Vedanta Limited v. Asst. Comissioner Ofincome Tax Circle (1), Aayakar Bhavan, Edc Complex, Patto, Panaji, Goa

Santosh IN THE HIGH COURT OF BOMBAY AT GOA WRIT PETITION NO.439 OF 2017 Vedanta Limited,No.20, Sesa Ghor, EDC Complex,Patto, Panaji, Goa-403 001 … Petitioner ~ versus ~ 1ASST. COMISSIONER OFINCOME TAX Circle (1), Aayakar Bhavan, EDC Complex, Patto, Panaji, Goa 403001. 2PRINCIPAL COMISSIONEROF INCOME TAX Aayakar Bhavan, EDC Complex,Patto, Panaji, Goa 403001. 3JOINT COMISSIONER OFINCOME TAX Range 1, Aayakar Bhavan, EDCComplex, Patto, Panaji, Goa 403001. …Respondents APPEARANCES FORTHE PETITIONERMr PJ Pardiwala, Senior Advocate, with RG RamaniFORTHERESPONDENTSMr K Aravinda, Senior Standing Counsel CORAM:GS PATEL & NUTAN D SARDESSAI, JJ DATED:19th September 2017.ORAL JUDGMENT (per G.S. Patel J) 1.Rule, returnable forthwith. The Respondents waive service.By consent, taken up for hearing and final disposal forthwith. 2.The petition is directed against an order dated 24th March2017 of the Assistant Commissioner of Income Tax, Circle 1(1),Panaji. By this order the ACIT, Respondent No.1, rejected thePetitioner’s application for permission under Section 281 of theIncome Tax Act, 1961. 3.We have heard learned Counsel for the Petitioner and theRevenue. Mr. Pardiwala for the Petitioner has drawn our attentionto the provisions of Section 281. It is clear that this is a section thatis meant to protect the interest of the Revenue, and, specifically toguard against fraudulent transfers designed to defeat recovery by therevenue. There are almost exactly parallel provisions in theCompanies Act. Section 281 of the Income Tax Act reads thus : “SECTION 281 CERTAIN TRANSFERS TO BE VOID (1)Where, during the pendency of any proceedingsunder this Act or after the completion thereof, but beforethe service of notice under rule 2 of the Second Schedule,any assessee creates a charge on, or parts with thepossession (by way of sale, mortgage, gift, exchange orany other mode of transfer whatsoever) of any of his assets in favour of any other person, such charge ortransfer shall be void as against any claim in respect ofany tax or any other sum payable by the assessee as aresult of the completion of the said proceeding orotherwise: Provided that such charge or transfer shall not bevoid if it is made (i) For adequate consideration and withoutnotice of the pendency of such proceedingor, as the case may be, without notice of suchtax or other sum payable by the assessee; or notice of the pendency of such proceedingor, as the case may be, without notice of suchtax or other sum payable by the assessee; or (ii) With the previous permission of theAssessing Officer. (2)This section applies to cases where the amount oftax or other sum payable or likely to be payable exceedsfive thousand rupees and the assets charged or transferredexceed ten thousand rupees in value. Explanation: In this section, “assets” means land, building,machinery, plant, shares, securities and fixed deposits inbanks, to the extent to which any of the assets aforesaiddoes not form part of the stock-in-trade of the business ofthe assessee.” (Emphasis added) 4.We are here required to examine the impugned order in thecontext of sub-clause (ii) of the proviso to sub-Section (1). Thesection is asset-specific and transfer- or charge-specific. The sectiondemands, above all, precision. An application is for prior permissionto create aa charge or effect transfer in respect of a defined asset.Such an application cannot be disposed of by resorting to generalities (“likelihood”, “huge demands”, “might be revoked”,etc). There is no room in considering an application under Section281 for a response that is speculative, predicated on imponderablesand unknowns such as litigation outcomes, or on suppositions thatall stay orders obtained by an assessee are bound to be vacated andan assessee’s appeals lost. Nothing in our experience suggests thisto be remotely true. 4.We are here required to examine the impugned order in thecontext of sub-clause (ii) of the proviso to sub-Section (1). Thesection is asset-specific and transfer- or charge-specific. The sectiondemands, above all, precision. An application is for prior permissionto create aa charge or effect transfer in respect of a defined asset.Such an application cannot be disposed of by resorting to generalities (“likelihood”, “huge demands”, “might be revoked”,etc). There is no room in considering an application under Section281 for a response that is speculative, predicated on imponderablesand unknowns such as litigation outcomes, or on suppositions thatall stay orders obtained by an assessee are bound to be vacated andan assessee’s appeals lost. Nothing in our experience suggests thisto be remotely true. 5.We have considered Mr. Pardiwala’s submission in regard tothe tenability of the impugned order. We agree with him that itcannot be sustained for the precise reasons we have outlined, andwhich we find unacceptable. There is no discussion on the merits ofany particular application, proposed transfer or individual asset. 6.Hence, keeping the contentions of both sides open, andwithout rendering a decision on the merits of the application by thePetitioner, we will set aside the impugned order and direct the 1stRespondent to consider the Petitioner’s application afresh,uninfluenced by the previous order and subject to certain conditionsthat we will set out hereafter. 7.The 1st Respondent will consider the Petitioner’s application(including subsequent correspondence) under Section 281 de novoby 17th November 2017 (we have extended time because of theintervening Diwali holidays). The 1st Respondent will indicatewhether he requires any clarifications or further documents ormaterials from the Petitioner. If so, this will be communicated inwriting by 17th November 2017. The Petitioner will have until 15th December 2017 to respond and forward the necessary material. ThePetitioner will not seek extensions of time. On the material that isfinally made available to the 1st Respondent, the 1st Respondent willdispose of the application under Section 281 by 12th January 2018.We have somewhat extended these timelines, and we have done soin order to ensure that there is no room for complaint on either sideregarding inadequacy of time. 8.Finally we trust that both sides will have regard to not onlySection 281, but also the provisions of Circular No.4/2011 dated19th July 2011 setting out the guidelines for the grant of priorpermission under Section 281. 9.We will note at this stage Mr Pardiwala’s submission that thePetitioner has available assets in excess of Rs.80,000 crores ofwhich roughly assets of Rs.49,000 crores assets have some form ofencumbrance on them, while the remaining are not so encumbered.We have noted this not with a view to predetermine the 1stRespondent’s decision, but to assist the 1st Respondent in moreprecisely formulating and identifying the information anddocumentation that he requires, and also to draw attention to thewording of Section 281 and the circular. Therefore, once thePetitioners’ application specifies an asset, its value and the nature ofthe proposed transaction or charge, it will be for the 1st Respondentto assess why that particular asset or transaction should or shouldnot be denied permission. At the cost of repetition, it will not benoopen to the 1st Respondent to generally say that proposedtransaction or charge over any asset, though unencumbered, can bepermitted because there is a possibility of another demand, or on account of the vagaries of litigation, etc. What the section and thecircular require of the 1st Respondent is to ensure that the knownclaims of the revenue are sufficiently secured, and the circular itselfprovides ample guidelines how this is to be achieved or done. 10.Rule is made partly absolute in these terms. There will be noorder as to costs. NUTAN D. SARDESSAI J. G. S. PATEL J.