Introduction

The case of M/s. Dwarka Portfolio Pvt. Ltd., New Delhi v. ACIT, New Delhi marks a significant judicial decision concerning the maintainability of income tax appeals filed by companies that have been struck off the register of companies under the Companies Act. The appellant, M/s. Dwarka Portfolio Pvt. Ltd., challenged an order by the Commissioner of Income Tax (Assessment) which confirmed an addition under Section 68 of the Income Tax Act amounting to ₹18,00,00,000/- for the Assessment Year 2014-15. The central issue revolved around whether the appeal remains maintainable after the company has been dissolved via a strike-off by the Registrar of Companies (ROC).

Summary of the Judgment

The Income Tax Appellate Tribunal (ITAT) deliberated on three appeals filed by companies that had been struck off by the ROC. The primary contention by the Revenue Department was that the appeals should be dismissed as 'not maintainable' due to the dissolution of the companies. However, the Tribunal, referencing the Supreme Court's judgment in Commissioner of Income Tax Jaipur Vs. Gopal Shri Scrips Pvt. Ltd., held that the strikes-off do not render the appeals frivolous. The Tribunal emphasized that tax liabilities and recovery mechanisms remain enforceable even after dissolution, and thus, the appeals should be heard on their merits.

Analysis

Precedents Cited

The Tribunal extensively referenced two pivotal cases:

• Commissioner of Income Tax Jaipur Vs. Gopal Shri Scrips Pvt. Ltd. (2019): This Supreme Court judgment overturned a High Court decision that dismissed tax appeals on the grounds of company dissolution. The Apex Court clarified that dissolution under the Companies Act does not nullify tax assessments or restrict the Revenue's rights to recover dues.
• Pr. Commissioner of Income Tax Vs. Mahagun Realtors Pvt. Ltd.: Although not the central focus, this case was cited to reinforce the principle that corporate death does not inherently invalidate tax assessment orders.

Legal Reasoning

The Tribunal dissected Sections 248 and 250 of the Companies Act, 2013, alongside Sections 226 and 179 of the Income Tax Act. It elucidated that:

• Section 248(1) & (2) of Companies Act: Outlines the grounds and procedures for a company to be struck off by the ROC or voluntarily by the company itself after settling liabilities.
• Section 250 of Companies Act: Specifies the effects of dissolution, stating that the company ceases to operate except for realizing dues and discharging liabilities.
• Section 226(3) & 179 of Income Tax Act: Provide mechanisms for the Revenue to recover tax dues from struck-off companies and hold directors personally liable under certain conditions.

By integrating these provisions, the Tribunal reasoned that the dissolution of a company does not absolve it from tax liabilities nor the Revenue's right to adjudicate and recover such dues. Consequently, dismissing the appeals solely based on the company's struck-off status would undermine legal principles and deny justice.

Impact

This judgment sets a precedent ensuring that tax appeals remain actionable irrespective of a company's dissolved status. It reinforces the principle that statutory obligations persist beyond corporate dissolution, safeguarding the Revenue's rights to pursue dues. Future cases involving struck-off companies will rely on this decision to affirm the maintainability of appeals, thereby promoting accountability and upholding the rule of law.

Complex Concepts Simplified

Section 248 of the Companies Act, 2013

This section deals with the procedure for striking off a company from the register of companies. Subsection (1) allows the ROC to strike off a company for not commencing business, not operating for two years, or failing to meet other specific conditions. Subsection (2) allows a company to voluntarily strike itself off after settling liabilities.

Section 226(3) of the Income Tax Act, 1961

Empowers the Assessing Officer or Tax Recovery Officer to demand payment of tax dues directly from individuals who hold or may hold money on behalf of the assessee.

Section 179 of the Income Tax Act, 1961

Makes directors of a private company personally liable for unpaid taxes if the company cannot pay them and if the non-payment is due to the directors' negligence or misconduct.

'In-fructuous' Appeal

An appeal is termed 'in-fructuous' when it no longer serves a purpose, such as when the subject company is dissolved and hence cannot participate in the proceedings. The Tribunal clarified that this does not apply to tax appeals because liabilities persist beyond dissolution.

Conclusion

The ITAT's decision in M/s. Dwarka Portfolio Pvt. Ltd. v. ACIT, New Delhi underscores the enduring nature of corporate liabilities, particularly in taxation, beyond the dissolution of a company. By affirming the maintainability of income tax appeals regardless of a company's struck-off status, the Tribunal ensures that legal processes can proceed to determine and recover tax dues. This ruling not only aligns with established legal principles but also fortifies the mechanisms through which the Revenue can enforce tax compliance, thereby contributing to the integrity of the fiscal and corporate legal framework.