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Commissioner of Income Tax, Jaipur v. M/s Gopal Shri Scrips Pvt. Ltd.

Civil Appeal · 2019 INSC 351Decided 12 Mar 2019
Civil Appeal No. 2922 of 2019
Justice Abhay Manohar Sapre · Justice Dinesh Maheshwari

Background

The Income Tax Department had filed an appeal under Section 260-A of the Income Tax Act, 1961 before the Rajasthan High Court against an Income Tax Appellate Tribunal order concerning the respondent company, Gopal Shri Scrips Pvt. Ltd. During the pendency of that appeal, it came to light that the respondent-company's name had been struck off the register of companies and the company stood dissolved under Section 560(5) of the Companies Act, 1956. On this basis, the High Court dismissed the Department's appeal as having become "infructuous," reasoning that there was no longer any surviving party against whom to decide the legal question, though it gave the Department liberty to approach it again if occasion arose.

Decision Breakdown

The Supreme Court held that the High Court was wrong to treat the appeal as infructuous simply because the company had been struck off the register, because it had overlooked a proviso to Section 560(5) of the Companies Act and the specific provisions of Chapter XV of the Income Tax Act dealing with tax liability in cases of dissolution or discontinuance of business, both of which specifically address how such liabilities are to be pursued even after a company ceases to exist on paper. Since the High Court never actually examined these governing provisions before dismissing the appeal, its order was not legally sustainable. The Supreme Court allowed the Department's appeal, set aside the High Court's order, and remanded the matter back to the High Court to decide the original tax appeal afresh on its merits, in light of the relevant Companies Act and Income Tax Act provisions, without being influenced by any of the Supreme Court's own observations, and requested the High Court to decide it within six months given its age.

Lesson Learnt

A company being formally dissolved or struck off the register does not automatically wipe out tax (or other statutory) proceedings against it: specific provisions exist precisely to address liability in such situations, and courts must examine those provisions rather than simply treating the case as having become moot.

Official source (sci.gov.in)View Judgment (PDF)

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