2021 (4) TMI 1101 - HC - Income Tax

Court Upholds Validity of Income Tax Notice for Private Limited Company

GE India Industrial Private Limited, Versus Assistant Commissioner Of Income-Tax Circle - 3 (1) (2), Koramangala

The court upheld the validity of the notice issued under Section 210(3) of the Income Tax Act, 1961, demanding advance tax payment from a private limited ... Liability for payment of advance tax - whether the Company is obliged under the Act to pay advance tax between 1-04-2016 and 20-03-2017 for the assessment year 2017-18? - claim of the petitioner was that under the scheme of amalgamation, the petitioner/company ceased to exist with effect from 1.04.2016 notwithstanding the fact that the Tribunal allowed such amalgamation only on 20-03-2017 and further claiming that no advance tax for two quarters between 2016 and 2017, as claimed by the revenue, was payable by the petitioner - HELD THAT:- It is not in dispute that the petitioner/company and two other companies were amalgamated under the scheme of amalgamation before High Court of Delhi. Government of India in the Ministry of Corporate Affairs issued a notification on 17.12.2016 that the scheme of amalgamation of the petitioner was transferred to the National Company Law Tribunal, New Delhi and at Bangalore. Therefore, the scheme of amalgamation was transferred to the Tribunal. The Tribunal on receipt of the scheme from the hands of the Government of India on 17.12.2016 approved the same on 20-03-2017. The stamp of approval of the scheme of amalgamation, which in terms of law happened on 20-03-2017, albeit with retrospective effect i.e., from the date on which they had entered into such a scheme i.e., 1-04-2016. To consider whether the petitioner was liable to pay advance tax between the aforesaid dates, the provision concerning payment of advance will have to be noticed. Section 211 depicts quarters of payment of advance tax. The first installment/quarter is on or before 15th June, the next installment is on or before 15th September and the third installment is on or before 15th December. Therefore, the petitioner’s claim of amalgamation having been accepted by the Tribunal on 20-03-2017 was obliged to pay advance tax for the said three quarters/three installments. The petitioner/company on the ground that it did not exist with effect from 1-04-2016 cannot escape the liability of payment of advance tax for the said three quarters. On and from the date of acceptance by the Tribunal i.e., 20- 03-2017, the last installment for the assessment year 2017-18 advance tax need not be paid. But, for the interregnum period, as held by the revenue, the petitioner cannot escape payment of advance tax as under Section 207 of the Act advance tax depends upon the current income. The income as declared is current income not as an amalgamated company but as an individual company. Therefore, the petitioner was obliged to pay advance tax for the said period. In so far as the judgment in the case of PRINCIPAL COMMISSIONER OF INCOME TAX, NEW DELHI v. MARUTI SUZUKI INDIA LIMITED [2019 (7) TMI 1449 - SUPREME COURT] of the Apex Court, the said judgment is also not applicable to the facts of the case at hand, as the scheme of amalgamation came into effect by an order being passed by the Tribunal on 20- 03-2017. The Apex Court in the aforesaid judgment has held that two companies may join to form a new company. When two company are merged and so joined as to form a third company or one is absorbed into one or blended with another, the amalgamating company losses its entity. The crux of the issue is when did the petitioner/company in the case at hand lose its entity. It cannot but be said that the petitioner company lost its entity only on 20.03.2017, upto this date the obligation to pay advance tax did not vanish. Therefore,find no good ground to interfere with the impugned assessment order passed by the respondent/Assistant Commissioner of Income Tax and the notice demanding an amount of ₹ 356,644,155/-. Issues Involved:1. Validity of the notice dated 20-02-2017 issued under Section 210(3) of the Income Tax Act, 1961.2. Obligation of the petitioner to pay advance tax for the period between 1-04-2016 and 20-03-2017.3. Applicability of judgments in MARSHALL SONS AND CO. (INDIA) LIMITED v. INCOME TAX OFFICER and PRINCIPAL COMMISSIONER OF INCOME TAX, NEW DELHI v. MARUTI SUZUKI INDIA LIMITED.Detailed Analysis:1. Validity of the Notice Dated 20-02-2017:The petitioner, a private limited company, challenged a notice dated 20-02-2017 issued by the Assessing Officer under Section 210(3) of the Income Tax Act, 1961. The notice demanded advance tax payment for the assessment year 2017-18. The petitioner argued that due to a scheme of amalgamation effective from 1-04-2016, the company ceased to exist and thus was not liable to pay advance tax.2. Obligation to Pay Advance Tax:The petitioner contended that since the scheme of amalgamation was effective from 1-04-2016, the company was not in existence during the period in question and should not be liable for advance tax. However, the Tribunal approved the scheme on 20-03-2017, creating a period of contention between 1-04-2016 and 20-03-2017. The revenue argued that until the Tribunal's approval, the petitioner was still an independent entity and liable for advance tax under Sections 207, 208, and 211 of the Act.The court analyzed the relevant sections of the Act, particularly Sections 207, 208, 209, and 211, which outline the conditions and computation for advance tax payments. The court concluded that the petitioner was obliged to pay advance tax for the first three quarters (15th June, 15th September, and 15th December) of the assessment year 2017-18, as the Tribunal's approval on 20-03-2017 did not retroactively absolve the company of its tax obligations.3. Applicability of Judgments:The petitioner cited the judgments in MARSHALL SONS AND CO. (INDIA) LIMITED v. INCOME TAX OFFICER and PRINCIPAL COMMISSIONER OF INCOME TAX, NEW DELHI v. MARUTI SUZUKI INDIA LIMITED to support their claim. The court distinguished these cases, noting that the scheme of amalgamation in MARSHALL SONS took effect from the date of sanctioning, and in MARUTI SUZUKI, the Supreme Court dealt with the loss of entity upon amalgamation.The court determined that the petitioner company lost its entity only upon the Tribunal's approval on 20-03-2017. Thus, the petitioner was liable to pay advance tax for the period between 1-04-2016 and 20-03-2017.Conclusion:The court found no grounds to interfere with the impugned assessment order and the notice demanding Rs. 356,644,155. The writ petitions were dismissed, affirming the petitioner's obligation to pay the advance tax for the specified period.