2019 (11) TMI 1140 - AT - Income Tax

Tribunal quashes tax orders against non-existent entities post amalgamation, citing legal precedent

M/s. Durja Vinimay Pvt. Ltd., M/s. Gyan Mandir Tradecom Pvt. Ltd., M/s. Paramtma Vinimay Pvt. Ltd., M/s. Aditi Vintrade Pvt. Ltd. And M/s. Light House Merchants Pvt. Ltd. Versus Pr. CIT, Kolkata-4, Kolkata

M/s. Durja Vinimay Pvt. Ltd., M/s. Gyan Mandir Tradecom Pvt. Ltd., M/s. Paramtma Vinimay Pvt. Ltd., M/s. Aditi Vintrade Pvt. Ltd. And M/s. Light House ... Issues Involved:1. Validity of revisional orders passed under Section 263 of the Income-tax Act, 1961 on non-existent entities due to amalgamation.2. Impact of amalgamation on the jurisdiction of tax authorities to issue notices and pass orders.3. Legal implications of passing orders in the name of non-existent entities.Detailed Analysis:1. Validity of Revisional Orders Passed Under Section 263:The primary grievance of the assessees was that the revisional orders under Section 263 of the Income-tax Act, 1961 (the 'Act') passed by the Principal Commissioner of Income Tax (Pr.CIT), Kolkata, were void since they were issued against entities that had ceased to exist due to amalgamation. The assessees argued that the orders were non est in the eyes of law as the entities had merged with other entities as per the National Company Law Tribunal (NCLT) orders.The Tribunal noted that the impugned orders were passed after the assessees had informed their respective Assessing Officers (AOs) about the amalgamation. The Tribunal relied on the case of PCIT vs Maruti Suzuki India Limited, where the Supreme Court held that an order passed in the name of a non-existent entity due to amalgamation is a nullity. The Tribunal also referred to the Spice Infotainment Ltd. vs CIT case, which held that on amalgamation, the amalgamating company ceases to exist in the eyes of law, and any order passed in its name is void.2. Impact of Amalgamation on Jurisdiction:The Tribunal observed that the assessees had duly informed the AOs about the amalgamation, and the fact of amalgamation was also recorded in the Registrar of Companies (RoC) records. Despite this, the Pr.CIT issued notices and passed orders under Section 263 in the name of the non-existent entities. The Tribunal emphasized that once an entity ceases to exist due to amalgamation, it cannot be regarded as a 'person' under Section 2(31) of the Act against whom assessment proceedings can be initiated or an order passed.The Tribunal highlighted that the Pr.CIT should have substituted the successor company while passing the impugned orders and provided an opportunity of hearing to the amalgamated company. Failure to do so rendered the orders void.3. Legal Implications of Passing Orders in the Name of Non-Existent Entities:The Tribunal rejected the Department's reliance on the Skylight Hospitality LLP vs ACIT case, distinguishing it on the grounds that it dealt with the conversion of a private limited company into an LLP, not amalgamation. The Tribunal reiterated that the ratio decidendi of Spice Infotainment and Maruti Suzuki applied to the present case, as both involved orders passed in the name of non-existent amalgamating companies.The Tribunal concluded that the impugned orders passed under Section 263 were void ab initio as they were issued in the name of non-existent entities. The Tribunal quashed all the impugned orders, emphasizing the necessity of consistency and certainty in tax litigation.Conclusion:The Tribunal allowed the appeals, quashing the revisional orders passed under Section 263 of the Act against non-existent entities due to amalgamation. The Tribunal underscored the legal principle that an amalgamating entity ceases to exist upon the approved scheme of amalgamation, and any order passed in its name is void.