2017 (12) TMI 1898 - AT - Income Tax

Assessment framed in name of amalgamating company quashed; reassessment may be completed in successor company's name under IT Act, 1961

M/s. Mindtree Ltd., (Previously known as M/s. Aztecsoft Ltd., now merged with M/s. Mindtree Ltd.) Versus The Assistant Commissioner of Income Tax (LTU), Bangalore.

ITAT held the assessment order framed in the name of the amalgamating company to be bad in law and quashed it. The bench noted precedent from HC and SC ... Assessment order in the name of merged company - main contention that since in the assessment order, along with the name of the merged company, the name of the successor company is also mentioned, it cannot be said that the assessment is completed in the name of the merged company - HELD THAT:- Regarding this submission of the revenue, we find that in the case of Principal CIT Vs. MarutiSuzuki India Ltd. [2017 (9) TMI 387 - DELHI HIGH COURT] also, the assessment order was passed in the name of M/s. Suzuki Powertrain India Ltd. (amalgamated with Maruti Suzuki India Ltd.) as noted by Hon’ble Delhi High court in the cited judgment. Hence, it is seen that in that case also, facts are same and still the issue was decided in favour of the assessee by Hon’ble Delhi High Court in that case by following another judgment of Spice Infotainment Ltd. [2017 (12) TMI 754 - SC ORDER] This judgement of Hon’ble Delhi High Court rendered in the case of Spice Infotainment Ltd. Vs. CIT (supra) has already been confirmed by the Hon’ble Apex Court [2017 (12) TMI 754 - SC ORDER] Hence in the present case also, we hold assessment order framed in the present case in the name of amalgamating company is bad in law and the same is quashed although we make it clear that the department may proceed for making assessment in the name of merged company i.e. Mindtree Ltd. in accordance with law in terms of provisions of the IT Act, 1961, as was held by Hon'ble Karnataka High Court in case of CIT Vs. M/s. Intel Technology India Pvt. Ltd. [2015 (5) TMI 614 - KARNATAKA HIGH COURT] ISSUES PRESENTED AND CONSIDERED 1. Whether an assessment order framed in the name of a predecessor/amalgamating company that had ceased to exist before the date of the assessment order is valid, notwithstanding that the order records the merger and also refers to the successor company. 2. Whether recording in the assessment order that the amalgamating company is 'now merged' with the successor cures the defect of naming a non-existent entity as the assessee. 3. Whether, where an assessment in the name of a non-existent predecessor is quashed, the revenue may proceed to assess the income in the name of the successor in accordance with law (succession of liability under taxation law). 4. (Raised but not determinatively adjudicated as a substantive standalone issue) Whether reference to the Transfer Pricing Officer under section 92CA(1) can be made without satisfying the statutory conditions for such reference. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of assessment framed in name of non-existent/amalgamated entity Legal framework: The assessment provisions and the law on succession of business require that tax liability for the relevant previous year be assessed in respect of the person who carried on the business in that previous year; where succession in business occurs by merger/amalgamation, provisions governing succession (including section 170(1) as invoked by the revenue) and the requirement of correctly identifying the assessee for the relevant previous year are engaged. Precedent treatment: The Tribunal considered earlier appellate and judicial decisions on the point. It followed the line of authority holding that an assessment order made in the name of a company which had ceased to exist at the time of passing the order is void and liable to be quashed. Decisions relied on by the revenue that reached a contrary conclusion (where the successor was assessed or where the predecessor remained assessable under section 170(1) because it could be found) were considered distinguishable on facts. Interpretation and reasoning: The Court examined documentary evidence showing the sanction of a scheme of amalgamation and filing of requisite forms with the registrar well before the final assessment order date. The Tribunal noted that mere recital in the assessment order that the amalgamating company is 'now merged' with the successor does not validate an assessment framed in the name of an entity that, on the date of the order, no longer exists. It observed that earlier High Court and Supreme Court authorities have held that assessment in the name of a non-existent entity is not valid even where the order mentions the successor. Ratio vs. Obiter: This finding is ratio decidendi for the appeal: the Tribunal applied binding judicial principles to quash the assessment on the ground of being made in the name of a non-existent entity. Conclusion: The assessment order framed in the name of the amalgamating company (which had ceased to exist prior to the order) is bad in law and is quashed. Issue 2 - Whether recital of merger and naming successor in the order cures defect Legal framework: Fundamental requirement that an assessment be validly made in the name of the person assessed; procedural validity cannot be cured by mere recital where the named assessee does not exist at the time of assessment. Precedent treatment: The Tribunal applied authoritative precedents which held that mentioning the successor in the assessment order does not cure the vice of assessing a non-existent entity; those precedents have been affirmed at higher judicial levels. Interpretation and reasoning: The Tribunal rejected the revenue's submission that inclusion of the successor's name or address and repeated references to the merger in the order convert an assessment in the predecessor's name into a valid assessment. The Tribunal relied on prior judicial rulings which treated such recitals as insufficient to cure the fundamental defect. Ratio vs. Obiter: The conclusion that recital does not cure the defect is part of the operative ratio adopted to quash the order. Conclusion: Mentioning that the company 'is now merged' and stating the successor's details in the assessment order does not validate an assessment made in the name of an entity that had ceased to exist at the time of the order. Issue 3 - Whether the revenue may reassess in the name of successor after quashing Legal framework: Principles of succession in tax law, and statutory provisions permitting assessment of income of the predecessor where succession occurs, subject to compliance with applicable procedures. Precedent treatment: The Tribunal noted prior judicial guidance that, while an assessment made in the name of a non-existent entity is void, the department is not thereby deprived of its right to make assessment in accordance with law against the proper person (successor) if statutory conditions are met. Interpretation and reasoning: The Tribunal expressly held that although the impugned order is quashed as having been framed in the name of the non-existent amalgamating company, the department may proceed to make assessment in the name of the successor company in accordance with law and the relevant provisions of the statute. Ratio vs. Obiter: The permission to reassess the successor is an operative conclusion and forms part of the decision's dispositive direction (ratio) rather than mere obiter. Conclusion: The order is quashed but the revenue remains entitled to proceed to assess the income in the name of the successor company in accordance with statutory provisions governing succession. Issue 4 - Validity of reference to transfer pricing authority under section 92CA(1) without fulfilling conditions Legal framework: Section 92CA(1) permits reference to the Transfer Pricing Officer (TPO) where the Assessing Officer is of the view that the transfer pricing provisions are attracted and the conditions for reference are satisfied. Precedent treatment: The additional ground challenging the reference under section 92CA(1) was raised, but the Tribunal did not undertake a separate determination on the merits of that contention because the primary defect (assessment in name of non-existent entity) was dispositive. Interpretation and reasoning: The Tribunal recorded that the issue had been pleaded but, given quashing of the assessment on the naming/succession ground, refrained from adjudicating the challenge to the reference to the TPO. Ratio vs. Obiter: The treatment of this point is obiter in the sense that no substantive legal conclusion on section 92CA(1) was reached; the point remains open for determination in any fresh proceedings. Conclusion: No determination made on the validity of the reference under section 92CA(1); the point is left open as the primary assessment order was quashed. Disposition The Tribunal allowed the appeal by quashing the assessment order framed in the name of the non-existent amalgamating company, while noting that the revenue may lawfully proceed to assess the relevant income in the name of the successor company in accordance with the provisions of the Income-tax Act.