Telangana High Court

M/S. Virchow Drugs Limited vs The Income Tax Officer on 20 September, 2023

Bench: P.Sam Koshy, Laxmi Narayana Alishetty

 IN THE HIGH COURT FOR THE STATE OF TELANGANA, HYDERABAD

                                  ***

WRIT PETITION No.11247 of 2023

Between:

M/s. Virchow Drugs Limited.

Petitioner VERSUS

The Income Tax Officer and Ors.

Respondents

ORDER PRONOUNCED ON: 20.09.2023

THE HON'BLE SRI JUSTICE P.SAM KOSHY

AND

THE HON'BLE SRI JUSTICE LAXMI NARAYANA ALISHETTY

1. Whether Reporters of Local newspapers

may be allowed to see the Judgments? : Yes

2. Whether the copies of judgment may be

marked to Law Reporters/Journals? : Yes

3. Whether His Lordship wishes to

see the fair copy of the Judgment? : Yes

____________________ P.SAM KOSHY, J

* THE HON'BLE SRI JUSTICE P.SAM KOSHY

AND

THE HON'BLE SRI JUSTICE LAXMI NARAYANA ALISHETTY

+ WRIT PETITION No.11247 of 2023

% 20.09.2023 # Between:

M/s. Virchow Drugs Limited.

Petitioner VERSUS

The Income Tax Officer and Ors.

Respondents

! Counsel for Petitioner(s) : Mr. Bommareddy Gangadhara

Reddy

^Counsel for the respondent(s) : Ms. Sundari R.Pisupati and

Mr. Gadi Praveen Kumar

<GIST:

> HEAD NOTE:

? Cases referred

1. [2019] (416 ITR 613)

2. (2018) 405 ITR 296 (Delhi)

3. (2012) 247 CTR 500

4. (2023) 7 NYPCTR 174 (Bom)

THE HON'BLE SRI JUSTICE P.SAM KOSHY AND THE HON'BLE SRI JUSTICE LAXMI NARAYANA ALISHETTY

WRIT PETITION No.11247 of 2023

ORDER: (per Hon'ble Sri Justice P.SAM KOSHY)

The instant writ petition has been filed by the

petitioner assailing the order dated 24.03.2023, passed by

the respondent No.1/The Income Tax Officer vide DIN &

Notice No. ITBA/AST/S/148A/2022-23/1051256350(1),

under Section 148A (d) of the Income Tax Act, 1961 (for

short 'the Act') for the assessment year 2016-2017 against

Siri Drugs India Private Limited. The aforesaid company i.e.

Siri Drugs Indiva Private Limited since had got merged with

the petitioner's Company under the scheme of

amalgamation with effect from 01.04.2015, the challenge is

also to the consequence notice under Section 148 of the

Act.

2. Heard Mr. Bommareddy Gangadhara Reddy, learned

counsel for the petitioner, Ms. Sundari R.Pisupati, learned

counsel for respondent Nos.1 & 2 and Mr. Gadi Praveen

Kumar, learned Senior Standing Counsel for respondent

No.3.

3. A Company Petition was filed before this High Court

vide C.P.No.41 of 2016 seeking sanction of the scheme of

amalgamation of Siri Drugs India Private Limited with the

petitioner's Company i.e. M/s. Virchow Drugs Limited. The

said company petition finally stood allowed vide order dated

30.03.2016. The High Court in the course of allowing the

company petition, ordered approval of the scheme of

amalgamation which stood approved in the meeting of the

Board of Directors of the transferor Company i.e. Siri Drugs

India Private Limited on 04.01.2016, sanctioning the effect

of the amalgamation from the appointed date i.e.

01.04.2015. As a consequence of the approval of the

scheme by the High Court, the transferor Company i.e. Siri

Drugs India Private Limited stood dissolved with effect from

01.04.2015. Thereafter, it stood merged with the transferee

Company i.e. M/s. Virchow Drugs Limited. As a

consequence of the dissolution of the said Company, the

transferor Company i.e. Siri Drugs India Private Limited

became non-existing. Since 01.04.2015 onwards it was only

the amalgamating Company i.e. transferee Company which

remained in existence along with the assets and liabilities of

the amalgamated Company.

4. Though Siri Drugs India Private Limited stood

dissolved with effect from 01.04.2015, the respondent No.1

had issued a notice under Section 148A(b) of the Act in the

name of the said non-existing Company i.e. Siri Drugs India

Private Limited, alleging escapement of income for the

assessment year 2016-2017 to the extent of

Rs.3,06,25,283/-.

5. The petitioner entered appearance and raised objection

as to the veracity of the notice when it stands issued

against the Company which ceases to exist and which

became non-existing since 01.04.2015. Though the

objection was raised by the petitioner on issuance of notice

on a non-existing Company, the respondent No.1 ignoring

the said fact held that it was a fit case for issuance of notice

under Section 148 of the Act for the assessment year 2016-

2017. It is this proceedings which is under challenge in the

present writ petition.

6. Learned counsel for the petitioner contended that the

Hon'ble Supreme Court of India itself in one of the recent

decisions in the case of PCIT Vs. Maruti Suzuki (India)

Limited 1 dealing with a somewhat similar situation held

that initiating proceedings and framing of assessment

against a non-existing Company i.e. a Company which

stood amalgamated is impermissible under the law.

7. According to the learned counsel for the petitioner,

since the High Court itself had given the approval of the

scheme of amalgamation and further ordered the

dissolution of the transferor Company i.e. Siri Drugs India

Private Limited, no proceedings could had been drawn

against the said Company as it was no longer in existence.

8. It was also the contention of the learned counsel for

the petitioner that in spite of the fact that the

petitioner/amalgamating Company having intimated the

[2019] (416 ITR 613)

authorities concerned about the amalgamation and the

Company having got merged and being no longer in

existence, the respondent authorities without paying heed

to the objection, has proceeded further with the

reassessment.

9. According to the learned counsel for the petitioner it is

a settled position of law that once when the Company gets

merged, the transferor Company becomes non-existing

company. Thereafter, it is only the transferee Company or

the amalgamating Company which remains in existence. It

was also contended that the fact that Siri Drugs India

Private Limited being a non-existing Company, it was

illogical on the part of the respondents in issuing directions

seeking filing of the return by a Company which no longer

exists.

10. On the basis of the aforesaid submissions, the learned

counsel for the petitioner prayed for allowing of the present

writ petition and quashment of the proceedings drawn.

11. Per contra, learned counsel for the respondents/

Income Tax Department opposing the petition contended

that it is a case where admittedly, on the amalgamation of

the two Companies, neither the transferee nor the

transferor intimated the respondent authorities in respect of

the amalgamation. It was also contended that since the

petitioner's Company or the merged Company failed in their

duty and responsibility of intimation of amalgamation to the

respondent authorities, in the eyes of law, the said

Companies were in existence. Thereafter, the issuance of

the notices cannot be faulted with, nor can be the same

said to be bad in law.

12. It was also the contention of the learned counsel for

the respondents that now that the notices have been issued

under Section 148, the petitioner can enter appearance and

make all the submissions that they have, including the plea

of amalgamation. And the respondent authorities would be

scrutinizing the same on its own merits in accordance with

the law. It was further contended that, it was mandatorily

required for the petitioner to have obtained a No Objection

Certificate from the Income Tax Department so far as their

being no dues payable on its part for the purpose of getting

approval for the scheme of amalgamation. In the absence of

No Objection Certificate obtained from the Income Tax

Department and in addition there being no intimation given

to the Income Tax Department and the amalgamating

Company i.e. the petitioner being located in a different

range, the authorities concerned cannot be said to have

committed any mistake or error while issuing the said

notice to the amalgamating company i.e. Siri Drugs India

Private Limited.

13. This again, according to the learned counsel for the

respondent can be raised by the petitioner in respect of the

notice and proceedings initiated which shall be duly

considered in accordance with law. For this reason also, the

learned counsel prayed for rejection of the writ petition.

14. Learned counsel for the respondent placed heavy

reliance on the judgment of the High Court of Delhi in the

case of Sky Light Hospitality LLP Vs. Assistant

Commissioner of Income Tax, Circle-28(1), New Delhi 2

and contended that the High Court of Delhi in an identical

set of facts had refused to entertain the writ petition and

directed the amalgamated Company to raise all these

objections and grounds before the authorities concerned

themselves.

15. Having heard the contentions and submissions put

forth by the learned counsel appearing on either side and

on perusal of records, some of the admitted factual matrix

of the case which needs to be considered is that; C.P.No.41

of 2016 was allowed by High Court approving the scheme of

amalgamation with M/s. Virchow Drugs Limited vide order

dated 13.03.2016. Further, in the approval of the scheme of

amalgamation by High Court, the transferor Company i.e.

Siri Drugs India Private Limited got merged with the

transferee Company i.e. M/s.Virchow Drugs Limited. The

approval and sanction granted for the amalgamation is from

the appointed date i.e. 01.04.2015.

(2018) 405 ITR 296 (Delhi)

16. Another admitted fact is that, technically pursuant to

the approval of the scheme given by the High Court, the

transferor Company i.e. Siri Drugs India Private Limited has

become extinct with effect from 01.04.2015. This in other

words also means that Siri Drugs India Private Limited was

no longer in existence from the appointed day i.e

01.04.2015.

17. What is required to be taken note of at this juncture is

that, the Hon'ble Supreme Court of India recently had an

occasion of dealing with an issue, similar to the instant writ

petition in the case of Maruti Suzuki (India) Limited, supra.

The matter which went to the Hon'ble Supreme Court was

one where the Division Bench of the High Court had upheld

the decision of the Tribunal holding that assessment and

the proceedings drawn against M/s. Suzuki Powertrain

India Limited (for short "SPIL") is a nullity, since the said

entity had got amalgamated with Maruti Suzuki (India)

Limited after the approval of the scheme of amalgamation.

18. The Hon'ble Supreme Court, in the aforesaid case,

after considering the contentions raised on either side and

after elaborately deliberating upon the issue, dismissed the

appeal filed by the Income Tax Department. The Hon'ble

Supreme Court affirmed the order of the Division Bench of

the High Court and that of the Tribunal holding that any

proceedings/assessment initiated against an amalgamated

Company is a nullity in the eye of law.

19. What is also relevant at this juncture is that, while

deciding the said issue, the Hon'ble Supreme Court has

considered the two judgments cited by the learned counsel

on either side i.e. Spice Infotainment Ltd. v.

Commissioner of Income Tax 3 relied upon by the learned

counsel for the petitioner and the case of Sky Light

Hospitality LLP, supra, relied upon by the learned counsel

for the respondent, both being the judgments from the High

Courts. It is thereafter that the Hon'ble Supreme Court

reached to the aforesaid conclusion that the notices and

proceedings initiated against the amalgamated Company

deserves to be set aside/quashed.

(2012) 247 CTR 500

20. The Hon'ble Supreme Court finally endorsing the

earlier view of the High Court of Delhi in the case of Spice

Infotainment, supra, in paragraph Nos.33 to 35 held as

under:

"In the present case, despite the fact that the AO was informed of the amalgamating company having ceased to exist as a result of the approved scheme of amalgamation, the jurisdictional notice was issued only in its name. The basis on which jurisdiction was invoked was fundamentally at odds with the legal principle that the amalgamating entity ceases to exist upon the approved scheme of amalgamation. Participation in the proceedings by the appellant in the circumstances cannot operate as an estoppels against law. This position now holds the filed in view of the judgment of a co-ordinate Bench of two learned judges which dismissed the appeal of the Revenue in Spice Enfotainment on 2nd Nov., 2017. The decision in Spice Enfotainment has been followed in the case of the respondent while dismissing the Special Leave Petition for asst. yr. 2011-12. In doing so, this Court has relied on the decision in Spice Enfotainment.

We find no reason to take a different view. There is a value which the Court must abide by in promoting the interest of certainty in tax litigation. The view which has been taken by this Court in relation to the respondent for asst. yr. 2011-12 must, in our view be adopted in respect of the present appeal which relates to asst. yr. 2012-13. Not doing so will only result in uncertainty and displacement of settled expectations. There is a significant value which must attach to observing the requirement of consistency and certainty. Individual affairs are conducted and business decisions are made in the expectation of consistency, uniformity and certainty. To detract from those principles is neither expedient nor desirable.

For the reasons, we find no merit in the appeal. The appeal is accordingly dismissed. There shall be no order as to costs."

21. It is also relevant at this juncture to take note of yet

another recent decision of the High Court of Bombay in the

case of SLSA INDIA (P) LTD. VS. DEPUTY COMMISSIONER OF

INCOME TAX 4, wherein the Bombay High Court reiterating

the view of the High Court of Delhi in the case of Spice

Infotainment, supra, and also following the dictum of the

Hon'ble Supreme Court in the case of Maruti Suzuki (India)

Limited, supra, in paragraph Nos.7 and 8 has held as

under:

"The stand of the Revenue that the reassessment was justified in view of the fact that the PAN in the name of the non-existent entity had remained active does not create an exception in the favour of the Revenue to dilute in any manner the principles enunciated hereinabove.

Be that as it may the writ petition is allowed. The impugned notice dt. 31st March, 2021 the order of assessment dt. 31st March, 2022 as also the consequential demand notice and penalty notice dt. 31st March, 2022 are set aside."

22. Given the aforesaid facts and circumstances of the

case and also the admitted factual matrix, as has been,

revealed in the preceding paragraphs, we are of the

considered view that the present is also the case which

(2023) 7 NYPCTR 174 (Bom)

squarely stands covered by the decision of the Hon'ble

Supreme Court in the case of Maruti Suzuki (India)

Limited (supra), and the recent decision of the High Court

of Bombay in the case of SLSA INDIA (P) LTD., (supra), and

the earlier judgment of the High Court of Delhi in the case

of Spice Infotainment (supra).

23. The present Writ Petition deserves to be and is