AO Was Not Intimated About Removal Of Company's Name From ROC, Draft Assessment Can't Be Said To Have Passed In Name Of Non-existent Entity: Delhi ITAT

While finding that the AO/DRP was not informed about striking off the name of non-resident assessee from the ROC, the Delhi ITAT held that assessee cannot take a plea that draft assessment order was against the non-existing entity or the company whose name is struck off. Further, pointing that the objections of non-existence of company were filed only on the day on which the Registrar of Companies, Mauritius had removed the name of the company u/s 308 of the Mauritius Companies Act, the Tribunal stated that such was an attempt of the erstwhile company to combat the assessment proceedings with self-inflicted harm, of closing the business and getting name struck off, leaving Indian Tax Authorities, frustrated. The Division Bench of Dr. B.R.R. Kumar (Accountant Member) and Anubhav Sharma (Judicial Member) observed that “where a corporate entity voluntarily opts for discontinuance of business and prefers to get the name of the company struck off and dissolve the company, after distributing its assets, the provisions of section 176 may become applicable and without any specific notice in terms of section 176(3) informing the AO of discontinuance of the business, the erstwhile company cannot claim that the assessment order was passed against the non-existing entity”. Facts of the case The Assessee (Red Fort Mauritius - Appellant) /assessee) was incorporated with the specific purpose of making investment in the securities of Prestige Projects Pvt Ltd. The beneficial shareholding of the company was held by Red Fort India Real Estate Fund LP situated in Cayman Islands. During the financial year 2008-09, the assessee had made investment in 11,22,000 Class A Equity Shares of Prestige India, for an aggregate amount of Rs.1,12,00,000, under the Foreign Direct Investment (FDF) route. In addition to investment made by the assessee, another entity namely Alena Investments Limited situated in Cyprus, wholly owned subsidiary of the assessee, also made an aggregate investment of Rs.106,35,13,000 in various instruments of Prestige India, to earn long term capital appreciation and the investment were held by the entities for almost ten years. Subsequently, during the AY 2018-19, the assessee received an offer to sell its stake/investment in Prestige India. However, the buyer i.e. Prestige Builders and Developers (Indian Buyer) wanted to conclude transaction with a single seller. Therefore, the securities/shares of Prestige India held by Alena Cyprus were transferred to the assessee for a total consideration of Rs.200,61,39,424/-, as against the original cost of Rs.106,35,13,000. Subsequently, the assessee sold the entire securities held in Prestige India to the Indian Buyer. In its return filed by the assessee, out of the total capital gains of Rs.4,85,87,899, gains aggregating to Rs.4,85,78,113/- were claimed as not chargeable to tax under Article 13(4) of the India-Mauritius DTAA and the balance gains of Rs.9785 were offered to tax. The Alena Cyprus had also filed its return where the long term capital gains of Rs. 80,86,75,225 arising from sale of shares to the assessee were declared exempted under Article 13 of the India-Cyprus DTAA. The return filed by Alena Cyprus was duly processed and stood concluded. However, return filed by assessee was selected for complete scrutiny. Since the specific purpose of making investment in Prestige India was achieved, the assessee filed an application before the Financial Services Commission, Mauritius (during the pendency of assessment proceedings) for dissolution and removal of the company from Register of Companies, Mauritius. The above fact was also intimated to the AO. In the meanwhile, the AO denied benefit of exemption under Article 13(4) of the Indo- Mauritius DTAA to the assessee, holding that there was no commercial/ economic substance behind the existence of that Company in Mauritius and, therefore, benefit of Treaty cannot be applied, simply on the basis of TRC issued by the Revenue authorities of Mauritius to that company. Additionally, the AO disregarded the separate legal existence of Alena Cyprus, holding the same also to be a mere arrangement to take benefit of India Cyprus Treaty and added the entire capital gains derived by Alena Cyprus, on sale of securities/shares of Prestige India, to the income of the assessee. Accordingly, the AO proposed assessment at total income of Rs.97,14,67,000 under the head capital gains on sale of securities/shares of Prestige India in the hands of the assessee. When the objections were pending before the DRP, the Registrar of Companies, Mauritius, removed the name of the company under section 308 of the (Mauritius) Companies Act 2001, and the assessee ceased to exist as a legal entity. Said fact was duly informed to the DRP, however the DRP proceeded to issue directions u/s 144C(5) in the name of non-existent entity. Observation of the...

AO Was Not Intimated About Removal Of Company's Name From ROC, Draft Assessment Can't Be Said To Have Passed In Name Of Non-existent Entity: Delhi ITAT

Pankaj Bajpai

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