Landmark Cases on Company and Corporate Restructuring

An assessment order framed against a company that has ceased to exist due to amalgamation is invalid and non-est in law. Jurisdictional issues concerning the assessment of a non-existent entity can be raised as an additional ground before the Income Tax Appellate Tribunal.

The provisions of Section 2(22)(e) are not applicable to a concern receiving a payment from a closely held company, even if a shareholder of the company holds a substantial interest in that concern, unless the concern itself is the registered shareholder of the company.

Once a resolution plan is approved by the NCLT under Section 31(1) of the IBC, all claims, including statutory dues owed to the Central or State Government, are frozen and become binding on all stakeholders. This extinguishes any prior tax demands, such as those under Section 178(6) of the Income Tax Act, if not part of the approved plan.

Genuine trade advances made by a company in the ordinary course of business to a shareholder do not fall within the definition of deemed dividend under Section 2(22)(e) of the Income-tax Act.

An assessment order passed against an amalgamating company (transferor company) after its cessation due to amalgamation is invalid and void ab initio, as the entity no longer exists in the eyes of law.

For Section 2(22)(e) to apply, a payment by a company must be in the nature of a loan or advance, and the company must have accumulated profits. Such payments to a concern in which a shareholder, holding more than 10% voting power, has a substantial interest are deemed dividends if the shareholder ultimately benefits, even if routed through different modes or concerns.

A loan or advance is treated as a deemed dividend under Section 2(22)(e) only when the recipient (lendee) is a shareholder of the lending company. The provision does not apply if the lendee is not a direct shareholder, even in cases involving fellow subsidiaries.

Trade advances or commercial transactions do not fall within the definition of 'deemed dividend' under section 2(22)(e) of the Income-tax Act, 1961.

Upon amalgamation, the amalgamating company ceases to exist in the eyes of the law. Therefore, any assessment or proceeding initiated against a non-existent amalgamating company is invalid as it is no longer considered a 'person' under the Income-tax Act.

For the purpose of deemed dividend under section 2(22)(e) of the Income-tax Act, the term 'shareholder' refers exclusively to a registered shareholder of the company, and not a beneficial owner or non-shareholder.

The case clarifies that the doctrine of identification, which seeks to pinpoint the 'directing mind and will' of a company for liability, does not apply to large listed companies. It also explains that merely being a promoter does not automatically equate to control over the company.

A loan or advance from a closely held company to a 'concern' where a common shareholder has a substantial interest is not a deemed dividend under Section 2(22)(e) for the 'concern' if it is not a shareholder of the lending company. Deemed dividend under Section 2(22)(e) is taxable only in the hands of the registered or beneficial shareholder.

An assessment framed by the Assessing Officer in the name of a defunct transferor company is valid if the assessee failed to intimate the AO about the merger or amalgamation.

When an amalgamating company ceases to exist due to a scheme of arrangement or merger, any subsequent assessment or action under the Income-tax Act initiated against that non-existent entity is void ab initio, as it is not a 'person' under Section 2(31).

The principle of succession dictates that all benefits under the Income Tax Act, including the carry forward and set-off of capital losses, due to an amalgamating company devolve upon the amalgamated company.

An assessment order passed against a transferor company that has ceased to exist due to amalgamation or demerger is non est in the eyes of law and void, as this constitutes a jurisdictional error not curable under Section 292B of the Income-tax Act.

A transfer of an industrial undertaking where the ownership changes hands in reality and effectively is not considered a reconstruction. Reconstruction implies the original business continues to function and its identity is preserved.

A shareholder has no interest in the property of a company. A shareholder's right is limited to participating in profits if and when the company decides to distribute them.

Convertible debentures (CCDs) continue to be classified as debt until they are converted into equity. During the pre-conversion period, interest paid on CCDs is treated as interest on debt, not as interest on equity.

In a scenario involving amalgamation, the accumulated losses and unabsorbed depreciation of an undertaking can be carried forward by the amalgamating company if it continues the business of the undertaking.

The Insolvency and Bankruptcy Code, 2016 overrides any other enactment, including the Income Tax Act, when an NCLT has declared a moratorium under Section 14 of the IBC. Proceedings against the assessee are barred during the moratorium.

All claims, including statutory dues, that predate the approval of a resolution plan under the IBC stand extinguished by operation of law. No proceedings can be initiated or continued for such claims if they are not part of the approved plan.