2024 (8) TMI 54 - HC - Income Tax

Scheme effective 01.04.2012: transferor ceased; tax liabilities merged into transferee, assessments against transferor quashed and Revenue must pursue transferee

HC held the scheme took effect on 01.04.2012, so the transferor company ceased to exist from that date and its tax liabilities merged into the transferee. ... Assessment against non-existent company - merger of petitioner company with another company - HELD THAT:- The effective date of the merger under the Scheme of Amalgamation is 01.04.2012. Thus, w.e.f. 01.04.2012, the said SPB Papers Limited ceased to exist. The tax lability of the said transferor company SPB Papers Limited would have stood merged with the transferee company M/s.Seshasayee Paper and Boards Limited. Thus, it is incumbent on the part of the transferee company to have included the tax liability of the transferor company SPB Papers Limited in view of the merger with effect from 01.04.2012. If this was not done, it is for the Income Department to proceed against the transferee company and not against the transferor company which stood merged w.e.f. 01.04.2012. Therefore, the impugned Assessment Orders are liable to be quashed and are accordingly quashed. Writ Petitions are allowed Issues:Challenge to Assessment Orders for AY 2013-2014 and 2016-2017 due to merger of petitioner company with another company.Analysis:In the present case, the petitioner, which merged with another company, challenged the Assessment Orders dated 30.03.2022 passed under the Income Tax Act, 1961 for AY 2013-2014 and 2016-2017. The petitioner company had merged with M/s.Seshasayee Paper and Boards Limited as per the orders of the Principal Bench of the Court in 2013. The petitioner, now known as SPB Papers Limited amalgamated with M/s.Seshasayee Paper and Boards Limited, had duly informed the tax authorities about the merger. Despite this, the Department issued notices and passed Assessment Orders in the name of the dissolved company, SPB Papers Limited, which was incorrect as it ceased to exist post-merger.The petitioner contended that the Department's actions were arbitrary and lacked proper application of mind, citing a previous judgment. The petitioner argued that the Assessment Orders were unsustainable as they were based on notices issued to a non-existing entity. The petitioner also relied on a Supreme Court decision to support their case. On the other hand, the respondents argued that the petitioner had not fulfilled its obligations to inform the Department about the merger during scrutiny proceedings. They claimed that certain incomes of the transferor company had not been taxed, and tax liabilities remained unaddressed.The Court noted that the facts were undisputed, and the issue revolved around the merger of SPB Papers Limited with M/s.Seshasayee Paper and Boards Limited. The effective date of the merger was 01.04.2012, and the transferor company ceased to exist post-merger. As per the Scheme of Amalgamation, the tax liability of the transferor company merged with the transferee company. Therefore, any tax liability of the transferor company should have been included in the transferee company's returns. The Court held that if there was any shortfall in tax payment, the Department should proceed against the transferee company and not the dissolved transferor company.Consequently, the Court quashed the Assessment Orders and allowed the Writ Petitions, granting liberty to the Income Tax Department to pursue the tax liability against the transferee company in accordance with the law. The Court emphasized that the Department's actions against the non-existing transferor company were unwarranted post-merger.