Facts of the Case

Paytm Mobile Solutions Private Limited, which had merged into One 97 Communications Limited pursuant to a sanctioned scheme of amalgamation, was one of the petitioners in a large batch of writ petitions before the Delhi High Court.

The petitioners challenged assessment and reassessment proceedings initiated by the Income Tax Department for various assessment years. Despite the fact that the amalgamation had taken effect and the tax authorities had been duly informed of the merger, statutory notices under Sections 143(2), 148, and proceedings under Section 148A, as well as final assessment or reassessment orders, were issued and continued in the name of Paytm Mobile Solutions Private Limited, the amalgamating 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 jurisdictional defects can be cured under Section 292B or validated by Section 170 of the Income Tax Act, 1961.

 

Petitioner’s Arguments

The petitioner contended that once a scheme of amalgamation is sanctioned, the amalgamating company stands dissolved by operation of law and ceases to exist as a juristic person. Consequently, any notice issued or assessment framed in the name of such a non-existent entity is a nullity.

It was argued that issuance of a jurisdictional notice to a non-existent entity constitutes a substantive illegality going to the root of jurisdiction and cannot be regarded 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 decisions in PCIT v. Mahagun Realtors (P) Ltd. and Skylight Hospitality LLP to submit that proceedings should not be invalidated on technical grounds, particularly where the successor entity was aware of and had participated in the proceedings.

 

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 company 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 invoking Section 292B.

The Court distinguished Skylight Hospitality LLP as a case turning on peculiar facts involving a clerical error, and clarified that Mahagun Realtors 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 Paytm Mobile Solutions Private Limited 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 and proceedings must necessarily be initiated 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 by invoking curative provisions such as Section 292B of the Income Tax Act.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770194560_PAYTMMOBILESOLUTIONSPRIVATELIMITEDNOWMERGEDINTOONE97COMMUNICATIONSLIMITEDVsASSISTANTCOMMISSIONEROFINCOMETAXORS..pdf

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