Facts of the Case

NCubate India Services Private Limited was one of the petitioners in a batch of writ petitions challenging assessment and reassessment proceedings initiated by the Income Tax Department. In each case, the original entity had ceased to exist pursuant to a court-approved scheme of amalgamation sanctioned by the National Company Law Tribunal.

Despite the amalgamation having taken effect and the factum of merger being duly intimated to the Income Tax authorities, statutory notices and assessment or reassessment orders were issued and continued in the name of the amalgamating (transferor) company, rather than the surviving or resultant entity.

The petitioner contended that such proceedings were fundamentally flawed as they were initiated against an entity that had ceased to exist in law.

 Issues Involved

Whether assessment or reassessment proceedings initiated and continued in the name of an amalgamating company, which had ceased to exist pursuant to a sanctioned scheme of amalgamation, are legally sustainable, and whether such defects can be cured under Section 292B or saved by Section 170 of the Income Tax Act, 1961.

 Petitioner’s Arguments

The petitioner argued that upon sanction of a scheme of amalgamation, the amalgamating company stands dissolved by operation of law and ceases to exist as a juristic person. Any notice or assessment framed in its name is therefore a nullity.

It was submitted that issuance of a jurisdictional notice to a non-existent entity constitutes a substantive illegality going to the root of jurisdiction and cannot be treated as a procedural defect. Reliance was placed on the Supreme Court judgments in Principal Commissioner of Income Tax v. Maruti Suzuki India Ltd. and Spice Entertainment Ltd., which conclusively held that such defects are not curable under Section 292B and that participation by the successor entity does not confer jurisdiction.

 Respondent’s Arguments

The Revenue contended that the defect, if any, was curable under Section 292B of the Income Tax Act, as the intention of the proceedings was always to assess the income of the business now vested in the amalgamated entity.

It was further argued that Section 170 of the Act, dealing with succession to business otherwise than on death, permitted continuation of proceedings against the successor entity. Reliance was also placed on the decision in PCIT v. Mahagun Realtors (P) Ltd. to submit that proceedings should not be invalidated on technical grounds when no prejudice was caused.

 

Court Order / Findings

The Delhi High Court rejected the submissions of the Revenue and held that assessment and reassessment proceedings initiated in the name of a non-existent amalgamating company are void ab initio.

The Court reaffirmed that upon approval of a scheme of amalgamation, the transferor entity ceases to exist in the eyes of law. Issuance of a jurisdictional notice in its name is a substantive illegality that cannot be cured by Section 292B. The Court distinguished Mahagun Realtors, holding that it turned on its own facts and did not dilute the binding ratio laid down in Maruti Suzuki India Ltd. and Spice Entertainment Ltd.

Accordingly, all impugned notices and assessment or reassessment orders issued in the name of the amalgamating entity were quashed.

 Important Clarification

The Court clarified that certainty and consistency in tax administration are fundamental. Once an entity ceases to exist due to amalgamation, all statutory notices must necessarily be issued in the name of the surviving or resultant entity. Jurisdictional defects arising from proceedings against non-existent persons or entities cannot be cured by participation, consent, or curative provisions such as Section 292B of the Income Tax Act.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770194341_NCUBATEINDIASERVICESPRIVATELIMITEDVsDEPUTYCOMMISSIONEROFINCOMETAXCIRCLE161DELHIANR..pdf

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