1990 PLP (Trib (PTD)

MANZURUL HAQUE, (ACCOUNTANT MEMBER).‑‑‑These appeals have been filed against the order of the learned CIT (A), in which jurisdiction of the ITO for finalising the assessment of the appellant under Section 65 of the Income‑tax Ordinance, 1979, has been challenged.

2. The appellant is a private limited company dealing in spare parts of tractors. Accounting period for the years under appeal were as under: From 1975‑76 to 1979‑80 ending March. From 1980-81 to 1982‑83 ending June.

3. Mr. R.H. Naqvi the learned counsel, contended before us that during the years 1978‑79 to 198283 there was no business and original assessments were completed for the above years at nil income. The company was incorporated on 19‑3‑1969 and dissolved and struck off the Register by the Registrar of Joint Stock Companies on 20‑12‑1981. It was gazetted on 20‑1‑1982. Subsequent to the dissolution, the I.T.O. received a letter from M/s. M

T dated 5‑7‑1983 which formed the basis of impugned orders. Notice under Section 65 was, therefore, issued and served on the Managing Director of the company. Assessments were finalised under Section 63 of the Income Tax Ordinance, 1979. Opening of the case under Section 65; of the Income Tax Ordinance, 1979, when the Income‑tax Officer has no jurisdiction since the company was already dissolved, is being challenged in all the years under appeal. The learned counsel has placed reliance on (1960) 40 I.T.R. 38 and (1974) 94 I.T.R. 317 and put up the same arguments he did before the learned CIT (A). The decision of the Madras High Court in the case CIT Madras/Bombay v. Express Newspapers Ltd. (1960) 40 ITR 36 was as under: "Held, (i) that on the liquidation of the Free Press Co. its liquidator alone would represent it and the return submitted by G after its liquidation was not a valid return as he had no authority to act on behalf of the company. Normally all the powers of the directors ceased on the liquidation of a company, and a director, to act thereafter on behalf of the company, should have been authorised either by a resolution of the company or by the liquidator. The authority of the liquidator need not be in writing but was never a matter of assumption. (ii) That what invested the Income‑tax Officer with jurisdiction to assess was the existence of a voluntary return submitted by the assessee or the service of a notice under Section 22(2) on the individual concerned and not the general notice published under Section 22(1). There could be no proper assumption of jurisdiction unless there was a service of notice on the assessee; a mere issue of notice was not sufficient

(iv) That the existence of an assessee was essential for an assessment: there could not be an assessment of a non‑existent person. The assessment made on the Free Press Co. long after it was struck off the register of companies was not valid, and afresh assessment was not possible on the original return as it had ceased to exist

" Mr. Rehan Naqvi submitted that since the company did not exist on‑ the date when the alleged notice under Section 65 was served by affixture, they were invalid and meaningless. He also drew our attention to Section 77 of the Income tax Ordinance, 1979, which reads as under: "

77. Liability for payment of tax in the case of private companies, firms and associations of persons :(1) Notwithstanding anything contained in the Companies Act 1913 (VII of 1913) where any tax payable by a private company (including a private company which is wound up or has gone into liquidation) in respect of any income year (whether ending before or after the date of commencement of the winding up or liquidation proceedings) cannot be recovered, every person who is, or was at any time during the said income year, a director of the company and every share‑holder owning not less than ten percent. of its paid‑up share capital at any time during the said income year shall be jointly and severally liable for the payment of such tax, and such person shall be entitled to recover the amount so paid by him from the company on whose behalf it is paid or any other director or share‑holder of the company in proportion of the shares owned by him

" He said that the company was neither wound up nor had gone into liquidation. It was dissolved by the Registrar under the provisions of Section 247 of the Companies Act 1913. The provision of Section 247 of the Companies Act, 1913 is reproduced below: "

247. Registrar may strike defunct‑company off register: (1) Where the registrar has reasonable cause to believe that a company is not carrying on business or in operation, he shall send to the company by post a letter inquiring whether the company is carrying on business or in operation. (2) If the registrar does not within one month of sending the letter receive any answer thereto, he shall within fourteen days after the expiration of the month send to the company by post a registered letter referring to the first letter, and stating that no answer thereto has been received and that, if an answer is not received to the second letter within one month from the date thereof, a notice will be published in the Gazette with a view to striking the name of the company off the register. (3) If the registrar either receives an answer from the company to the effect that it is not carrying on business or in operation, or does not within one month after sending the second letter receive any answer, he may publish in the official Gazette, and send to the company by post a notice that, at the expiration of three months notice, the name of the company mentioned therein will, unless cause is shown to the contrary, be struck off the register and the company will be dissolved. Section 77 of the Income‑tax Ordinance, 1979, reproduced above is equivalent to Section 179 of the Indian Income‑tax Act. In the case‑law cited by the learned counsel (1974) 94 ITR 370, it was held that tax cannot be recovered from the director of a dissolved company'. The learned counsel summing up his argument stated that service of notice under Section 65 of the Income‑tax Ordinance, 1979, was not valid and the assessments framed in consequence thereof were also not valid. Therefore, the recovery proceedings, started by the Income‑tax Department were arbitrary and illegal. The learned departmental representative (Mr. Humayoon Auqeel) requested for brief adjournment to study the case. It was, therefore, adjourned from 9‑8‑1989 to 18‑9‑1989 on which date Mr. A.R. Memon appeared and argued that a limited company is a juridical person which comes, into existence through a process. It goes into liquidation under certain rules and for that he drew our attention to Section 155 of the Companies Act. Section 155 lays down the mode of winding up. It says: (1) The winding up of a company may be either‑‑ (i) by the Court; or (ii) voluntary; or (iii) subject to the supervision of the Court (2) The provisions of this Act with respect to winding up apply, unless the contrary appears, to the winding up of a company in any of these modes:' It is, however, different from dissolution in the sense that certain principles have to be followed in the winding up process. It assets are collected and realized and applied in payment of its debts, and when these are satisfied, returning to its members the sums which they have contributed to the company, or paying them other moneys due to them in their character as members. In dissolution the life of company comes to an end. Mr. Memon, the learned D.R. then drew our attention to Sections 76, 77 and 123 of the Income‑tax Ordinance, 1979. Sections 76 and 77 are not relevant in this case. Section 123, he pointed out, involves every person who: "at the time the offence was committed, was the principal officer thereof, or was acting or purporting to act in such capacity, or a member in the firm, or the manager or a male adult member of the family,

be deemed to be guilty of such offence and all the provisions of this Ordinance shall apply accordingly." Giving reply to the issue raised by the learned D.R. the learned counsel drew our attention to clause (6) of Section 247 of the Companies Act which says: (6) If a company or any member or creditor thereof feels aggrieved by the company having been struck off the register, the Court, on the application of the company or ember or creditor, may, if satisfied that the company was at the time of the striking off carrying on business or in operation, or otherwise that it is just that the company be restored to the register, order the name of the company to be restored to the register, and thereupon the company shall be deemed to have continued in existence as if its name had not been struck off; and the Court may by the order give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as may be, as if the name of the company had not been struck off

" The learned counsel pointed out that if the department had sufficient material to proceed against the appellant, the correct course for it was to approach the Court of law to restore the company to register. Since the Court was not moved and no order was received from it, the finding of the two officers below was unjust and illegal.

4. In appeal the learned CIT (A) had disposed of this issue with the following remarks: "

After perusal of the facts I find that there was no discontinuation of the business in the present case nor a notice was given by the so‑called defunct/non‑existent persons constituting the appellant company or was given by any person to the I.T.O. within the statutory period of 15 days required under Section 72 (1) of the Income‑tax Ordinance. In this view of the matter the assessments made in the present case appear to be fully justified as no business could be carried on by a non existent assessee .....:' Let us for a moment turn to Section 72 of the Income‑tax Ordinance relied upon by the learned CTT (A). The provision of that section is as under: "

72. Assessment in the case of discontinued business or profession.‑‑‑(1) Where, any business or profession is discontinued, the person discontinuing such business or profession shall give to the Income‑tax Officer a notice of such discontinuance within fifteen days of the date of such discontinuance (hereinafter referred to as the "said date"). It may be seen that the above provision relates to discontinued business. In the appellant's case the facts are different. Business was not discontinued, it was dissolved for certain default, and struck off from the Register.

5. On going through the various provisions of the Income‑tax Ordinance relating to the liquidation or winding up of companies, we find that legislature did not visualise a situation like the one in the case of the appellant. The only door open for approach, was through the Court with a request to put the company back on the Register for realisation of Govt. dues as laid down in para (6) of Section 247 of the Companies Act. Since this process was not followed by the assessing officer, his action against the dissolved Company cannot be termed as legal. The findings of the learned CIT (A), in this view of the matter, is also not just. As a result all the assessments are annulled. Z.S./876/T Assessments annulled.