M/S RAINAWARI FIN.and INVESTMENT CO.PVT.LT vs. INCOME TAX OFFICER

“Whether on the facts and circumstances of the case, the ITAT erred in law in not appreciating that the name of the appellant company had been struck off from the Register of the Companies by the Registrar and the aforesaid company was dissolved under provisions of Section 560 of the Companies Act, 1956, prior to the date of passing of the assessment order?

vide its order dated 05.02.2008. Second appeal was preferred by the appellant-Company before the Tribunal. The Tribunal vide its order dated 13.08.2010 allowed the appeal and remanded the case back to Commissioner of Income Tax (Appeals) to adjudicate the case afresh after complying with necessary requirements of deposit of fee in terms of the relevant provisions of the Act. On remand, Commissioner of Income Tax (Appeals) after providing an opportunity of being heard to the appellant passed fresh order on 01.04.2013 dismissing the appeal of the appellant-company and confirming the addition made by the assessing authority in the impugned assessment order. The Commissioner of Income Tax (Appeals) rejected the contention of the appellant-company that no assessment order could have been passed against the company which had become defunct. It is this order of the Commissioner of Income Tax (Appeals) dated 01.04.2013, which was assailed by the appellant- company before the Tribunal. The Tribunal concurred with the view of the 1st appellate authority and dismissed the appeal of the appellant- company vide order dated 30.01.2014, which is assailed before us in this appeal. 3. The impugned order is assailed by the appellant on a solitary ground that the assessing authority could not have passed an assessment order against the Company, which, at the time of making of the

assessment order, stood dissolved under the provisions of Section 560(5) of the Companies Act. 4. It is argued by Mr. K.S.Johal, learned senior counsel appearing for the appellant, that on the date of making assessment by the assessing authority the appellant-company had ceased to exist and stood dissolved under Section 560(5) of the Companies Act and a notification in this regard stood published in Government Gazette dated April 22 to April 28, 2006. He, however, fairly concedes that despite the notice with regard to striking off of the Company w.e.f. 31.03.2006 having been published on the date of making assessment, appellant could not bring this fact to the notice of the assessing authority at the time of making the assessment. He, however, submits that dissolution of the Company and striking off its name from the Register of the Companies in terms of Section 560 of the Companies Act was a fact, though, the evidence in respect thereto could not be brought to the notice of the authorities despite due diligence. He submits that since the company was defunct and, therefore, the directors, who had lost interest in the affairs of the company, could not notice the gazette notification dated 22nd-28th April, 2006. He, however, submits that in view of the evidence, which is now available with the appellant-company, the matter needs to be remanded back to the assessing authority for taking appropriate view in the matter. 5. Per contra, Ms. Aruna Thakur, learned counsel appearing for the respondent, argues that the fact that the company stood formally

dissolved under Section 560(5) of the Companies Act was not brought to the notice of the income tax authorities including the Tribunal by the appellant and, therefore, the appellant-company cannot be heard to make a grievance that the aforesaid aspect was not considered by the authorities. She submits that the only argument that was raised by the appellant before the income tax authorities was that the company had become defunct and, therefore, could not be subjected to assessment under Section 143(3) of the Income Tax Act. 5. Having heard learned counsel for the parties and perused the material on record, on facts, we find that the appellant-company was struck off from the Register of Companies and stood dissolved from the date of publication of a notice in The Gazette of India issued for 22nd to 28th April, 2006. 6. Indisputably, the order of assessment against the appellant- company was made on 21.12.2006. The status of the appellant-company on the date of making assessment was that the appellant-company stood struck off from the Register of Companies and dissolved w.e.f. the publication of notice in the Official Gazette. For the sake of clarity, we set out Section 560 of the Companies Act herein below:- “560. Power of Registrar to strike defunct company off register.--- (1) Where the Registrar has reasonable cause to believe that a company is not carrying on business or in operation, he shall send to the company by post a letter inquiring whether the company is carrying on business or in operation. (2) If the Registrar does not within one month of sending the letter receive any answer thereto, he shall, within fourteen days after the expiry of the

month, send to the company by post a registered letter referring to the first letter, and stating that no answer thereto has been received and that, if an answer is not received to the second letter within one month from the date thereof, a notice will be published in the Official Gazette with a view to striking the name of the company off the register. (3) If the Registrar either receives an answer from the company to the effect that it is not carrying on business or in operation, or does not within one month after sending the second letter receive any answer, he may publish in the Official Gazette, and send to the company by registered post, a notice that, at the expiration of three months from the date of that notice, the name of the company mentioned therein will, unless cause is shown to the contrary, be struck off the register and the company will be dissolved. (4) If, in any case where a company is being wound up, the Registrar has reasonable cause to believe either that no liquidator is acting, or that the affairs of the company have been completely wound up, and any returns required to be made by the liquidator have not been made for a period of six consecutive months, the Registrar shall publish in the Official Gazette and send to the company or the liquidator, if any, a like notice as is provided in sub-section (3). (5) At the expiry of the time mentioned in the notice referred to in sub- section (3) or (4), the Registrar may, unless cause to the contrary is previously shown by the company, strike its name off the register, and shall publish notice thereof in the Official Gazette ; and on the publication in the Official Gazette of this notice, the company shall stand dissolved :

Provided that – (a) the liability, if any, of every director, manager or other officer who was exercising any power or management, and of every member of the company, shall continue and may be enforced as if the company had not been dissolved ; and (b) nothing in this sub-section shall affect the power of the 2 [Tribunal] to wind up a company the name of which has been struck off the register.

(6) If a company, or any member or creditor thereof, feels aggrieved by the company having been struck off the register, the Tribunal, on an application made by the company, member or creditor before the expiry of twenty years from the publication in the Official Gazette of the notice aforesaid, may, if satisfied that the company was, at the time of the striking off, carrying on business or in operation or otherwise that it is just that the

company be restored to the register, order the name of the company to be restored to the register ; and the Tribunal may, by the order, give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off. (7) Upon a certified copy of the order under sub-section (6) being delivered to the Registrar for registration, the company shall be deemed to have continued in existence as if its name had not been struck off. (8) A letter or notice to be sent under this section to a company may be addressed to the company at its registered office, or if no office has been registered, to the care of some director, manager or other officer of the company, or if there is no director, manager or officer of the company whose name and address are known to the Registrar, may be sent to each of the persons who subscribed the memorandum, addressed to him at the address mentioned in the memorandum. (9) A notice to be sent under this section to a liquidator may be addressed to the liquidator at his own place of business.”

dissolution of company whose name has been struck off from the Register, shall affect the power of the competent Court to wind up a company. 8. The provisions of Subsection (6), if read carefully, would indicate that if a company or any member or creditor of the company feels aggrieved by the decision of the Registrar to strike off registration of the company, it can move an application before the Court before the expiry of twenty years from the publication in the Official Gazette of the notice under Subsection (5) and if the Court is satisfied that the company was, at the time of striking off, carrying on business or in operation or otherwise that it is just that the company be restored to the register, it may order the name of the company to be restored to the register. The Court may also order such directions and make such provision as may be seem just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off. 9. In terms of Subsection (7), once a certified copy of the order passed under Subsection (6) is delivered to the Registrar of Companies for registration, the dissolved company shall be deemed to have continued in existence as if its name had not been struck off. 10. On careful circumspection of Section 560 of the Companies Act, we clearly find that striking off company from the Register of

Companies and its resultant dissolution under Subsection (5), remains under suspended animation and by having recourse to Subsections (6) & (7), it can be resuscitated back to life and continued as if its name had not been struck off. It is, thus, evident that for the purpose of challenging the action of the Registrar striking off registration of the company and effecting its dissolution by publication in the Official Gazette, the company is conferred a juridical personality and may in its own name file an application before the Court for setting aside the order passed by the Registrar under Subsection (5) of Section 560 of the Companies Act. 11. Similarly, under Section 226(3) of the Income Tax Act, it is clearly provided that if there is any tax due from the struck off company, same can be recovered from any person who holds or may subsequently hold money for or on account of the assessee company. Section 226(3) of the Income Tax Act is also relevant for the purpose of discussion we have undertaken and the same is reproduced herein below:- “226. Other modes of recovery (1) ……………. (2) ……………. (3) (i) The Income-tax Officer may, at any time or from time to time, by notice in writing require any person from whom money is due or may become due to the assessee or any person who holds or may subsequently hold money for or on account of the assessee, to pay to the Income-tax Officer either forthwith upon the money becoming due or being held or at or within the time specified in the notice (not being before the money becomes due or is held) so much of the money as is sufficient to pay the amount due by the assessee in respect of arrears or the whole of the money when it is equal to or less than that amount.

(ii) A notice under this sub-section may be issued to any person who holds or may subsequently hold any money for or on account of the assessee jointly with any other person and for the purposes of sub-section, the shares of the joint-holders in such account shall be presumed, until the contrary is proved, to be equal. (iii) A copy of the notice shall be forwarded to the assessee at his last address known to the Income-tax Officer, and in the case of a joint account to all the joint-holders at their last addresses known to the Income-tax Officer. (iv) Save as otherwise provided in this sub-section, every person to whom a notice is issued under this sub-section shall be bound to comply with such notice, and, in particular, where any such notice is issued to a post office, banking company or an insurer, it shall not be necessary for any pass book, deposit receipt, policy or any other document to be produced for the purpose of any entry, endorsement or the like being made before payment is made, notwithstanding any rule, practice or requirement to the contrary. (v) Any claim respecting any property in relation to which a notice under this sub-section has been issued arising after the date of the notice shall be void as against any demand contained in the notice. (vi) Where a person to whom a notice under this sub- section is sent objects to it by a statement on oath that the sum demanded or any part thereof is not due to the assessee or that he does not hold any money for or on account of the assessee, then, nothing contained in this sub-section shall be deemed to require such person to pay any such sum or part thereof, as the case may be, but if it is discovered that such statement was false in any material particular, such person shall be personally liable to the Income-tax Officer to the extent of his own liability to the assessee on the date of the notice, or to the extent of the assessee's liability for any sum due under this Act, whichever is less. \(vii) The Income-tax Officer may, at any time or from time to time, amend or revoke any notice issued under this sub-section or extend the time for making any payment in pursuance of such notice. (viii) The Income-tax Officer shall grant a receipt for any amount paid in compliance with a notice issued under this sub-section, and the person so paying shall be fully discharged from his liability to the assessee to the extent of the amount so paid. (ix) Any person discharging any liability to the assessee after receipt of a notice under this sub-section shall be personally liable to the Income-tax Officer to the extent of his own liability to the assessee so discharged or to the extent of the assessee's liability for any sum due under this Act, whichever is less.

(x) If the person to whom a notice under this sub- section is sent fails to make payment in pursuance thereof to the Income-tax Officer, he shall be deemed to be an assessee in default in respect of the amount specified in the notice and further proceedings may be taken against him for the realisation of the amount as if it were an arrear of tax due from him, in the manner provided in sections 222 to 225 and the notice shall have the same effect as an attachment of a debt by the Tax Recovery Officer in exercise of his powers under section 222.”

(2) Where a private company is converted into a public company and the tax assessed in respect of any income of any previous year during which such company was a private company cannot be recovered, then, nothing contained in sub-section (1) shall apply to any person who was a director of such private company in relation to any tax due in respect of any income of such private company assessable for any assessment year commencing before the 1st day of April, 1962.” 13. From a reading of the aforesaid provisions together, it clearly comes out that notwithstanding dissolution of a struck off company in terms of Subsection (5) of Section 560 of the Income Tax Act, liability of any person who holds or may subsequently hold money for and on account of the assessee company or a director of the private company in respect whereof any tax is due in respect of any income of the previous year, as is provided under Section 226(3) and Section 179 of the Income Tax Act, still remains and such person or director shall have the locus standi to challenge the assessment order, if any, passed by the assessing officer against such struck off and dissolved company in respect of any income of the previous year. 14. The aforesaid discussion would lead us to a conclusion that in the instant case any director of the company could have filed an appeal challenging the assessment order on the ground that the liability arising out of the impugned assessment order, under the circumstances pointed out in Section 179 of the Income Tax Act, could be fastened upon him. Interestingly, all proceedings, in the first appeal before the Commissioner Income Tax (Appeals) and second appeal before the

Tribunal were filed in the name of the company suing through its director Jeane Fernades. 15. We are not in agreement with the argument of Mr. K.S.Johal, learned senior counsel that in terms of Section 250 of the Companies Act, 2013, the dissolved company is competent in its name to file first and second appeal as also the instant appeal. We do not agree with the learned senior counsel for the simple reason that Section 250 of the Companies Act, 2013 was not in existence in the year 2006 nor do we find any provision parallel to and in pari materia with Section 250 of the Companies Act, 2013 in the Companies Act, 1956, as was applicable at the relevant point of time. 16. True it is that in terms of Section 250 of the Companies Act, 2013, where a company stands dissolved under Section 248 of the Companies Act, 2013 (which is in pari materia with Section 560 of the Companies Act, 1956) the certificate of incorporation issued to such company shall be deemed to have been cancelled except for the purpose of realizing the amount due to the company or for payment or discharge of the liability or obligation of the company. 17. It is equally true that after promulgation of the Companies Act, 2013 and in view of the specific provision made in Section 250 thereof, the dissolved company is by fiction of law conferred the juridical personality and may, therefore, be competent to challenge the

assessment order, if any, passed against it when it stood dissolved by the Registrar under Section 248 of the Companies Act, 2013. In the absence of similar provision under the Companies Act, 1956 and in view of the discussion made herein above, we are of the considered opinion that in the instant case the company was given fictional juridical personality only for the purpose of laying challenge before the Court to the order of the Registrar striking it off from the Register and effecting its dissolution upon publication of the notice in the Official Gazette and no more. The directors of the company who under some circumstances may be held liable to pay the dues owned by the company to the department are competent in law to take proceedings against the assessment order passed against a dissolved company, if they feel aggrieved. 18. We are, thus, of the view that all the proceedings by the company before the Commissioner, Income Tax (Appeals) and the Tribunal were not maintainable in law. Similarly, instant appeal by the company is not maintainable. The company having ceased to exist was not competent to challenge the assessment order, though, the director may have. Since the company all along is represented by the director, as such, in the larger interest of doing justice and putting an early quietus on the matter, we hold that all proceedings taken in the name of the company shall be treated to be the proceedings by the director of the company.

aware that when a company becomes defunct and its management goes haywire, there is nobody to take the responsibility of the affairs of the company. Even mice leave the ship when it is sinking. It is in these circumstances, perhaps, the director of the company could not lay his hand on the Official Gazette and was under a bona fide impression that the application for striking off the company from the Register of the Companies and effecting dissolution by publication was still pending before the Registrar of Companies. 21. Be that as it may, now it has come to light that on the date the assessment order was passed, the appellant-company stood dissolved under Section 560(5) of the Companies Act and, therefore, could not have been assessed. In terms of Section 143 of the Income Tax Act, assessment can be made by the assessing authority only against the assesee, who has filed a return under Section 139 of the Income Tax Act or in response to a notice issued under Subsection (1) of Section 142 of the Income Tax Act. The term “assessee” is defined in Subsection (7) of Section 2 of the Income Tax Act to mean that a person by whom any tax or any other sum of money is payable under the Income Tax Act and the term “person” used in Subsection (7) is defined in Subsection (31) of Section 2 of the Income Tax Act to include an individual, a Hindu undivided family, a company, a firm, an association of person or a body of individuals, whether incorporated or not, a local authority, and every

artificial juridical person, not falling within any of the aforesaid clauses etc etc. 22. From a reading of Subsection (7) along with Subsection 31 of Section 2 of the Income Tax Act, it becomes abundantly clear that the assessee to be assessed for income tax under Section 143 of the Income Tax Act must be a person in existence. Indisputably, a company is a juridical person but the moment it is struck off from the Register of Companies and is dissolved, it ceases to exist. Making of an assessment order against a non-existent company would be like passing a decree by a civil court against a dead person. Such order of assessment made against a non-existent entity would be nullity and would not give rise to any right or liability under such assessment order. The view we have taken is supported by a judgment of the High Court of Delhi dated 17.09.2009 passed in ITA No.273/2009 titled Commissioner of Income Tax v. Vived Marketing Servicing Pvt. Ltd. One paragraph judgment rendered by the Delhi High Court has upheld the decision of ITAT in Impsat Pvt. Ltd. v. ITO 276 ITR 136 (AT). One paragraph judgment reads thus:- “When the Assessing officer passed the order of assessment against the respondent company, it had already been dissolved and struck off the register of the Registrar of companies under Section 560 of the Companies Act. In these circumstances, the Tribunal rightly held that there could not have been any

assessment order passed against the company which was not in existence as on that date in the eyes of law it had already been dissolved. The Tribunal relied upon its earlier decision in Impsat Pvt. Ltd. v. ITA 276 ITR 136 (AT). We are of the opinion that the view taken by the Tribunal is perfectly valid and in accordance with law. No substantial question of law arises. Dismissed.” 23. The relevant observations of the ITAT Delhi Bench in Impsat (P) Ltd. v. Income Tax Officer are also worth taking note of and are, thus, set out below:- “17. A reference to page 1901 of A. Ramaiya’s commentary on the Companies Act, 1956 (12th Edition) by Hon’ble Justice Y.V. Chandrachud (former Chief Justice of India) shows the following extract from Halsbury’s Laws of England, fourth ediction, Vol.7, para 1448, page 809 under the heading “Effecting of dissolution”. “The dissolution puts an end to the existence of the company. Unless and until it has been set aside, it prevents any proceedings being taken against promoters, directors or officers of the company to recover money or property due or belonging to it or to prove a debt due from it. When the company is dissolved, the liquidator’s statutory duty towards the creditors and contributories is gone; but, if he has committed a breach of his duty to any creditor by distributing the assets without complying with the requirements of the Companies Act, 1948, he is liable in damages to him.”

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(Mohan Lal) (Sanjeev Kumar)

Judge Judge JAMMU 03.11.2023 Vinod,PS

Whether the order is reportable: Yes