The Hon'ble Delhi Court dismissed the appeal in the case of Commissioner of Income Tax (Revenue) vs Sony Mobile Communications India Pvt Ltd (company) on 28 February 2023. The Hon'ble Court quashed the assessment by holding that the assessment order passed in the name of a non-existent company, despite being informed of the amalgamation, was null and void. In doing so, it relied on the decision of the Hon'ble Supreme Court in the case of Maruti Suzuki1 and distinguished the facts of Mahagun Realtors2
The key arguments of both the parties and the verdict of the Hon'ble Delhi High Court are captured hereunder:
- The company was merged with Sony India Pvt Ltd on 23 July 2013 with effect from 1 April 2013, and the department was communicated about the same along with the scheme of amalgamation on 6 December 2013.
- While the erstwhile company was still in existence, a notice under Section 143(2) of the Income-tax Act, 1961 (the Act) was issued in its name on 29 August 2011, followed by the issuance of notice under Section 142(1) of the Act on 2 May 2012.
- Thereafter, the Assessing Officer (AO) framed a draft assessment order on 31 March 2014 (post the date of merger and intimation thereof), and a final assessment order was passed on 22 December 2014 in the name of the erstwhile amalgamated company.
- The company, interalia, raised additional ground before the Tribunal, questioning the validity of passing an Assessment Order in the name of an erstwhile company that did not exist in the eyes of law.
- Upon hearing both parties, the Tribunal quashed the assessment order passed in the name of a non-existent entity.
- Aggrieved by the decision, the Revenue preferred an appeal before the Hon'ble Delhi High Court.
| Contentions of the Revenue |
- The Revenue argued that the notice was issued to the erstwhile company when it existed. In this regard, Revenue contended that reliance by the Tribunal on the ruling of Maruti Suzuki (supra) is misplaced.
- In view of the above, it placed its reliance on the ruling of Mahagun Realtors and argued that framing of an assessment order in the name of the erstwhile company constituted an irregularity and/or mistake, which can be corrected by taking recourse to the provisions of Section 292B of the Act.
- It also relied on the amalgamation sanction order and scheme, which stated that the amalgamated company would bear the burden of the proceedings that had been commenced against the erstwhile company.
| Contentions of the Company |
- The company argued that the notice was issued to the erstwhile company at the time when amalgamation had not occurred. However, despite the fact of amalgamation being brought to the notice of the Revenue, it continued in the wrong course and framed the impugned order in the name of a non-existent company.
- The respondent placed its reliance on the ruling of Maruti Suzuki, which further placed its reliance on the earlier judgments rendered by it in the matter of Spice Enfotainment3 (Spice) and Skylight Hospitality4 (Skylight).
- In the case of Spice, it was held that framing an assessment order in the name of non-existing entity is not a procedural irregularity and cannot be cured by invoking certain provisions in law.
- In the Skylight ruling, even though the notice was issued to the erstwhile company, it was replied and dealt by the amalgamated company. Moreover, the assessment order was passed in the amalgamated company's name and not in the name of the erstwhile company. In view of the same, it was held that the notice issued in the name of the amalgamating company was only a clerical mistake.
- The ruling of Maruti Suzuki clearly distinguished its facts from the above and held the assessment order as null and void.
After considering the arguments of both parties, the Hon'ble Delhi High Court dismissed the appeal and made the following observations:
- The Court distinguished the facts in the present case from the facts of the ruling of Mahagun Realtors relied upon by the Revenue on the following basis:
- There was no intimation with respect to the amalgamation of the concerned company;
- The erstwhile company filed its tax return and marked 'Business Reorganisation' column as 'not applicable';
- The assessment order mentioned both the names of amalgamating as well as an amalgamated company;
- While participating in the proceedings, an impression was given that the amalgamating company still exists.
- It was observed that even after the Revenue was informed of the amalgamation and was furnished a copy of the order along with the amalgamation scheme, it continued to proceed on the wrong path.
- In view of the above, placing its reliance on the ruling of Maruti Suzuki and Spice Infotainment, the Hon'ble Delhi High Court dismissed the appeal filed by the Revenue, stating that there is no curable defect and assessment order passed in the name of the non-existent company is bad in law.
1. Principle Commissioner of Income Tax, New Delhi vs. Maruti Suzuki India Ltd. (2019) 416 ITR 613 (SC)
2. Principle Commissioner of Income Tax (Central) -2 vs. Mahagun Realtors (P) Ltd 2022 SCC Online SC 407
3. Spice Infotainment vs. Commissioner of Income tax (2020) 18 SCC 353
4. Skylight Hospitality LLP vs Assistant Commissioner of Income tax, Circle-28(1), New Delhi (2018) 13 SCC 147 (Delhi)
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Our Comments
This judgment is yet another case wherein the Court has placed high regard on the conduct of the taxpayer. It is not a disputed matter that, post-amalgamation, the amalgamating company ceases to exist. However, it is crucial for the taxpayers to ensure that the proper procedure is followed, timely intimation is given to the Revenue and appropriate documentation is maintained, which is aligned with the facts.
This judgment would act as a guide for the taxpayers contemplating going the mergers and amalgamations route, wherein they can consider the important aspects like communication to the tax authorities, return forms, and other obligations to be taken care of.
The judgment has further made it clear that the tax authorities or the taxpayers cannot liberally use random rulings and that each case is a very fact-specific and thought-through exercise.
Overall, it can be said that there is more clarity to the Revenue and taxpayers on the various factors to be considered in the case of an amalgamation and the proceedings therewith.
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