1. Amalgamation of companies — Assessment proceedings initiated and order passed in the name of the amalgamating company — Dispute over validity of assessment of a non-existent entity. (Para 1 , 2 , 3 , 4 , 5 , 6 , 34 , 40 )
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2022 Supreme(SC) 301
SUPREME COURT OF INDIA
(From the High Court of Delhi at New Delhi)
UDAY UMESH LALIT, S. RAVINDRA BHAT, JJ.
Principal Commissioner of Income Tax (Central) – Petitioner
Versus
M/s. Mahagun Realtors (P) Ltd. – Respondent
Civil Appeal No. 2716 of 2022, Special Leave Petition (C) No. 4063 of 2020
Decided On : 05-04-2022
Important Points
IMPORTANT POINT
Amalgamation of company – An assessment can always be made and is supposed to be made on Transferee Company taking into account income of both Transferor and Transferee Company.
Amalgamation of company – An assessment can always be made and is supposed to be made on Transferee Company taking into account income of both Transferor and Transferee Company.
Subject
Income Tax - Amalgamation
Act Referred
Headnote
.Income Tax Act, 1961 – Sections 170 – Companies Act, 1956 – Section 394 (2) – Assessment – Amalgamation of company – An assessment can always be made and is supposed to be made on Transferee Company taking into account income of both Transferor and Transferee Company – Amalgamation was known to assessee, even at the stage when search and seizure operations took place, as well as statements were recorded by Revenue of directors and managing director of group – A return was filed, pursuant to notice, which suppressed fact of amalgamation – Return was of MRPL – Though that entity ceased to be in existence, in law, yet, appeals were filed on its behalf before CIT, and a cross appeal was filed before ITAT – Even affidavit before this court is on behalf of director of MRPL – Assessment order painstakingly attributes specific amounts surrendered by MRPL and after considering special auditor’s report, brings specific amounts to tax, in search assessment order – That order is expressed to be of MRPL as assessee but represented by transferee, MIPL – All these clearly indicate that order adopted a particular method of expressing tax liability – AO, on other hand, had option of making a common order, with MIPL as assessee, but containing separate parts, relating to different transferor companies – Mere choice of AO in issuing a separate order in respect of MRPL, in these circumstances, cannot nullify it – Right from the time it was issued, and at all stages of various proceedings, parties concerned (MIPL) treated it to be in respect of transferee company (MIPL) by virtue of amalgamation order and Section 394 (2) – In the facts of this case, conduct of assessee, commencing from date the search took place, and before all Fora, reflects that it consistently held itself out as assessee – Whether corporate death of an entity upon amalgamation per se invalidates an assessment order ordinarily cannot be determined on a bare application of Section 481 of Companies Act, 1956 and its equivalent in 2013 Act, but would depend on terms of amalgamation and facts of each case – Impugned order of High Court set aside – Since appeal of Revenue against order of CIT was not heard on merits, matter restored to file of ITAT, which shall proceed to hear parties on merits of appeal- as well as cross objections, on issues, other than nullity of assessment order, on merits. (Paras 41, 42 and 43)
Facts of the case:
Present appeal arises from an order of the Delhi High Court rejecting appeal, by the present appellant (Revenue) and affirming order of the Income Tax Appellate Tribunal (ITAT) which quashed assessment order against the assessee-respondent.
Findings of Court:
In the facts of this case, the conduct of the assessee, commencing from date the search took place, and before all forums, reflects that it consistently held itself out as the assessee.
Result : Appeal allowed.
Legal Category Hierarchy
Advocates appeared:
For the Appellant(s) :N. Venkataraman, ASG Arijit Prasad, Swati Ghildiyal, Niranjana Singh, Swarupama Chaturvedi, Raj Bahadur Yadav, Advocates
For the Respondent(s):Kavita Jha, T. L. Garg, Advocates
For the Appellant(s) :N. Venkataraman, ASG Arijit Prasad, Swati Ghildiyal, Niranjana Singh, Swarupama Chaturvedi, Raj Bahadur Yadav, Advocates
For the Respondent(s):Kavita Jha, T. L. Garg, Advocates
Table of Contents
2. Validity of assessment order in the name of a non-existent amalgamating company — Curability under Section 292B — Effect of participation by the amalgamated company. (Para 7 , 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15 )
3. Distinction between winding up and amalgamation — Analysis of assessee's conduct in suppressing amalgamation and participating as the transferor company — Interpretation of Section 2(1A) and Section 170. (Para 16 , 17 , 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 35 , 36 , 37 , 38 , 39 , 41 )
4. Validity of assessment after amalgamation depends on the terms of merger and specific facts, including whether the assessee held itself out as the assessee. (Para 42 )
5. Impugned High Court order set aside — Matter restored to ITAT for hearing on merits. (Para 43 )
6. Does the cessation of a company's existence upon amalgamation automatically invalidate an assessment order passed in its name?
No. Whether corporate death upon amalgamation invalidates an assessment order depends on the terms of the amalgamation and the facts of each case, rather than a bare application of company law dissolution provisions. (Para 42 )
7. How does the conduct of an amalgamated company during assessment proceedings affect the validity of an order issued in the name of the amalgamating company?
If the amalgamated company suppresses the amalgamation, files returns in the name of the transferor company, and consistently holds itself out as the assessee, the assessment order is not a nullity. (Para 34 , 35 , 41 )
8. What is the legal distinction between amalgamation and winding up regarding the continuity of a business enterprise for tax purposes?
Unlike winding up, amalgamation does not end the enterprise; the business, assets, and liabilities continue within the transferee company, as reflected in various Income Tax Act provisions regarding carry-forward of losses and depreciation. (Para 18 , 28 , 30 )
9. Can a defect in the name of the assessee in an assessment order be cured under Section 292B of the Income Tax Act?
Yes, if the assessment is in substance and effect in conformity with the intent and purpose of the Act, such mistakes or omissions are curable, provided the order relates to the actual taxable entity. (Para 7 , 41 )
JUDGMENT :
S. RAVINDRA BHAT, J.
1. Special leave to appeal granted. With consent of counsels, this appeal was heard finally. This appeal arises from an order1 [Dated 21.08.2019 in Income Tax Appeal No. 73/2019] of the Delhi High Court rejecting the appeal, by the present appellant (hereafter “the revenue”) and affirming the order of the Income Tax Appellate Tribunal (ITAT) which quashed the assessment order against the assessee (i.e. the respondent in this case).
2. The respondent-assessee company, Mahagun Realtors Private Limited (hereafter variously referred to as “MRPL” and “the amalgamating company” or the “transferor company”) was engaged in development of real estate and had executed one residential project under the name “Mahagun Maestro” located in Noida, Uttar Pradesh. MRPL amalgamated with Mahagun India Private Limited (herein after ‘MIPL’) by virtue of an order2 [In Company Petition No. 133/2007 c/w Company Application (M) No. 41/2007] of the High Court (dated 10.09.2007). In terms of the order and provisions of the Companies Act, 1956, the amalgamation was with effect from 01.04.2006.
3. On 20.03.2007 survey proceedings were conducted in respect of MRPL during the course of which, some discrepancies in its books of account were noticed. On 27.08.2008, a search and seizure operation was carried out in the Mahagun group of companies, including MRPL and MIPL. During those operations, the statements of common directors of these companies were recorded, in the course of which admissions about not reflecting the true income of the said entities was made; these statements were duly recorded under provisions of the Income Tax Act, 1961 (hereafter “the Act”). On 02.03.2009, the revenue issued notice to MAPL to file Return of Income (ROI) for the assessment year (hereafter “AY”) 2006-2007 under Section 153A of the Act, within 16 days. On failure by the assessee to file the ROI, the Assessing Officer (hereafter “AO”) issued show cause notice on 18.05.2009 under Section 276CC of the Act. On 23.05.2009, a reply was issued to the show cause notice stating that no proceedings be initiated and that a return would be filed by 30.06.2009. A ROI on 28.05.2010, describing the assessee as MRPL was filed. On 13.08.2010, the revenue issued notice under Section 143(2) of the Act. To this, adjournment was sought by letter dated 27.08.2010. In the ROI, the PAN3 [Permanent Account Number] disclosed was “AAECM1286B” (concededly of MRPL); the information given about the assessee was that its date of incorporation was 29.09.2004 (the date of incorporation of MRPL). Under Col. 27 of the form (of ROI) to the specific query of “Business Reorganization (a)....(b) In case of amalgamated company, write the name of amalgamating company” the reply was “NOT APPLICABLE.”
4. The Assessing Officer (AO), issued the assessment order on 11.08.2011, assessing the income of Rs. 8,62,85,332/- after making several additions of Rs. 6,47,00,972/- under various heads. The assessment order showed the assessee as Mahagun Relators Private Ltd. represented by Mahagun India Private Ltd.
5. Being aggrieved, an appeal was preferred to the Commissioner of Income Tax (hereafter “CIT”). The appellant’s name and particulars were as follows:
M/s Mahagun Realtors
(Represented by Mahagun India Pvt. Ltd. after amalgamation)
B-66, Vivek Vihar, Delhi-110095
The appeal was partly allowed by the CIT on 30.04.2012. The CIT set aside some amounts brought to tax by the AO. The revenue appealed against this order before the ITAT; simultaneously, the assessee too filed a cross-objection4 [CO No. 300/Del/2012] to the ITAT. The revenue’s appeal was dismissed; the assessee’s cross objection was allowed only on a single point, i.e. that MRPL was not in existence when the assessment order was made, as it had amalgamated with MIPL. The ITAT held inter-alia, that:
“The above assessee company did not exist on the date of the assessment order, we find that the assessment order passed by the ld AO is not sus
