Assessment of Non-Existent Amalgamating Company(s).

ASSESSMENT OF NON-EXISTENT AMALGAMATING COMPANY(S)

SUPREME COURT OF INDIA

PRINCIPAL COMMISSIONER OF

INCOME TAX (CENTRAL) – 2

VS.

M/S MAHAGUN REALTORS (P) LTD.

CIVIL APPEAL NO. 2716 OF 2022

(ARISING OUT OF SPECIAL LEAVE PETITION (C) NO. 4063 OF 2020)

Decided on 05.04.2022

Author:

Anshul Mittal, Advocate
+91 – 9818214348
anshulmittalamm@gmail.com

Assessee Company Mahagun Realtors Private Limited (“the amalgamating company) or the (“transferor company”), was engaged in development of real estate and had executed one residential project under the name “Mahagun Maestro” located in Noida, UP. Mahagun Realtors Pvt. Ltd. amalgamated with Mahagun India Private Limited by virtue of an order of the Hon’ble High Court dated 10.09.2007.

Facts:

A survey proceedings was conducted in respect of Mahagun Realtors Private Limited and during the course of survey, some discrepancies in its books of accounts were noticed. Later a search and seizure operation was also carried out in the Mahagun Group of Companies. The Assessing Officer passed an assessment order after making several additions under various heads in the name of Mahagun Realtors Private Limited, represented by Mahagun India Private Limited.

Being aggrieved by the Assessment Order, Assessee approached Appellate Authority (CIT(A))

Held: The Appellate authority partly allowed the appeal by setting aside some amount brought to tax.

Being aggrieved by the CIT(A) Order, Revenue approached the ITAT by filing appeal and the Assessee too approached the ITAT by filing cross objection

Held: The Revenue appeal was dismissed and Assessee’s cross objection allowed on the single point that “Mahagun Realtors Private Limited” was not in existence when the Assessment Order was made.

Being aggrieved by the ITAT Order, Revenue appealed before Hon’ble High Court.

Held: The Hon’ble High Court relied upon the judgment of Pr. CIT vs. Maruti Suzuki India Limited, (2019 SCC Online SC 928) and dismissed the appeal.

Being aggrieved by the Hon’ble High Court Order, Revenue approached Hon’ble Supreme Court.

Before Hon’ble Supreme Court

Key points of the contentions of Revenue:

1. Name of both amalgamating and amalgamated companies were mentioned in the draft order as well as in the final assessment order.

2. Amalgamating or Transferor Company was duly represented by the amalgamated company.

3. The facts of Maruti Suzuki case (2019 SCC Online SC 928) are distinguishable from the present case as in that case Revenue was duly informed about the merger and in change in the name of the company and yet the assessment order passed in the name and Transferor or amalgamating company. However, in the present case the Revenue was not informed about the amalgamation.

Key points of the contentions of Assessee:

1. That upon sanction of amalgamation scheme, the amalgamated company, stood dissolved without winding up in terms of section 394 of Companies Act, 1956 and cannot be regarded as a “person” in terms of section 2(31) of the Act. Reliance is placed upon Saraswati Industrial Syndicate vs. CIT Haryana, Himachal Pradesh, (1990) Supp (1) SCR 332.

2. Assessment Order passed in the name of amalgamating company is invalid in the eyes of the law and in terms of section 170(2) of the Act. Reliance is placed upon Spice Infotainment Limited vs. CIT, (2012) 247 CTR 500 (Del.).

3. Revenue was very well known about the facts of amalgamation and the Revenue tried to cure the defects by putting the cause title “Mahagun Realtors Private Limited, represented by Mahagun India Private Limited” in the name of both non-existent and existent entity.

After concluding the arguments of both the parties, Hon’ble Supreme Court distinguished the facts of the present case from the facts of Spice Infotainment Limited vs. CIT, (2012) 247 CTR 500 (Del.) and pr. CIT vs. Maruti Suzuki India Limited, 2019 SCC Online SC 928 on the following basis.

Further, the Hon’ble Supreme Court also approved the reasoning of various judgments as mentioned below which held that upon cessation of the transferor company, assessment of the transferor (or amalgamating company) was impermissible.

1. Commissioner of Income Tax vs. Hukumchand Mohanlal , 1972 (1) SCR 786

2. Commissioner of Income Tax vs. Amarchand Shroff, 1963 Supp (1) SCR 699

3. Commissioner of Income Tax vs. James Anderson, 1964 (6) SCR 590

4. Saraswati Industrial Syndicate vs. Commissioner of Income Tax, Haryana,Himachal Pradesh, (1190) Supp (1) SCR 332

5. Marshall Sons and Co. (India) Ltd. vs. Income Tax officer, 1996 Supp (9) SCR 216

6. Spice Infotainment Limited vs. Commissioner of Income Tax, (2012) 247 CTR 500 (Del).

Further also, the Hon’ble Supreme Court by placing the reliance on the below mentioned case laws stated that the combined effect, therefore, of section 394(2) of the Companies Act, 1956, Section 2(1A) and various other provisions of the Income Tax Act, is that despite amalgamation, the business, enterprise and undertaking of the transferee or amalgamated company – which ceases to exist, after amalgamation, is treated as a continuing one, and any benefits, by way of carry forward of losses (of the transferor company), depreciation, etc., are allowed to the transferee. Therefore, unlike a winding up, there is no end to the enterprise, with the entity. The enterprise in the case of amalgamation continues.

1. Dalmia Power Limited & Ors. Vs. The Assistant Commissioner of Income Tax, Circle 1, Trichy, (2020) 14 SCC 736

2. Mc Dowell and Company Ltd. vs. Commissioner of Income Tax, Karnataka Central, (2017) 13 SCC 799

3. Bhagwan Dass Chopra vs. United Bank of India, 1988 (1) SCR 1088

Held by Supreme Court:

The Hon’ble Supreme Court set aside the impugned order of the Hon’ble High Court and restored the matter to the file of ITAT and held that:

41. In the light of the facts, what is overwhelmingly evident- is that the amalgamation was known to the assessee, even at the stage when the search and seizure operations took place, as well as statements were recorded by the revenue of the directors and managing director of the group. A return was filed, pursuant to notice, which suppressed the fact of amalgamation; on the contrary, the return was of MRPL. Though that entity ceased to be in existence, in law, yet, appeals were filed on its behalf before the CIT, and a cross appeal was filed before ITAT.Even the affidavit before this court is on behalf of the director of MRPL.Furthermore, the assessment order painstakingly attributes specific amounts surrendered by MRPL, and after considering the special auditor’s report, brings specific amounts to tax, in the search assessment order. That order is no doubt expressed to be of MRPL (as the assessee) - but represented by the transferee, MIPL. All these clearly indicate that the order adopted a particular method of expressing the tax liability. The AO, on the other hand, had the option of making a common order, with MIPL as the assessee, but containing separate parts, relating to the different transferor companies (Mahagun Developers Ltd., Mahagun Realtors Pvt. Ltd., Universal Advertising Pvt. Ltd., ADR Home Décor Pvt. Ltd.).The mere choice of the AO in issuing a separate order in respect of MRPL, in these circumstances, cannot nullify it. Right from the time it was issued, and at all stages of various proceedings, the parties concerned (i.e., MIPL) treated it to be in respect of the transferee company (MIPL) by virtue of the amalgamation order – and Section 394 (2). Furthermore, it would be anybody’s guess, if any refund were due, as to whether MIPL would then say that it is not entitled to it, because the refund order would be issued in favour of a non-existing company (MRPL). Having regard to all these reasons, this court is of the opinion that in the facts of this case, the conduct of the assessee, commencing from the date the search took place, and before all forums, reflects that it consistently held itself out as the assessee. The approach and order of the AO is, in this court’s opinion in consonance with the decision in Marshall & Sons (supra), which had held that:

“an assessment can always be made and is supposed to be made on the Transferee Company taking into account the income of both the Transferor and Transferee Company.”

42. Before concluding, this Court notes and holds that whether corporate death of an entity upon amalgamation per se invalidates an assessment order ordinarily cannot be determined on a bare application of Section 481 of the Companies Act, 1956 (and its equivalent in the 2013 Act), but would depend on the terms of the amalgamation and the facts of each case.

43. In view of the foregoing discussion and having regard to the facts of this case, this court is of the considered view, that the impugned order of the High Court cannot be sustained; it is set aside. Since the appeal of the revenue against the order of the CIT was not heard on merits, the matter is restored to the file of ITAT, which shall proceed to hear the parties on the merits of the appeal- as well as the cross objections, on issues, other than the nullity of the assessment order, on merits. The appeal is allowed, in the above terms, without order on costs.