our opinion, the assessee cannot be denied exemption under section 54E, because, firstly, there is nothing in section 50 to suggest that the fiction created in section 50 is not only restricted to sections 48 and 49 but also applies to other provisions. On the contrary, section 50 makes it explicitly clear that the deemed fiction created in sub-sections (1) and (2) of section 50 is restricted only to the mode of computation of capital gains contained in sections 48 and 49. Secondly, it is well established in law that a fiction created by the Legislature has to be confined to the purpose for which it is created. In this connection, we may refer to the decision of the apex court in the case of State Bank of India v. D. Hanumantha Rao reported in [1998] 6 SCC 183. In that case, the Service Rules framed by the bank provided for granting extension of service to those appointed prior to July 19, 1969. The res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated by the statute is to deem the capital gain as short-term capital gain and not to deem the asset as shortterm capital asset. Therefore, it cannot be said that section 50 converts a long-term capital asset into a short-term capital asset. 18. We find following the above decision, the Hon ble Bombay High Court in the case of Parrys (Eastern) Pvt. Ltd. has held that where deemed short term capital gain arose on account of sale of depreciable assets that was held for a period to which the long term capital gain would apply, said gain would be set off against brought forward long term capital losses and unabsorbed depreciation. Since the Hon ble High Court has already held that provisions of section 50 makes it explicitly clear that the deemed fiction created in sub-section (1) and (2) is restricted only to the mode of computation of capital gains contained in section 48 and 49 and that the legal fiction is to deem the capital gain as short term capital gain and not to deem the asset as short term capital asset and accordingly has held that the exemption u/s.54E could not be denied to the assessee on account of the deeming fiction created in section 50, therefore, in view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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