Wp/10769/2012 Of Hill County Home Owners Welfare Association v. The Commissioner Of Income Tax

HONOURABLE SRI JUSTICE GODA RAGHURAMANDHONOURABLE SRI JUSTICE M.S.RAMACHANDRA RAO W.P.No.9227 of 2010,W.P.No.10769 of 2012,W.P.M.P.No.14396 of 2012 in W.P.No.11412 of 2012 &W.P.M.P.No.30269 of 2012 in W.P.No.23700 of 2012 COMMON ORDER: (Common Order of the Court) The petitioner in W.P.No.9227 of 2010 is an association registered under theA.P.Societies Registration Act, 2001 under the name and style “Hill County HomeOwners’ Welfare Association” comprising 431 members who assert to be owners andpurchasers of independent residential bungalows/villas and residential flatsconstructed by M/s. Maytas Properties Limited (for short “MPL). Respondents 6 to 19 companies in this Writ Petition (for short ‘land owningcompanies’) are group companies of M/s Satyam Computer Services and MPL.These 14 companies were owners of various extents of land totaling Ac.98.16 gts. inSy. Nos.192/p, 193/p, 194/p, 195/p, 196/p, 197/p, 201/p and 282/p of Batchupallivillage, Qutubullapur Mandal, Ranga Reddy District. Out of the above extent, inAc.85.36 gts. which is contiguous in nature, MPL entered into a developmentagreement-cum-GPA dated 30-12-2005 with the 14 land owning companies todevelop the said lands by constructing a town ship by name “Hill County” consistingof villas/apartments. Thereafter sanction for a layout for implementation of the said project in terms ofthe development agreement was obtained from the Hyderabad Urban DevelopmentAuthority under letter No.5876/MP2/PLG/H/2005 dated 21-03-2006. Pursuant to thesanctioned layout, MPL divided the land into plots, common areas, roads etc. andcommenced construction of villas and apartments over portions of the above area . The land owning companies and MPL, while the construction was inprogress, offered to sell the villas/apartments/plots to prospective purchasers inrespect of their shares as mentioned in the development agreement. Thereafternegotiations took place and several villas/apartments were sold/agreed to be soldalong with proportionate undivided share in land. Some plots were also sold by MPLto persons like the petitioner in W.P. 23700 of 2012. In some cases MPL received fullsale consideration from the purchasers, executed regd.sale deeds and also deliveredpossession. In some cases full consideration was received and possession wasdelivered but sale deeds were not registered. In other cases only part considerationwas received after execution of agreements of sale and it is stated that in all a sum of Rs.60.00 crores (approximately) is payable towards balance sale consideration.Some villas/apartments/plots remain unsold. The details of the villas/apartments in the Maytas Hill County Project as on April 2010 are as under: Members of the petitioner association came to know that 14 provisionalattachment orders dated 10-06-2009/07-12-2009 were passed by the AssistantCommissioner of Income Tax, Central Circle-I, Hyderabad against the land owningcompanies under Section 281-B of the Income Tax Act, 1961 on the ground that theyhad not paid self assessment taxes due and that it is necessary to protect the interestof the Revenue by resorting to provisional attachment of their assets i.e. the variousextents of land in the above survey numbers individually owned by them. It was alsoalleged therein that the 14 land owning companies are group companies ofM/s.Satyam Computer Services Limited; that the ex-Chairman of the said companySri B.Ramalinga Raju had confessed in January 2009 that he had fudged the booksof accounts of the said company and that the financial statements of the company donot reflect the true and correct picture of the statement of affairs of the said company;that it is suspected that he had diverted funds from the said company into severalother companies such as the land owning companies and acquired agricultural landsand therefore it is necessary to provisionally attach their assets as there is apossibility of the Revenue raising substantial demands in future consequent onfinalization of assessments in their cases. The petitioners in W.P.9227/2010 challenge the 14 provisional attachmentorders/proceedings issued on 10-06-2009 attaching the properties of the land owningcompanies upto 9.12.2009 and the subsequent 14 proceedings attaching theproperties of the land owning companies upto 9.6.2010 and contend that the saidaction of the Assistant Commissioner of Income Tax, Central Circle-I, Hyderabad isarbitrary and illegal as the Income Tax authorities had failed to notice that themembers of the petitioner-association are the absolute owners and bonafidepurchasers of the properties purchased by them under sale deeds and agreementsof sale; that the said properties cannot be attached for any reason for satisfaction ofthe tax due by the land owning companies; that in respect of the units for which full sale consideration was paid by some of the members, the sale deeds could not beregistered in view of attachment orders issued by the Asst.Commissioner of IncomeTax, Central Circle-1, Hyderabad; that many of these units are mortgaged to financialinstitutions; that the land owning companies have no interest therein; and in anyevent, attachment of the land on which the residential bungalows/villas/apartmentswere sold by the MPL to the members of the petitioner-association is unsustainable inlaw. Subsequently, proceedings (14 in number) dated 22-12-2011 and 05-01-2012were issued under Section 281-B of the I.T. Act, 1961 by the Deputy Commissionerof Income Tax, Central Circle-8, Hyderabad and the Deputy Commissioner of IncomeTax, Central Circle-9, Hyderabad at the instance of the Commissioner of Income Tax(Central), Hyderabad and the Additional Commissioner of Income Tax, CentralRange-3, Hyderabad extending the period of attachment to 21-06-2012 and 04-07-2012 on the ground that Income tax proceedings against the land owning companiesfor 2009-10 assessment year are pending; that interests of the Revenue have to beprotected; and assessees prevented from disposing off the properties . These notices are challenged by the petitioner-association in W.P.No.9227 of2010 by filing W.P.No.10769 of 2012 reiterating the grounds raised by it inW.P.No.9227 of 2010. W.P.M.P.No.13626 of 2012 is filed seeking stay of the saidnotices and W.P.M.P.No.13627 of 2012 is filed for a direction to the District Registrar,Ranga Reddy District, Moosapet, Hyderabad and the Sub-Registrar, Qutubullapur,Ranga Reddy District to register the bungalows/villas and apartments situated inMaytas Hill County in the above land. It appears that the land owning companies filed their return of income on 30-09-2008 for the assessment year 2008-2009 but had not paid any “self assessment tax”on the admitted income. After processing the returns of income, the Income Taxdepartment is said to have crystallized the demand payable by the land owningcompanies and served demand notices on the assessees. In the meantime Union of India through the Government Nominee Directorapproached the Company Law Board against MPL and all it’s promoter directors andall members u/s.388B(1)(a)/397/298 r/w 401/402/403/406/408 of the CompaniesAct,1956 in order to prevent further frauds and serious irregularities. The petitionerassociation got impleaded in the said C.P. for induction of a new investor to take overthe management of MPL with all its assets and liabilities. By order 13-01-2011, theCompany Law Board in C.P.4/2009 inducted the I.L. & F.S. group to protect theinterests of all stake holders, particularly members of the petitioner-association. This induction was ordered to facilitate completions of the Hill County Project which hadcome to a stand still from January 2009, so that bonafide purchasers would not bejeopardized. The new management of MPL, paid a portion of the dues to the Income TaxDepartment and requested the Assistant Commissioner of Income Tax, CentralCircle-I, Hyderabad to raise the attachment and lift the ban on registration of theproperties of members of the petitioner-association and also requested for waiver ofpenalty. induction was ordered to facilitate completions of the Hill County Project which hadcome to a stand still from January 2009, so that bonafide purchasers would not bejeopardized. The new management of MPL, paid a portion of the dues to the Income TaxDepartment and requested the Assistant Commissioner of Income Tax, CentralCircle-I, Hyderabad to raise the attachment and lift the ban on registration of theproperties of members of the petitioner-association and also requested for waiver ofpenalty. The Income Tax Department through the Assessing Officer referred the aboveproperty to the Tax Recovery Officer u/s.222 of the Act in January 2010. The proceedings issued in 2010 pursuant to which the Tax Recovery Officerdemanded tax from the assesses, the consequent attachment orders and theproclamation of sale in regard to the 14 group companies are challenged inW.P.No.11412/2012 by the petitioner in W.P.No.9227 of 2010. They also filedW.P.M.P.No.14396 of 2012 to raise orders of attachment issued on 29-06-2010 and04-01-2011 and for a direction to the District Registrar, Ranga Reddy and the Sub-Registrar, Qutubullapur to register bungalows/villas/apartments in the above land tothe purchasers. The petitioner in W.P.No.23700 of 2012 purchased plot No.86 of extent 478 sq.yds. along with 3055 sft. (to be built up area) in the layout obtained by MPL, under aregistered sale deed dated 12-10-2007 and got registered an agreement of construction on the same day afterpaying full consideration of Rs.96,68,173/-. She contends that she was also put inpossession of the said plot. She claims to have obtained a loan by mortgaging theproperty to the ICICI Bank, S.R.Nagar Branch. She contends that she hadnegotiated with a purchaser to sell the said land but the Sub-Registrar, Qutubullapurrefused to receive the sale deed and register the same in view of the order ofattachment dated 25-06-2012 of the Deputy Commissioner, Income Tax, CentralCircle-IX, Hyderabad, attaching the properties of the 14 group companies who hadsold the property to the petitioner. She adopts the contentions of the petitionerassociation (in the three writ petitions 9227/2010, 10769/2012 and 11412/2012) andcontends that once a sale deed is executed in her favour, there cannot beattachment of the said property subsequently and the said attachment is null andvoid. She contends that the Sub-Registrar, Qutubullapur is bound to receive andregister the sale deed executed by her in respect of the above property. The Income tax authorities assert that these companies are defaulters, thattherefore their properties are again attached u/s.281B of the Act and recovery proceedings were also initiated by the Tax Recovery OIfficer, Central Circle,Hyderabad on receipt of tax recovery certificates from the assessing officers as perS.222 of the Act. The Income Tax returns filed these companies for 2009-10 and2010-11 are said to be under scrutiny and are said to have been referred to a specialaudit u/s.142(2A) of the Act and the Revenue contends that there is a likelihood for asubstantial demand to be raised for these years based on the findings of the SpecialAudit Report. It is also stated by the Revenue that assessments of MPL for A.Y.2006-07 and2007-08 were reopened u/s.147 r/w s.148 and the assessment for the A.Y.2008-09 ispending finalization. It is also stated that for the A.Y.2006-07,2007-08 and 2008-09the books of accounts and the financial statements connected therewith have beenreferred to Special Audit u/s.142 (2 A) of the Act on 16.12.2011. It is asserted that having regard to the fact that a substantial amount of incometax dues are pending to be paid over to the Department by the land owningcompanies, it would be prejudicial to the interest of Revenue to lift the attachmentmade by the Department, of the properties belonging to the land owning companies. It is also stated by the Revenue that assessments of MPL for A.Y.2006-07 and2007-08 were reopened u/s.147 r/w s.148 and the assessment for the A.Y.2008-09 ispending finalization. It is also stated that for the A.Y.2006-07,2007-08 and 2008-09the books of accounts and the financial statements connected therewith have beenreferred to Special Audit u/s.142 (2 A) of the Act on 16.12.2011. It is asserted that having regard to the fact that a substantial amount of incometax dues are pending to be paid over to the Department by the land owningcompanies, it would be prejudicial to the interest of Revenue to lift the attachmentmade by the Department, of the properties belonging to the land owning companies. On 02-11-2012, this Court passed the following order in the above writ petitions:“At the request of the respondents 1 and 2 the matter is adjourned by threeweeks and no further adjournment is allowed, to inform this Court by an affidavit orotherwise as to which of the properties belonging to respondents 7 to 21 (which areunder development agreement with the Maytas Properties Limited which is alsoknown as Maytas Hill County) are subject to allotment by the orders of attachmentdated 10-06-2009 passed under relevant provisions of the Income Tax Act, 1961clearly specifying whether properties whose transfer in favour of Members of the writpetitioner society effected by registered sale deeds are also included within thereach of the attachment orders or otherwise; whether plots/villas/apartments inrespect of which substantial or whole of the consideration has been received butregistration of the alienation has not been effected are included; and the status offlats/villas/apartments which are not subject to any transaction/development at all.” Thereafter a detailed counter affidavit has been filed by the AdditionalCommissioner of Income Tax (Central Range-3), Hyderabad. It is also informed to the Court that on 23-11-2012 proposals for settlement werebeing discussed by the department with MPL and its 14 group companies and thatthe following is the gist of the proposals: In view of this Court’s directions, Revenue has filed an additional counteraffidavit dt.21.11.2012 giving details as sought by this Court. It is also mentioned thatMPL and the land owning companies are discussing a detailed proposal with theIncome Tax Department for making efforts to liquidate the tax in arrears in lieu ofrelease of attachment of the villas/apartments/land which are sold but not registeredand also those sold as on date. Broad outline of the proposals under considerationby the Department were also enclosed. Heard Sri B.Adinarayana Rao, Senior Counsel for the petitioners inW.P.No.9227 of 2010, 10769 of 2012, 11412 of 2012 and Sri Peri Prabhakar,counsel for the petitioner in W.P.No.23700 of 2012, Sri J.V.Prasad, Standing Counselfor the Income Tax Department and Sri S.Ravi, Senior Counsel for MPL. After considering the above facts and the contentions raised by all the parties,we are of the view that W.P.Nos.9227 of 2010 and 10769 of 2012 have becomeinfructuous in view of the fact that the orders of attachment under Section 281-B of the I.T.Act impugned therein have expired by efflux of time on 22.6.2012/4.7.2012 onthe expiry of the period of 6 months from the dates of issue of the said proceedings,attaching the properties provisionally. Moreover orders of assessment for 2008-09 inrespect of the 14 group companies have also been passed since. The orders of attachment and proclamation of sale in respect of the 14 groupcompanies consequent to the passing of assessment orders have been challengedin W.P.No.11412 of 2012 by the petitioner therein. With a view to ensure that the interests of the innocent purchasers and theRevenue are both protected, pending disposal of W.P.Nos.11412 of 2012 and 23700of 2012, we deem it appropriate to pass the following interim order: the I.T.Act impugned therein have expired by efflux of time on 22.6.2012/4.7.2012 onthe expiry of the period of 6 months from the dates of issue of the said proceedings,attaching the properties provisionally. Moreover orders of assessment for 2008-09 inrespect of the 14 group companies have also been passed since. The orders of attachment and proclamation of sale in respect of the 14 groupcompanies consequent to the passing of assessment orders have been challengedin W.P.No.11412 of 2012 by the petitioner therein. With a view to ensure that the interests of the innocent purchasers and theRevenue are both protected, pending disposal of W.P.Nos.11412 of 2012 and 23700of 2012, we deem it appropriate to pass the following interim order: a)In respect of units (villas/apartments/plots) where full considerationwas received by MPL, sale deeds executed in favour of purchasersand registered and possession of the plots and villas/apartments(along with undivided share of land) mentioned in the respective saledeeds has been delivered, we declare that such units and theundivided share in land transferred along with villas/apartments,covered by such registered sale deeds would be free from attachmentand the attachment orders passed by the I.T. department would haveno application to them. This position in law is also accepted by theRevenue. b)In respect of units (villas/apartments/plots) where full considerationwas received by MPL Limited and possession also delivered to thepurchasers but sale deeds were not executed and/or registered, asthere is a “deemed transfer” of the property by virtue of Section 2 (47)of the I.T.Act, we hold that attachment orders passed by the I.T.department would have no application to them and to the extent of theundivided share of land agreed to be sold along with villas/apartments,as well. The Sub-Registrar, Qutubullapur, Ranga Reddy District shallnot refuse to register any sale deed presented by such purchasers,notwithstanding the orders of attachment. c)In respect of units (villas/apartments/plots) where only a part of theconsideration has been paid by purchasers, it is stated that the netreceivables amount to approximately Rs.60.00 crores. This amountshall be put in an escrow account by MPL , and on receipt of the fullconsideration from the purchasers, MPL shall register the saidproperties in favour of the purchasers and deliver possession to them.The Sub-Registrar, Qutubullapur, Ranga Reddy District shall not refuse to register any sale deed presented by MPL and such purchasers,notwithstanding orders of attachment.notwithstanding orders of attachment. d) It is open to the Income Tax authorities and MPL to negotiateregarding sharing of the percentage of the amounts in the escrowaccount and arrive at a settlement in regard thereto. regarding sharing of the percentage of the amounts in the escrowaccount and arrive at a settlement in regard thereto. e)With regard to unsold lands/units also it is open to the Income Taxauthorities and MPL to negotiate and arrive at a settlement in regardthereto. authorities and MPL to negotiate and arrive at a settlement in regardthereto. f)In the absence of any settlement by negotiation between theIncome Tax department, MPL and its 14 group companies asmentioned in clauses (d) and (e) above, the amounts deposited in theescrow account by MPL would be subject to further orders in these writpetitions.Income Tax department, MPL and its 14 group companies asmentioned in clauses (d) and (e) above, the amounts deposited in theescrow account by MPL would be subject to further orders in these writpetitions. W.P.M.P.No.14396 of 2012 in W.P.No.11412 of 2012 & W.P.M.P.No.30269 of2012 in W.P.No.23700 of 2012 stand disposed off in terms of the orders herein andW.P.Nos.9227 of 2010 and 10769 of 2012 are dismissed as infructuous. No costs. As a sequel to the dismissal of W.P.Nos.9227 of 2010 and 10769 of 2012, allW.P.M.P.s. pending in these writ petitions stand dismissed. ____________________________ JUSTICE GODA RAGHURAM Date:05-12-2012Kvr W.P.M.P.No.14396 of 2012 in W.P.No.11412 of 2012 & W.P.M.P.No.30269 of2012 in W.P.No.23700 of 2012 stand disposed off in terms of the orders herein andW.P.Nos.9227 of 2010 and 10769 of 2012 are dismissed as infructuous. No costs. As a sequel to the dismissal of W.P.Nos.9227 of 2010 and 10769 of 2012, allW.P.M.P.s. pending in these writ petitions stand dismissed. ____________________________ JUSTICE GODA RAGHURAM Date:05-12-2012Kvr __________________________________JUSTICE M.S.RAMACHANDRA RAO