2007 (2) TMI 342 - AT - Income Tax

Succession to business otherwise than on death - Assessment in the hands of a non-existent company is a nullity and invalid or it is only an irregularity? - HELD THAT - We find that the Delhi Bench of Tribunal in case of Impsat (P.) Ltd. 2004 (7) TMI 299 - ITAT DELHI-A has held the assessment in the hands of the amalgamating company which is non-existent to be nullity and invalid. Similarly ITAT Delhi Bench in the case of Hewlett Packard India (P.) Ltd. 2006 (4) TMI 514 - ITAT DELHI held such assessment to be invalid. We have noticed that the decision of ITAT Delhi Bench in the case of Impsat (P.) Ltd. was available at the time when ITAT Mumbai Bench heard the appeal of Century Enka Ltd. 2006 (2) TMI 596 - ITAT MUMBAI but, the same was not brought to the knowledge of ITAT Mumbai Bench. Therefore, they had no occasion to consider the same and took a decision contrary to the decision of ITAT Delhi Bench. Thus, we respectfully following the decision of ITAT Delhi Bench in the case of Impsat (P.) Ltd. and Hewlett Packard India (P.) Ltd. and the decision of the Madras High Court in the case of Express Newspapers Ltd. 1960 (3) TMI 48 - MADRAS HIGH COURT hold that the assessment made in the hands of non-existent company is nullity. Accordingly we quash the assessment made in the hands of Pampasar Distillery Ltd. for the assessment year under consideration, i.e., 1999-2000, 2000-01 and 2001-02, because assessment for these years were made on the date when it was not in existence. Hence, we may mention that the Assessing Officer can make the assessment of the income prior to the period of amalgamation of Pampasar Distillery Ltd. in the hands of Successor Company that is amalgamated company which is Shaw Wallace Distilleries Ltd. as per provision of sub-section (2) of section 170 of the Income-tax Act. Now it is for the revenue to initiate appropriate proceedings against the right person i.e. Shaw Wallace Distilleries Ltd. in accordance with law. At present the assessment framed against Pampasar Distillery Ltd. is liable to be cancelled being invalid. Accordingly, we cancel the assessment made in the hands of Pampasar Distillery Ltd. As we have cancelled the assessment made in the hands of Pampasar Distillery Ltd., the revenue s appeal for assessment years 1999-2000 to 2001-02 which is against some relief allowed by CIT(A), does not survive, accordingly the same are rejected.

Summary

Issues Involved:

1. Admission of additional ground by the assessee.
2. Validity of assessment on a non-existent entity post-merger.
3. Applicability of Section 170 of the Income-tax Act, 1961.
4. Validity of orders under section 201/201(1A) for a merged entity.

Issue-wise Detailed Analysis:

1. Admission of Additional Ground by the Assessee:

The assessee raised an additional ground stating, "The order needs to be vacated as on the date of passing of order the company was non-existent having merged with Shah Wallace Distilleries Ltd. with effect from 1-7-2000." The Tribunal admitted this additional ground, citing the Supreme Court's decision in National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383, which allows the Tribunal to consider legal questions arising from facts on record. The Tribunal found that no new fact investigation was required, and the additional ground was purely a legal issue.

2. Validity of Assessment on a Non-existent Entity Post-merger:

The assessee argued that assessments made on Pampasar Distillery Ltd. post-merger were void since the company ceased to exist. The Tribunal referred to ITAT Delhi Bench decisions in Impsat (P.) Ltd. v. ITO [2004] 91 ITD 354 and Hewlett Packard India (P.) Ltd. v. Asstt. CIT, which held that assessments on non-existent entities are null and void. The Tribunal agreed, stating that the assessment in the hands of a non-existent company is a nullity.

3. Applicability of Section 170 of the Income-tax Act, 1961:

The revenue contended that under Section 170(2), the successor company (Shaw Wallace Distilleries Ltd.) should be assessed for the income of the amalgamating company (Pampasar Distillery Ltd.) up to the date of amalgamation. The Tribunal agreed, stating that post-amalgamation, the successor company should be assessed in the same manner as the predecessor. The Tribunal cited ITAT Delhi Bench's decision in Hewlett Packard India (P.) Ltd., which supported this view.

4. Validity of Orders Under Section 201/201(1A) for a Merged Entity:

In the case of Parashakti Finance & Investment Ltd., the revenue's orders under section 201(1)/201(1A) were passed after the company had merged with Shaw Wallace Distilleries Ltd. The Tribunal held that any order passed on a non-existent entity is null and void, following the same reasoning as in the Pampasar Distillery Ltd. case. The Tribunal upheld the CIT(A)'s decision to cancel the orders and allowed the revenue to take appropriate action against the successor company, Shaw Wallace Distilleries Ltd.

Conclusion:

The Tribunal allowed the assessee's appeal and cross-objections, quashed the assessments made on Pampasar Distillery Ltd. for the relevant assessment years, and dismissed the revenue's appeals. The Tribunal also upheld the CIT(A)'s order canceling the section 201/201(1A) orders against Parashakti Finance & Investment Ltd., allowing the revenue to proceed against Shaw Wallace Distilleries Ltd. as per law.