Kiran Raj

The Bombay High Court has ruled that assessment orders issued against entities that ceased to exist due to amalgamation are void ab initio. The case concerns tax assessments against M/s. Reliance Polyethylene Limited (RPEL) and M/s. Reliance Polypropylene Limited (RPPL), both of which had merged into Reliance Industries Limited (RIL) as per a court-sanctioned amalgamation order. The court held that despite knowledge of the merger, the revenue authorities issued assessments against these non-existent entities, rendering them legally untenable.

The appeals before the court pertain to assessment orders issued under the Income Tax Act in the names of RPEL and RPPL for the assessment years 1993-94 to 1995-96. The appellant-assessee, RIL, contended that after the merger, RPEL and RPPL ceased to have any legal existence, and as such, no assessment order could be validly passed in their names. The appellant argued that the revenue authorities had been informed about the amalgamation through various filings, including intimation letters and computation notes attached to income tax returns.

The revenue department contended that the participation of RIL in the assessment process validated the proceedings and that procedural irregularities should not render the assessments void. The department further argued that the appellant had not raised the jurisdictional issue at the first instance and that its delayed challenge should not be entertained. The department also referred to the fact that RIL had filed certain returns on behalf of RPEL and RPPL in earlier proceedings, which they argued constituted tacit acceptance of the assessment orders.

The appellant submitted that the revenue authorities had been aware of the merger of RPEL and RPPL with RIL before passing the assessment orders. The appellant further relied on the Supreme Court’s ruling in Maruti Suzuki India Ltd. that assessment orders passed on a non-existent company are void ab initio, and that jurisdiction cannot be conferred on the revenue authorities merely due to the participation of an amalgamated entity.

The court examined the legal principles governing tax assessments on merged entities. It recorded: “The issuance of an assessment order in the name of a non-existent entity is a jurisdictional defect that cannot be cured by the participation of the amalgamated entity in subsequent proceedings.”

The court noted that the revenue authorities had due knowledge of the amalgamation of RPEL and RPPL with RIL but continued to pass assessment orders in the names of the defunct entities. The judgment further stated: “Once an entity ceases to exist by virtue of a merger, no assessment can be made in its name. Any such order is void in law.”

The court examined whether the revenue authorities could argue that the assessment orders were valid due to the conduct of the assessee. It noted that the issue of jurisdiction is fundamental and cannot be waived by any party. The court observed: “Jurisdictional defects strike at the root of the matter and cannot be remedied by acquiescence or participation of the assessee in the proceedings.”

The revenue authorities’ argument that RIL had previously accepted the assessment orders was also examined. The court found that merely filing certain returns or making submissions in response to the proceedings did not amount to accepting the validity of the assessment orders. The court ruled that tax authorities must ensure assessments are issued in the correct legal name, failing which the orders are legally untenable.

The court also took note of previous decisions in similar cases, stating that assessments against non-existent entities create legal complications. The ruling in PCIT v. Mahagun Realtors Pvt. Ltd. was considered, wherein it was argued that procedural lapses could be rectified. However, the court distinguished the present case by noting that the revenue authorities had been explicitly informed of the merger before issuing the contested assessment orders.

Further, the court examined procedural aspects under the Income Tax Act, stating that the issuance of assessment notices must be in compliance with statutory requirements. It referenced Adani Wilmar Ltd. v. Assistant Commissioner of Income Tax, where assessments against a defunct entity were also declared void. The court observed: “Tax assessments must adhere to statutory mandates and be issued in the name of a legally existing entity. Failure to comply with this requirement vitiates the assessment proceedings.”

The court issued the following directives:

1. The assessment orders passed in the names of RPEL and RPPL for the assessment years 1993-94 to 1995-96 are quashed and declared void ab initio.

2. The appeals filed by RIL are allowed.

3. The revenue authorities may initiate fresh proceedings, if permissible under law, in the name of the amalgamated entity, RIL.

4. The pending writ petition is disposed of as infructuous in light of the judgment.

5. The revenue authorities must ensure that future assessment proceedings are issued in the name of the legally existing entity to avoid similar disputes.

6. Authorities must establish internal mechanisms to verify corporate restructuring changes before issuing tax notices.

7. Compliance audits must be conducted to prevent jurisdictional errors in assessment orders.

Case Title: Reliance Industries Limited v. Commissioner of Income Tax
Case Number: Writ Petition No. 772 of 1999
Bench: Justice M. S. Sonak, Justice Jitendra S. Jain

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