Director General Of Income Tax (Admn.) & Anr v. M/S. Gtc Industries Ltd. & Anr

(2016] 4 S.C.R. I 0 I 0 A DIRECTOR GENERAL OF INCOME TAX (ADMN.) & ANR. v. MIS. GTC INDUSTRIES LTD. & ANR. (Civil Appeal No. 5038of2016) MAY 12, 2016 [A.K. SIKRI AND R.K. AGRAWAL, JJ.) Sick Industrial Companies (Special Provisions) Act, 1985 - ss. 18(5) and 22(1) - Respondent-company declared a sick company by Board of Industrial and Financial Reconstruction (BIFR) -c Scheme for reconstruction/rehabilitation sanctioned - Certain income tax reliefs including the relief 'to consider waiving of interest and penalty' kept under the Scheme - Rehabilitation period was for eight years from 31.3.2003 to 31.3.2011 - In the year 2007, the company was discharged from the purview of the Act as it ceased to D be a sick undertaking on its net worth turning positive - Thereupon, Revenue made demand for its outstanding dues - In the meantime the company had sold its property in Mumbai to third parties for -developing the same The company filed application before the BIFR seeking stay of coercive action proposed to be taken by the Revenue - BIFR directed the revenue not to take any coercive action E - Order of BIFR upheld by appellate authority - Writ petition by Revenue challenging the order - During pendency of the writ petition, company filed application seeking extension of rehabilitation period by another one year - Extension denied by BIFR and fi1rther ipheld by appellate authority- Writ petition against F the order dismissed as withdrm1'n - Thereafter, writ petition of the Revenue was dismissed - On appeal by Revenue, held: Revenue had the right to recover arrears of income tax after 2007 (when the company ceased to be a sick company) and in any case after the rehabilitation scheme expired - The quantum of the dues for which the Revenue had raised the demand, were correct - The question, G as to whether it was permissible for the Revenue to include interest and penalty in view of the income tax reliefs granted in the scheme, not decided in the present appeal - Parties permitted to approach BIFR to seek clarification as to whether it was mandatory or recommendatory to waive interest and penalty. DIRECTOR GENERAL OF INCOME TAX (ADMN.) & ANR. v. MIS. GTC INDUSTRIES LTD. & ANR. Disposing of the appeal, the Court HELD: 1. The Sanctioned Rehabilitation Scheme has outlived its life which came to an end on 31st March, 2011. Application for extension of the Scheme filed before the Board of Industrial and Financial Reconstruction, was dismissed. The Appellate Authority had upheld this order of the Board. Moreover, way back in the year 2007, the net worth of the Company had turned positive and it was no more a sick Company. Thus, the Revenue had right to recover arrears of income tax after 2007 and in any case after 31.03.2011 when the Scheme expired. [Paras 20 and 24] [1021-B-D] 2. The plea of the respondent-Company was that the demand of Rs. 761.35 crores on account of income tax dues as made by the Revenue was not correct and that the Revenue had included even those demands, where the Company had succeeded and the appeals filed by the Department were pending. It has been clarified by the Revenue that the disputed amount has not been included and only that amount which was payable as per the or-der of CIT (Appeal), is included. [Paras 26 and 29] [1023-C, H; 1024-A-BJ 3. The question as to whether it was permissible for the 12 मई 2016 ਮਈ 12, 2016 Department to include the interest and penalty in its demand, is not being decided in the present appeal. The parties are permit-ted to approach the Board, seeking clarification as to what was meant by the words 'to consider' (as it occurred in the Rehabili-tation Scheme) i.e., whether the Board meant that it was manda-tory on the part of the Revenue to waive the interest and penalty or it was only recommendatory and, therefore, it was upto to the Department to agree or not to agree to the said request. The jurisdiction of the Board, whenever such application is filed, would be limited to the aforesaid aspect alone. [Paras 31 and 32) [1024-G-H; 1025-A] 4. The Income Tax Department shall be entitled to take steps for attachment of the properties of the Company, including the property at Mumbai, as per the provisions of the Income Tax Act and shall be entitled to sell the same. If there are any secured creditors in respect of these properties, such attachment and sale shall be subject to the rights of those creditors. Out of the A proceeds, the Principal amount of tax due to the Income Tax Department and even the admitted excise dues shall be paid to the Revenue. [Para 33) [1025-B-C) 5. As regards intervention application filed by the Compa- nies who had entered into MOU in respect of the property of the B respondent-company, once it is found that such an agreement was in violation of the Rehabilitation Scheme, the arrangement with the aforesaid interveners entered into by the Company loses its legal force and no right would accrue to these interveners on the basis of the said agreements. [Para 34) [1025-E] CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5038 of c 2016. From the Judgment and Order dated 16.08.2011 of the High Court of Delhi at New Delhi in WP (C) No. 1875 of201 I . . Maninder Singh, ASG, Sanjay Sen, C. A. Sundram, Shyam Diwan, Dr. A. M. Singhvi, Parag Tripathi, Sr. Advs., S. A. Haseeb, Ms. Sadhna D Sandhu, Mrs. Anil Katiyar, Mrs. Shally Bhasin, Rudreshwar Singh, Apoorve Karol, Vaibhav Tyagi, Kaushik Poddhar, Ms. Sujatha Shirolkar, Mahesh Aggarwal, Ankur Saigal, Abhinav Agrawal, E. C. Agrawala, Gagan Gupta, Ajay K. Jain, Akshat Kumar, A. Mukherjee, Ad vs. for the appearing parties. E The Judgment of the Court was delivered by A.K. SIKRI, J. I. Leave granted. 2. Respondent No. 1 (hereinafter referred to as the 'Company'), namely, Mis GTC Industries Ltd. became sick Company sometime in the year 1997 as its net worth had eroded. As per the requirements of F Section 15 of The Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as the 'SICA'), it filed reference before . the Board oflndustrial and Financial Reconstruction (hereinafter referred to as the 'Board') which was admitted and registered as Case No.17/ 1997. The Board conducted enquiry into the working of Company to determine whether it had become a sick industrial company and in the G process appointed the Managing Director, State Bank of India (MA) (RCB), Mumbai as the Operating Agency (OA) to enquire into and make a report with respect to certain matters which was specified in the orders passed by the Board in this behalf. The Board, on the completion of the enquiry1 satisfied itself that Company had become a sick industrial H company. A Draft Rehabilitation Scheme (DRS) was prepared by the OA which was submitted to the Board and the Board circulated the said Scheme vi de its order dated 14.01.2000. In this DRS, following income tax reliefs were proposed: (a)To exempt from the applicability of the provisions of Section 41 (I) of the Income Tax Act, 1961 and to allow carry forward of unabsorbed losses and allowances beyond eight years. (b)To lift attachment order imposed by Income Tax Department against immovable and movable properties including Debtors and Bank Accounts. Thereafter, not to attach any property including movable properties of the company during the rehabilitation period. (c)To grant stay against demand raised by Department but are in dispute before various appellate authorities/Courts. ( d) To waive interest and penalty, if any, imposed and not to levy such interest and penalties during the rehabilitation period. (e)To exempt GTC from Capital Gain on sale of surplus land and/ or sale of industrial sheds proposed for development on surplus land at Maro I. (f) To exempt from TDS against payments to be received by the company. Objection was filed by the appellant against the DRS on 23.03.2001. During hearing dated 29 .03.2001, the representative of the appellant stated that the appellant had no objection ifthe reliefs and concessions sought were not directed to be given but kept for the consideration of the Income Tax Department. 3. The Scheme ofreconstruction/rehabilitation which was submitted by the OA, after consultation with all the stakeholders and creditors as per the requirement of law, was approved and sanctioned by the Board (hereinafter referred to as the 'SS-02') vide order dated 16.02.2002. It may be mentioned here that after the DRS was circulated and before it could be sanctioned, the income tax demand of Rs.366 crores was intimated by the Income Tax Department (appellant herein) to OA on 01.08.2001. While sanctioning the Scheme on 16.12.2002, the following income tax reliefs were kept in the Scheme: "(a) To consider exemption from the applicability of the provisions of Sections 41 ( 1 ), 11SJB,43-B and 72(3) of the Income Tax Act, A 1961 and to allow carry forward of Unabsorbed Losses and allowances beyond eight years. (b) To consider waiving interest and penalty, if any, imposed and not to levy such interest and penalties during the rehabilitation period. B (c) To consider exempting GTC from Capital Gain on sale of surplus land and/or sale of industrial sheds proposed for development on surplus land at Maro! and/or sale of any other surplus assets. (d) To consider exempting GTC from TDS against payments to c be received by the company." Besides this, under the head 'General Terms and Conditions' in Para I O(k) of the Rehabilitation Scheme, the Board directed with regard to the income tax dues as under: D "I O(k): The Income Tax Department would lift the attachment orders imposed by them against immovable and movable properties ofGTC including debtors and bank accounts and thereafter not to attach any property including movable properties of the company during the rehabilitation period without prior consent of BIFR. The recovery proceedings against demands raised by Income Tax E Department against disputed liabilities shall remain suspended and refunds due to company, if any, would not be adjusted against such demands." 4. The said relief was not envisaged under the head reliefs and concessions asked from CBDT in Para 9(Q) and such direction was F given under the head General Terms and Conditions, without consent of the appellants required under Section 19(2) of SICA. Further, in Para 6(t) of the Sanctioned Rehabilitation Scheme (SS-02), the Board referred to the assumptions of the projected profitability Statement at Annexure II of the SS-02. The assumptions of profitability, to be considered part of the Sanctioned Scheme, included ii1ter alia the following: G (i) The sales would comprise of own manufacture of cigarettes and cigarettes purchased from convertors. (ii) That the in-house capacity utilization would be in the range of 54%fo 75%. Further, as per the projected profitability statement, the projected sales comprised of cigarettes only, and that as per the projected fund flow statement, there was to be no decrease in the fixed assets. It was further laid down in para 1 O(t) under the head 'General Terms and Conditions' that "the company would not undertake any major modernization/diversification program/ capital expenditure except normal capital expenditure during the period of implementation of the rehabilitation scheme without specific prior permission of the MA/BIFR." Besides this, Board further directed the Promoters in para 9 (S)(b) of the Sanctioned Rehabilitation Scheme "to meet any shortfall in the cash flow projections or any contingency not conceived in the Scheme. In this regard, promoters may raise moneys by way of development of industrial estate and sale thereof of surplus land available at Marol, Mumbai or sale/development of any other surplus assets." 5. Having regard to the aforesaid provisions in the Scheme with its imprimatur by the Board, the Revenue could not and did not resort to any action by way of attachment of movable or immovable assets of the company. 6. The cut-off date in the Scheme was 31.12.1998 and the rehabilitation period of eight years was prescribed therein. However, later on the cut-off date in the Scheme was changed from 31.12.1998 to 31.03 .2003 by the Board and the eight years period provided for rehabilitation was to be reckoned from 31.03.2003. In this way, the Scheme was to lapse on 31.03.2011. 7. When this Scheme was still in operation, the Revenue filed petition under Section 22( 1) of SICA seeking permission to recover the outstanding dues of Rs. 426.37 crores which were raised after the date of Sanctioned Scheme. On this petition, the Board passed order dated 29.03.2006 directing the Revenue to release a sum of Rs. 4.28 crores which was withheld by the Revenue and further directed the Income Tax Department to expedite the settlement of the disputed demands. It was also observed that in the event of crystallization of the disputed demand of the Revenue and in case of shortfall of funds thereof for repayment by the company, company/promoters would bring the requisite amount of interest free unsecured loan and/or would raise the necessary fund by way of disposal of the company's surplus assets as envisaged in paragraph S of the SS-02. It also directed that the company would settle/ A pay the income tax dues, if any, which would become payable after sanction/implementation ofSS-02 i.e. w.e.f. 01.04.2003 onwards in the normal course and neither the Company nor its promoters would be entitled for any protection under SICA for delay/non-payment of such dues. B 8. When the position stood thus, on 29.06.2007 the Company submitted before the Board that its net-worth became positive on 31.03.2007 and sought de-registration from SICA/Board. The Board, passed order dated 29.06.2007 holding that since net-worth of the company had turned positive as on 31.03.2007, it has seized to be a sick industrial undertaking within the meaning of Section 3( I )(0) of SICA c and discharged the company from the purview of SICA. Operative part of the direction in the said order read as under: "(i) The SB! is hereby relieved from the responsibility as the MA. (ii) The unimplemented provision(s) of the SS-02 forthe unexpired D period of the Scheme and also the unimplemented provisions of the subsequent order(s) issued by the Board in this regard, if any, would continue to be implemented by the concerned agencies and their implementation would be monitored by the company. (iii) The 'Special Director', appointed by the BIFR on the E company's Board of Directors (BOD), if any, would stand discharged with immediate effect.