TaxTMI 
TaxTMI 
TaxTMI 
2016 (5) TMI 1319
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the I.T. Act the assessee vide letter dated 07-04-2011 stated that the return filed earlier may be treated as return filed in response to notice u/s.148 of the I.T. Act. The assessee also asked for the reasons of reopening of the assessment which was duly provided to the assessee. 3. During the course of assessment proceedings the assessee stated that the company was dissolved on 03-03-2011 and therefore the notice u/s.148 which was issued after the dissolution of the company, i.e. on 28-03-2011 is void and no proceedings could be initiated in respect of the assessee which was not in existence. However, the AO rejected the above contention of the assessee. According to him, the proceedings u/s.147 was initiated for A.Y. 2006-07 during which period the assessee was in existence. The dissolution does not mean that all irregularities/defaults committed during the period of existence have been expunged. He therefore held that the proceedings initiated u/s.147 is valid and as per law. 4. So far as the merit of the case is concerned, it was submitted that the fiction created u/s.50 cannot be extended to the provisions of section 72 of the I.T. Act. It was argued that carried forwar....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... within the framework of the I.T. Act. He accordingly rejected the issue of validity of reopening of the assessment u/s.148 in case of the company which is dissolved. 7. So far as merit of the case is concerned the Ld.CIT(A) following the decision of the Mumbai Bench of the Tribunal in the case of Digital Electronics Ltd. (Supra) directed the AO to allow set off of brought forward business loss amounting to Rs. 45,62,567/-. 8. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us with the following ground : "1. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in allowing the set off of carried forward business losses against the capital gains computed u/s.50 of the Act in view of provisions of section 72 of the I.T. Act." 9. The assessee has also filed cross objections by taking the following grounds : "1. On facts and circumstances prevailing in the case and as per the provisions of the Law, it be held that, issue of the notice u/s.148 after company was dissolved and its name struck off of Registrar of companies is without jurisdiction, invalid and unlawful in the eyes of Law. The notice and the proceedings i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in would apply, said gain would be set off against brought forward long term capital losses and unabsorbed depreciation. Referring to the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Ace Builders Pvt. Ltd. reported in 281 ITR 210 and which has been relied on by the Hon'ble Bombay High Court in the case of Parrys (Eastern) Pvt. Ltd. (Supra) he submitted that the Hon'ble High Court has held that provisions of section 50 makes it explicitly clear that the deeming fiction created in subsection (1) and (2) is restricted only to the mode of computation of capital gains contained in section 48 and 49. The legal fiction is to deem the capital gain as short term capital gain and not to deem the asset as short term capital asset. Section 50 does not convert a long term capital asset into a short term capital asset. Though section 50 was enacted with the object of denying multiple benefits to owners of depreciable asset yet that restriction was limited to the computation of capital gains and not the exemption provisions. Accordingly, it was held that the exemption u/s.54E could not be denied to the assessee on account of the fiction created in section 50. He accordingly su....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... company was dissolved. According to him it is established law that any Notification becomes valid only when the same is published in the Gazette of India. Since the assessee failed to produce the evidence that the order of ROC was published in the Gazette of India before issue of notice u/s.148 of the I.T. Act on 28-01-2011 he held that the ground raised by the assessee on this issue is without any merit. 14. It is the submission of the Ld. Counsel for the assessee that after company is dissolved and its name is struck off the register of the Registrar of Companies, no corporate existence continues and there is no provision in income-tax to assess a company which is dissolved. The AO has no jurisdiction to assess a dissolved company merely because it has filed the return of income and participated in the assessment proceedings. 15. We find merit in the above submission of the Ld. Counsel for the assessee. We find the Delhi Bench of the Tribunal in the case of Impsat Pvt. Ltd. (Supra) had an occasion to decide such an issue. In that case, the assessee was a Private Limited Company incorporated to implement the V-Sat Project in India, in collaboration with Corporation Impsa S.A. o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....scribed procedure such as giving an opportunity to the company, notification in the gazette and so on. Sub-section (5) provides that after the expiry of the prescribed time, after the publication in the gazette of his intention to strike off the name of the company from his register, during which he has not received any representation from the company, the Registrar may strike the name of the company off the register and shall publish a notification to that effect in the official gazette and "on the publication in the Official Gazette of this notice, the company shall stand dissolved". There is provision for restoration of the name of the company and if the names is restored, Sub-section (7) says that the "company shall be deemed to have continued in existence as if its name had not been struck off". 15. There is a distinction under the company law between winding up or liquidation on the one hand and dissolution of the company on the other. This has been brought out by the Supreme Court in Hari Prasad Jayantilal's case (supra). At page 798, Hon'ble Justice Shah, speaking for the court observed: "On the passing of a special resolution by the company that it be would up v....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tax, as it appears that there is no provision in the present Act to assess a company which is dissolved. Our attention was not drawn to any provision in the Act enabling the AO to do so. Section 159 of the present Act does not cure the lacuna. It correspondent to Section 24B of the 1922 Act. Sub-section (1) says that where a person dies, his legal representatives shall be liable to pay any sum which the deceased would have been liable to pay if he had not died, in the like manner and to the same extent as the deceased. Sub-section (2)(b) enables the AO to take any proceeding against the legal representative of a deceased person, which he could have taken against the deceased himself if he had not died and Clause (c) of the sub-section says that the other provisions of the Act shall apply accordingly. Sub-section (3) says the legal representative of the deceased shall, for the purposes of this Act, be deemed to be an assessee. Sub-section (4) makes each and every legal representative personally liable for the tax payable by him in such capacity and Sub-section (6) says that such liability will however be limited to the extent to which the estate is capable of meeting the liability. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e case of a company which is being would up, the IT. Department is to be treated as a secured creditor. No doubt, the provisions ofSection 178 of the I.T. Act were referred to, but they were referred to in an entirely different context, a context which is not similar as in the present case. The Supreme Court in this case pointed out the difference between the Section 530 of the Companies Act and Section 178 of the I.T. Act, a distinction which is not relevant and does not arise for consideration in the case before use. Basically, what was decided in the judgment was the question of priority of department have nothing to do with the controversy that arises in the present case. 21. That takes us to the next question regarding the validity of an assessment on a non-existent person. It is a nullity. Reference may be made to the judgments of the Supreme Court in CIT v. Amarchand N. Shroff (48 ITR 59) and ITO v. Ram Prasad and Ors. (86 ITR 145). These are cases of an individual and a joint family respectively, but the ratio is that there can be no assessment on a dead person. Just as an individual ceases to exist on death and a joint Hindu family ceases to exist on being disrupted, a co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....de against it by the AO. The absence of a provision enabling the AO to do so cannot be supplied by the assessee by merely filing a return and participating in the proceedings. 23. For the above reasons, we accept the first contention and hold that the assessment order passed on the assessee-company is a nullity. 16. Since in the instant case also the company was not in existence at the time when the notice was issued u/s.148, therefore, respectfully following the decision of the Delhi Bench of the Tribunal cited (Supra) we hold that the issue of notice u/s.148 after the company was dissolved and its name struck off the register of the Registrar of Companies is without jurisdiction, invalid and unlawful in the eyes of law. The subsequent proceedings on the basis of such invalid notice are also not tenable, therefore, ground of cross objection No.1 raised by the assessee is allowed. 17. Even on merit we find the issue has to be decided in favour of the assessee. We find the Hon'ble Bombay High Court in the case of Ace Builders Pvt. Ltd. reported in 281 ITR 210 has held that there was nothing in section 50 to suggest that the fiction created in section 50 is not only restricted to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s capital gain arising out of a short-term capital asset and taxed accordingly. 23. The question required to be considered in the present case is, whether the deeming fiction created under section 50 is restricted to section 50 only or is it applicable to section 54E of the Income-tax Act as well ? In other words, the question is, where the long-term capital gain arises on transfer of a depreciable long-term capital asset, whether the assessee can be denied exemption under section 54E merely because, section 50 provides that the computation of such capital gains should be done as if arising from the transfer of short-term capital asset ? 24. Section 54E of the Income-tax Act grants exemption from payment of capital gains tax, where the whole or part of the net consideration received from the transfer of a long-term capital asset is invested or deposited in a specified asset within a period of six months after the date of such transfer. In the present case it is not in dispute that the assessee fulfils all the conditions set out in section 54E to avail of the exemption, but the exemption is sought to be denied in view of fiction created under section 50. 25. In our opinion, the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....apital gains and not to the exemption provisions. In other words, where the long-term capital asset has availed of depreciation, then the capital gain has to be computed in the manner prescribed under section 50 and the capital gains tax will be charged as if such capital gain has arisen out of a short-term capital asset but if such capital gain is invested in the manner prescribed in section 54E, then the capital gain shall not be charged under section 45 of the Income-tax Act. To put it simply, the benefit of section 54E will be available to the assessee irrespective of the fact that the computation of capital gains is done either under sections 48 and 49 or under section 50. The contention of the Revenue that by amendment to section 50 the longterm capital asset has been converted into a short-term capital asset is also without any merit. As stated hereinabove, the legal fiction created by the statute is to deem the capital gain as short-term capital gain and not to deem the asset as shortterm capital asset. Therefore, it cannot be said that section 50 converts a long-term capital asset into a short-term capital asset." 18. We find following the above decision, the Hon'ble Bomb....