Spice Entertainment Ltd. vs Commissioner Of Service Tax
2011 Latest Caselaw 3695 Del

                                REPORTABLE
                  IN THE HIGH COURT OF DELHI AT NEW DELHI

+                                  ITA 475 OF 2011
                                            &
                              ITA 476 OF 2011

%                               JUDGMENT RESERVED ON:31.05.2011
                                 JUDGMENT DELIVERED ON:03.8.2011

(1)      ITA 475 OF 2011

SPICE ENTERTAINMENT LTD.                                       ....APPELLANT
                  Through:                  Mr.Ajay    Vohra,   Advocate   with
                                            Ms.Kavita Jha and Mr.Somnath Shukla,
                                            Advocates.

                                VERSUS

COMMISSIONER OF SERVICE TAX          ....RESPONDENT
              Through:      Mr. Sanjeev Rajpal, Advocate.

(2)      ITA 476 OF 2011

SPICE ENTERTAINMENT LTD.                                       ....APPELLANT
                  Through:                  Mr.Ajay    Vohra,   Advocate   with
                                            Ms.Kavita Jha and Mr.Somnath Shukla,
                                            Advocates.

                                VERSUS

COMMISSIONER OF SERVICE TAX          ....RESPONDENT
              Through:      Mr. Sanjeev Rajpal, Advocate.

CORAM:

         HON'BLE MR. JUSTICE A.K. SIKRI
         HON'BLE MR. JUSTICE M.L. MEHTA

         1.       Whether Reporters of Local newspapers may be allowed to see the
                  Judgment?
         2.       To be referred to the Reporter or not?
         3.       Whether the Judgment should be reported in the Digest?




ITA 475/2011 & ITA 476/2011                                    Page 1 of 13
 A.K. SIKRI,J.

1. The relevant facts giving rise to the filing of these appeals, which touch upon

the questions of law raised, are as follows:-

For the previous year relevant to the assessment year 2002-03, Spice Corp

Ltd. (hereinafter referred to as the amalgamating company) filed its return of

income on 30th October, 2002 declaring „NIL‟ income. Subsequently, vide order

dated 11th February, 2004, passed by this Court, the said company stood

amalgamated with M/s MCorp Private Limited (hereinafter referred to as the

amalgamated company) with effect from 1st July, 2003. The aforesaid return was

selected for scrutiny and notice dated 18th October, 2003 was issued by the

Assessing Officer under Section 143 (2) of the Act in the name of "Spice Corp.

Ltd.", the amalgamating company. The factum of Spice Corp Ltd, having been

dissolved, as a result if its amalgamation with MCorp Private Limited was duly

brought to the notice of the Assessing Officer vide letter dated 2nd April, 2004.

Despite the aforesaid, the Assessing Officer, vide order dated 28th March, 2005

passed under Section 143 (3) of the Act, framed the assessment on Spice Corp Ltd,

the amalgamating Company. The aforesaid assessment order dated 28th March,

2005 was appealed against by MCorp Global Pvt. Ltd. (erstwhile MCorp Pvt. Ltd)

before the Commissioner of Income-Tax (Appeals), inter alia, on the ground that

the same was bad in law and void ab initio, the assessment having been framed

upon and in the name of a non-existent entity. The CIT (A), however, rejected the

aforesaid ground, though on merits, the appeal was allowed and all

additions/disallowances were deleted.

2. Aggrieved by the deletion of the additions/disallowances, the Revenue

carried the matter in further appeal to the Tribunal. The appellant also filed cross

objections, assailing the order of the CIT (A) on the ground that the assessment

order, having been passed in the name of Spice Corp Ltd., a non-existent entity, was

bad in law and void ab-initio.

Dismissing the submissions made by the appellant in respect of the above

ground, the Tribunal held that the mere failure of the Assessing Officer to mention

the name of the amalgamated company in the assessment order did not vitiate the

assessment as a whole since the assessment was, in substance and effect, made on

the amalgamated company viz. MCorp Global (P) Ltd. and on the non-existent

entity, viz Spice Corp Ltd. The Tribunal further held that the omission to mention

the name of the amalgamated company in the assessment order was a mere

procedural defect and, in terms of the provisions of Section 292B of the Act, such

assessment was not invalid. In arriving at the aforesaid conclusion, the Tribunal laid

emphasis on the fact that there was sufficient representation and participation of the

amalgamated company before the Assessing Officer during the course of the

assessment proceedings, and that the amalgamated company had preferred an

appeal to CIT (A) against the assessment order. The Tribunal has accordingly

remanded the file back to the Assessing Officer for framing afresh assessment in the

name of the present appellant on the ground that framing of the assessment in the

name of "Spice Corp Ltd" was a mere technical error.

3. In this backdrop, the question that arises for consideration is as to whether

the assessment in the name of a company which had been amalgamated and had

been dissolved with the said amalgamating company will be null and void or

whether framing of assessment in the name of such a company is a mere procedural

defect which can be cured. The appeals were, thus, finally admitted and heard on

the following questions of law:-

"(i) Whether on the facts and in the circumstances of the case, the Tribunal erred in law in holding that the action of the Assessing Officer in framing assessment in the name of "Spice Corp Ltd", after the said entity stood dissolved consequent upon its amalgamation with Mcorp Private Limited w.e.f 01.07.2003, was a mere "procedural defect"?

(ii) whether on the facts and in the circumstances of the case, the Tribunal erred in law in holding that in view of the provisions of section 292B of the Act, the assessment, having in substance and effect, been framed on the amalgamated company which could not be regarded as null and void?"

4. The rationale given by the Tribunal, giving it to be a mere procedural defect

is summed up as under:-

(i) Spice Corporation Ltd. (the amalgamating company) was an

income tax assessee in the status of a company incorporated

under the provisions of Companies Act, 1956.

(ii) The amalgamating company was in existence during the

relevant assessment year, 2002-03 and 2003-04.

(iii) The return of income for these assessment years were filed

on 30th November, 2002 and on 30th October, 2003

respectively by M/s Spice.

(iv) The scheme of amalgamating was sanctioned much

subsequently on 11th February, 2004 by the High Court.

(v) The return filed by M/s Spice was selected for scrutiny and

notices were issued. Pursuant thereto, the amalgamated

company i.e. the appellant appeared and participated in the

proceedings. Even the assessment orders were challenged

by the appellant/amalgamated company. Thus, the appellant

accepted that the assessment proceedings in respect of the

assessment of Spice for the period prior to its amalgamation

are being taken up against the appellant and it is the

appellant which felt aggrieved of the assessment order and

preferred appeal. The order was thus in substance and in

fact, against the appellant/amalgamated company. The mere

omission on the part of the AO to mention the name of the

appellant/amalgamated company in place of M/s Spice was,

therefore a procedural defect covered by the provisions of

section 292B of the Act.

5. According to the Tribunal, if the Spice was non-existent, there was no reason

for the amalgamation company to represent the same or to feel aggrieved against the

said order and preferred appeal and get the same decided on merits. In other words,

any appeal preferred by a non-existence person must also be treated as non-est. All

these acts of the appellants/ amalgamated company clearly show that it had been

constantly treated the assessment made against the appellant in respect of the

assessment of amalgamated company. Further, no prejudice is caused to the

assessee merely because in the body of the assessment order name of the

amalgamated company is not shown.

6. On the aforesaid reasoning and analysis, the Tribunal summed up the

position in para 14 of its order which reads as under:-

"In the light of the discussions made above, we, therefore, hold that the assessment made by the AO, in substance and effect, is not against the non-existent amalgamating company. However, we do agree with the proposition or ration decided in the various cases relied upon by the learned counsel for the assessee that the assessment made against non-existent person would be invalid and liable to be struck down. But, in the present case, we find that the assessment, in substance and effect, has been made against amalgamated company in respect of assessment of income of amalgamating company for the period prior to amalgamation and mere omission to mention the name of amalgamated company alongwith the name of amalgamating company in the body of assessment against the item "name of the assessee" is not fatal to the validity of assessment but is a procedural defect covered by Section 292B of the Act. We hold accordingly."

7. The aforesaid line of reasoning adopted by the Tribunal is clearly blemished

with legal loopholes and is contrary to law. No doubt, M/s Spice was an assessee

and as an incorporated company and was in existence when it filed the returns in

respect of two assessment years in questions. However, before the case could be

selected for scrutiny and assessment proceedings could be initiated, M/s Spice got

amalgamated with MCorp Pvt. Ltd. It was the result of the scheme of the

amalgamation filed before the Company Judge of this Court which was dully

sanctioned vide orders dated 11th February, 2004. With this amalgamation made

effective from 1st July, 2003, M/s Spice ceased to exist. That is the plain and simple

effect in law. The scheme of amalgamation itself provided for this consequence,

inasmuch as simultaneous with the sanctioning of the scheme, M/s Spice was also

stood dissolved by specific order of this Court. With the dissolution of this

company, its name was struck off from the rolls of Companies maintained by the

Registrar of Companies.

8. A company incorporated under the Indian Companies Act is a juristic

person. It takes its birth and gets life with the incorporation. It dies with the

dissolution as per the provisions of the Companies Act. It is trite law that on

amalgamation, the amalgamating company ceases to exist in the eyes of law. This

position is even accepted by the Tribunal in para-14 of its order extracted above.

Having regard this consequence provided in law, in number of cases, the Supreme

Court held that assessment upon a dissolved company is impermissible as there is

no provision in Income-Tax to make an assessment thereupon. In the case of

Saraswati Industrial Syndicate Ltd. Vs. CIT, 186 ITR 278 the legal position is

explained in the following terms:

"The question is whether on the amalgamation of the Indian Sugar Company with the appellant Company, the Indian Sugar Company continued to have its entity and

was alive for the purposes of Section 41(1) of the Act. The amalgamation of the two companies was effected under the order of the High Court in proceedings under Section 391 read with Section 394 of the Companies Act. The Saraswati Industrial Syndicate, the trans free Company was a subsidiary of the Indian Sugar Company, namely, the transferor Company. Under the scheme of amalgamation the Indian Sugar Company stood dissolved on 29th October, 1962 and it ceased to be in existence thereafter. Though the scheme provided that the transferee Company the Saraswati Industrial Syndicate Ltd. undertook to meet any liability of the Indian Sugar Company which that Company incurred or it could incur, any liaiblity, before the dissolution or not thereafter.

Generally, where only one Company is involved in change and the rights of the share holders and creditors are varied, it amounts to reconstruction or reorganisation or scheme of arrangement. In amalgamation two or more companies are fused into one by merger or by taking over by another. Reconstruction or amalgamation has no precise legal meaning. The amalgamation is a blending of two or more existing undertakings into one undertaking, the share holders of each blending Company become substantially the share holders in the Company which is to carry on the blended undertakings. There may be amalgamation either by the transfer of two or more undertakings to a new Company, or by the transfer of one or more undertakings to an existing Company. Strictly amalgamation does not cover the mere acquisition by a Company of the share capital of other Company which remains in existence and continues its undertaking but the context in which the term is used may show that it is intended to include such an acquisition. See Halsburys Laws of England 4th Edition Vol. 7 Para 1539. Two companies may join to form a new Company, but there may be absorption or blending of one by the other, both amount to amalgamation. When two companies are merged and are so joined, as to form a third Company or one is absorbed into one or blended with another, the amalgamating Company loses its entity."

9. The Court referred to its earlier judgment in General Radio and Appliances

Co. Ltd. Vs. M.A. Khader (1986) 60 Comp Case 1013. In view of the aforesaid

clinching position in law, it is difficult to digest the circuitous route adopted by the

Tribunal holding that the assessment was in fact in the name of amalgamated

company and there was only a procedural defect.

10. Section 481 of the Companies Act provides for dissolution of the company.

The Company Judge in the High Court can order dissolution of a company on the

grounds stated therein. The effect of the dissolution is that the company no more

survives. The dissolution puts an end to the existence of the company. It is held in

M.H. Smith (Plant Hire) Ltd. Vs. D.L. Mainwaring (T/A Inshore), 1986 BCLC

342 (CA) that "once a company is dissolved it becomes a non-existent party and

therefore no action can be brought in its name. Thus an insurance company which

was subrogated to the rights of another insured company was held not to be entitled

to maintain an action in the name of the company after the latter had been

dissolved".

11. After the sanction of the scheme on 11th April, 2004, the Spice ceases to exit

w.e.f. 1st July, 2003. Even if Spice had filed the returns, it became incumbent upon

the Income tax authorities to substitute the successor in place of the said „dead

person‟. When notice under Section 143 (2) was sent, the appellant/amalgamated

company appeared and brought this fact to the knowledge of the AO. He, however,

did not substitute the name of the appellant on record. Instead, the Assessing

Officer made the assessment in the name of M/s Spice which was non existing

entity on that day. In such proceedings and assessment order passed in the name of

M/s Spice would clearly be void. Such a defect cannot be treated as procedural

defect. Mere participation by the appellant would be of no effect as there is no

estoppel against law.

12. Once it is found that assessment is framed in the name of non-existing

entity, it does not remain a procedural irregularity of the nature which could be

cured by invoking the provisions of Section 292B of the Act. Section 292B of the

Act reads as under:-

"292B. No return of income assessment, notice, summons or other proceedings furnished or made or issue or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reasons of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceedings is in substance and effect in conformity with or according to the intent and purpose of this Act."

13. The Punjab & Haryana High Court stated the effect of this provision in CIT

Vs. Norton Motors, 275 ITR 595 in the following manner:-

"A reading of the above reproduced provision makes it clear that a mistake, defect or omission in the return of income, assessment, notice, summons or other proceeding is not sufficient to invalidate an action taken by the competent authority, provided that such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the provisions of the Act. To put it differently, Section 292B can be relied upon for resisting a challenge to the

notice, etc., only if there is a technical defect or omission in it. However, there is nothing in the plain language of that section from which it can be inferred that the same can be relied upon for curing a jurisdictional defect in the assessment notice, summons or other proceeding. In other words, if the notice, summons or other proceeding taken by an authority suffers from an inherent lacuna affecting his/its jurisdiction, the same cannot be cured by having resort to Section 292B.

14. The issue again cropped up before the Court in CIT Vs. Harjinder Kaur

(2009) 222 CTR 254 (P&H). That was a case where return in question filed by the

assessee was neither signed by the assessee nor verified in terms of the mandate of

Section 140 of the Act. The Court was of the opinion that such a return cannot be

treated as return even a return filed by the assessee and this inherent defect could

not be cured inspite of the deeming effect of Section 292B of the Act. Therefore,

the return was absolutely invalid and assessment could not be made on a invalid

return. In the process, the Court observed as under:-

"Having given our thoughtful consideration to the submission advanced by the learned Counsel for the appellant, we are of the view that the provisions of Section 292B of the 1961 Act do not authorize the AO to ignore a defect of a substantive nature and it is, therefore, that the aforesaid provision categorically records that a return would not be treated as invalid, if the same "in substance and effect is in conformity with or according to the intent and purpose of this Act". Insofar as the return under reference is concerned, in terms of Section 140 of the 1961 Act, the same cannot be treated to be even a return filed by the respondent assessee, as the same does not even bear her signatures and had not even been verified by her. In the aforesaid view of the matter, it is not possible for us to accept that the return allegedly filed by the assessee was in substance and effect in conformity with or according to the intent and purpose of this Act. Thus viewed, it is not possible for us to accept the contention advanced by the learned Counsel for the

appellant on the basis of Section 292B of the 1961 Act. The return under reference, which had been taken into consideration by the Revenue, was an absolutely invalid return as it had a glaring inherent defect which could not be cured in spite of the deeming effect of Section 292B of the 1961 Act."

15. Likewise, in the case of Sri Nath Suresh Chand Ram Naresh Vs. CIT

(2006) 280 ITR 396, the Allahabad High Court held that the issue of notice under

Section 148 of the Income Tax Act is a condition precedent to the validity of any

assessment order to be passed under section 147 of the Act and when such a notice

is not issued and assessment made, such a defect cannot be treated as cured under

Section 292B of the Act. The Court observed that this provisions condones the

invalidity which arises merely by mistake, defect or omission in a notice, if in

substance and effect it is in conformity with or according to the intent and purpose

of this Act. Since no valid notice was served on the assessee to reassess the

income, all the consequent proceedings were null and void and it was not a case of

irregularity. Therefore, Section 292B of the Act had no application.

16. When we apply the ratio of aforesaid cases to the facts of this case, the

irresistible conclusion would be provisions of Section 292B of the Act are not

applicable in such a case. The framing of assessment against a non-existing

entity/person goes to the root of the matter which is not a procedural irregularity but

a jurisdictional defect as there cannot be any assessment against a „dead person‟.

17. The order of the Tribunal is, therefore, clearly unsustainable. We, thus,

decide the questions of law in favour of the assessee and against the Revenue and

allow these appeals.

18. We may, however, point out that the returns were filed by M/s Spice on the

day when it was in existence it would be permissible to carry out the assessment on

the basis of those returns after taking the proceedings afresh from the stage of

issuance of notice under Section 143 (2) of the Act. In these circumstances, it

would be incumbent upon the AO to first substitute the name of the appellant in

place of M/s Spice and then issue notice to the appellant. However, such a course

of action can be taken by the AO only if it is still permissible as per law and has not

become time barred.

(A.K. SIKRI) JUDGE

(M.L. MEHTA) JUDGE AUGUST 3,2011 skb