4. Pr. Commissioner of Income Tax (New Delhi) vs.
Maruti Suzuki India Limited (2019) 416 ITR 613 (SC)
Assessment
– Notice to non-existing person – 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 estoppel against law – Not a
procedural violation of the nature adverted to in section 292B
The assessee was a joint
venture between Suzuki Motor Corporation and Maruti Suzuki India Limited (MSIL)
in which the shareholding was 70% and 30%, respectively. It was known upon
incorporation as Suzuki Metal India Limited. Subsequently, with effect from 8th
June, 2005, its name was changed to Suzuki Powertrain India Limited (SPIL).
Some time later, on 28th
November, 2012, the assessee filed its return of income for the A.Y. 2012-13
declaring an income of Rs. 212,51,51,156. The return of income was filed in the
name of SPIL (no amalgamation having taken place on the relevant date).
On 29th
January, 2013, a scheme for amalgamation of SPIL and MSIL was approved by the
High Court with effect from 1st April, 2012. The terms of the
approved scheme provided that all liabilities and duties of the transferor
company would stand transferred to the transferee company without any further
act or deed. On the scheme coming into effect, the transferor was to stand
dissolved without winding up. The scheme stipulated that the order of
amalgamation would not be construed as an order granting exemptions from the
payment of stamp duty or taxes or any other charges, if payable, in accordance
with the law.
Accordingly,
on 2nd April 2013, MSIL intimated the AO about the amalgamation. The
case was selected for scrutiny with the issuance of a notice u/s 143(2) on 26th
September, 2013 followed by a notice u/s 142(1) to the amalgamating
company.
On 22nd
January, 2016, the Transfer Pricing Officer passed an order u/s 92CA(3)
determining the Arm’s Length Price of royalty at 3% and making an adjustment of
Rs. 78.97 crores in respect of royalty paid by the assessee for the relevant
previous year.
A draft
assessment order was then passed on 11th March, 2016 in the name of
Suzuki Powertrain India Limited (amalgamated with Maruti Suzuki India Limited).
The draft assessment order sought to increase the total income of the assessee
by Rs. 78.97 crores in accordance with the order of the TPO in order to ensure
that the international transaction with regard to the payment of royalty to the
associated enterprises is at arm’s length.
MSIL
participated in the assessment proceedings of the erstwhile amalgamating
entity, SPIL, through its authorised representatives and officers.
On 12th
April, 2016, MSIL filed an appeal before the Dispute Resolution Panel as
successor in interest of the erstwhile SPIL, since amalgamated. Form 35A was
verified by Mr. Kenichi Ayukawa, MD and CEO of MSIL. The grounds of appeal did
not allude to the objection that the draft assessment order was passed in the
name of SPIL (amalgamated with MSIL), or that this defect would render the
assessment proceedings invalid.
The DRP, on 14th
October, 2016, issued its order in the name of MSIL (as successor in interest
of the erstwhile SPIL, since amalgamated).
But the final assessment
order was passed on 31st October, 2016 in the name of SPIL
(amalgamated with MSIL), making an addition of Rs. 78.97 crores to the total
income of the assessee. While preferring an appeal before the Tribunal, the
assessee raised the objection that the assessment proceedings were continued in
the name of the non-existent or merged entity SPIL and that the final assessment
order which was also issued in the name of a non-existent entity, would thus be
invalid.
By its decision dated 6th
April, 2017 the Tribunal set aside the final assessment order on the ground
that it was void ab initio, having been passed in the name of a
non-existent entity by the AO. The decision of the Tribunal was affirmed in an
appeal u/s 260A by the Delhi High Court on 9th January, 2018
following its earlier decision in the case of the assessee for the A.Y.
2011-12.
On further appeal by the Revenue,
the Supreme Court observed that while assessing the merits of the rival
submissions, it was necessary at the outset to advert to certain significant
facets of the present case:
First, the income which is
sought to be subjected to the charge of tax for A.Y. 2012-13 was the income of
the erstwhile entity (SPIL) prior to amalgamation. This was on account of a
transfer pricing addition of Rs. 78.97 crores;
Second, under the approved
scheme of amalgamation, the transferee had assumed the liabilities of the
transferor company including tax liabilities;
Third, the consequence of
the scheme of amalgamation approved u/s 394 of the Companies Act 1956 was that
the amalgamating company ceased to exist (Saraswati Industrial Syndicate
Ltd. [282 ITR 186]);
Fourth, upon the
amalgamating company ceasing to exist, it cannot be regarded as a person u/s
2(31) of the Act, 1961 against whom assessment proceedings can be initiated or
an order of assessment passed;
Fifth, a notice u/s 143(2)
was issued on 26th September, 2013 to the amalgamating company,
SPIL, which was followed by a notice to it u/s 142(1);
Sixth, prior to the date on
which the jurisdictional notice u/s 143(2) was issued, the scheme of
amalgamation had been approved on 29th January, 2013 by the High
Court of Delhi under the Companies Act, 1956 with effect from 1st April,
2012;
Seventh, the AO assumed
jurisdiction to make an assessment in pursuance of the notice u/s 143(2). The
notice was issued in the name of the amalgamating company in spite of the fact
that on 2nd April, 2013 the amalgamated company MSIL had addressed a
communication to the AO intimating to him the fact of the amalgamation.
According
to the Supreme Court, in the above conspectus of the facts, the initiation of
assessment proceedings against an entity which had ceased to exist was void ab
initio.
The
Court noted that in Spice Entertainment, a Division Bench of the
Delhi High Court (2012) 280 ELT 43 (Delhi) dealt with the
question as to whether an assessment in the name of a company which has been
amalgamated and has been dissolved is null and void, or whether the framing of
an assessment in the name of such company is merely a procedural defect which
can be cured. The High Court held that upon a notice u/s 143(2) being
addressed, the amalgamated company had brought the fact of the amalgamation to
the notice of the AO. Despite this, the AO did not substitute the name of the
amalgamated company and proceeded to make an assessment in the name of a
non-existent company which rendered it void. This, in the view of the High
Court, was not merely a procedural defect. Moreover, the participation by the
amalgamated company would have no effect since there could be no estoppel against law.
Following
the decision in Spice Entertainment, the Delhi High Court quashed
the assessment orders which were framed in the name of the amalgamating company
in (i) Dimension Apparels; (ii) Micron Steels; and (iii) Micra India. The Supreme
Court noted the facts in all these three cases.
The
Supreme Court further noted that a batch of civil appeals was filed before it
against the decisions of the Delhi High Court, the lead appellant being Spice
Enfotainment. On 2nd November, 2017 the Supreme Court
dismissed the civil appeals and tagged Special Leave Petitions.
It
observed that the doctrine of merger results in the settled legal position that
the judgement of the Delhi High Court stands affirmed by the above decision in
the civil appeals.
The
Supreme Court further noted that the order of assessment in the case of the
respondent for A.Y. 2011-12 was set aside on the same ground. This resulted in
a Special Leave Petition by the Principal Commissioner of Income Tax – 6,
Delhi. The SLP was dismissed on 16th July, 2018 in view of the order
dated 2nd November, 2017 governing Civil Appeal No. 285 of 2014 in Spice
Enfotainment and the connected batch of cases. According to the Supreme
Court, although leave was not granted by it, reasons had been assigned by the
Supreme Court for rejecting the SLP. The law declared would attract the
applicability of Article 141 of the Constitution (Kunhayammed, 381 ITR
245).
After
considering the contention urged on behalf of the Revenue that a contrary
position emerges from the decision of the Delhi High Court in Skylight
Hospitality LLP (405 ITR 296) which was affirmed on 6th April,
2018 by the Supreme Court, it held that there was no conflict between the
decisions of the Supreme Court in Spice Enfotainment (dated 2nd
November, 2017) and in Skylight Hospitality LLP (dated 6th April,
2018).
Referring
to the provisions of section 292B of the Income-tax Act, the Supreme Court held
that in this case the notice u/s 143(2) under which jurisdiction was assumed by
the AO was issued to a non-existent company. The assessment order was issued
against the amalgamating company. This was a substantive illegality and not a
procedural violation of the nature adverted to in section 292B.
The
Supreme Court ultimately concluded that 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 approval of the scheme of amalgamation. Participation in
the proceedings by the appellant in the circumstances cannot operate as an estoppel
against law. This position now holds the field in view of the judgement of a
Co-ordinate Bench which dismissed the appeal of the Revenue in Spice
Enfotainment on 2nd November, 2017. The decision in Spice
Enfotainment had been followed in the case of the respondent while
dismissing the Special Leave Petition for A.Y. 2011-12. Thus, there was no
reason to take a different view.
For the
above reasons, the Supreme Court found no merit in the appeal and accordingly
dismissed it.
