The Finance Act, 2022 inserted Sub-section (2A) in Section 170 of the IT Act seeking to validate assessment or reassessment or other proceedings, initiated or made on the predecessor during the pendency of such succession. Further, the word ‘pendency’ has been explained to mean the period commencing from the date of filing of application for succession of business with the prescribed authorities,^[1] and ending with the date on which the Order of such succession is received by the Principal Commissioner of Income-tax or Commissioner of Income-tax.

The amendment only partially overcomes the judgments of the Supreme Court of India in the case of Maruti Suzuki India Ltd.^[2] and Spice Enfotainment Ltd.^[3], wherein it was clarified that the amalgamating entity ceases to exist in the eyes of law with effect from the appointed date. What is interesting to note is that while the amendment is applicable with effect from April 1, 2022, the wording of the Section indicates retrospective applicability.

Recently, the Apex Court has distinguished its earlier decisions and has upheld the validity of assessment on the amalgamating company in the case of Mahagun Realtors (P) Ltd.^[4] primarily on the ground that throughout the course of assessment proceedings the amalgamating company represented itself to be the assessee. Needless to state that, in our opinion, such observations are fact specific and, in our opinion, does not deviate from the principle that where the factum of amalgamation has been notified to the Revenue Authorities, subsequent action in the name of amalgamating company will be invalid.

It also warrants consideration that Section 170 of the IT Act talks about assessment on successor of business and the newly inserted sub-section (2A) has very limited applicability as it deems assessment or reassessment or other proceedings valid only during the course of such succession proceedings. As a natural corollary, in our opinion, any proceedings initiated against the predecessor after the Orders of the prescribed authorities approving the succession will still be hit by the law as settled by the Apex Court in the case of Maruti Suzuki India Ltd. and Spice Enfotainment Ltd.

Though the Section has very limited applicability, it remains to be seen as to how the provision is interpreted and applied by the officers of the Income-tax Department. A clarification to that effect may be in order owing to liberal and overreaching interpretations generally adopted by the tax officers.

[1] High Court or Tribunal or Adjudicating Authority as defined in Section 5(1) of the Insolvency and Bankruptcy Code, 2016.

[2] PCIT vs. Maruti Suzuki India Ltd. [2019] 416 ITR 613 (Supreme Court).

[3] CIT vs. Spice Enfotainment Ltd. [2018] 12 ITR-OL 134 (Supreme Court).

[4] Pr. CIT vs. Mahagun Realtors (P) Ltd., order dated April 5, 2022 in SLP(C) No. 4063 of 2020 (Supreme Court).