2021 (4) TMI 1101 - HC - Income Tax

Court Upholds Validity of Income Tax Notice for Private Limited Company

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 ... Advance tax liability - payment instalments under Section 211 - computation of advance tax under Section 209 - effect of sanctioning scheme of amalgamation - tax liability during the interregnum periodAdvance tax liability - payment instalments under Section 211 - effect of sanctioning scheme of amalgamation - tax liability during the interregnum period - Whether the petitioner was obliged to pay advance tax for the period 1-04-2016 to 20-03-2017 for the assessment year 2017-18. - HELD THAT: - The scheme of amalgamation was sanctioned by the National Company Law Tribunal on 20-03-2017 and, although expressed to operate with retrospective effect from 01-04-2016, the petitioner remained a distinct legal entity until the Tribunal's sanction. Liability to pay advance tax is determined by reference to the assessee's current income for the financial year and the instalment schedule under the statutory provisions governing advance tax, including the quarterly due dates specified for payment. The first three instalments (on or before 15th June, 15th September and 15th December) fall within the interregnum 1-04-2016 to 20-03-2017. Accordingly, the petitioner could not escape liability for advance tax for those instalments on the ground that the amalgamation was retrospectively effective, because the legal sanction that extinguished the petitioner's separate entity occurred only on 20-03-2017. Prior decisions relied upon by the petitioner were found inapplicable on the facts, as the determinative question is the date on which the entity ceased to exist for tax purposes, which here was the date of the Tribunal's sanction. [Paras 9, 11, 12, 13]Petitioner liable to pay advance tax for the instalments falling between 1-04-2016 and 20-03-2017 for AY 2017-18; liability for the last instalment after the sanction date does not arise.Final Conclusion: Writ petitions dismissed; impugned order under Section 210(3)/(4) upholding demand of advance tax for the interregnum period 1-04-2016 to 20-03-2017 for AY 2017-18 is sustained. 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.