State Bank Of India,Stressed Assets Management Branch,Rep. By Its Assistant General Manager.ret Cross Building, Ii Floor v. The Assistant Commissioner Of Income Tax,Central Circle 2 (3)

IN THE HIGH COURT OF JUDICATURE AT MADRAS State Bank of India,Stressed Assets Management Branch,rep. by its Assistant General Manager.Ret Cross Building, II Floor,No.32, Montieth Road, Egmore, Chennai-8. ...Petitioner Vs. 1.The Assistant Commissioner of Income Tax,Central Circle 2 (3),No.46, New Building, 1st Floor,Mahatma Gandhi Road,Nungambakkam,Chennai - 34.2.M/s. Surana Corporation Ltd.,30, GNT Road,Madhavaram, Chennai- 600 110. ...Respondents Writ Petition, filed under Article 226 of the Constitutionof India, for issuance of Writ of Certiorari to call forrecords and to quash the impugned demand notice, dated22.03.2017, issued by the first respondent as null and void. For Petitioner : Mr. M. L. Ganesh For Respondent-1 : Mr.A.P.Srinivas Heard Mr. M. L. Ganesh, the learned counsel appearingfor the petitioner and Mr.A.P.Srinivas, the learned SeniorStanding Counsel for the first respondent. Since thepetitioner challenges a notice issued by the first respondent,notice to the second respondent is dispensed with. https://hcservices.ecourts.gov.in/hcservices/ 2.The petitioner, is the State Bank of India, and theyare aggrieved by the impugned notice, dated 22.03.2017, issuedby the first respondent, for recovery of income tax, payable bythe second respondent, for the assessment years 2005-06 to 2013-14. The impugned notice states that, the second respondent isdue and payable of the income tax of Rs.69.81 Crores, for theabove referred assessment years, and since certain monies of thesecond respondent were lying with the hands of thepetitioner/Bank, the first respondent has issued the impugnednotice under Section 226 (3) of the Income Tax Act, 1961, to thepetitioner. The validity of this notice is challenged by thepetitioner before this Court, in this Writ Petition. 3.The primary ground, on which, the demand notice ischallenged, is by contending that, on account of the recentamendment to Securitisation And Reconstruction of FinancialAssets and Enforcement of Security Interest Act, 2002, (SARFAESIAct) viz., Section 20 E, and Section 31 B of the Recovery ofDebts and Bankruptcy and Financial Interest Act (RD & BFI Act),the secured creditor shall have precedence over all dues, overthe Central and the State Government. It is further contendedthat, the petitioner, being a secured creditor, is entitled toexercise their rights under Section 35 of the SARFAESI Act, andthe question of issuing notice under Section 226 (3) of theIncome Tax Act does not arise. In support of the saidcontention, the learned counsel for the petitioner/Bank referredto the following decisions:- iii) Dena Bank Vs. Bhikabhai Prabhudas Parekh & Co. reported in Manu/SC/0317/2000. 4.The learned Senior Standing Counsel for the firstrespondent referred to the counter affidavit filed by the firstrespondent, wherein, it is stated that, the impugned notice isonly a garnishee notice, and not a notice of attachment, and itis always open to the petitioner/Bank to set forth the facts,which will be considered by the first respondent. Further, itis contended that, the Department has proceeded on the basis ofdecision of the Constitution Bench of the Hon'ble Supreme Court,in the case of Builders Supply Corporation Vs. Union of India,reported in 56 ITR 91. It is reiterated that the impugned https://hcservices.ecourts.gov.in/hcservices/ notice, is not a demand notice and has been issued in tune withthe provisions of the Income Tax Act, 1961. 4.The learned Senior Standing Counsel for the firstrespondent referred to the counter affidavit filed by the firstrespondent, wherein, it is stated that, the impugned notice isonly a garnishee notice, and not a notice of attachment, and itis always open to the petitioner/Bank to set forth the facts,which will be considered by the first respondent. Further, itis contended that, the Department has proceeded on the basis ofdecision of the Constitution Bench of the Hon'ble Supreme Court,in the case of Builders Supply Corporation Vs. Union of India,reported in 56 ITR 91. It is reiterated that the impugned https://hcservices.ecourts.gov.in/hcservices/ notice, is not a demand notice and has been issued in tune withthe provisions of the Income Tax Act, 1961. 5.After hearing the learned counsel appearing for thepetitioner and the learned Senior Standing Counsel for the firstrespondent, and perusing the materials placed on record, I aminclined to accept the arguments advanced by the learned counselappearing for the petitioner, in the light of the decision ofthe Hon'ble Full Bench of this Court, (in which, I was a party)in the case of Assistant Commissioner (CT) Anna Salai-IIIAssessment Circle Vs. The Indian Overseas Bank, in W.P.No.2675of 2011 etc., dated 10.11.2016. This decision was rendered bythe Full Bench, after taking into consideration the amendment toSARFAESI Act and RD & BFI Act, as stated supra. At thisjuncture, it would be useful to refer to the relevant portion ofthe decision of the Hon'ble Full Bench, which is extracted ashereunder:- ""''a) As to whether the FinancialInstitution, which is a secured creditor, orthe department of the government concerned,would have the 'Priority of Charge' over themortgaged property in question, with regardto the tax and other dues.b) As to the status and the rights of athird party purchaser of the mortgagedproperty in question.''3. The Full Bench after taking note ofthe Enforcement of Security interest andRecovery of Debts and Laws and MiscellaneousProvisions (Amendment) Act, 2016, held thatthere is no doubt that the rights of the asecured creditor to realise secured debtsdue and payable by sale of assets over whichsecurity interest is created, would havepriority over all debts and Government duesincluding Revenues, Taxes, Cesses and ratesdue to the Central Government, StateGovernment or local authority. The operativeportion of the judgment of the Full Bench isas follows:"2.We are of the view that ifthere was at all any doubt, the samestands resolved by view of theEnforcement of Security Interest andRecoveryofDebtsLawsandMiscellaneous Provisions (Amendment)Act, 2016, Section 41 of the same seeking to introduce Section 31B inthe Principal Act, which reads asunder:- ''31B. Notwithstandinganything contained in any otherlaw for the time being in force,the rights of secured creditorsto realise secured debts due andpayable to them by sale ofassets over which securityinterest is created, shall havepriority and shall be paid inpriority over all other debtsand Government dues includingrevenues, taxes, cesses andrates due to the CentralGovernment, State Government orlocal authority. Explanation. - For the purposesof this section, it is herebyclarified that on or after thecommencement of the Insolvencyand Bankruptcy Code, 2016, incases where insolvency orbankruptcyproceedingsarepending in respect of securedassets of the borrower, priorityto secured creditors in paymentof debt shall be subject to theprovisions of that Code.'' Explanation. - For the purposesof this section, it is herebyclarified that on or after thecommencement of the Insolvencyand Bankruptcy Code, 2016, incases where insolvency orbankruptcyproceedingsarepending in respect of securedassets of the borrower, priorityto secured creditors in paymentof debt shall be subject to theprovisions of that Code.'' 3.There is, thus, no doubt thatthe rights of a secured creditor torealise secured debts due and payableby sale of assets over which securityinterest is created, would havepriority over all debts and Governmentdues including revenues, taxes, cessesand rates due to the CentralGovernment, State Government or LocalAuthority. This section introduced intheCentralActiswith''notwithstanding'' clause and has comeinto force from 01.09.2016. 4.The law having now come intoforce, naturally it would govern therights of the parties in respect of even a lis pending. 5.The aforesaid would, thus,answer question (a) in favour of thefinancial institution, which is asecured creditor having the benefit ofthe mortgaged property. 6.In so far as question (b) isconcerned, the same is stated to relateonly to auction sales, which may becarried out in pursuance to the rightsexercised by the secured creditorhaving a mortgage of the property.This aspect is also covered by theintroduction of Section 31B, as itincludes ''secured debts due andpayable to them by sale of assets overwhich security interest is created''. 7.We, thus, answer the aforesaidreference accordingly. """ 6.There is no dispute to the fact that the petitioner isa secured creditor, and in such circumstances, they haveprecedence over all the dues, payable to the Central Governmentand the State Government. 7.This Court, in the case of M/s.Well Stores (Madras)Private Limited, Rep by its Director, Mr.R.James, the TaxRecovery Officer-IV, O/o the Principal Commissioner of IncomeTax -4, Nugambakkam, in W.P.Nos.40656 of 2015,34703 of 2016 and3572 of 2017, dated 18.07.2017, considered the validity of theorders of attachment passed by the Income Tax Department, inrespect of the properties, for which, loans have been advancedby the secured creditor, which debt, was taken over by the AssetReconstruction Company of India, and, after following thedecision of the Hon'ble Full Bench of this Court, in the case ofAssistant Commissioner (CT) Anna Salai-III Assessment Circle(supra), it is held as follows:- "5. The answer to the two submissionsraised by the revenue lies in the decisionof the Full Bench referred supra. Thatapart the interpretation given by the IncomeTax Department to the Assignment Agreementdated 07.12.2017, stating that it should betreated as a sale transaction is nottenable. This is so because, the terms and conditions of the agreement clearly shows itis an assignment of security interestcreated in favour of the Indian Bank and bythat the Indian Bank had transferred infavour of the petitioner, the loansdisbursed under the financing documentstogether with all its rights, title andinterest in the financing documents and anyunderlying Security Interests, Pledgesand/or guarantees in respect of such loans.6. Therefore the petitioner beingthe successor would step into the shoes ofthe financing Bank, which admittedly, is asecured creditor. Further more, thedocument has been valid by stamped for thepurpose of stamp duty as assignment deed ascould be seen from the endorsement in thereverse of page No.1 of the Assignmentagreement dated 07.02.2017. Thus, in thelight of the decision of the Full Bench,taking note of the Amendment Act, 2016, theorder of attachment made by the Income TaxDepartment should yield to rights of thepetitioner, secured creditor. Therefore,they are required to be set aside." 8.In the light of the above discussions, the impugnednotice cannot be enforced against the petitioner/Bank, and it isheld to be not sustainable in law. Accordingly, this WritPetition is allowed, the impugned notice is set aside. No costs.Consequently, connected Writ Miscellaneous Petition is closed. Sd/-Assistant Registrar //True copy// sd Sub Assistant Registrar To 1.The Assistant Commissioner of Income Tax,Central Circle 2 (3),No.46, New Building, 1st Floor,Mahatma Gandhi Road,Nungambakkam,Chennai - 34. 2.M/s. Surana Corporation Ltd.,30, GNT Road,Madhavaram, Chennai- 600 110.30, GNT Road,Madhavaram, Chennai- 600 110. +1cc to Mr.A.P.Srinivas, Advocate SR.No.85623 +1cc to Mr.M.L.Ganesh, Advocate SR.No.85263 Writ Petition No. 14421 of 2017 GN(18/12/2017)