Boopendradas (Vikash) Sungker Vs DCIT (ITAT Delhi)
Conclusion: Where a corporate entity voluntarily opted for discontinuance of business and prefers to get the name of the company struck off and dissolved the company, after distributing its assets, the provisions of section 176 might become applicable and without any specific notice in terms of section 176(3) informing the AO of discontinuance of the business, the erst-while company could not claim that the assessment order was passed against the non-existing entity.
Held: Assessee-director of M/s. Red Fort Mauritius (“Appellant”) was incorporated with the specific purpose of making investment in the securities of Prestige Projects Pvt Ltd. The above investments in Prestige India were made by the two persons – assessee and Alena Cyprus to earn long term capital appreciation (LTCG). Subsequently, during the AY 2018-19 (i.e. the year of sale), assessee received an offer to sell its stake/investment in Prestige India. However, the Indian Buyer wanted to conclude transaction with a single seller. Therefore, the securities/shares of Pres-tige India held by Alena Cyprus were transferred to the assessee for a total consideration of Rs.200,61,39,424/-, as against the original cost of Rs.106,35,13,000. Subsequently, assessee sold the entire securities held in Prestige India (including securities purchased from Alena) to the Indian Buyer vide Securities Purchase Agreement. In the return of income filed by the assessee in India for the AY 2018-19, gains aggregating to Rs.4,85,78,113/- were claimed as not chargeable to tax under Article 13(4) of the India-Mauritius DTAA and the balance gains of Rs.9785 were offered to tax. Alena Cyprus had also filed its return of income in India for the AY 2018-19 wherein LTCG of Rs. 80,86,75,225 arising from sale of shares to assessee were declared exemption claimed under Article 13 of the India-Cyprus DTAA. The return of income filed by assessee was selected for complete scrutiny under section 143(2). Since the specific purpose of making investment in Prestige India was achieved, assessee filed an application before the Financial Services Commission, Mauritius during the pendency of assessment proceedings for dissolution and removal of the company from Register of Companies, Mauritius. Subsequently, in compliance with Mauritius law, another application was filed by the assessee before the Registrar of Companies, Mauritius for removing the name of the company from register of companies. In the meanwhile, AO passed the draft assessment order under section 144C(1), denying benefit of exemption under Article 13(4) of the Indo- Mauritius DTAA to assessee, holding that there was no commercial/ economic sub-stance behind the existence of that Company in Mauritius and, therefore, benefit of Treaty could not be applied, simply on the basis of TRC issued by the Revenue authorities of Mauritius to that company. Additionally, AO also disregarded the separate legal existence of Alena Cyprus, holding the same also to be a mere arrangement to take benefit of India Cyprus Treaty and added the entire capital gains derived by Alena Cyprus, on sale of securities/shares of Prestige India, to the income of assessee. Accordingly, AO proposed assessment at total income of Rs.97,14,67,000 under the head capital gains on sale of securities/shares of Prestige India in the hands of assessee. ROC Mauritius removed the name of the company under section 308 of the (Mauritius) Com-panies Act 2001. Assessee ceased to exist as a legal entity with effect from 29.10.2021. The aforesaid fact that assessee had ceased to exist was duly informed to DRP. However despite intimation, DRP proceeded to issue directions under section 144C(5) passed in the name of non-existent entity, confirming the draft order of AO. Accordingly, AO passed final assessment order under section 143(3) r. w.s 144C( 13) assessing the income of assessee at Rs.97,14,67,000. On appeal by assessee. It was held that the impugned order was passed in the name of the non-existing entity only i.e. ‘Red Fort India Real Estate Humayun’. However, where a corporate entity voluntarily opted for discontinuance of business and prefers to get the name of the company struck off and dissolved the company, after distributing its assets, the provisions of section 176 might become applicable and without any specific notice in terms of section 176(3) informing the AO of discontinuance of the business, the erst-while company could not claim that the assessment order was passed against the non-existing entity. Merely being a ‘former director’, Mr. Boopendradas Sungker-assessee, had no contingent liability as a ‘person’ by whom demand of tax was payable. The Bench clarified that the demand was against the erstwhile company and AO had recourse available to make recovery of tax demand by invoking one of the powers of section 173, which provided for recovery of tax in respect of non-resident from his assets. However, based on section 179, the Bench opined that it was only when AO, proceeded against the former director for making a recovery of tax payable by the erstwhile company, the former director would be aggrieved with the recovery.
