1969 (7) TMI 13 - HC - Income Tax

Whether assets of the new company held by bank can be attached u/s 46(5A) by the ITO to recovers arrears of tax due under and assessment made on the company under the forms name - Held yes

Summary

Issues:
1. Whether the Income-tax Officer can proceed against a company as a successor without assessment proceedings against the company?
2. Whether a demand under section 46(5A) can be made from a company considering the bar under section 46(7) of the Act?

Analysis:
The judgment of the High Court of Calcutta dealt with the case where the Meghlibundh Tea Company changed its name to the Economic Investment Corporation Ltd. The Income-tax Officer made an assessment for the relevant period on the Meghlibundh Tea Company despite the name change. The appellant, Economic Investment Corporation, objected to the certificate proceedings initiated against it. The main issue raised was whether the Income-tax Officer could proceed against the appellant as a successor of the old company without assessment proceedings against the appellant. The court clarified that the notice under section 46(5A) was not to proceed against the appellant as a successor but to recover the tax demand from the bank holding money for the old company, whose name had changed to the appellant. The court analyzed the legal provisions under section 11(5) of the Indian Companies Act, emphasizing that the change of name did not alter the company's rights and obligations, including tax liabilities.

The court further examined the provisions of the Companies Act, stating that the change of name did not affect the company's legal status or obligations. It noted that the assets held by the bank for the old company were now held for the appellant under a new name. The court dismissed arguments that the assessment records were not updated with the new name, emphasizing that the change in name did not alter the company's legal identity or obligations. The court also addressed the application of section 26 of the Income-tax Act, clarifying that it did not apply to the case at hand as there was no legal succession or reconstitution of a partnership.

Regarding the demand under section 46(5A), the court held that the Income-tax Officer was justified in seeking payment from the bank holding funds for the old company, now the appellant. The court criticized the Income-tax Officer's carelessness in not updating the assessment records promptly but ultimately dismissed the appeal. The judges expressed displeasure at the Income-tax Officer's negligence and emphasized the importance of proper administration within the income-tax department. The court concluded by dismissing the appeal without costs.

In a separate judgment, Justice Ajay K. Basu concurred with the decision to dismiss the appeal. The High Court upheld the Income-tax Officer's actions in issuing the notice under section 46(5A) to recover the tax demand from the bank holding funds for the old company, now known as the appellant. The court highlighted the legal continuity of the company despite the change in name and emphasized the lack of irregularity in demanding payment from the bank.