A tax recovery appeal can be filed against a striked off company

M/s Dwarka Portfolio Pvt. Ltd. v. Assistant Commissioner of Income Tax
I.T.A. No. 2563/DEL/2017 (A.Y 2014-15)
Date: 27th May,2022
ITAT Bench Delhi

DELHI BENCH OF ITAT RULED THAT even if the Company has been struck off from the register of Companies, an appeal filed by it against the revenue department does not become ineffective or infructuous and is maintainable.

BRIEF FACTS

• Overview M/s Dwarka Portfolio Pvt. Ltd., the assessee, filed an appeal before the ITAT against the orders passed by the Commissioner of Income Tax (Appeals) validating the additions made to the assessee’s income by the Assessing Officer.
• To this, the revenue department argued that, since the Company was struck off, its appeal against the revenue department is not maintainable.
• Whereas, the appellant contended that it could not be the sufficient reason for the non-maintainability of an appeal.
• ITAT however, ruled that the appeal is maintainable even after the Company has been struck off.

ISSUES RAISED

Whether or not the appeal filed by the struck-off Company before the ITAT is maintainable?

ARGUMENTS ADVANCED BY THE APPELLANT

The counsel on behalf of the appellant contended that the mere fact that the Company has been struck off from the Register of Companies, the appeal filed by it against the orders of the revenue department cannot be held to be not maintainable.

ARGUMENTS ADVANCED BY THE RESPONDENT

The revenue department contended that the appeal file by the assessee Company is not maintainable because the Company was struck off by the Registrar of the Companies after the order was passed by CIT (A).

JUDGMENT ANALYSIS OF THE ITAT

• Observed in the mentioned case that, before dissolving any Company, the Registrar needs to follow the provisions mentioned in Section 248 (6) of the Companies Act, 2013, which provides that sufficient provisions shall be made for the realization of the dues and discharge of Company’s liabilities.
• Also, even if a company has been dissolved as per Section 248 of the Act, the Company might cease to exist as an entity but the liabilities that are due continue to exist.
• ITAT also provided that as per Section 179 of the Income Tax Act, the revenue department can recover tax from the Directors of the Company in case of gross neglect or breach of duty on the part of the Directors.
• Also, Section 223 (6) of the Income Tax Act can be invoked by the revenue department for the recovery of any sort of tax due from the struck-off Company.
• The ITAT observed that, if the revenue department will directly recover the tax due from the Directors of the Company, without any interference of the Court/Tribunal, then it would deprive the Directors of their rights that are protected under the law.
• Thus, the ITAT ruled that the assessee could not be denied its right to determine tax liability in furtherance of due process of law, even if it has been struck off by the Registrar of the Companies.
• Hence, the appeal filed by the appellant is maintainable.

CONCLUSION

The ITAT rightly observed that the mere the fact that a company has been struck off from the Register of Companies, the rights that have been provided to it or the Directors by the statutes cannot be taken away. If the concerned Court/Tribunal, before which an appeal has been made, dismisses it, the results would be jeopardizing the rights of the Directors of the Company. Hence, the dues if are remaining, need to be decided by the Court or Tribunal instead of the revenue department.

DISCLAIMER: The case law presented here is only for information and knowledge of readers. In case of necessity do consult with professionals.

Footnotes

SECTION 248(1) of the Companies Act, 2013

Power of Registrar to remove name of company from register of companies Effective from 26.12.2016

(1) Where the Registrar has reasonable cause to believe that—

(a) a company has failed to commence its business within one year of its incorporation or;

(c) a company is not carrying on any business or operation for a period of two immediately preceding financial year and has not made any application within such period for obtaining the status of a dormant company under section 455; or , he shall send a notice to the company and all the directors of the company, of his intention to remove the name of the company from the register of companies and requesting them to send their representations along with copies of the relevant documents, if any, within a period of thirty days from the date of the notice.

(d) the subscribers to the memorandum have not paid the subscription which they had undertaken to pay at the time of incorporation of a company and a declaration to this effect has not been filed within one hundred and eighty days of its incorporation under sub­-section (1) of section 10A; or

(e) the company is not carrying on any business or operations, as revealed after the physical verification carried out under sub-section (9) of section 12.

SECTION 248 (6)

The Registrar, before passing an order under sub-section (5), shall satisfy himself that sufficient provision has been made for the realisation of all amount due to the company and for the payment or discharge of its liabilities and obligations by the company within a reasonable time and, if necessary, obtain necessary undertakings from the managing director , director or other persons in charge of the management of the company:

Provided that notwithstanding the undertakings referred to in this sub-section, the assets of the company shall be made available for the payment or discharge of all its liabilities and obligations even after the date of the order removing the name of the company from the register of companies.

SECTION 179( ITA,1961) : LIABILITY OF DIRECTORS OF PRIVATE COMPANY IN LIQUIDATION

179. (1) Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), where any tax due from a private company in respect of any income of any previous year or from any other company in respect of any income of any previous year during which such other company was a private company cannot be recovered, then, every person who was a director of the private company at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company.

(2) Where a private company is converted into a public company and the tax assessed in respect of any income of any previous year during which such company was a private company cannot be recovered, then, nothing contained in sub-section (1) shall apply to any person who was a director of such private company in relation to any tax due in respect of any income of such private company assessable for any assessment year commencing before the 1st day of April, 1962.

Explanation.—For the purposes of this section, the expression “tax due” includes penalty, interest or any other sum payable under the Act.