Appeal Filed By A Struck Off Company Against The Revenue Department Is Maintainable: ITAT Delhi

[16 June 2022] The Delhi Bench of ITAT has ruled that an appeal filed by a Company against the order passed by the revenue department does not become infructuous if, thereafter, the Company has been struck off from the Register of Companies.
The Bench, consisting of Yogesh Kumar U.S. (Judicial Member) and B. R. R. Kumar (Accountant Member), held that a Certificate of Incorporation issued to a Company cannot be treated as cancelled for the purpose of realizing the amount due to the Company and for the payment or discharge of its liabilities. The ITAT noted that a Company’s name can be struck off under the Companies Act, 2013, either on its own under Section 248(2), if it extinguishes all its liabilities, or by the Registrar under Section 248(1), if it commits any default specified thereunder.
Further, the ITAT observed that Section 248(6) of the Companies Act provides that the Registrar, before passing an order dissolving the Company, shall ensure that sufficient provision has been made for realization of the dues and for discharge of the Company’s liabilities. Also, the ITAT noted that as per Section 248 (7), the liability of every director, manager, officer, and every member of the dissolved Company, shall continue and may be enforced as if the Company had not been dissolved.
The ITAT observed that Section 250 of the Companies Act, 2013 provides that where a Company stands dissolved under Section 248, it shall cease to operate as a Company and the Certificate of Incorporation issued to it shall be deemed to have been cancelled, except for the purpose of realising the amount due to it and for the purpose of payment or discharge of its liabilities or obligations.
Thus, the ITAT held that once a Company was struck off under the Companies Act, it would be deemed to have been cancelled, except for the purpose of realizing the amount due to it and for the payment or discharge of its liabilities or obligations. The ITAT noted that under Section 179 of the Income Tax Act, 1961, the revenue department can recover the tax due from a struck off Company from the Directors of the said Company, if the non-recovery is attributable to any gross neglect, misfeasance or breach of duty on the part of the Directors. Also, the ITAT observed that the revenue department can recover any tax due from the struck off Company by invoking Section 226(3) of the Income Tax Act. The ITAT held that the revenue department was not barred from simultaneously invoking both Section 226(3) and Section 179 to recover the tax due from the struck off Company.
The ITAT ruled that if the Court/Tribunal fails to adjudicate on the actual tax due from the struck off Company on the ground that the proceedings have become infructuous, and if the revenue department proceeds to recover the amount of tax allegedly due, the rights of the Directors of the Company would be seriously jeopardised and there would be a denial of the rights guaranteed to them under law.
Thus, the ITAT held that if the assessee’s appeal was dismissed as being infructuous, and the revenue department, thereafter, initiated proceedings under Section 179 of the Income Tax Act without adjudicating on the quantum of tax due or the liability to pay tax, great injustice would be caused.