2013 (10) TMI 514 - AT - Income Tax

Party to litigation - aggrieved person - In case of demerger of a company, who should be made the party to the litigation - Held that - Undisputedly this is a case of Court approved demerger - High Court of Judicature at Bombay had approved the scheme vide an order 22nd June, 2010 - Under the scheme, the entire business relating to the Indian undertakings of the transferor companies were to stand transferred to and vested in the petitioner i.e. CIL w.e.f. the appointed date in pursuant to the provisions of section 391 and 394 of the Companies Act - Not only the legal proceedings but as per clause 12 of the scheme it was specifically provided that the transferee company shall be responsible for the income tax proceedings and also shall be entitled to claim refund. - As per sub clause (a) of Section 170 the predecessor is subject to assessment in respect of the income of the previous year in which the succession took place upto the date of the succession. However, as per sub clause (b) of section 170 (1) the successor shall be assessed in respect of the income of the previous year after the date of succession. In our humble understanding a successor is held responsible for assessment after the date of succession. We hereby take a little liberty with due respect to the legislatures that if the meaning of clause (b) is slightly extended than it can be supposed that a successor/transfree shall be held responsible for the legal proceedings after the date of succession. Rather sub section (3) of Section 170 prescribes that when any sum payable under this Section in respect of the income of such business for the previous year in which the succession took place upto the date of succession assessed on the predecessor cannot be recovered from him, then the said sum shall be payable and recoverable from the successor. Meaning thereby the successor/transferee is liable for any liability of the predecessor/transferor - burden of liability gives an inherent right to defend a litigation, therefore the successor within his rights can file an appeal - it is apparent that a resulting company on one hand acquires the assets, side by side, on the other hand, responsible for the liabilities, including tax liability. Further, it is important to note that sub-sec. (vi) says that the transfer of the undertaking is on a going concern basis, meaning thereby, as a result of demerger the effected undertaking looses it s independent legal identity which merges with the resultant company. It s entity thereafter vests with the resulting company. As a natural corollary the litigation can not be pursued against a non-existing legal body. That is why in case of a wound-up company the Tribunal Rules have laid out a procedure of filing of appeal - where an assessee whether an appellant or a respondent dies or become insolvent or in the case of a company being wound up, then that appeal shall not abate and shall be continued by the executor, legal representatives or the administrator or the liquidator. This Rule further provides that a revised Form 36 giving revised names of the party can be filed. The revised Form 36 shall specify the appeal number as originally assigned and shall be made part of the original file. We have cited Rule 26 with a definite purpose because at present we are dealing with those appeals which have been recently filed under the apprehension that the original appeals filed by the transferee company may be held as not maintainable. Even in that event, there was no requirement to file fresh appeals in the name of the transferor i.e, Cairn Energy Gujarat BV and remedy lies by filing a revised form 36 as suggested in Rule 26 of Tribunal Rules - Decided against Assessee.

Summary

Issues Involved:

1. Maintainability of appeals filed in the name of the transferee company post-demerger.
2. Legal implications of demerger on pending tax assessments and appeals.
3. Applicability of Section 170 of the IT Act in the context of demerger.
4. Interpretation of legal proceedings clause in the demerger scheme approved by the High Court.
5. Relevance of precedents and tribunal rules in determining the maintainability of duplicate appeals.

Detailed Analysis:

1. Maintainability of Appeals Filed in the Name of the Transferee Company Post-Demerger:

The primary issue in these appeals was whether the appeals filed by the transferee company, Cairn India Ltd., were maintainable. The Assistant Director of Income Tax had issued orders in the name of Cairn Energy Gujarat BV (the transferor company), but the appeals were filed by the transferee company following a demerger. The tribunal had to determine if these appeals were correctly filed by the transferee company.

2. Legal Implications of Demerger on Pending Tax Assessments and Appeals:

The tribunal examined the scheme of demerger, which was approved by the High Court. According to the scheme, all assets and liabilities, including legal proceedings, were transferred to the transferee company. Clause 16 of the scheme explicitly stated that legal proceedings against the transferor company would continue against the transferee company. This clause was crucial in establishing that the transferee company had the right to continue appeals initially filed by the transferor company.

3. Applicability of Section 170 of the IT Act in the Context of Demerger:

Section 170 of the IT Act deals with succession to business otherwise than on death. It states that the predecessor is subject to assessment for the period up to the date of succession, and the successor is responsible for the period after succession. The tribunal interpreted this section to mean that the successor (transferee company) is liable for the predecessor's (transferor company's) tax liabilities and has the right to defend any litigation arising from those liabilities. This interpretation supported the maintainability of appeals by the transferee company.

4. Interpretation of Legal Proceedings Clause in the Demerger Scheme Approved by the High Court:

The tribunal referred to Clause 16 of the demerger scheme, which specified that all legal proceedings would continue against the transferee company. This clause was affirmed by the High Court, thereby giving the transferee company the legal standing to pursue and defend all pending legal matters, including tax appeals. The tribunal emphasized that this clause was crucial in determining the maintainability of the appeals filed by the transferee company.

5. Relevance of Precedents and Tribunal Rules in Determining the Maintainability of Duplicate Appeals:

The tribunal referred to the precedent set by the Hon'ble Calcutta High Court in CIT v. Southern Bank Ltd., which held that the transferee company could continue legal proceedings initiated by the transferor company. Additionally, Rule 26 of the Appellate Tribunal Rules, 1963, was discussed, which allows for the continuation of appeals by the legal representatives or successors in case of the appellant's death or insolvency. The tribunal concluded that there was no need to file duplicate appeals, and the original appeals filed by the transferee company were maintainable.

Conclusion:

The tribunal concluded that the appeals filed by the transferee company, Cairn India Ltd., were maintainable. The duplicate appeals filed as a precautionary measure were dismissed as non-maintainable. The tribunal emphasized that the transferee company had the right to continue legal proceedings following the demerger, as per the approved scheme and relevant legal provisions. The decision was based on a detailed interpretation of the demerger scheme, Section 170 of the IT Act, and relevant precedents and tribunal rules.