Recovery Action Against Company Directors Cannot Be Initiated If Status Of Assessee Is Non-Existent: Madras High Court
The Madras High Court ruled that recovery actions against the directors of a company cannot be initiated if the status of the assessee is non-existent. The Division Bench of Justices Anita Sumanth and G. Arul Murugan observed that “while in the case of amalgamation, it is only the apparent and outer shell of the company which is destroyed…. However, in the case of...
The Madras High Court ruled that recovery actions against the directors of a company cannot be initiated if the status of the assessee is non-existent.
The Division Bench of Justices Anita Sumanth and G. Arul Murugan observed that “while in the case of amalgamation, it is only the apparent and outer shell of the company which is destroyed…. However, in the case of dissolution, the entity wholly ceases to exist.”
In this case, the assessee company was ordered to be wound up, and an Official Liquidator was appointed to manage the company's liquidation. An appeal was filed against the winding-up order. The winding-up order was eventually set aside, but the Official Liquidator remained appointed and was directed to take charge of all company assets.
The Official Liquidator's status report indicated that only movable assets were taken over and subsequently sold to pay outstanding dues to the Provident Fund and Employees' State Insurance authorities. The company was formally dissolved by order dated 20.12.2017.
The bench looked into the case of Principal Commissioner of Income-Tax V. Mahagun Realtors (P) Ltd. (443 ITR 194), where the Supreme Court in the context of the Income Tax Act, 1961 has reiterated the settled difference between amalgamation and winding up of a company.
While in the case of amalgamation, it is only the apparent and outer shell of the company which is destroyed, the core or the corporate venture continues in the hands of the transferee by whom it has been taken over. However, in the case of dissolution, the entity wholly ceases to exist, noted the bench.
The bench stated that in “conclusion and succumbing to the status of the assessee which, as on date, is non-existent, they seek liberty to proceed with recovery action against the Directors of the company, if any, under the provisions of the Tamil Nadu General Sales Tax Act, 1959, Central Sales Tax Act, 1956 and Revenue Recovery Act. ………Such specific liberty as sought for is not liable to be granted……..”
In view of the above, the bench dismissed the petition.
Counsel for Petitioner/ Assessee: N. Prasad
Counsel for Respondent/ Department: Amirta Dinakaran
Case Title: Lakshana Cotton Spinning Mills Limited v. The Commercial Tax Officer
Citation: 2024 LiveLaw (Mad) 438
Case Number: W.P.Nos.33613