Axis Bank Ltd v. The Commissioner Of Income Tax, Ludhiana And Another

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH C.W.P. No. 2431 of 2009 Date of Decision: 02.12.2011 AXIS Bank Ltd. Versus ........Petitioner The Commissioner of Income Tax, Ludhiana and another .......Respondents CORAM: HON'BLE MR. JUSTICE HEMANT GUPTAHON'BLE MR. JUSTICE G. S. SANDHAWALIA Present:Mr. A.M.Punchhi, Advocate, for the petitioner Mr. Rajesh Katoch, Advocate, for the respondents. HEMANT GUPTA, J.(Oral) Challenge in the present writ petition is to the threat of therespondents in selling the secured assets, land measuring 10 kanals, ofM/s Sambhav Textile Limited, Ludhiana (for short “The Company”). The Company availed credit facilities from the petitioner andmortgaged land measuring 10 kanals situated at Village Khwajeke Tehsiland District Ludhiana to secure the loan advanced to it. Since theCompany defaulted in making payments amounting to Rs.8,95,80,690.51ps. as on 30.6.2006, the petitioner initiated the proceedings under Section13(2) of the Securitization and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002 (for short `the Act'). Thepetitioner also served possession notice dated 9.2.2007 to the borrowersand to the general public before taking the possession of the properties.The petitioner took possession in terms of the said possession notice andput the property to sale during the pendency of the present writ petition. A perusal of the written statement shows that the property i.e. landand building of the factory was provisionally attached under Section 281-Bof Income Tax Act, 1961 on 14.12.2007 with the prior approval of theCommissioner of Income Tax-III, Ludhiana. It was on the basis of saidorder, the revenue claimed a preferential right to realise its dues beingcrown debt. In the written statement it is pointed out that the assessment wascompleted under Section 144 of the Income-tax Act, 1961 for a total sum ofRs.2,45,67,820/- on account of difference in the net profit between theaudited balance sheet filed with the Department and with the Registrar ofthe Companies and Rs.52,86,610/- on account of profit earned onunaccounted sales. The penalty proceedings were also initiated andfinalised on 18.6.2008. It is asserted that department is well within its rightto recover the income tax dues from the assessee as the dues ofGovernment of India. Learned counsel for the petitioner relied upon judgment of Hon'bleSupreme Court in UTI Bank Ltd. v. The Deputy Commissioner of CentralExcise, Chennai, (Writ Petition No. 39536 of 2005 decided on 20.12.2006),to contend that the secured creditor has a preferential rights as against thecrown debt. The crown debt has priority only amongst unsecured creditors.Reference has also been made to the judgment of Hon'ble Supreme Courtin Union of India and othersv. SICOM Ltd. and another, (2009)2 SupremeCourt Cases 121. Learned counsel for the respondents has relied upon Rule 93 ofSchedule II of Income Tax Act, 1961, which contemplates that nothing inthe said Schedule shall affect any provisions of the Act, where under thesaid Act, the tax is a first charge upon any asset. However, learned counselfor the respondents could not refer to any provision in the Income Tax Act,1961 whereby the income-tax dues can be treated as the first charge on C.W.P. No. 2431 of 2009 Learned counsel for the respondents has relied upon Rule 93 ofSchedule II of Income Tax Act, 1961, which contemplates that nothing inthe said Schedule shall affect any provisions of the Act, where under thesaid Act, the tax is a first charge upon any asset. However, learned counselfor the respondents could not refer to any provision in the Income Tax Act,1961 whereby the income-tax dues can be treated as the first charge on C.W.P. No. 2431 of 2009 the assets of the assessee. Learned counsel for the respondents has alsoreferred to the judgment of Hon'ble Supreme Court in Central Bank of Indiav. State of Kerala and others,(2009)4 SCC 94, wherein the provision of theAct; Kerala General Sales Tax Act, 1963 and that of the Recovery of Debtsto the Banks and Financial Institutions Act, 1993 came up forconsideration. In the Kerala Act, the dues of the sales tax were givenpriority. The question raised was the priority of debts under the State Actvis-a-vis the other statutes for the recovery of debts to the financialinstitutions. In the present case, there is no provision in the statute whichgives preferential rights to the dues of the State under the Income Tax Actas a preferential right. A Single Bench of this Court, Union of Indiav. Punjab FinancialCorporation decided, 2007(3) RCR (Civil) 520, while examining controversyin has held as under:- “……..Ratio that is available from various cases referred in thisregard is that when a promise is made for recovering of taxes asland revenue, then it is not provision of providing for priority. Such aprovision has to be made providing as precedence that it wouldhave priority to claim a preference. Accordingly, the submissionmade by counsel for the petitioners-Union of India that it wouldhave priority over the debts of the Financial Corporations on thebasis of provisions of Section 11 of the Central Excise Act and Rule230 (2) of the Central Excise Rules, cannot be accepted. The result of the above discussion is that the plea raised bythe petitioners in regard to its priority of recovering excise dues orthe other such like dues under the Excise Act cannot be up-heldeither on the applicability of doctrine of priority of Crown debts orthat any such priority has been so created under any of theprovisions of the Excise Act or Rules or the Customs Act. As a result, the writ petitions filed by the Union of India aredismissed. As a necessary consequence, the writ petitions filed bythe Financial Corporations, and other such writ petitions, seekingquashing of the order of attachment etc. are allowed.” Later a Division Bench in Punjab State Industrial DevelopmentCorporationv. Union of India(C.W.P. No. 3875 of 2005 decided on30.1.2007) followed the said judgment and concluded as under:- “For the reasons aforementioned, this petition succeeds. Wedeclare that the PSIDC have a preferential right to recover itsdues as it is a secured creditor having prior registeredcharge by virtue of mortgage and equitable mortgage overthe moveable and immoveable assets of M/s Jay EnnCastings. The charge of the Central Excise Department ispreferable only to unsecured creditors”. In view of the said fact, the petitioner as a secured creditor haspreference over the dues of the Income Tax Department in respect of thesecured assets. Therefore, the present writ petition is disposed of with thedirection to the petitioner to remit any excess amount, after adjusting itsdues, to the respondents being preferential creditor amongst unsecuredcreditors. (HEMANT GUPTA)JUDGE 02.12.2011 reena/ds (G.S. SANDHAWALIA) JUDGE