2023 (10) TMI 1038 - HC - Income Tax

Reassessment notices under Sections 148A(d) and 148 against non-existing amalgamated company held invalid and set aside

The Telangana HC held that reassessment notices issued under Sections 148A(d) and 148 of the Income Tax Act against a non-existing company following an ... Validity of reassessment notice in the name of the non-existing Company - scheme of amalgamation approved - HELD THAT:- We are of the considered view that the present is also the case which squarely stands covered by the decision of Maruti Suzuki (India) Limited [2019 (7) TMI 1449 - SUPREME COURT] and the recent decision of the High Court of Bombay in the case of CLSA INDIA (P) LTD. [2023 (2) TMI 469 - BOMBAY HIGH COURT] and the earlier judgment of Spice Infotainment [2011 (8) TMI 544 - DELHI HIGH COURT] The present Writ Petition deserves to be and is accordingly allowed, holding that the notice issued Section 148A(d) of the Act and the consequential notice of the same date under Section 148 of the Act, both being bad in law, are set aside, as the entire proceedings itself is against a non-existing Company - Decided in favour of assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether issuance of notices under Section 148A(d) and consequential notices under Section 148 of the Income Tax Act against an entity that ceased to exist pursuant to a court-sanctioned scheme of amalgamation is legally permissible. 2. Whether failure of the transferor or transferee to intimate the tax authorities about the amalgamation can validate proceedings issued in the name of the extinguished transferor company. 3. The legal effect of prior judicial authorities on the validity of assessment/reassessment proceedings initiated against an amalgamated (non-existing) company and the extent to which those authorities bind the Court's decision. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of notices issued against a non-existing company post court-sanctioned amalgamation Legal framework: The statutory scheme governing reassessment proceedings under Sections 148A(d) and 148 of the Income Tax Act and the legal consequence of a court-sanctioned scheme of amalgamation which dissolves the transferor company with effect from the appointed date, leaving only the transferee (amalgamating) company in existence with its assets and liabilities. Precedent Treatment: The Court considered earlier judicial pronouncements which held that proceedings initiated against an amalgamated entity (i.e., one that has ceased to exist after sanction of amalgamation) are a nullity. The Court also noted divergent High Court treatment where administrative non-intimation was relied upon to sustain notices, but the prevailing higher authority's view endorses quashing such proceedings. Interpretation and reasoning: The Court reasoned that where a scheme of amalgamation has been sanctioned by the Court and the transferor company has become extinct from the appointed date, the legal principle is that the transferor ceases to exist and all assets and liabilities vest in the transferee. Issuing jurisdictional notices and initiating reassessment proceedings in the name of a company that has ceased to exist is fundamentally at odds with that principle. The Court emphasized the value of certainty and consistency in tax litigation, noting that allowing proceedings to continue in the name of a non-existing entity would undermine settled expectations. Ratio vs. Obiter: Ratio - Proceedings and assessments initiated against an amalgamated (non-existing) company are void/ nullity when the amalgamation has been court-approved and the transferor company has ceased to exist from the appointed date. Obiter - Observations on the importance of certainty and business expectations in tax litigation and the policy rationale for uniform treatment. Conclusion: Notices dated in the name of the non-existing transferor company under Sections 148A(d) and 148 were bad in law and liable to be set aside; the entire reassessment proceedings based on those notices are a nullity. Issue 2 - Effect of failure to intimate amalgamation to tax authorities on jurisdiction to issue notices Legal framework: Statutory and administrative expectations of intimation to tax authorities when corporate restructuring occurs; the jurisdictional basis for issuance of notices under the Income Tax Act. Precedent Treatment: The Court examined authorities where Revenue contended that active PAN records or failure to intimate amalgamation justified issuance of notices; however, higher judicial authority rejected such arguments when the legal extinction of the transferor had occurred. Interpretation and reasoning: The Court rejected the contention that administrative non-intimation or continued presence of PAN records could create an exception to the legal principle that an amalgamating entity ceases to exist upon court sanction of the scheme. The Court held that procedural lapses by the taxpayer (non-intimation) do not revest legal existence in an entity that has been dissolved by an approved scheme. The proper forum for raising amalgamation as a defense was noted to be the authority, but where legal non-existence is established on record, initiation in the name of the dissolved entity is impermissible. Ratio vs. Obiter: Ratio - Administrative irregularity or non-intimation does not validate jurisdictional action taken in the name of an entity that has been legally dissolved by a court-sanctioned amalgamation. Obiter - Comments that taxpayers may otherwise have the opportunity to raise amalgamation in proceedings, but such opportunity cannot cure the fundamental jurisdictional defect of issuing notices to a non-existent entity. Conclusion: Failure to intimate the amalgamation to tax authorities cannot confer jurisdiction or validate notices issued against the extinguished transferor company; such notices are void notwithstanding administrative records or PAN activity. Issue 3 - Precedential impact of higher judicial decisions on the present challenge Legal framework: Doctrine of precedent and the binding effect of higher court decisions on the interpretation of statutory provisions and the validity of tax proceedings. Precedent Treatment: The Court relied on a controlling higher court judgment which dealt with substantially similar facts and concluded that proceedings initiated against an amalgamated company are a nullity. The Court also considered corroborating decisions of High Courts that have followed that reasoning, rejecting revenue arguments based on PAN activity or non-intimation. Interpretation and reasoning: The Court found the present facts to be squarely covered by the controlling precedent and consistent High Court authorities. It observed that the higher court had evaluated conflicting High Court views and affirmed that notices in the name of an extinguished entity should be set aside, underscoring the need for consistency and certainty in tax law application. Ratio vs. Obiter: Ratio - Binding precedents that assess the legal consequence of court-sanctioned amalgamation require quashment of proceedings against the dissolved transferor. Obiter - Emphasis on certitude and the undesirable consequences of departing from consistent judicial views in tax matters. Conclusion: The present matter is governed by binding precedent and consistent High Court authority; the notices and consequential proceedings issued against the non-existing company must be quashed. Final Disposition (relating conclusions across issues) Because the transferor company was dissolved with effect from the appointed date by virtue of a court-sanctioned amalgamation, issuance of notices under Section 148A(d) and Section 148 in its name constituted proceedings against a non-existing entity and were therefore invalid. Reliance on administrative non-intimation or active PAN records does not cure this jurisdictional defect. In view of controlling judicial authority and consistent High Court decisions, the impugned notices and consequential proceedings were set aside; no costs were imposed.