(2019) 416 ITR 613 (SC)
Assessment framed on a non-existent entity
No. An assessment on a non-existent entity is a jurisdictional defect that goes to the root of the matter. It is void, and cannot be cured as a mere procedural irregularity.
Is an assessment made in the name of a company that has already been dissolved on amalgamation valid, where the Revenue was informed of the amalgamation?
A company amalgamated with the respondent under a scheme sanctioned by the High Court, and on the scheme taking effect the amalgamating company ceased to exist. The fact of the amalgamation was intimated to the Assessing Officer during the course of the assessment proceedings. Notwithstanding that intimation, the assessment order was passed in the name of the amalgamating company, which by then had no legal existence. The successor participated in the proceedings.
The Tribunal and the Delhi High Court held the assessment void. The Revenue appealed to the Supreme Court, relying on the provision curing defects of form and on the successor's participation.
For the assessee
On amalgamation the transferor company ceased to exist. An order cannot be made against a person who does not exist, and the defect is jurisdictional rather than formal. The Revenue had been told of the amalgamation and proceeded regardless. Participation by the successor cannot confer a jurisdiction the statute does not give.
For the Revenue
The successor had participated throughout and suffered no prejudice; the error was one of description only. The provision curing defects in the form of proceedings, where they are in substance in conformity with the Act, saves the assessment, and the successor is in any event liable for the predecessor's tax.
The Court held that upon the sanctioned scheme taking effect, the amalgamating company's corporate existence came to an end, and there was no person in respect of whom an assessment order could be made. It characterised the defect as jurisdictional, going to the root of the assessment, and not as an irregularity of form capable of being cured by the saving provision, which is confined to defects of form where the proceeding is in substance in conformity with the Act. The Court further held that participation by the successor in the proceedings could not confer jurisdiction, since jurisdiction is conferred by statute and cannot be created by acquiescence or consent. It laid weight on the fact that the Revenue had been expressly informed of the amalgamation and had nonetheless framed the assessment in the name of a company it knew no longer existed. The provision dealing with succession, the Court held, addresses who is liable for the tax of a predecessor; it does not authorise an assessment to be framed on a dissolved entity.
Regularly decisive in post-merger disputes. It must now be read with Mahagun Realtors, where the Court declined to apply it on facts involving non-disclosure of the amalgamation, so the outcome turns closely on what was disclosed to the Revenue and when. The practical lesson is that intimation of the amalgamation, in writing and on record, is what preserves the objection.