The appeal filed by the insolvent company is maintainable
Facts and issues of the case
In the appeal the assessee has challenged the order dated 24/03/2017 passed by CIT(A), wherein an addition of Rs. 18,00,00,000/- made u/s 68 of Income Tax Act by the A.O has been confirmed by the CIT(A), New Delhi for Assessment Year 2014-15.
When the appeal is taken up for hearing, the Ld. DR submitted that, the assessee Company has been struck off vide Notification No ROC/DELHI/248(5)/STK-7/10587 dated 08/03/2019 of Registrar of Companies NCT of Delhi and Haryana. Further, submitted that, in view of the said Notification, the appeal filed by the assessee has become in-fructuous and prayed for dismissal of the present appeal as not maintainable. The Ld. DR has also produced Form No. STK-7 i.e. notice of striking off and dissolution issued by the ROC under Section 248(5) of Companies Act 2013 (hereinafter referred to as the Companies Act) along with list of struck off Companies, wherein the name of the assessee Company figured at Serial No. 606. The Ld. DR further submitted since the Assessee Company has been struck off, the Counsel appearing on behalf of the Assessee struck off Assessee Company has no locus standing to represent before the Tribunal.
Per contra, the Ld. Counsel for the assessee submitted that, the Appeal cannot be dismissed as ‘not maintainable’ merely on the ground of striking off the Assessee Company by the ROC and insisted to hear and decide the present appeal on merit. Ld. Counsel for the assessee has relied on the judgment of Hon’ble Supreme Court reported in 2019 (3) TMI 703 SUPREME COURT in the case of Commissioner of Income tax Jaipur Vs. Gopal Shri Scrips Pvt. Ltd. dated 12/03/2019 and also taken us through the relevant provisions of Companies Act and also the Income Tax Act.
Observation by the court
Court had heard the parties, verified the materials on record and gave our thoughtful consideration. It is not in dispute that, the assessee Company has been struck off on 08/03/2019 from the Registrar of the Companies u/s 248(1) of the Companies Act.The Companies can itself struck off under Section 248(2) of the Companies Act by its own only after ‘extinguishing all the liabilities’ (including the tax liabilities if any). But in the case of Company being struck off by the Registrar under Section 248(1) of the Companies Act, irrespective of existence of assets or the liabilities of the Company, the company will be stricken off if the Company commits any defaults mentioned in the Section 248(1) of the Act.
As per Section 248 (5) of the companies Act, the registrar of the Company shall publish notice of strike off the names of the companies in the official Gazette and on such publication, the company shall be dissolved. As per Section 248(6) of the companies Act, before passing an order under Section 248(5) of the companies Act, the Registrar shall satisfy that sufficient provision has been made for realization of the dues and also for discharge of its liabilities of the companies. Further, the assets of the company shall be made available for the payment or discharge of all its liabilities and obligations even after the date of the order removing the name of the company from the register of companies. As per sub-section (7) of the Section 248 of the Companies Act, the liability if any, of every director, manager or other officer who was exercising any power of the management and of every member of the company dissolved under sub Section (5) of Section 248 of the Companies Act. When the Company is being struck off, there will be certain consequences. The Section 250 of the Companies Act deals with effect of Company notified as dissolved.
Thus, if the Company being struck off, the same shall be ceased to operate as a company and the Certificate of Incorporation issued to it shall deem to have been cancelled from the such date except for the purpose of realizing the amount due to the Company and for the purpose of payment or discharge of liabilities or obligation of the Company. Thus, Combined reading of Section 250 and the sub-Sections (6) and (7) of Section 248 of the Companies Act, once the Company is struck off, it shall be deemed to have been cancelled from such date except for the purpose of realizing the amount due to the Company and for the payment or discharge the liabilities or obligation of the Company. Further, even after striking off of a Company, the liability if any of the Director, Manager or other Officers, exercising any power of management and of every member of the Company shall continue and may be enforced as if the Company had not been dissolved.
Now, the moot question arises as to ‘whether the Tribunal can proceed with the appeal filed by the struck down Company or filed by the Revenue against the struck off Company ?’. In other words, whether the struck off Company can be treated as alive/operative/existing for the purpose of adjudication of the tax arrears and the consequence order by which the recovery proceedings are triggered by the Revenue.
If the proceedings pending before the Court or the Tribunal (regarding determination of quantum the tax/liability of paying the tax) is dismissed for having become in-fructuous without adjudicating the actual tax dues or the liability of the assessee to pay such tax in the manner known to the Law and based on the such dismissal of the proceedings, if the Revenue proceeds for the recovery of the ‘such tax due’, the rights of the Directors of the Company will be seriously jeopardy and the same will amount to denial of the rights guaranteed under the Law.
In the instant Appeal, if court allow the request of the Revenue dismiss the Appeal as in-fructuous, one hand the appeal will be dismissed having become in-fructuous on the other hand, the Revenue Department will initiate proceedings under Section 179 of the Income Tax Act and that too without even adjudicating in the manner prescribed under Law on the ‘quantum of actual tax due’ or ‘liability to pay tax’, in such even great in justice will be caused, which cannot be permitted.When the Revenue Department has not forgone the right to recover tax due or Written-off the demand on the ground of Company being struck off by the ROC, the right of the assessee to determine the tax liability in due process of law cannot be denied by dismissing the Appeal pending before us.
Further, in a case where the CIT(A) deletes the addition made by the A.O and if Revenue files Appeal before the Tribunal, even in a case where the Revenue is having a water tight case on merit, by dismissing the Appeal for having become in-fructuous will also result in non adjudication of the actual tax due by the assessee and the Revenue cannot recover the actual tax dues from the assessee. In such events, the Department of Revenue will be left with no remedy, which is contrary to the root principal of law ‘Ubi Jus Ibi Remedium’.
The Hon’ble Apex Court while dealing with amalgamated Companies in the case of Pr. Commissioner of Income Tax Vs. Mahagun Realtors Pvt. Ltd., held that, ‘whether corporate death of an entity upon amalgamation per se invalidates a tax assessment order ordinarily cannot be determined on a bare application of Section 481 of the Companies Act, 1956 (and its equivalent in the 2013 Act), but would depend on the terms of the amalgamation and the facts of each case. Further it restored the matter to the file of the ITAT and directed to decide the matter on merit.
The Hon’ble High Court of Judicature for Rajasthan in the case of Commissioner of Income Tax Vs. Gopal Shri Scrips Pvt. Ltd. in ITA No. 53/2000 vide order dated 09/08/2016 dismissed the appeal filed by the Revenue for having become in-fructuous since the Company had been struck off from the register of ROC and the said Company dissolved. The said order of Hon’ble High Court of Judicature for Rajasthan dated 09/08/2016 in ITA No. 53/2000 has been challenged by the Revenue Department before the Hon’ble Supreme court of India in Civil Appeal No. 2922/2019 (CIT Jaipur Vs. M/s. Gopal Scrips Pvt. Ltd.). The Hon’ble Apex Court vide order dated 12/03/2019 held that, the High Court was wrong in dismissing the appeal as having rendered in- fructuous and further directed to decide the appeal afresh on merit in accordance with law in view of the relevant provisions of Companies Act and Income Tax Act.
The Hon’ble Supreme Court in the case of M/s. Gopal Scrips Pvt. Ltd (supra) while allowing the Civil Appeal of the Revenue, dealt and relied on Section 560(5) of the Companies Act, 1956 and held that the Appeal filed by the Revenue is maintainable. The identical provisions have been introduced in the Companies Act, 2013 in Sub-Section sub-Sections (6) and (7) of Section 248 of the Companies Act. Therefore, the ratio laid down in the case of Gopal Scrips Pvt. Ltd (supra) is squarely applicable to the issue in hand.
In the case of M/s. Gopal Scrips Pvt. Ltd (supra), the Department of Revenue was having grievance on the Order of the Hon’ble High Court of Judicature for Rajasthan in dismissing the Appeal (ITA) for having become in fructuous on the ground that the Assessee company was struck off. The Hon’ble Supreme Court has set aside the Order of the Hon’ble High Court of Judicature for Rajasthan and directed to decide the Appeal on merit. Ironically now the very same Department of revenue is seeking before us to dismiss the present Appeal as in-fructuous since the assessee company has been struck off. The Department cannot have such double standard.
Though the Assessee company has been struck off under Section 248 of the Companies Act 2013, in view of sub-sections (6) and (7) of Section 248 and Section 250 of companies Act 2013, the Certificate of Incorporation issued to the Assessee company cannot be treated as cancelled for the purpose of realizing the amount due to the company and for payment or discharge of the liability or obligations of the company, we are of the opinion that the Appeal filed by the struck off Assessee Company or Appeal filed by the Revenue against the struck off Company are maintainable. Therefore by rejecting the contention of the Ld. DR, we hold that the present Appeal filed by the Assessee (struck-off company) is maintainable and the same has to be decided on merit.
Since, Court held that, the present Appeal is maintainable, the Counsel appearing on behalf of the Assessee Company has every locus to represent the Assessee in the present Appeal. Office is directed to list the appeal before the regular Bench for hearing on 07/09/2022. The ITA No. 2563/Del/2017 and ITA No. No. 2788/Del/2019 are also filed by the respective assessees, wherein the Ld. DR has also sought for dismissal of the appeal as not maintainable on the same ground of striking off of Companies by ROC. We have already decided the question of law and held that the Appeal is maintainable even after striking off of the assessee company in ITA No. 2788/Del/2019, the said ratio is also applied in the above two appeals. Accordingly, we direct the Office to list the appeal in ITA No. 2868/Del/2019 & 5338/Del/2011 before a Regular Bench on 07/09/2022.
Court direct the Department of Revenue to widely circulate the order in the interest of justice.Dwarka-Portfolio-Pvt.-Ltd.-Vs-Assistant-Commissioner-of-Income-Tax-ITAT-Delhi