In a major decision, the NCLT Indore Bench has said that when reassessment proceedings under the Income Tax Act are still ongoing, restoring the company’s name might become important, because otherwise the tax authorities on one side and the company on the other, can’t really take part effectively in those proceedings. Few years down the line, the Income Tax Department approached the NCLT for restoring the company's name to the registrar under Section 252(3) on the ground that the reassessment proceedings in respect of Assessment year 2015-16 and 2016-17 are yet to be completed.
So, can a company which has already been struck off the Register of Companies, be brought back just for tax proceedings, like nothing more? In a major decision, the NCLT Indore Bench has said that when reassessment proceedings under the Income Tax Act are still ongoing, restoring the company’s name might become important, because otherwise the tax authorities on one side and the company on the other, can’t really take part effectively in those proceedings.
Key Takeaways
- In a major decision, the NCLT Indore Bench has said that when reassessment proceedings under the Income Tax Act are still ongoing, restoring the company’s name might become important, because otherwise the tax authorities on one side and the company on the other, can’t really take part effectively in those proceedings.
- NCLT Restores Struck-Off Company: A Decision to Complete Pending Income Tax Proceedings The Update The NCLT Indore Bench ordered that a company’s name be restored to the Register of Companies, after it seemed that re assessment proceedings and significant tax demands were still sitting pending with the income tax authorities.
- Few years down the line, the Income Tax Department approached the NCLT for restoring the company's name to the registrar under Section 252(3) on the ground that the reassessment proceedings in respect of Assessment year 2015-16 and 2016-17 are yet to be completed.
- NCLT’s Observations on Pending Reassessment Proceedings The objections of the corporation were overruled by the Tribunal and it observed that quashing of assessment order does not bring to an end the tax proceedings and that remanding the assess to make a fresh assessment, involves continuing the proceedings till the final orders are passed.
- Limited Restoration Granted by the Tribunal On the balance of the facts, NCLT ordered registration of the company's name by its Registrar of Companies, but the registration was limited to the extent necessary for effecting completion of reassessment proceedings and for implementation of consequences under the Income Tax Act.
NCLT Restores Struck-Off Company: A Decision to Complete Pending Income Tax Proceedings
The Update
The NCLT Indore Bench ordered that a company’s name be restored to the Register of Companies, after it seemed that re assessment proceedings and significant tax demands were still sitting pending with the income tax authorities.
The Impact
This ruling kinda makes it clear that striking off a company from the register doesn’t really erase its statutory tax liabilities. So if a company still has income tax proceedings underway, it can, in proper situations, be restored. The idea is that legal existence may be needed for adjudication and also for collection of dues.
The Action
For businesses, directors and yes, the tax authorities too, this matters. Restoration can be allowed even after dissolution, especially when ongoing assessment or re assessment, recovery, or appellate proceedings need the company’s legal standing to proceed, without pause.
Background of the Dispute
The matter related to Gurukripa Essence Real Estate Private Limited whose name had been struck off from the Registrar of Companies (RoC) list of Companies vide Section 248 of the Companies Act 2013. Few years down the line, the Income Tax Department approached the NCLT for restoring the company's name to the registrar under Section 252(3) on the ground that the reassessment proceedings in respect of Assessment year 2015-16 and 2016-17 are yet to be completed. The reassessment proceedings had been initially resulted into huge demands of taxes totaling to an amount of over Rs.13 crores. Though, the assessment orders were later on quashed by the Commissioner of Income Tax (Appeals) and remanded proceedings back to the Assessing Officer. Though, proceedings were pending before the Assessing officer.
Why the Income Tax Department Sought Restoration?
The Department maintained that a restoration was called for as fresh reassessment proceedings would need to be undertaken consequent to the remand orders. The Department held that in absence of a restoration, the company would not legally continue to exist to take part in the proceedings, file evidence to contest notices, or to avail of appellate remedies.
The Department also banked upon CBDT circulars instructing tax authorities to seek restoration of the struck-off companies, where proceedings for assessment reassessment recovery penalty prosecution or appeal were pending. The Department also argued that tax liabilities may continue after striking off the company and that interests of public revenue are not defeated only for that fact that the company was struck off.
Arguments Raised by the Company
Restoration was also objected to by the company on the ground that the original assessment orders had since been quashed/order of the appellate authority. There was no taxable demand now and the case was pending fresh adjudication before the Assessing Officer and also alleged that restoration is time barred and fell within the jurisdiction of the Company Law and the reassessment proceedings were bad in law.
The company contended that restoration would result into increased compliance obligations and costs and penalties without any business flings. Also, the Company asserted that conflicts over the title of the property the subject of the original transaction were still being considered by other institutions and that So means of remedying the damage were unnecessary.
NCLT’s Observations on Pending Reassessment Proceedings
The objections of the corporation were overruled by the Tribunal and it observed that quashing of assessment order does not bring to an end the tax proceedings and that remanding the assess to make a fresh assessment, involves continuing the proceedings till the final orders are passed. The Bench further observed that the company no longer exists as a legal entity and so cannot participate, by way of explanation, evidence, or object to any subsequent order.
The NCLT also clarified that for questions of limitation jurisdiction whether approval was to be obtained, capital gains liability, or whether the question of ownership being raised, a tribunal was powerless and the tax authorities and the appellate fora could determine the issue.
Striking Off Does Not Remove Tax Liabilities
An important part of the decision is the Tribunal's reaffirmation that a resolution to strike off a company does not mitigate statutory liabilities. The survival of tax obligations even after dissolution is reconfirmed and the company that has been struck off may be characterized to be in existence solely for addressing those liabilities.
The Bench reasoned that such a situation would frustrate the collection of valid claims on public revenue. The Tribunal also identified the Income Tax Department as an aggrieved creditor who had the right to file under Section 252(3) of the Companies Act.
Limited Restoration Granted by the Tribunal
On the balance of the facts, NCLT ordered registration of the company's name by its Registrar of Companies, but the registration was limited to the extent necessary for effecting completion of reassessment proceedings and for implementation of consequences under the Income Tax Act. The Tribunal clarified that this order should not be taken to necessarily revive the Company to carrying on any business nor as to give any opinion on the merits of the tax dispute. It also ordered the company to complete all overdue statutory filings under the Companies Act, 2013.
Conclusion
The judgement in NCLT Indore Bench establishes a significant proposition of company and tax law, that the re-vesting of title and business effectuated by strike off does not wipe out the company's statutory liabilities. It recognizes that when the reassessment process is still under way, revival would be essential for the proper disposition of the matter and the realization of revenue, as well as for the right of the company to undertake its proceedings. While doing so, it also restricts the revival to that end and does not allow revival by way of legal proceedings to have commercial operations revived.
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NCLT Allows Company Revival Solely for Pending Tax Reassessment Proceedings+
In a major decision, the NCLT Indore Bench has said that when reassessment proceedings under the Income Tax Act are still ongoing, restoring the company’s name might become important, because otherwise the tax authorities on one side and the company on the other, can’t really take part effectively in those proceedings. Few years down the line, the Income Tax Department approached the NCLT for restoring the company's name to the registrar under Section 252(3) on the ground that the reassessment proceedings in respect of Assessment year 2015-16 and 2016-17 are yet to be completed.