Wednesday, December 31, 2014

Defect of framing assessment on non-existent entity couldn't be cured by resorting to sec. 292B


a) The assessee-company had been amalgamated with another company under Sections 391(2) and 394 of the Companies Act. Consequently, the assessment order was made on the assessee.

b) Aggrieved by the assessment order, the assessee appealed to the CIT(A). It argued that the assessment order was invalid, because on the date on which order was passed, it had already ceased to exist (having been amalgamated). The CIT(A) held in favour of assessee. 

c) The revenue, being aggrieved by the order of CIT(A) appealed to the ITAT, which upheld the order of CIT(A). Finally the aggrieved revenue filed the instant appeal.

The High Court held in favour of assessee as under:

1) In case of Spice Entertainment Ltd. v. CIT [IT Appeal No. 475 of 2011] the Delhi High court held that:

“it [becomes] incumbent upon the Income Tax Authorities to substitute the successor in place of the said 'dead person'. Such a defect cannot be treated as procedural defect... 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."

2) In Spice Entertainment Ltd. (supra), this Court expressly classified "the framing of assessment against a non-existing entity/person" as a jurisdictional defect. This had been a consistent position. In case of CIT v. Express Newspapers Ltd. [1960] 40 ITR 38 (Mad), the Madras High Court held that:

“there cannot be an assessment of non-existent person. The assessment in the instant case was made long after the Free Press Company was stuck off from the register of the companies, and it could not be valid."

3) It was clear that all contentions sought to be urged by the revenue were in respect of familiar grounds, which had been ruled upon, against it. Thus, assessment could not be made on amalgamating company even by resorting to Section 292B. – CIT v. Dimension Apparels (P.) Ltd [2014] 52 356 (Delhi).

Every suit for recovery of money from Sick Co. doesn't require prior permission of BIFR, rules HC


a) The petitioner-company filed an application under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (‘SICA’) but same was dismissed by impugned order holding that a simple suit for recovery of moneys was not barred by section 22 of SICA.

b) The Trial court in the impugned order also recorded that in spite of repeated directions to the petitioner/defendant, no document was filed to show that the debt of the respondent/plaintiff was included in the scheme of rehabilitation of the petitioner-company

On writ, the High Court of Delhi held as under:

Since every suit for recovery of money does not require permission under section 22 of SICA and despite repeated directions of Court petitioner-company failed to show that debt of the respondent was included in scheme of rehabilitation, application filed by petitioner under section 22 of SICA was to be dismissed. - Kusum Products Ltd. v. Hitkari Industries Ltd. [2014] 52 230 (Delhi)

Requirement of amending articles pursuant to Section 43A in case of hybrid Companies is only optional on part of shareholders

Requirement of amending Articles of Association pursuant to Companies (Amendment) Act, 2000 insofar as hybrid companies, i.e., deemed public companies are concerned, is only optional on part of shareholders


Whether requirement of amending Articles of Association pursuant to Amendment Act 53 of 2000, in case of hybrid companies are optional on part of shareholders?

The Supreme Court held as under:

1) A private company which becomes a public company by virtue of operation of any one of four sub-sections of section 43A of Companies Act, 1956 has choice either to retain or delete those stipulations as specified in its Articles of Association relating to matters specified under section 3(1)(iii)

2) After amendment to Companies Act by Act No. 53 of 2000 concept of hybrid (section 43A) companies is not altogether abolished, at least insofar as companies falling under section 43A(1C) are concerned which were in existence on 13-12-2000 would continue to be hybrid companies 

3) Effect of amendment to section 3(1)(iii) on private companies in existence on 13-12-2000 is that if they choose to make provisions in their Articles of Association to give effect to mandate of section 3(1)(iii)(d), they become private companies with effect from such date when they make such provision by virtue of section 43(2A) and if they do not make such an amendment, they would still continue to be public companies governed by section 43A(1C) (hybrid companies) and can continue to have provisions in their Articles of Association referable to section 3(1)(iii)(a), (b) & (c) 

4) Thus, requirement of amending Articles of Association pursuant to Amendment Act 53 of 2000, insofar as hybrid companies are concerned, is only optional on part of shareholders---Darius Rutton Kavasmaneck v. Gharda Chemicals Ltd. [2014] 52 349 (SC)