Supreme Court upholds validity of assessment in the name of amalgamating company post amalgamation on factual grounds

 This Tax Alert summarizes a recent Supreme Court (SC) ruling in the case of Mahagun Realtors (P) Ltd. (Taxpayer), wherein the issue before the SC was whether an issue of notice, in the name of amalgamating company post the Appointed Date and passing of assessment order in the name of amalgamating company as represented by amalgamated company, would invalidate the assessment since amalgamating company ceases to exist in law post the Appointed Date.

The SC reviewed tax and non-tax jurisprudences on the legal and tax effect of the amalgamation. The SC also reviewed multiple provisions in the Income Tax Laws (ITL) dealing with amalgamations and the earlier SC rulings rendered on the issue under consideration. Prior to the present ruling, the SC in case of Maruti Suzuki India Ltd. held that on amalgamation of one company with another company, amalgamating company loses its existence and assessment order passed, post amalgamation, in the name of amalgamating company (non-existent entity) will be invalid.

However, considering the peculiar facts of the present case, the SC upheld validity of assessment order passed by the Tax Authority in the name of amalgamating company post amalgamation in the present case by distinguishing the earlier SC rulings. The SC held that although on amalgamation, the amalgamating company ceases to exist, the business/undertaking of amalgamating company continues with the amalgamated company. The SC distinguished the earlier SC rulings in case of Maruti Suzuki, inter alia, on the grounds that, unlike the facts in earlier ruling, in the present case (a) Taxpayer did not intimate the fact of amalgamation prior to the issue of the assessment order (b) Taxpayer itself undertook various compliances such as furnishing of tax returns, correspondences with the Tax Authority, filing of appeal before appellate authorities etc. in the name of the amalgamating company, which had ceased to exist. The SC held that whether corporate death of an entity upon amalgamation per se invalidates an assessment order ordinarily cannot be determined on bare application of corporate law provisions but would depend on the terms of amalgamation and the facts of each case.