Whether assessments could be conducted against a merged entity/ non existent entity in light of the Religare case?
Introduction:
In the sphere of corporate restructuring, the interplay of tax law and corporate identity takes center stage. The recent Delhi High Court (Delhi HC) ruling in Religare Securities Limited v. Income Tax Officer (WP (C) 14061/2021) provides an answer to a moot question — whether tax assessments under the Income Tax Act 1961 could be conducted against an entity which no longer exists following an amalgamation.
Observations of the Hon Delhi HC:
1. Proceedings drawn in the name of an entity which has ceased to exist in the eyes of law is not a curable defect and section 292B cannot be resorted-to for validating such proceedings.
2. Section 159 deals with recovery of tax liability of a deceased assessee from its legal representatives and the said provision does not have any bearing on the issue of validity of proceedings initiated on an entity not in existence in law.
3. Similarly, section 170 would not have any impact on the aspect of validity of such proceedings particularly since the phrase “when the predecessor cannot be found…” employed in that provision cannot be construed to cover the situations where an entity ceases to exist in law.
4. The fundamental jurisdictional error of initiating and completing proceedings on an entity that ceases to exist in law cannot be rectified by passing an order under section 154 of the Act.
5. Any proceedings in the name of the successor entity cannot be called into question merely on the ground that PAN of the predecessor entity was mentioned in the notice/ order.
6. The information regarding merger/ amalgamation of the predecessor into the successor having been supplied to the Revenue during the course of proceedings before NCLT, cannot be considered as sufficient intimation to the assessing officer of the factum of merger/ amalgamation; the assessee is obligated to specifically apprise the assessing officer about the approval of the scheme of merger/ amalgamation.
Conclusion:
1. The High Court, accordingly, quashed the proceedings instituted and undertaken in the name of amalgamating entities which were, at the time of such proceedings, not in existence in the eyes of law.
2. The court has rendered a categorical affirmation to the effect that such proceedings, if initiated, continued and undertaken, despite due intimation of amalgamation/ merger by the assessee to the assessing officer, would fall foul of the scheme of the Act.
3. At the same time, the Court has emphasized the importance of communication being furnished by the assessee duly intimating the assessing officer of such amalgamation or merger.
The copy of the order is as under:
