Reassessment proceedings against struck off company invalid unless revived u/s 252 of Companies Act

Reassessment proceedings against struck off company invalid unless revived u/s 252 of Companies Act

Pandian Anbalagan Vs ITO (Madras High Court); W.P.No.11841 of 2022; 03/10/2023; 2015-16

Introduction: A recent case in the Madras High Court sheds light on the intricacies of reassessment proceedings against a company that has been struck off the official register. The case revolved around whether such reassessment proceedings are valid or whether the revival of the company under the Companies Act is a prerequisite for taking such actions. This legal analysis explores the court’s findings and their implications.

Struck-Off Company: The petitioner in this case was a Director of a private limited company that had been struck off from the official register of companies, effective from 29th October 2019. The petitioner presented a letter issued by the Ministry of Corporate Affairs to substantiate the striking-off of the company.

Reopening of Assessment: The crux of the matter lay in the notice the petitioner received under Section 148 of the Income Tax Act, which aimed to reopen the assessment for the Assessment Year 2015-16.

Assessee’s Argument: The petitioner contended that reopening the assessment against a company that had already been struck off was not valid. According to the petitioner, the department should have initiated the process of revival under Section 252 of the Companies Act, in conjunction with Rules 11 and 87 of the National Company Law Tribunal (NCLT) Rules, within the stipulated timeframe. Only after the revival of the company would the tax authority have the power to reopen the assessment and issue further orders. The petitioner sought to have the impugned order quashed.

Department’s Argument: The department, on the other hand, relied on Sections 176(5) and 176(7) of the Income Tax Act, claiming that they entitled the department to pass an assessment order against the Principal Officer of the struck-off company.

High Court’s Ruling: The Madras High Court considered that the company had been struck off since October 2019. Nevertheless, a re-assessment notice was dated March 31, 2021, and the re-assessment order was passed by the department on March 30, 2022. The court rejected the department’s argument, highlighting that Section 176 of the Income Tax Act primarily deals with discontinued businesses and does not mention the struck-off status of a company. Additionally, Section 176 specifies that if a company has discontinued its business and not engaged in any other business, a re-assessment order can be issued against the Principal Officer of the company. However, once a company is struck off, it’s akin to passing an order against a legally “dead” entity.

Revival Under Companies Act: The High Court emphasized that the appropriate course of action for the department is to approach the National Company Law Tribunal (NCLT) in accordance with the provisions of Section 252 of the Companies Act, coupled with Rules 11 and 87 of the NCLT Rules, for the revival of the company. Only after the company’s revival can the department initiate proceedings under Section 147 of the Income Tax Act.

Conclusion: The Madras High Court’s ruling in this case reinforces the importance of legal procedures and the need for compliance with the provisions of the Companies Act. Reassessment proceedings against a struck-off company are not valid without first reviving the company under the Companies Act. This decision emphasizes the legal principle that actions taken against a struck-off company are akin to actions against a legally non-existent entity. Companies and tax authorities must be aware of these intricacies to ensure that all legal processes are duly followed, contributing to the transparency and fairness of tax assessments and revivals.