2023 (4) TMI 1440 - HC - Income Tax

Writ allows quashing of s.147 reopening notice issued in name of non-existent company despite revenue's prior knowledge

Briliant Credit & Finance Limited (formerly known as Akarshan Vinimay Private Private Limited) Versus Income Tax Officer, Ward No. 5 (1) Kolkata & Ors

The HC allowed the writ petition and quashed the notice under s.147 reopening assessment because the notice was issued in the name of a non-existing ... Reopening of assessment u/s 147 in the name of non-existing company - HELD THAT:- This writ petition is allowed and the impugned notice is quashed solely on the ground that the impugned notice was issued in the name of non-existing company in spite of revenue having notice and knowledge of non-existence of such Company. ISSUES PRESENTED AND CONSIDERED 1. Whether a notice under Section 148 of the Income Tax Act issued to a transferor (amalgamating) company after the appointed date of amalgamation - when that company has ceased to exist w.e.f. the appointed date and the revenue had notice/knowledge of such amalgamation - is legally tenable. 2. Whether, in the circumstance above, assessments and ancillary steps taken pursuant to such notice are valid, and what is the appropriate entity on which assessment proceedings should be continued. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of Section 148 notice issued to a non-existent (transferor/amalgamating) company Legal framework: Section 148 provides for reopening assessments by issuance of notice to the assessee. Principles of corporate succession on amalgamation dictate that from the appointed date the transferor company ceases to exist and the transferee succeeds to assets, liabilities and tax liabilities as provided by the scheme. Precedent treatment: Reliance placed on prior High Court authority holding that notices issued to an amalgamating/transferor company after the appointed date are not sustainable because the transferor ceases to exist from the appointed date; that authority was followed by the Court on the facts before it. Interpretation and reasoning: The Court observed that where a scheme of amalgamation has come into effect from a specified appointed date and the revenue had notice/knowledge of that fact, issuing a notice under Section 148 to the transferor company - which no longer exists as a legal entity from the appointed date - is a notice to a non-existent person and thus is not tenable in law. The Court treated the existence of the amalgamation as determinative of the addressee's legal capacity to be assessed, and emphasized that procedural acts directed to a non-existent company cannot validly found assessment proceedings. Ratio vs. Obiter: Ratio - A notice under Section 148 issued to a transferor company after the appointed date of amalgamation (where the transferor has ceased to exist and the revenue had notice) is invalid. The reasoning that procedural steps taken under such a notice are also not tenable flows directly from that ratio. Conclusion: The impugned notice issued to the non-existent transferor company is quashed; such a notice is not tenable where the revenue had notice/knowledge of amalgamation effective from an appointed date. Issue 2: Validity of further steps pursuant to an invalid notice and proper entity for assessment Legal framework: When a transferor company is amalgamated into a transferee with effect from an appointed date, the transferee is the proper legal entity for assessment of income accruing on and after the appointed date, subject to statutory provisions and the scheme. Revenue retains remedies such as making assessment on the transferee and, in appropriate circumstances, protective assessments. Precedent treatment: The prior authority considered and endorsed the approach that the more advisable course for the revenue is to make assessment on the transferee company taking into account the income of both transferor and transferee, and, if considered necessary, to make protective assessments; the transferor would not be amenable to assessment proceedings post-appointed date. Interpretation and reasoning: The Court noted that because the impugned notice was addressed to a non-existent entity, all further steps pursuant thereto lack legal validity. The Court accepted that assessment proceedings, if any, should be directed towards the transferee company which subsumes the transferor's liabilities and income from the appointed date, and that making assessment only against the transferor (post-amalgamation) would be inappropriate. Ratio vs. Obiter: Ratio - Ancillary steps taken pursuant to a void notice addressed to a non-existent transferor company are themselves not tenable; assessment should be made on the transferee company, with the option of protective assessments if required. The recommendation on the advisable course for revenue (assessment on transferee and protective assessments) is consequential to the ratio and treated as guiding application rather than mere obiter. Conclusion: All further steps consequent to the invalid Section 148 notice are not tenable; assessment proceedings should, if pursued, be directed to the transferee company in accordance with the scheme of amalgamation and applicable law. Cross-references and Operational Finding The Court quashed the impugned notice solely on the ground that it had been issued in the name of a non-existing company despite the revenue having notice/knowledge of the amalgamation; no affidavits were called for and denials by respondents are deemed. The decision follows and applies the prior High Court authority referred to by the petitioner.