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TMI Blog2004 (7) TMI 299X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessments made to income-tax upon the appellant for the assessment years 1996-97 and 1997-98 these amounts were accepted as having been genuinely received by it as share application monies pending allotment. On 24th October, 2000, the Argentinian company wrote to the assessee-company the following letter (a copy is at page 37 of the paper book): "To Whom it May Concern: This is to state that the equity advance for share subscription of US Dollar 4,75,000 (four hundred and seventy five thousand) sent to Impsat India Private Limited, New Delhi - India, in 1996 may be written off in view of abandoning of VSAT project and Corporation Impsa S.A. has not claim over it. Corporation Impsa S.A. Sd/-xxx Enrique M. Pescarmona President." Since the assessee company had incurred huge losses, abandoned the VSAT project and did not have any funds to refund the share application monies to the Argentinian company, the latter thought it fit to waive the claim over the share application monies. The board of directors of the assessee thereafter applied to the Registrar of Companies to have the company's name struck off under section 560 of the Companies Act. The Registrar, after go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thapar [l996] 222 ITR 112. The contention that the entire monies have been spent on the abortive VSAT project and nothing remained to be distributed to the shareholders was also rejected on the ground that the fact that expenditure had been incurred out of the share application monies is no ground to hold that there is no income. It was also contended before the CIT(A) that the receipt cannot be considered to be "income" in any case, but this contention also did not find favour with him. In the view of the CIT(A), the waiver resulted in a windfall gain to the assessee and such windfall was nothing but a "casual and non-recurring receipt", as it was not a planned or anticipated receipt. He relied on the judgment of the Calcutta High Court in CIT v. Stewarts & Lloyds of India Ltd. [1987] 165 ITR 416. In this view of the matter, he confirmed the assessment. 5. The assessee is in further appeal before the Tribunal. In ground No. 4, the point taken is that the revenue authorities have erred in framing an assessment of the assessee which had been dissolved on 18-9-2001. It is claimed that the assessee did not exist in the eyes of law on the date when the assessment order was passed and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities to initiate proceedings for assessing the person. Such provisions, in the case of an individual, are now to be found in section 159 and section 168 of the Act. In the 1922 Act, the provisions of section 24B were introduced to cover such a case, but they were held applicable only in respect of the income earned by the deceased person up to the date of his death and the income received by his legal representatives or executors up to the end of the previous year in which he died and not beyond - Supreme Court judgments in CIT v. Amarchand N. Shroff [1963] 48 ITR 59 and CIT v. James Anderson [1964] 51 ITR 345. This lacuna appears to have been filled by the provisions of section 159 and section 168 of the present Act. The position under these provisions is as follows. In the year of death, there shall be two assessments, one in respect of the income earned by the deceased up to the date of death and another in respect of the income received by his legal representatives or executors after that date and up to the end of the previous year in which death took place. Thereafter assessments will be made in respect of the income received by the estate of the deceased person till the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessments shall be made in accordance with section 170 which provides for general rules for assessment in case of succession to a business otherwise than on death in relation to all entities assessable under the Act, except a natural person such as an individual. The method is not different from the method prescribed under section 26 of the old Act. Section 189 of the present Act deals with the dissolution of the firm, the business being no longer continued. In such a case, the Assessing Officer shall make an assessment of the firm as if no such discontinuance or dissolution had taken place. That is, the firm will be assessed as such, notwithstanding the dissolution and every person who was a partner and every legal representative of a deceased partner shall be jointly and severally liable for the amount assessed upon the firm and all the provisions of the Act, such as recovery, penalty, etc., shall apply. The assessment of a dissolved firm was dealt with by section 44 of the 1922 Act; section 26 dealt with a change in the constitution of the firm. 9. In the case of dissolution of an association of persons (AOP), section 177 of the present Act makes provision for assessment thereo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pretation of the sub-section. Applying this decision to the present case, it will be seen that since the company itself was dissolved and became extinct with effect from 18-9-2001, it cannot be considered to be a case of "discontinuance" of the business. Section 176 is therefore not attracted. 12. Section 178 of the 1961 Act deals with a company that has gone into liquidation. The general principle in law is that a company under liquidation is still a company within the charging provisions of the Act, though it will be represented by the liquidator. He is only an agent of the company; the property of the company does not vest in him. The legal position is that the liquidator will have to act in regard to the filing of the return after the company goes into liquidation. In Hari Prasad Jayantilal & Co. v. V.S.Gupta, ITO [1966] 59 ITR 794 the Supreme Court held so. 13. From the above, the position that emerges is that both under the old Act and the new Act it is absolutely essential that the person sought to be assessed should be in existence at the time of making the assessment and that elaborate provisions were made in the Acts to ensure that if the person sought to be assessed is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution is a stage subsequent to the winding up or liquidation, the end of the existence of the company. Till dissolution, the corporate existence continues. It follows, per contra, that once a company is dissolved, its corporate existence comes to an end. It is no longer in existence; it is dead. 17. A reference to page 1901 of A. Ramaiya's commentary on the Companies Act, 1956 (12th Edition) by Hon'ble Justice Y.V. Chandrachud (former Chief Justice of India) shows the following extract from Halsbury's Laws of England, fourth edition, Vol. 7, para 1448, page 809 under the heading "Effect of dissolution". "The dissolution puts an end to the existence of the company. Unless and until it has been set aside, it prevents any proceedings being taken against promoters, directors or officers of the company to recover money or property due or belonging to it or to prove a debt due from it. When the company is dissolved, the liquidator's statutory duty towards the creditors and contributories is gone; but, if he has committed a breach of his duty to any creditor by distributing the assets without complying with the requirements of the Companies Act, 1948, he is liable in da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry fiction cannot be extended to cover a case of a disruption of a joint family. Similarly, it cannot also cover a case of a dissolution of a company, and there is no statutory fiction extending section 159 to a case of dissolution of a company under section 560 of the Companies Act. In the above judgment, it was held at page 48 that "a specific provision is necessary to make an order of assessment against a taxable entity which does not exist on the date of the assessment even though the said entity was in existence when the liability to tax arose". 20. The Ld. DR referred to two judgments of the Supreme Court, one in S. V. Kondaskar, Official Liquidator and Liquidator of the Colaba Land & Mills Co. Ltd. v. V.M. Deshpande, ITO [1972] 83 ITR 685 and Imperial Chit Funds (P.) Ltd. v. ITO [1996] 219 ITR 498. These two judgments, in our opinion, do not affect the point which has arisen in the present case. In S.V. Kondaskar, it was held that the liquidation Court cannot perform the functions of the ITO while assessing the amount of tax payable by the company, even if the assessee is a company which is being wound up under orders of the Court. TheLiquidation Courtis not vested with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and if one is passed, it must be a nullity. 22. The next question for our consideration is whether by filing the return of income in October 2001 the assessee-company can be said to have admitted that it continued to be in existence so that the assessment made upon it may be held to be valid. This raises the question whether the assessee can consent to the Assessing Officer making an assessment upon it, though there is no provision in the Income-tax Act to do so. In Asit Kumar Ghose v. Commissioner of Agricultural Income-tax [1952] 22 ITR 177 the Calcutta High Court held that should an assessee file return or intervene in an assessment proceeding pending against an executor of an estate under the impression that he is liable to be charged as beneficiary of the estate, it is open to him, if he is not really liable at law, to appeal in proper time against the order of assessment against him and point out the invalidity of the assessment though he might have, by his conduct, acquiesced in the assessment proceedings. There can be no estoppel against statute. An assessment is to be governed by the provisions of the Act and not on the view which the parties may take as to their right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vious year. Admittedly, they were received partly in the previous year ended 31-3-1996 and partly in the previous year ended 31-3-1997. What provoked the Assessing Officer to treat the share application monies as having been received in the relevant previous year is the fact that the Argentinian Co. wrote a letter to the assessee waiving the monies on 24-10-2000, which date falls within the previous year relevant to the assessment year under appeal. In our opinion, the waiver cannot be construed as actual receipt of the monies during the relevant year. 25. The next question to be considered, assuming for the sake of argument that the waiver amounts to constructive receipt of the share application monies during the relevant previous year, is whether those monies can be treated as the assessee's income. On this question, we are of the view that the monies cannot be treated as income. The monies were received by the assessee towards issue of shares. If the V. Sat project had taken off and had proceeded as per the assessee's plans, there is no doubt that the company would have become operational and, therefore, the share application monies would have been converted into share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the amount should be entered into the P&L A/c for the year and be treated as taxable. Dealing with this decision of the Court in England as well as its earlier judgment in the case of Karam Chand Thapar, the Supreme Court in the case of Travancore Rubber & Tea Co. Ltd. held that a cancellation of a sale of capital assets would not be such a subsequent event so as to change the nature of the receipt of the forfeited amounts. In this case, the assessee entered into agreements for sale of old and unyielding rubber trees and received advance consideration. The sale did not go through. TheCivil Courtruled that the assessee could retain the advance monies received from the prospective purchasers. The income-tax authorities treated the amounts as the assessee's income. The matter ultimately reached the Supreme Court. The Supreme Court observed that had the sale gone through, there would be no question that the advance would have been subject to capital gains tax (and not as income). The question was whether the character of the receipt changed because the sale was not subsequently effected. The Supreme Court referred to section 51 of the Income-tax Act where it was provided that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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