2024 (7) TMI 1690 - HC - Income Tax

Assessment against transferee set aside where sanctioned amalgamation (appointed date) transferred all assets, liabilities and dissolved transferor

Pon Pure Chem P. Ltd., Now amalgamated with, Pon Pure Chemical India Private Limited, Versus The Income Tax Officer, The Assistant Commissioner of Income Tax, Circle 1, LTU Chennai

The HC set aside the assessment order issued against the transferee company post-amalgamation, holding that the scheme sanction order (effective on the ... Assessment order against the transferee company post amalagamation - HELD THAT:- The petitioner has placed on record the order sanctioning the scheme of amalgamation. Such order is dated 26.03.2008. The petitioner has stated that the order was communicated to the Registrar of Companies. Upon the issuance of the order and the communication thereof to the Registrar of Companies, the amalgamation took effect on the appointed date (i.e. 01.04.2007) under the scheme of amalgamation. With effect from the said date, all the assets and liabilities of the transferor stood transferred to and vested with the transferee. The order provides for the dissolution without winding up of the transferor company. Upon such dissolution, it is no longer permissible to initiate proceedings against the transferor company. As noticed in Pharmazell, the decision in Mahagun Realtors [2022 (4) TMI 347 - SUPREME COURT] turned on the fact that the transferor company participated in proceedings and did not provide information relating to the amalgamation when such proceedings were initiated. In this case, the petitioner informed the Income Tax Department about the amalgamation and enclosed a copy of the order of this Court with communication dated 08.03.2023. It should also be noticed that the Income Tax Department issued an assessment order against the transferee company in respect of assessment year 2015-2016 on 20.12.2017. The impugned assessment order cannot be sustained. ISSUES PRESENTED AND CONSIDERED 1. Whether initiation or continuation of income-tax proceedings (assessment under reassessment/rectification/inquiry notices) can be sustained against a transferor company that, under a Court-sanctioned scheme of amalgamation, stood dissolved without winding up and whose assets and liabilities were transferred to the transferee with effect from the appointed date. 2. Whether the conduct of the transferor company in not informing the tax authority about amalgamation or in participating in proceedings affects the right to proceed against the transferor post-dissolution. 3. Whether factual disputes raised by the revenue (specifically, the contention that a particular bank account was maintained by the transferor) require remand to the assessing officer despite proof of amalgamation and transfer/surrender of PAN. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legal framework: effect of Court-sanctioned amalgamation and dissolution without winding up on proceedings against transferor Legal framework: A scheme of amalgamation sanctioned by Court operates with effect from the appointed date to transfer all assets and liabilities of the transferor to the transferee; where the sanction order expressly provides for dissolution of the transferor company without winding up, the transferor ceases to exist as a legal entity from the effective date. Precedent Treatment: The Court treats and applies the principle in line with Supreme Court authority (as discussed by the parties) that proceedings cannot be initiated against a non-existent entity; prior decisions distinguishing situations where the transferor remained fungible for proceedings because of conduct (see discussion under Issue 2) are noted. Interpretation and reasoning: The Court examined the sanction order (dated 26.03.2008) and related communications to the Registrar of Companies showing that the amalgamation took effect on the appointed date and that assets and liabilities stood transferred and vested in the transferee. Given the transfer and express dissolution without winding up, the transferor had ceased to exist, and therefore initiation or continuation of proceedings against the transferor for the assessment year in question is impermissible. Ratio vs. Obiter: Ratio - where a transferor is dissolved without winding up by a Court-sanctioned amalgamation and assets/liabilities are transferred to a transferee with effect from the appointed date, post-dissolution proceedings against the transferor cannot be sustained. Conclusion: The impugned assessment/order issued against the transferor company is unsustainable on the ground of non-existence consequent to Court-sanctioned amalgamation and dissolution; the correct course is to proceed, if at all, against the transferee. Issue 2 - Effect of transferor's conduct in proceedings (failure to disclose amalgamation / participation) Legal framework: Equity and procedural fairness permit the taxing authority to proceed where a transferor has actively participated in proceedings or withheld material information such as amalgamation, thereby estopping it from asserting non-existence later; conversely, where amalgamation has been notified and evidence produced, the protection against proceedings remains available to the transferor. Precedent Treatment: The Court distinguished judgments which allowed proceedings against transferor where the transferor had participated in proceedings or filed returns without disclosing amalgamation. Those authorities stand on the specific fact of non-disclosure/participation. The Court followed the distinction drawn in a recent High Court decision that applied the ratio of the leading Supreme Court decision to facts where amalgamation was disclosed. Interpretation and reasoning: In the present matter the transferor/transferee notified the tax authorities and enclosed the Court-sanctioned order when responding; there was no concealment of the amalgamation by the transferor. Further, an assessment had already been framed in the name of the transferee for the relevant year. The facts therefore do not attract the exception applied in authorities permitting proceedings against a transferor who had participated or concealed amalgamation. Ratio vs. Obiter: Ratio - active participation by or concealment on the part of the transferor can justify proceedings against the transferor post-amalgamation; conversely, disclosure of amalgamation and production of sanction order precludes such treatment. This distinction is treated as determinative on the facts and forms part of the binding ratio in this decision. Conclusion: The exception permitting proceedings against a transferor does not apply because amalgamation had been disclosed and the sanction order produced; hence the assessment against the transferor cannot be sustained on this ground. Issue 3 - Need for remand on disputed factual issue (bank account maintenance) despite amalgamation evidence Legal framework: Where a specific factual dispute relevant to tax liability or jurisdiction exists and is not conclusively resolved by documentary evidence, the assessing officer may be entitled to further inquiry/remand; however, such remand cannot be used to sidestep the legal consequence of non-existence of the transferor if the legal bar is complete. Precedent Treatment: Courts have remanded matters for factual enquiry where material facts were not placed on record or where the tax authority had not had the opportunity to examine critical materials; however, remand is inappropriate if the question is purely legal and has been conclusively shown by documentary proof. Interpretation and reasoning: Revenue contended that the petitioner's earlier reply did not specifically state the non-existence of the bank account and sought remand to examine whether the transferor maintained the alleged bank account. The Court observed that the transferor had produced the sanction order and proof that the PAN was surrendered (and that the transferee had been assessed). Given that the legal consequence of dissolution operates to preclude proceedings against the transferor, a remand solely to investigate whether a particular bank account was maintained by a non-existent transferor would be inappropriate to sustain the impugned order against the transferor. The Court also noted documentary confirmation from the bank (communication dated 06.03.2023) indicating non-maintenance of that account by the transferor. Ratio vs. Obiter: Ratio - where dissolution and transfer of assets/liabilities are legally established by the sanction order and communicated to the Registrar, further factual inquiry cannot resurrect proceedings against the dissolved transferor; factual remand may be appropriate only to determine proceedings against the transferee. Conclusion: No remand to sustain proceedings against the transferor is justified; the respondents remain free to initiate appropriate proceedings, if any, against the transferee after necessary inquiry in accordance with law. Final disposition (consequential conclusion) Given the Court-sanctioned amalgamation effecting transfer and dissolution without winding up, and the disclosure of amalgamation to the tax authorities, the assessment/order against the dissolved transferor is quashed. The respondents may, if legally permissible, initiate proceedings against the transferee in accordance with law; no costs awarded.