Income Tax Appellate Tribunal - Delhi
Modi Corp. Ltd. vs Joint Commissioner Of Income Tax on 24 March, 2006
Equivalent citations: (2006)105TTJ(DELHI)303
ORDER
N.V. Vasudevan, J.M.
1. All the above appeals arise out of assessment in the case of the assessee for the asst. yr. 1996-97.
2. We shall first take up for consideration ground No. 1 raised by the assessee in ITA No. 211/Del/2001 which reads as follows :
That the learned CIT(A) has erred on facts and in law in upholding the order of assessment passed by the Jt. CIT, S.R., Moradabad making assessment in the hands of Calcutta Instalments (P) Ltd. which company stands dissolved w.e.f. 16th May, 1996 pursuant to the orders of Hon'ble Delhi High Court on its amalgamation with Modifin (P) Ltd. and is a non-entity from the above date. She has failed to appreciate that the assessment made on a non-entity is null and void.
3. There was a company by name M/s Calcutta Instalments (P) Ltd. This company was in the business of leasing and investments. There was a scheme of amalgamation by which M/s Calcutta Instalments (P) Ltd. and several other companies sought to amalgamate with a company by name Modifin (P) Ltd. Since the registered office of the aforesaid transferor-companies, viz., Calcutta Instalments (P) Ltd., M/s Delhi Holdings (P) Ltd., M/s Dunes Investments (P) Ltd., and M/s Helm Holdings (P) Ltd. were within the jurisdiction of the Hon'ble Allahabad High Court, a petition was made to the Hon'ble High Court of judicature at Allahabad in C.P. No. 28 of 1996 praying for sanction of the scheme for amalgamation referred to above. The Hon'ble High Court by its order dt. 11th Oct., 1996 sanctioned the scheme of amalgamation. The operative portion of the order of the Hon'ble High Court reads as follows :
(1) That all the property, rights and powers of the transferor-companies specified in the first, second and third parts of the Schedule hereto and all other property, rights and powers of the transfer or-companies be transferred without any further act or deed to the transferee-company and accordingly the same shall pursuant to Section 394(2) of the Companies Act, 1956, be transferred to and vest in the transferee-company by all the estate and interest of the transferor-companies therein but subject nevertheless to all charges, if any, now affecting the same, and (2) That all the liabilities and duties of the transferor-companies be transferred without further act or deed to the transferee-company and accordingly the same shall pursuant to Section 394(2) of the Companies Act, 1956 be transferred to and become the liabilities and duties of the transferee-company, and (3) That all proceedings now pending by or against the transferor-companies be continued by or against the transferee-company, and (4) That the petitioners/transferor-companies do within 30 days after the date of this order cause and (a) certified copy of this order to be delivered to the RoC for registration and on such certified copy being so delivered the petitioners/ transferor-companies shall be dissolved without being wound up w.e.f. 16th May, 1996 and the RoC, Kanpur shall transfer the files of the petitioners/transferor-companies to the RoC, NCT of Delhi and Haryana, New Delhi who shall place all documents relating to the transferor-companies and registered with the RoC, New Delhi on the files kept by him in relation to the transferee-company and the files relating to the transferor and transferee-companies shall be consolidated accordingly, and (5) That any person interested shall be at liberty to apply to the Court in the above matter for any directions that may be necessary, (6) The scheme of amalgamation as approved and confirmed by this Court will be effective from 16th May, 1996, i.e., the appointed date in terms of the scheme.
4. Another company by name M/s Indian Management Advisors & Leasing (P) Ltd. along with its subsidiary namely, IRS Investments (P) Ltd. also sought to amalgamate with Modifin (P) Ltd. w.e.f. 16th May, 1996 under the same scheme of amalgamation. Since the registered office of these two transferor-companies were in Delhi, a petition was filed for sanctioning the scheme before the Hon'ble Delhi High Court. The Hon'ble Delhi High Court sanctioned the scheme of amalgamation in the case of Indian Management Advisors & Leasing (P) Ltd., IRS Investments (P) Ltd. and Modifin (P) Ltd. vide its order dt. 10th Dec., 1996. As already mentioned, the Allahabad High Court has already sanctioned the scheme of amalgamation in the case of other four transferor-companies i.e., Delhi Holdings (P) Ltd., Helm Holdings (P) Ltd., Dunes Investments (P) Ltd. and Calcutta Instalments (P) Ltd. which were subject to its jurisdiction vide order dt. 11th Oct., 1996.
5. A certified copy of Court order was filed with the RoC, NCT, Delhi and Haryana on 27th Dec., 1996. Form No. 21 filed in this regard together with acknowledgement by the RoC is placed at page No. 20 of the assessee's paper book. Similarly a certified copy of the order of the Allahabad High Court was filed with the RoC, Kanpur on 5th Nov., 1996. Thus, w.e.f. 16th May, 1996 M/s Calcutta Instalments (P) Ltd. stood dissolved without the process of winding up. M/s Modifin (P) Ltd. has since amalgamated with M/s Modi Corp. Ltd. and the name of M/s Modi Corp. Ltd. is found as the appellant in some of these appeals.
6. For the asst. yr. 1996-97 return of income was filed by M/s Calcutta Instalments (P) Ltd. on 30th Nov., 1996 declaring an income of Rs. 3,75,900. A letter dt. 9th Nov., 1998 was addressed by Modifin (P) Ltd. to the AO informing the AO that M/s Calcutta Instalments (P) Ltd. has amalgamated with Modifin (P) Ltd. The AO has however observed in the order of assessment that the return of income was filed by the director of M/s Calcutta Instalments (P) Ltd. and also was verified by him. Thereafter the AO had proceeded to make the assessment by making several additions to the income returned by the assessee and ultimately assessed M/s Calcutta Instalments (P) Ltd. on a total income of Rs. 2,13,23,530 by order of assessment dt. 17th Dec., 1998.
7. Against the various additions made by the AO, the assessee preferred appeals before the CIT(A). The CIT(A) by his order dt. 28th Nov., 2000 deleted certain additions made by the AO. One of the plea of the assessee before the CIT(A) was that the order of assessment passed by the AO dt. 17th Dec., 1998 was null and void for the reason that Calcutta Instalments (P) Ltd. stood dissolved w.e.f. 16th May, 1996 pursuant to the orders of the Hon'ble Delhi High Court/ Allahabad High Court. It was submitted that an assessment in the name of company which stood dissolved after the date of dissolution was null and void as it ceases to be an entity on dissolution. The CIT(A) did not agree with the submission of the assessee for the following reasons :
I have considered the submissions and facts of the case. I find a lot of substance in the contention of the AO. The appellant has filed a return in the name of the company itself. Even the subsequent year's return has been filed and assessed in the name of the appellant-company. Therefore, the action of the AO is upheld. This ground of appeal is dismissed.
8. Apart from challenging the order of the CIT(A) upholding the validity of assessment in the name of M/s Calcutta Instalments (P) Ltd. the assessee has also challenged the various additions made by the AO which were sustained by the CIT(A). And the assessee is in appeal in this regard in ITA No. 211/Del/2001. The Revenue has filed ITA No. 511/Del/2000 aggrieved by the various reliefs which were granted by the CIT(A) to the assessee.
9. It may also be relevant to point out that the CIT(A) remanded certain issues to the AO for fresh consideration and the AO on such remand confirmed some of the additions which he had originally made. Against such order passed by the AO, the assessee preferred appeal before the CIT(A), who by his order dt. 19th Sept., 2002 granted certain reliefs to the assessee and confirmed some of the additions made by the AO. Against the reliefs granted by the CIT(A), the Revenue has preferred ITA No. 4724/Del/2002. The assessee has filed a cross-objection, i.e., C.O. 43/Del/2005 in which he has agitated the non-adjudication of a ground of appeal by the CIT(A) besides rising a ground on the validity of the order of assessment passed in a company which has already been dissolved.
10. Reverting to the first ground of appeal of the assessee in ITA No. 211/Del/2001, i.e., the issue with regard to the order of assessment having been passed on a company which already stood dissolved, the submissions of the learned Counsel for the assessee was that such an order is non est in law. It was. submitted by the learned Counsel for the assessee that the factum of dissolution of Calcutta Instalments (P) Ltd. without the process of winding up was duly intimated to the AO by successor viz., M/s Modifin (P) Ltd. and despite the same the AO has proceeded to frame the assessment in the name of M/s Calcutta Instalments (P) Ltd. He pointed out that under the IT Act, 1961 an assessment can be made only against a person as defined under Section 2(31) of the Act. It was argued by him that a company after it is dissolved cannot be said to be a person in terms of that section. Our attention was drawn to the following decisions laying down the following propositions.
(i) Birla Cotton Spinning & Weaving Mills Ltd. v. CIT >
(ii) Saraswati Ind. Syndicate Ltd. v. CIT >
(iii) Singer India Ltd. v. Chander Mohan Chadha and Ors. 2004 DLT 80 (SC) On amalgamation, the amalgamating company is dissolved without winding up. In other words, the amalgamating company ceased to exist in the eyes of the law.
(i) Birla Cotton Spinning & Weaving Mills Ltd. v. CIT (supra)
(ii) Makers Development Services Ltd. v. CIT (1991) 41 TTJ (Bom) 301
(iii) CIT v. Express Newspapers Ltd. (1960) 40 ITR 38 (Mad)
(iv) Impsat (P) Ltd. v. ITO (2005) 92 TTJ (Del) 552
(v) Better Inv. Ltd. (since amalgamated with Mcorp Global) v. Dy. CIT in ITA No. 301/Del/2005.
Issue of notice to the amalgamating company/completion of assessment in the name of the amalgamating company, subsequent to the amalgamation becoming effective and fact of such amalgamation having been brought to the notice of the AO, is bad in law and void ab initio.
(i) Shaikh Abdul Kadar v. ITO (1958) 34 ITR 451 (MP)
(ii) CIT v. Amarchand N. Shroff (1963) 48 ITR 59 (SC)
(iii) Sajjan Kumar Saraf v. CIT (1978) 114 ITR 155 (Cal)
(iv) CIT v. Surendra Kumar Bhandari (1986) 55 CTR (Pat) 80 : (1987) 164 ITR 323 (Pat)
(v) CIT v. Fatelal (1996) 88 Taxman 320 (MP)
(vi) CIT v. Kumari Prabhawati Gupta and Ors. (1997) 142 CTR (MP) 72
(vii) R.C. Jain v. CIT (2004) 190 CTR (Del) 34 : (2004) 140 Taxman 379 (Del)
(viii) Braham Prakash v. ITO (2004) 192 CTR (Del) 190
(ix) CIT v. Ram Das Deokinandan Prasad (HUF) (2005) 193 CTR (All) 453 : (2005) 277 ITR 197 (All) Issue of notice to dead person : Notice issued to a person who is dead or nonexistent could not form the basis of framing an assessment and any assessment so framed would be a nullity and of no consequence.
11. The learned Departmental Representative relied on the order of the CIT(A). We have considered the rival submissions The question whether after dissolution of a company and after the intimation of such dissolution with the RoC, an assessment can be made on a dissolved company had come up for consideration in several decisions. In the case of CIT v. Express Newspapers Ltd. (supra) the facts were as follows.
Free Press of India (Madras) Ltd., a private limited company (hereinafter referred to as the Free Press Company) was carrying on business as printers and publishers of certain newspapers, namely, the Indian Express, Dinamani and Andhra Prabha at Madras, and Eastern Express and Bharat at Calcutta. During the course of the year 1946, the company also acquired rights in respect of Sunday Standard and Morning Standard at Bombay. On 22nd April, 1946, another private limited company named the Express Newspapers Ltd. (to be referred to hereafter as the Express Company) was formed. The object of the new company was to acquire and take over the newspapers, the Indian Express, Dinamani and Andhra Prabha at Madras, and Eastern Express and Bharat at Calcutta and all or any of the assets and liabilities of the Free Press of India Ltd., Madras. Express Company took possession of the machinery, assets and liabilities of the Free Press Company, and started publishing the newspapers from 1st Sept., 1946. The staff and management continued as before. Mr. Ramnath Goenka was the managing director of both the companies. He had a dominating, if not, the sole voice in the management of the two concerns. On 31st Oct., 1946, there was a general body meeting of the Free Press Company. It was resolved that the company should be wound up voluntarily. The liquidation of the Free Press Company was duly published in the dailies and in the Fort St. George Gazette in January, February, 1946. The notice of dissolution of the Free Press Company was filed with the Registrar of Joint Stock Companies on 12th April, 1948. The company was struck off the rolls of joint stock companies on 12th July, 1948. In the meanwhile, the proceedings for assessment of the Free Press Company for the asst. yr. 1947-48 were initiated. The year of account of the company ended with 31st Dec., 1946. General notice contemplated under Section 22(1) was published in May, 1947. On 14th June, 1947, the ITO, Second Circle, Madras, issued a notice to the Free Press Company under Section 22(2) of the Act. The liquidator, who was in charge of the affairs of the company, did not submit a return, though he was bound to do so. Nor was any notice under Section 22(2) served upon him. But, on 3rd Jan., 1948, Mr. Ramnath Goenka submitted a return on behalf of the Free Press Company, disclosing a profit of Rs. 2,50,818. On 28th Feb., 1950, the ITO assessed the Free Press Company Ltd., on a total income of Rs. 6,44,802. The assessment order was served on Mr. Goenka, who, however returned the same on 27th March, 1950, repudiating his liability to pay the tax. It will be seen that, by that time, the company had been struck off from the register of companies as early as 12th July, 1948. Thereupon, the ITO, Second Circle, Madras, who had by then succeeded the officer who made the assessment initiated (with the previous approval of the CIT) proceedings under Section 34 r/w Section 26(2) against the Express Company. The notice was issued on the footing that there had been a succession to the business of the Free Press Company by the Express Company, and that the latter would, as the successor, be liable to be assessed to tax for the assessment year. The ITO held, by his order dt. 4th April, 1951, that the Express Company would be liable to pay the tax under Section 26(2) of the Act, as the person succeeded, namely, the Free Press Company, was not in existence, and could not be found. Following the order under Section 26(2), the officer made an assessment of the taxable income at Rs. 6,44,802. The question before the Court was whether notice of reassessment against M/s Express Company was valid, which question would again depend on the question whether the assessment on M/s Free Press Company after it was dissolved was valid. The Court held as follows :
To answer that question it is first necessary to consider whether the assessment on the basis of the return was valid. The learned Counsel for the assessee urged that the assessment could not be held to be invalid for the mere reason that the Free Press Company was not in existence on the date of assessment, and that the rules of abatement of suits under the CPC would not apply to assessment proceedings under the IT Act, as the ITO was not a Court; and that, even if it were to be held that the rules as to abatement would apply to such proceedings, the enquiry in this case having been concluded on 3rd April, 1948, the company then being in existence, the assessment would be valid on the principle recognized in Order 22, Rule 6, of the CPC. We agree that the rules as to abatement laid down by the CPC will not apply to the proceedings before the ITO. But the principle of representation applicable to regular suits and proceedings under the CPC would well apply to such proceedings. Vide Alfred v. ITO. That apart, the existence of an assessee is essential for an assessment. There cannot be an assessment of a non-existent person. The definition of the word "assessee" in Section 2(2) would obviously apply only to a living person. The rule contained in Order 22, Rule 6, cannot, therefore, apply to the assessment proceedings. The assessment in the instant case was made long after the Free Press Company was struck off from the register of the companies, and it could not be valid.
12. In the case of Birla Cotton Spinning & Weaving Mills Ltd. v. CIT (supra), the Hon'ble Delhi High Court in the aforesaid decision was dealing with a case of proceedings against amalgamating companies, which cease to exist. The facts in the said case were as follows. There were two companies carrying on business in Jaipur known as M/s Merchandise and Stores Ltd., and M/s Rajputana General Dealers Ltd. By an order dt. 22nd April, 1960, the Rajasthan High Court sanctioned a scheme of arrangement bringing about the amalgamation of the above two companies with the Birla Cotton Spinning & Weaving Mills Ltd., Delhi (hereinafter referred to as "the Birla company"). As a result with effect from some date in June, 1960, when the order of Court dissolving the two companies were filed with the RoC, the two amalgamating companies stood dissolved without a winding up. For the asst. yr. 1960-61, M/s Merchandise and Stores Ltd., had been assessed to income-tax on a total income of Rs. 1,45,143 and the Rajputana General Dealers Ltd., had been assessed to income-tax on a total income of Rs. 1,14,417. Later on, the ITO found that the two companies had not declared any dividends and he was of opinion that proceedings had to be initiated against these companies under Section 23A of the Indian IT Act, 1922, for the asst. yr. 1960-61. He therefore, proceeded to issue notices in the names of the two companies and in reply thereto a chartered accountant appeared and objected to the proceedings on the merits. However, after hearing the representative who appeared, the ITO passed an order dt. 2nd March, 1965, in the case of M/s Merchandise and Stores Ltd., demanding an additional super-tax of Rs. 40,135 under Section 23A. On the same date, he similarly determined the additional super-tax payable by the other company, i.e., M/s Rajputana General Dealers Ltd., at Rs. 31,465. In both the orders, the names of the assessee were given as M/s Merchandise and Stores Ltd., and M/s Rajputana General Dealers Ltd., respectively. One of the questions for consideration before the Court was as to whether Delhi High Court was competent to hear the reference. The two Hon'ble Judges held that Delhi High Court had no territorial jurisdiction to hear the reference. One of the Hon'ble Judges expressed the following opinion.
Therefore, the position would be that the orders passed under Section 23A(1) by the ITO purportedly against these companies were invalid orders of assessment. However, the validity of the orders would have no effect on these companies since they did not exist at the time of the orders. In a case, where an assessee exists and the order of assessment is null and void for some reason, the assessee would be aggrieved and would and should file an appeal to get rid of the invalid order. But where the assessee is non-existent and consequently can have no grievance against the assessment order there is no question of its preferring any appeals against the said order. The appeals preferred before the AAC in the first instance and thereafter before the Tribunal purportedly on behalf of these companies were manifestly incompetent appeals. It does not need much argument to say that an appeal preferred by a non-existing person must be treated as non est. In other words, there were no appeals at all, in the eye of law, before the AAC or before the Tribunal. Consequently, there could be no competent reference to this Court out of the orders passed by the Tribunal on such appeals.
13. The decision of the Delhi Bench of Tribunal in the case of Impsat (P) Ltd. v. ITO (supra) may also be referred to in this regard. The facts of the said case were that an assessee, a limited company was incorporated to implement a project in the country, in collaboration with the foreign company. The assessee received some money from a foreign collaborator in asst. yr. 1995-96 and 1996-97. The assessee due to heavy losses abandoned the project. The collaborators thought it fit to waive refund of the share application money and wrote a letter dt. 24th Oct., 2000 waiving their claims. The assessee-company's name was struck off the register by the RoC on 18th Sept., 2001 pursuant to an application by the assessee under Section 560 of the Companies Act, 1956. The assessee however, later in point of time, filed a ROI for asst. yr. 2001-02 declaring loss. The Revenue treated the waiver of share application money by the foreign collaborator as giving rise to a casual and non-recurring income in the hands of the assessee. In the appeal before the Tribunal one of the questions that arose for consideration was as to whether a company whose name was struck off the register by RoC under Section 560 of Companies Act, 1956 and therefore, stood dissolved, could be assessed to tax after dissolution ? The Tribunal held that existence of the person sought to be taxed at the point of making the assessment is a condition for the validity of the assessment. The Tribunal referred to the decision of the Hon'ble Bombay High Court in the case of Patiala State Bank, In re (1941) 9 TTR 95 (Bom) wherein it was held that tax is not imposed on income generally. It is imposed on the income of a person, natural or artificial, as defined in Section 3. The Tribunal thereafter, referred to the various provisions in the IT Act, 1961, for initiating proceedings for assessment of income in the case of death of different assessees. In the case of a company which is in liquidation, the provisions of Section 178 of the Act providing for assessment in the hands of a liquidator, was referred to. The Tribunal then referred to the distinction in law between liquidation and winding up and ultimately concluded that there was no provision under the IT Act to assess a company which is dissolved and that there was a lacuna in the Act in this regard. The Tribunal ultimately held that the order of assessment passed on the assessee- company was a nullity.
14. In view of the legal position as laid down in the aforesaid decisions, it is clear that the assessment made in the present case in the name of M/s Calcutta Instalments Company (P) Ltd. after the date of its dissolution was not valid. The fact that this company filed a return of income is not of any consequence. The assessment is, therefore, held to be invalid and is cancelled.
15. In view of our finding that the assessment is null and void, all the other issues raised in the assessee's appeal as well as its cross-objection and the grounds raised by Revenue in both its appeals do not call for any adjudication. They are, therefore, dismissed as infructuous.
16. In the result. ITA No 211/Del/2001 is allowed and all the other appeals and the cross-objection are dismissed.