That an order cannot be passed against a company that no longer exists seems to be common sense but, as seen in the case of Sony Mobile Communications India Pvt Ltd, the law is far more complex.
Sony Mobile Communications India Pvt Ltd was merged with Sony India Pvt Ltd on July 23, 2013, with effect from April 1 of that year.
Before the merger the assessing officer of the income tax department had issued a notice and followed this with a final assessment order on December 22, 2014 — after the merger — in the name of the amalgamated company.
Sony took the matter to the Income Tax Tribunal, which quashed the assessment order. The IT department then approached Delhi High Court.
It argued that an assessment order in the name of an erstwhile company was okay in the light of Section 292B of the Income Tax Act.
The section says: “No return of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of the Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of the Act.”
It relied on a ruling in the case of Mahagun Realtors.
The Delhi High Court dismissed the appeal of the Commissioner of Income Tax (Revenue) on February 28, 2023.
It held that the assessment order passed in the name of a non-existent company despite being informed about the amalgamation was null and void.
It relied on the decision of the Supreme Court in the case of Maruti Suzuki.
The high court distinguished the facts of the Sony case from those of Mahagun Realtors, where the IT department had not been informed about the amalgamation.
Sony, on the other hand, had informed the department about the merger.
Expert comments
Writing in the legal content aggregator service Mondaq, Nexdigm, a professional services company based in Pune, observes that this “is yet another case wherein the court has placed high regard on the conduct of the taxpayer”.
It is not disputed that, post amalgamation, the amalgamating company ceases to exist. However, taxpayers must inform the revenue department on time, and maintain the required documentation.
This judgement would act as a guide for taxpayers contemplating mergers and amalgamations.
The judgement has further made it clear that the tax authorities or the taxpayers cannot liberally use random rulings.