Income Tax Appellate Tribunal, Delhi Bench B

G.D. Agrawal, Vice-President

1. These appeals by the Revenue and the assessee are directed against the order of learned Commissioner of Income-tax (Appeals)-XXVI, New Delhi, dated June 28, 2010 for the assessment year 2006-07.

2.At the time of hearing before us, learned counsel for the assessee stated that since ground No. 3 of the assessees appeal is with regard to validity of the issue of notice under section 148, it should be decided first and thereafter only, the grounds raised either by the assessee or by the Revenue with regard to various additions deleted/sustained by the learned Commissioner of Income-tax (Appeals) should be considered. The learned Departmental representative has no objection to the above request of the assessees counsel. Accordingly, we proceed to decide ground No. 3 of the assessees appeal which reads as under :

"Without prejudice to the above grounds of appeal, the learned Commissioner of Income-tax (Appeals) ought to have held that the notice issued under section 148 of the Income-tax Act, 1961 and the consequent assessment in the name of the erstwhile firm is bad in law, void ab initio and non est."

3. Learned counsel for the assessee stated that the notice under section 148 was issued on August 18, 2008, in the name of DLF Cyber City (through partner). That DLF Cyber City partnership-firm ceased to exist after its conversion into company with effect from March 2, 2006. That the issue of notice in the name of a non-existent person is void ab initio and similarly, the completion of assessment in the name of a non-existent person is also void. He referred to the notes to the financial statement which read as under :

"5. The firm has been converted into public company-DLF Cyber City Developers Ltd. with effect from March 2, 2006, under Chapter IX of the Companies Act, 1956. Hence the firms accounts are prepared only up to the period of March 1, 2006."

4. He also referred to the reply furnished by the assessee in response to notice under section 148 and pointed out that in the letter head, it is clearly mentioned DLF Cyber City Developers Ltd. (successor to DLF Cyber City). Again, when the letter was signed, it was mentioned as DLF Cyber City Developers Ltd. (successor to DLF Cyber City). In support of his contention, he relied upon the decision of the honble Delhi High Court in the case of Spice Infotainment Ltd. v. CIT [2012] 247 CTR 500 (Delhi) and the Third Member decision of Agra Bench in the case of ITO v. Sikandar Lal Jain [2011] 45 SOT 113/9 taxmann.com 321.

5. The learned Departmental representative, on the other hand, supported the orders of the lower authorities. She stated that in the year under consideration, the assessee filed the return declaring income of Rs. 41,31,220 on December 29, 2006. The return was filed in the name of partnership-firm and not in the name of the successor company. That in response to notice under section 148 also, the assessee never pointed out that the firm is not in existence but only stated that the return filed originally should be treated as return of income in response to the notice under section 148. That the assessee never intimated to the Revenue with regard to dissolution of the firm and its conversion into the company. Therefore, the assessee misguided the Department. That simply mentioning in the letter head as successor to DLF Cyber City cannot be considered to be proper intimation of the dissolution of the firm. She further submitted that the assessee duly participated in the assessment proceedings and, therefore, even if there is any irregularity, that can be rectified by changing the name of the assessee. In support of this contention, she relied upon the following decisions :

(i) CIT v. T. V. Sundaram Iyengar & Sons (P.) Ltd. [1999] 238 ITR 328 (Mad.) ;

(ii) Century Enka Ltd. v. Dy. CIT [2006] 101 ITD 489 (Mum.)

(iii) M Corp Global (P.) Ltd. v. Dy. CIT [IT Appeal No. 2024 of (Delhi) of 2008 dated 29-1-2008].

6. She, therefore, submitted that either the order of the learned Commissioner of Income-tax (Appeals) should be sustained or the matter may be sent to the file of the Assessing Officer to modify the name of the assessee.

7. In the rejoinder, it is stated by learned counsel that the decision of the Income-tax Appellate Tribunal, Delhi Bench, relied upon by the learned Departmental representative has been reversed by the honble jurisdictional High Court in Spice Infotainment Ltd.s case (supra). That another decision of the Income-tax Appellate Tribunal is also prior to the above decision of the honble Delhi High Court. He further stated that the facts in the other cases relied upon by the learned Departmental representative are altogether different. He, therefore, submitted that on the facts of the assessees case, the decision of the honble jurisdictional High Court in the case of Spice Infotainment Ltd. (supra) would be squarely applicable.

8. We have carefully considered the submissions of both sides and perused relevant material placed before us. The facts of the case are that the Assessing Officer issued notice under section 148 on August 18, 2008, in the name of M/s. DLF Cyber City (through partner). Therefore, it is undisputed that the notice was issued to the partnership-firm. It is also undisputed that the partnership-firm ceased to exist from March 2, 2006 after its conversion into a company under Chapter IX of the Companies Act. For the assessment year 2006-07, the firm has prepared the accounts for the period April 1, 2005 to February 1, 2006 and also filed the return for the above period. The Revenue has also completed the assessment on the basis of the said return. We also find that the assessee has not separately intimated about the conversion of the firm into company but in the note which was forming part of the annual accounts, the fact of conversion of the assessee into a public company is mentioned. The said note reads as under :

"5. The firm has been converted into public company-DLF Cyber City Developers Ltd. with effect from March 2, 2006, under Chapter IX of the Companies Act, 1956. Hence the firms accounts are prepared only up to the period of March 1, 2006."

9. The letter head on which the reply was furnished to the Assessing Officer reads as under :

"DLF Cyber City Developers Ltd.

(Successor to DLF Cyber City)

DLF Centre, 9th Floor, Sansad Marg, New Delhi-110001."

10. From the above, it is clear that though no separate intimation was given to the Revenue with regard to the conversion of the partnership-firm into company with effect from March 2, 2006, but the fact was available on record. Be that as it may, whether the Assessing Officer was aware or not about the non-existence of the partnership-firm, the question before us is whether the issue of notice under section 148 to a non-existent entity is valid We find that somehow similar issue arose before the Income-tax Appellate Tribunal in the case of M Corp Global (P.) Ltd. (supra) relied upon by the learned Departmental representative. The facts of the said case were that the above assessee, viz., M/s. Spice Corporation Ltd. filed the return of income for assessment year 2002-03 on October 30, 2002. The assessment was completed under section 143(3) on March 28, 2005. Before the Commissioner of Income-tax (Appeals), the assessee contended that the assessment in the hands of M/s. Spice Corporation Ltd. which is a non-entity is not valid because the company stood dissolved consequent upon its amalgamation with M Corp Global (P.) Ltd. with effect from July 1, 2003. The Commissioner of Income-tax (Appeals) rejected this ground and the assessee was in appeal before the Income-tax Appellate Tribunal, Delhi Bench. The Income-tax Appellate Tribunal, Delhi Bench, restored the matter to the file of the Assessing Officer with the following finding :

"14. In the light of the discussions made above, we, therefore, hold that the assessment made by the Assessing Officer, in substance and effect, is not against the non-existent amalgamating company. However, we do agree with the proposition or ratio decided in the various cases relied upon by learned counsel for the assessee that the assessment made against non-existent person would be invalid and liable to be struck down. But, in the present case, we find that the assessment, in substance and effect, has been made against amalgamated company in respect of assessment of income of amalgamating company for the period prior to amalgamation and mere omission to mention the name of amalgamated company a long with the name of amalgamating company in the body of assessment against the item name of the assessee is not fatal to the validity of assessment but is a procedural defect covered by section 292B of the Act. We hold accordingly.

15. We, therefore, restore the assessment back to the file of the Assessing Officer for his fresh assessment after removing the said defect in the assessment and the Assessing Officer shall provide reasonable opportunity of being heard to the assessee. Therefore, the cross-objections raised by the assessee are partly allowed for statistical purposes."

11. The assessee, aggrieved with the decision of the Income-tax Appellate Tribunal, filed appeal before the honble jurisdictional High Court in the case of Spice Infotainment Ltd. (supra) quashed the assessment by holding as under :

"Held : No doubt, S was an assessee and an incorporated company and was in existence when it filed the returns in respect of two assessment years in question. However, before the case could be selected for scrutiny and assessment proceedings could be initiated, S got amalgamated with MC Ltd. It was the result of the scheme of the amalgamation filed before the Company Judge of this court which was duly sanctioned vide orders dated February 11, 2004. With this amalgamation made effective from July 1, 2003, S ceased to exist. That is the plain and simple effect in law. The scheme of amalgamation itself provided for this consequence, inasmuch as simultaneous with the sanctioning of the scheme, S was also stood dissolved by specific order of this court. With the dissolution of this company, its name was struck off from the rolls of companies maintained by the Registrar of Companies. A company incorporated under the Indian Companies Act is a juristic person. It takes its birth and gets life with the incorporation. It dies with the dissolution as per the provisions of the Companies Act. It is trite law that on amalgamation, the amalgamating company ceases to exist in the eyes of law. In view of the aforesaid clinching position in law, 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. After the sanction of the scheme on February 11, 2004, S ceased to exist with effect from July 1, 2003. Even if S had filed the returns, it became incumbent upon the Income-tax authorities to substitute the successor in place of the said dead person. When notice under section 143(2) was sent, the appellant/amalgamated company appeared and brought this fact to the knowledge 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 S which was non-existing entity on that day. In such proceedings an assessment order passed in the name of S would clearly be void. Such a defect cannot be treated as procedural defect. Mere participation by the appellant would be of no effect as there is no estoppel against law."

12. Their Lordships further observed :

"18. We may, however, point out that the returns were filed by M/s. Spice on the day when it was in existence it would be permissible to carry out the assessment on the basis of those returns after taking the proceedings afresh from the stage of issuance of notice under section 143(2) of the Act. In these circumstances, it would be incumbent upon the Assessing Officer to first substitute the name of the appellant in place of M/s. Spice and then issue notice to the appellant. However, such a course of action can be taken by the Assessing Officer only if it is still permissible as per law and has not become time-barred."

13. In our opinion, the ratio of the above decision of the honble jurisdictional High Court would be squarely applicable to the case of the assessee. It is a settled law that the partnership-firm and the company are separate juridical persons. Under the Income-tax Act also, they are assessed separately. Chapter IX of the Companies Act permits the conversion of the partnership-firm into company and, on such conversion, the partnership-firm ceases to exist and the company comes into existence. This incident has taken place on March 1, 2006 and therefore, from March 2, 2006, DLF Cyber City firm is no more in existence. Notice under section 148 was issued on August 18, 2008, i.e., the date on which the partnership-firm was not in existence. The honble jurisdictional High Court in the abovementioned case has held that the assessment in the hands of dead person would be clearly void. The aforesaid observation would be squarely for the issue of notice under section 148 in the name of dead person. Therefore, respectfully following the above decision, we hold that the issue of notice under section 148 in the name of a dead person is void. It is not much relevant whether the Assessing Officer was aware or not with regard to dissolution of the firm. However, we may point out that the Revenue is at liberty to take appropriate action in accordance with law in the hands of the successor company in the light of the observations of the honble jurisdictional High Court at paragraph 18 of the report which is also reproduced by us at paragraph 12 above.

14. Before we part with the matter, we may mention that the learned Departmental representative also relied upon the decision of the honble Madras High Court in the case of T. V. Sundaram Iyengar & Sons (P.) Ltd. (supra) and the decision of the Income-tax Appellate Tribunal, Mumbai Bench in the case of Century Enka Ltd. (supra). However, the decision of the honble jurisdictional High Court would be binding upon us and no contrary decision of the honble jurisdictional High Court or the honble apex court is brought to our knowledge. We, therefore, respectfully following the decision of the honble jurisdictional High Court in the case of Spice Infotainment Ltd. (supra), quash the notice under section 148 and also the assessment order passed in pursuance to notice under section 148.

15. Since the assessment order has been quashed by us, the various grounds raised by the Revenue and the assessee in the respective appeals need no separate adjudication.

16. In the result, the appeal of the assessee is allowed while the appeal of the Revenue is deemed to be dismissed.