ASSESSMENT UPON A DISSOLVED COMPANY

[Mr. M. GOVINDARAJAN]

Section 481 of the Companies Act, 1956 provides for dissolution of the company.  The company judge in the High Court can order dissolution of a company on the grounds stated therein.   The effect of the dissolution is that the company no more survives.   The dissolution puts an end to the existence of the company.  In ‘M.H. Smith (Plant Hire) limited v. D.L. Mainwaring (T/A Inshore)’ - (1986) BCLC 342 (CA) it was held that once a company is dissolved it becomes a nonexistent party and, therefore, no action can be brought in its name.

In ‘General Radio and Appliance Co. Limited V. M.A. Khader’ - 1986 (4) TMI 272 - SUPREME COURT OF INDIA,  it was held that it is difficult to digest the circuitous route adopted by the Tribunal holding that the assessment was in fact in the name of amalgamated company and there was only a procedural defect.,

In Spice Enfotainment Ltd. Versus Commissioner of Income Tax 2011 (8) TMI 544 - DELHI HIGH COURT  it was held that the completion of assessment in respect of a non existent company, due to the amalgamation order, would render assessment in the name and in respect of the original assessee company, a nullity.  One it is found that the assessment is framed in the name of non existing entity, it does not remain a procedural irregularity of the nature which could be cured by invoking the provisions of Section 292B of the Act.  It was further held that after the sanction of the scheme on 11.04.2004 Spice ceases to exist with effect from 01.07.2003.  Even if Spice had filed the returns, it became incumbent upon the income tax authorities to substitute the successor in place of the said ‘dead person’. When the notice under Section 143 (2) was sent, the appellant/amalgamated company appeared and brought this fact to the knowledge of the Assessing

In ‘Commissioner of Income Tax V. Micron Steels P. Limited and Steels P. Limited’ - 2015 (2) TMI 589 - DELHI HIGH COURT a search was conducted on 20.10.2008 in the cases of B.K. Dhingra, Smt. Poonam Dhingra, M/s Madhusudan Builcon Private Limited and others connected and seizure was effected.   Based upon the said search and the materials secured during those proceedings, block assessments were finalized in respect of those assesses. The Assessing Officer was of the opinion that during the course of the search, materials were seized which belonged to the respondents assesses and accordingly issued to M/s Micron Steels Private Limited on 06.07.2010.  In the meanwhile, the said company had been amalgamated with M/s Lakhanpal Infrastructure Private Limited.  The assessment was finalized on 31.12.2010.  A

Against the order of the Assessing Officer the assessee filed appeal before the Commissioner (Appeals).   Before the Commissioner (Appeals) it was urged that on account of amalgamation and by operation of Section 170 of the Income Tax Act the income tax authorities were under a duty upon receipt of information to initiate complete proceedings against the transferee company which they had not done.  The Commissioner (Appeals) accepted the contentions raised by the assessee and held that the assessment orders were unsustainable and set aside the order of the Assessing Officer.   He, however, did not substitute the name of the appellant on record.   Instead the Assessing Officer made the assessment in the name of M/s Spice which was non existing entity on that day. In such proceedings and assessment order passed in the name of M/s Spice would clearly be void.   Such a defect cannot be treated as procedural defect.   Mere participating by the appellant would be of no effect as there is no estoppels against law.

The Revenue filed appeal before the Tribunal.  The Tribunal fully concurred with the findings of Commission (Appeals) that a company incorporated under the Companies Act is a juristic person. It takes it birth and gets life with incorporation and it dies with the dissolution as per the provisions of the Companies Act. ON amalgamation, the company cease to exist in the eyes of the law.   Thus assessment upon a dissolved company is impermissible as there is no provision in the Income Tax Act to make an assessment there upon. The assessee company stood dissolved on 19.09.2010 on amalgamation with M/s Lakhanpal Infrastructure Private Limited and the assessment order was framed on 31.12.2010.  Hence the Tribunal upheld the order of the Commissioner (Appeals).

The Revenue filed appeal against the order of the Tribunal before the High Court.  Before the High Court the Revenue raised the following:

• The assessment as framed could not have been set aside;
• The Assessing Officer took note of the fact that M/s Micon Steels Private Limited had been amalgamated as is evident from the assessment was framed in respect of ‘Micron Steels’;
• The assessee effectively participated and made its view on its own and filed the return;
• The operation of Section 292B therefore precluded the assessee’s contention with regard to nullity of the entire proceedings.

The assessee contended, with regard to the applicability of Section 292B, that since the issue is invalid, initiation of the proceedings under Section 153 C and on a company which is nonexistent and has already been amalgamated with other company is nullity.  Thus from each angle, Section 292B is not applicable to the facts of the present case.

The High Court did not accept the plea that the assessment as framed could not have been set aside in view of the order in Spice Enfotainment Ltd. Versus Commissioner of Income Tax 2011 (8) TMI 544 - DELHI HIGH COURT.  The High Court held that the provisions of Section 292B of the Act do not authorize the Assessing Officer to ignore a defect of a substantive nature.  The High Court did not accept the contention of the Department that on the basis of Section 292B.   The return under reference, which had been taken into consideration by the Revenue, was an absolutely invalid return as it had a glaring inherent defect which could not be cured in spite of the deeming effect of Section 292B of the Act.  The High Court finally held that they are in the opinion that the facts of these cases do not disclose any peculiar feature warranting interference.  Since no substantial question of law arises, the High Court dismissed the appeal filed by the Revenue.