The Delhi bench of Income Tax Appellate Tribunal (ITAT) has held that income tax appeal filed on behalf of a company whose name is struck off is maintainable.
The bench of Anubhav Sharma (Judicial Member) and B.R.R. Kumar (Accountant Member) has observed that the certificate of incorporation issued to the assessee company cannot be treated as cancelled for the purpose of realising the amount due to the company and for payment and discharge of the liability or obligations of the company. Though in that case assessment order was not passed against a company whose name was struck off, and name was struck off at stage of pendency of appeal before the Tribunal, however, the ratio of the order of the coordinate Bench substantiates our conclusion that as for the purpose of tax liability the provisions of the Act concerning the amalgamated corporate entities or which are liquidated, are not applicable, as different consequences follow under law, in case of the company whose name is struck off on discontinuance of business.
The appellant/assessee has raised two issues. Firstly, the petitioner/assessee has challenged the maintainability of the appeal on behalf of the erstwhile company through or by Boopendradas (Vikash) Sungker. Secondly, if the assessment order passed against earstwhile company, whose name stands struck off from register of companies is one passed against a non existent entity, so is void and non-est against the erstwhile company, and on that account the appeal needs to be allowed.
The assessee, Red Fort India Real Estate Humayun was incorporated on 16.07.2007 as ‘Company limited by shares’ under the provisions of Mauritius Companies Act, 2001, for the specific purpose of making investment in the securities of Prestige Projects Pvt Ltd. The beneficial shareholding of the company was held by Red Fort India Real Estate Fund 1 LP situated in Cayman Islands. During the financial year 2008-09, the assessee had made investment in 11,22,000 Class A Equity Shares of Prestige India, for an aggregate amount of Rs.1,12,00,000, under the Foreign Direct Investment (FDF) route.
The securities/shares of Prestige India held by Alena Cyprus were transferred to the assessee vide Securities Purchase Agreement at fair value of securities, for a total consideration of Rs.200,61,39,424, as against the original cost of Rs.106,35,13,000.
The assessee sold the entire securities held in Prestige India (including securities purchased from Alena) to the Indian Buyer vide Securities Purchase Agreement dated 09.10.2017.
In the return of income filed by the assessee in India for the AY 2018-19, out of the total capital gains of Rs.4,85,87,899, gains aggregating to Rs.4,85,78,113/- were claimed as not chargeable to tax under Article 13(4) of the India-Mauritius DTAA and the balance gains of Rs.9785 were offered to tax.
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Alena Cyprus had also filed its return of income in India for the AY 2018-19 in which the long term capital gains arising from sale of shares to the assessee were declared exempt under Article 13 of the India-Cyprus DTAA. The return filed by Alena Cyprus was duly processed and stood concluded.
The return of income filed by the assessee was selected for complete scrutiny. Since the specific purpose of making investment in Prestige India was achieved, the assessee filed an application before the Financial Services Commission, Mauritius on 28.12.2020 (during the pendency of assessment proceedings) for dissolution and removal of the company from Register of Companies, Mauritius. It was also intimated to the assessing officer.
In compliance with Mauritius law, another application was filed by the assessee before the Registrar of Companies, Mauritius on 04.06.2021 for removing the name of the company from register of companies.
In the meanwhile, the assessing officer passed the draft assessment order under section 144C(1) of the Act, denying benefit of exemption under Article 13(4) of the Indo- Mauritius DTAA to the assessee, holding that there was no commercial/ economic substance behind the existence of that Company in Mauritius. Therefore, benefit of Treaty cannot be applied, simply on the basis of TRC issued by the Revenue authorities of Mauritis to that company.
The assessing officer also erroneously disregarded the separate legal existence of Alena Cyprus, holding it to be a mere arrangement to take benefit of India Cyprus Treaty and added the entire capital gains derived by Alena Cyprus, on sale of securities/shares of Prestige India, to the income of the assessee .
The assessing officer proposed assessment at total income under the head capital gains on sale of securities/shares of Prestige India in the hands of the assessee.
Against the draft assessment order, the assessee filed its objections before the Dispute Resolution Panel (DRP). However, immediately after filing the objections, the Registrar of Companies, Mauritius vide order dated 29.10.2021 removed the name of the company under section 308 of the (Mauritius) Companies Act 2001. In other words, the assessee ceased to exist as a legal entity with effect from 29.10.2021.
The fact that the assessee had ceased to exist with effect from 29.10.2021 was duly informed to the DRP. However despite intimation, the DRP proceeded to issue directions under section 144C(5) passed in the name of non-existent entity, confirming the draft order of the assessing officer.
The provision of section 159 of the Income Tax Act is with regard to “legal representatives” of the assessee in case of a natural person who dies and same is not applicable as erstwhile company is not natural person. Then, section 160 is with regard to determination of “representative assessee” for various class of assessee including the non-residents and then section 161 provides for the liability of representative assessee as per section and Section 162 of the Act is providing for the rights of the representative of the assessee to recover the tax paid. Then section 163 of the Income Tax Act defines for the purpose of the Income Tax Act, who can be considered as ‘agent’ for Non-Resident Indian and Section 166 of the Act provides for direct assessment in case of assessee on whose behalf representative assessee have been appointed or for whose benefit income therein referred to is receivable. None of these provisions came to help the AO in regard to erstwhile company.
The tribunal while dismissing the appeal held that it is only when the AO, proceeds against the former director for making a recovery of tax payable by the erstwhile company, the former director will be aggrieved with the recovery. But that too will not place the former director in the cradle of ‘assessee’, as only limited right given to former director is to deny the liability by proving that the non-recovery of tax demand cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company. However, the merits of assessment order cannot be assailed by an appeal section 246(1) providing for appeal before CIT(A) or under section 253 of the Income Tax Act, which, provides for appeal to this Tribunal, since it is ‘assessee’ who can challenge the merits of assessment order passed under section 143(3) of the Income Act.
Case Title: Boopendradas (Vikash) Sungker Versus DCIT
Case No.: ITA No.1866/Del/2022
Date: 06.09.2024
Counsel For Appellant: Gaurav Jain
Counsel For Respondent: Vijay B. Vasanta
