2020 (3) TMI 49 - HC - Income Tax

Court affirms Assessing Officer's decision on demerger claims, emphasizes liabilities & fair assessment

Kamala Muthiah as the erstwhile Director of M/s. M. Ct. M. Corporation Pvt. Ltd. (Now dissolved) Versus The Assistant Commissioner of Income Tax

The court upheld the Assessing Officer's decision to reopen the assessment for A.Y. 2000-2001 despite the appellant's demerger claims. The appellant's ... Reopening of assessment - sanction of Scheme of Arrangement for demerger - dissolution of the Company - rights of the Authorities assessing the affairs of the Company - HELD THAT:- The factual aspects of the affairs of the dissolved Company have to be gone into by the Assessing Officer and hence the learned Single Judge rightly remanded the matter back to the Assessing Officer and issued directions as stated supra. Section 506(5) proviso (a) of the Companies Act and Chapter XV of the Income Tax Act which deals with “liability in special cases” and its clause (L) which deals with “discontinuance of business or dissolution” and these provisions provide as to how and in what manner the liability against such Company arising under the Companies Act and under the Income Tax Act is required to be dealt with. Mere winding up or dissolution of the Company would not take away its liability, which is a matter to be gone into by the Assessing Officer. The decisions referred to by the learned counsel appearing for the appellant are not helpful to his case, since the Hon'ble Supreme Court in latest decision [2019 (3) TMI 703 - SUPREME COURT] has clearly held as stated supra and the relevant provisions of the Companies Act and the Income Tax Act have to be dealt with. Therefore, in our considered view, there is no reason to interfere with the order of the learned Single Judge, since the learned Judge has not gone into the matter on merits and only given liberty to the appellant to raise additional objections and the respondent was also directed to consider the same in accordance with law after extending due opportunity to the appellant and no prejudice would be caused to either parties. Issues:1. Reopening of assessment for A.Y. 2000-2001 by the Assessing Officer under Section 148 of the Income Tax Act.2. Objections raised by the appellant against the notice and rejection order by the Assessing Officer.3. Legal implications of demerger of the appellant's company.4. Justification of the order passed by the learned Single Judge and the subsequent writ appeal challenging the same.Issue 1: Reopening of assessment for A.Y. 2000-2001:The respondent issued a notice under Section 148 of the Income Tax Act to reopen the assessment of the appellant's company for A.Y. 2000-2001. The appellant contended that the company had been demerged into two separate entities by court order in 1999. Despite the appellant's communication regarding the demerger, the Assessing Officer proceeded with the reopening based on the Balance Sheet notes from 31.03.2000. The appellant raised objections, which were rejected by the Assessing Officer.Issue 2: Objections raised by the appellant:The appellant reiterated the non-existence of the company for A.Y. 2000-2001 due to the demerger and provided relevant court orders as proof. The Assessing Officer, however, did not consider these facts while rejecting the objections. The appellant cited various legal precedents to support their case, emphasizing that dissolution of the company does not absolve it of its liabilities. The learned Single Judge granted the appellant liberty to raise further objections before the Assessing Officer.Issue 3: Legal implications of demerger:The demerger of the appellant's company into two entities was a crucial aspect of the case. The court order sanctioning the demerger was communicated to the Assessing Officer, but subsequent confirmation or updates were not provided. The respondent argued that the mere dissolution of the company does not negate the Assessing Officer's right to assess its affairs. The Assessing Officer was directed to consider the objections raised by the appellant and make a decision based on merit.Issue 4: Justification of the orders passed by the courts:The learned Single Judge remanded the matter back to the Assessing Officer to delve into the factual aspects of the dissolved company and make a decision in accordance with the law. The High Court emphasized the provisions of the Companies Act and the Income Tax Act regarding liabilities in special cases and discontinuance of business or dissolution. The writ appeal challenging the Single Judge's order was dismissed, affirming the need for the Assessing Officer to review the objections raised by the appellant and make a decision without prejudice to either party.This detailed analysis of the judgment highlights the key issues involved, the arguments presented by both parties, the legal implications of the demerger, and the justification for the court's decision.