Appeal Filed By A Struck Off Company Against The Revenue Department Is Maintainable: ITAT Delhi

The Bench, consisting of Yogesh Kumar U.S. (Judicial Member) and B. R. R. Kumar (Accountant Member), held that a Certificate of Incorporation issued to a Company cannot be treated as cancelled for the purpose of realizing the amount due to the Company and for the payment or discharge of its liabilities.

The ITAT thus ruled that an appeal filed by the struck off Company or an appeal filed by the revenue department against the struck off Company is maintainable.

The assessee M/s Dwarka Portfolio Pvt. Ltd. filed an appeal before the ITAT against the order passed by the Commissioner of Income Tax (Appeals) (CIT(A)), confirming the additions made by the Assessing Officer (AO) to the assessee's income.

The revenue department submitted before the ITAT that after the order was passed by the CIT(A), the name of the assessee Company was struck off by the Registrar of Companies. Thus, the revenue department averred that the appeal filed by the assessee Company had become infructuous and hence, the Counsel appearing on behalf of the assessee Company had no locus standi to represent it before the ITAT.

The assessee M/s Dwarka Portfolio contended that the appeal filed by it could not be held to be not maintainable merely on the ground that its name was struck off by the Registrar of Companies.

The ITAT noted that a Company's name can be struck off under the Companies Act, 2013, either on its own under Section 248(2), if it extinguishes all its liabilities, or by the Registrar under Section 248(1), if it commits any default specified thereunder.

Further, the ITAT observed that Section 248(6) of the Companies Act provides that the Registrar, before passing an order dissolving the Company, shall ensure that sufficient provision has been made for realization of the dues and for discharge of the Company's liabilities.

Also, the ITAT noted that as per Section 248 (7), the liability of every director, manager, officer, and every member of the dissolved Company, shall continue and may be enforced as if the Company had not been dissolved.

The ITAT observed that Section 250 of the Companies Act, 2013 provides that where a Company stands dissolved under Section 248, it shall cease to operate as a Company and the Certificate of Incorporation issued to it shall be deemed to have been cancelled, except for the purpose of realising the amount due to it and for the purpose of payment or discharge of its liabilities or obligations.

Thus, the ITAT held that once a Company was struck off under the Companies Act, it would be deemed to have been cancelled, except for the purpose of realizing the amount due to it and for the payment or discharge of its liabilities or obligations.

The ITAT noted that under Section 179 of the Income Tax Act, 1961, the revenue department can recover the tax due from a struck off Company from the Directors of the said Company, if the non-recovery is attributable to any gross neglect, misfeasance or breach of duty on the part of the Directors. Also, the ITAT observed that the revenue department can recover any tax due from the struck off Company by invoking Section 226(3) of the Income Tax Act.

The ITAT held that the revenue department was not barred from simultaneously invoking both Section 226(3) and Section 179 to recover the tax due from the struck off Company.

The ITAT ruled that if the Court/Tribunal fails to adjudicate on the actual tax due from the struck off Company on the ground that the proceedings have become infructuous, and if the revenue department proceeds to recover the amount of tax allegedly due, the rights of the Directors of the Company would be seriously jeopardised and there would be a denial of the rights guaranteed to them under law.

Thus, the ITAT held that if the assessee's appeal was dismissed as being infructuous, and the revenue department, thereafter, initiated proceedings under Section 179 of the Income Tax Act without adjudicating on the quantum of tax due or the liability to pay tax, great injustice would be caused.

The ITAT ruled that since the revenue department had not forgone its right to recover the tax due from the assessee Company, even though it was struck off by the Registrar of Companies, the assessee could not be denied the right to determine its tax liability in accordance with the due process of law and, therefore, the appeal filed by it could not be dismissed.

The ITAT added that if the said additions made by the AO to assessee's income were deleted by the CIT(A), dismissal of revenue department's appeal before the ITAT on the ground that it had become infructuous, would result in non-adjudication of the tax due from the assessee. The ITAT held that in that case the revenue department would not be able to recover the actual tax due from the assessee and that the revenue department would be left with no remedy.

"Further, in a case where the CIT(A) deletes the addition made by the A.O and if Revenue files Appeal before the Tribunal, even in a case where the Revenue is having a water tight case on merit, by dismissing the Appeal for having become in-fructuous will also result in non adjudication of the actual tax due by the assessee and the Revenue cannot recover the actual tax dues from the assessee. In such events, the Department of Revenue will be left with no remedy, which is contrary to the root principal of law 'Ubi Jus Ibi Remedium'."

The ITAT noted that the Rajasthan High Court in the case of Commissioner of Income Tax versus Gopal Shri Scrips Pvt. Ltd. (2016) had held that the appeal filed by the revenue department against a Company, who had been struck off from the Register of Companies, had become infructuous. In the appeal filed by the revenue department against the decision of the Rajasthan High Court, the Supreme Court in CIT Jaipur versus M/s. Gopal Scrips Pvt. Ltd. (2019) had held that the decision of the Rajasthan High Court was wrong. The Supreme Court had ruled that proviso (a) to Section 560(5) of the Companies Act, 1956 and Chapter XV of the Income Tax Act, 1961, specifically deal with cases of Companies whose names have been struck off under Section 560(5) the Companies Act, 1956. The Supreme Court had thus held that the appeal filed by the revenue department was maintainable.

The ITAT observed that provisions identical to those of Section 560(5) of Companies Act, 1956 have been introduced in Sections 248(6) and 248(7) of the Companies Act, 2013. Thus, the ITAT held that the law laid down by the Supreme Court in CIT Jaipur versus M/s. Gopal Scrips Pvt. Ltd. (2019) was applicable to the case of the assessee.

Thus, the ITAT held that even though a Company had been struck off under Section 248 of the Companies Act, 2013, however, in view of Sections 248(6), 248(7) and Section 250 of the Companies Act, 2013, the Certificate of Incorporation issued to the Company cannot be treated as cancelled for the purpose of realizing the amount due to it and for the payment or discharge of its liabilities. Therefore, the ITAT ruled that an appeal filed by the struck off Company or an appeal filed by the revenue department against the struck off Company is maintainable.

Hence, the ITAT ruled that the appeal filed by the assessee M/s Dwarka Portfolio was maintainable and, therefore, the Counsel appearing on behalf of the assessee Company had locus to represent it before the ITAT. The ITAT thus directed the appeal to be listed before the regular Bench of ITAT for hearing.

Case Title: M/s Dwarka Portfolio Pvt. Ltd. versus Assistant Commissioner of Income Tax

Dated: 27.05.2022 (ITAT Delhi)

Representative for the Appellant: Mr. Anunav Kumar, Advocate

Representative for the Respondent: Ms. Yagya Saini Kakkar, CIT DR

Click Here To Read/Download Order