Wp/147/2009 Of S. Ramaswamy v. Atul Pranay, Assistant Commissioner Of Income-Tax-Central Circle-7, Mumbai And 2 Ors

AGK IN THE HIGH COURT OF JUDICATURE AT BOMBAY AGK ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.147 OF 2009 S. Ramaswamy ..Petitioner. V/s. Atul Pranay, Assistant Commissioner of Income-tax, Central Circle - 7 Mumbai ..Respondent. Mr.N.M. Porwal for the petitioner. Mr.B.M. Chatterjee for the respondent. CORAM : SMT.RANJANA DESAI & J.P. DEVADHAR, JJ. DATED : 26TH FEBRUARY, 2009. P.C. : 1. Rule. By consent of parties, taken up for final hearing forthwith. 2. Pursuant to the assessment order passed for AY 1992-93 and 1993-94, demands under section 156 of Income Tax Act, 1961 were raised against the petitioner for Rs.157.72 crores. Admittedly, the petitioner has filed an appeal against the said assessment order, which is pending before the Commissioner of Income Tax (A) [CIT (A) for short] for the last about 12 years. Our attention is drawn to the order dated 29-11-2006 passed by the : 2 : CIT (A), whereby the CIT (A) has directed the assessing officer to forward a copy of remand report through the Additional CIT within three weeks so as to enable him to take proper decision in case of the appellant, in respect of the appeal filed by him. It appears that only interim remand report has been submitted for one assessment year and final remand report for both the years has not yet been submitted. 3. The petitioner is a person notified under the Special Court (Trial of Offence relating to transactions in securities) Act, 1992 (‘the Special Court Act’ for short). The petitioner had made an application for stay of demand to the ACIT on 28-3-2008 during the pendency of the appeal. On 7-4-2008, the Additional CIT informed the petitioner that the recovery of demand by way of sale of immovable property, being his residential house, wont be enforced till disposal of first appeal or 31-12-2008 whichever is earlier. 4. However, by a letter dated 19-6-2008, the D.C.I.T. informed the petitioner that the letter dated 7-4-2008 stands withdrawn with immediate effect because the petitioner is a notified person and any decision regarding recovery of demand in : 3 : his case will have to be taken by the Special Court. It appears that thereafter the petitioner made a representation to the CIT praying for stay of the demand. By letter dated 17-11-2008, the petitioner was informed that the CIT has rejected his stay application in view of the provisions of the Special Court Act. Being aggrieved by these orders, the petitioner has approached this Court. The petitioner has sought quashing of impugned orders dated 19-6-08 and 17-11-08. 5. We have heard Mr.Porwal, learned counsel for the petitioner and Mr.Chatterjee learned counsel for the first respondent at some length. Mr.Chatterjee has drawn our attention to the judgment of the learned Judge of the Special Court dated 3-12-2008 in Misc. Application (Lodging) No.272 of 2008 in Misc. Application No.66 of 2004 wherein the sale of some of the properties belonging to the petitioner has been confirmed in view of the fact that there were huge demands raised against the petitioner apart from the income tax liability. Learned counsel has also drawn our attention to the judgment of learned Single Judge of this Court (Justice S.H. Kapadia, as his lordship then was) in Misc. Application No.150 of 1999 and other companion misc. applications, : 4 : wherein reference is made to Section 11(2)(a) of the Special Court Act and it is observed as under: "------------- In terms of the judgment of the Supreme Court in the case of Harshad Mehta, it is clear that the words "taxes due" in Sec.11(2)(a) referred to an ascertained liability for payment of taxes quantified in accordance with law. In the belonging to the petitioner has been confirmed in view of the fact that there were huge demands raised against the petitioner apart from the income tax liability. Learned counsel has also drawn our attention to the judgment of learned Single Judge of this Court (Justice S.H. Kapadia, as his lordship then was) in Misc. Application No.150 of 1999 and other companion misc. applications, : 4 : wherein reference is made to Section 11(2)(a) of the Special Court Act and it is observed as under: "------------- In terms of the judgment of the Supreme Court in the case of Harshad Mehta, it is clear that the words "taxes due" in Sec.11(2)(a) referred to an ascertained liability for payment of taxes quantified in accordance with law. In the present matter, the demands of the Income tax Department run into several crores. They are based on the assessment orders passed by the A.O. These assessment orders may be subject matter of Appeal before the Appellate Authorities. Nonetheless, they would certainly constitute an ascertained liability for payment of taxes". Relying on this judgment, learned counsel Mr.Chatterjee submitted that though appeal is pending against the assessment order, the taxes due would constitute an ascertained liability for payment of taxes and, therefore, the Special Court alone is entitled to deal with the demands raised against the petitioner. 6. Learned counsel also drew our attention to the judgment of the Supreme Court in Harshad Shantilal Mehta V/s. Custodian and Others (1998) 5 SCC 1. Paragraph 34 thereof reads as under : "While we respectfully agree with the finding that the Special Court cannot sit in appeal over the assessment of taxes by the tax authorities, we would like to qualify the Court’s subsequent observations relating to payment in full of all assessed taxes under Section 11(2)(a). There is undoubtedly no question of any reopening of tax assessments before the Special Court. There is also no provision under the Special Court Act : 5 : for proof of debts as is insolvency. The provisions in the Special Court Act for examination of claims are under Section 9-A. A claim in respect of tax assessed, therefore, cannot be reopened by the Special Court. The liability of the notified person to pay the tax will have to be determined under the machinery provided by the relevant tax law. The extent of liability, therefore, cannot be examined by the Special Court". Mr.Chatterjee submitted that in view of the above no interference is warranted with the impugned orders. 7. In our opinion, none of the judgments relied upon by Mr.Chatterjee, learned counsel for the respondents lay down a proposition that CIT(A) cannot stay demand raised against a notified person pending appeal. That question has not been considered in any of the cases cited by Mr.Chatterjee. No provision is shown to us which states that in case of a notified person a demand cannot be stayed by the CIT (A) pending appeal under the Income Tax Act, 1961. Admittedly, the petitioner’s appeal is pending for about 12 years which in our opinion is distressing. 8. In the case of Assistant Commissioner of Assistant Commissioner ofIncome-Tax Vs. A.K. Menon & Others, 250 ITR 364, Income-Tax Vs. A.K. Menon & Others, 250 ITR 364 the Supreme Court has held that the Special Court cannot decide as to whether any tax liability : 6 : determined by the tax authorities is bonafide or reasonable. Therefore, during the pendency of the appeal whether the demand deserves to be stayed is a question to be dealt with by the tax authorities and not by the Special Court. 9. Thus, it is clear that the Special Court cannot sit in appeal or overrule the orders of the tax authorities. It has only to determine the petitioner’s appeal is pending for about 12 years which in our opinion is distressing. 8. In the case of Assistant Commissioner of Assistant Commissioner ofIncome-Tax Vs. A.K. Menon & Others, 250 ITR 364, Income-Tax Vs. A.K. Menon & Others, 250 ITR 364 the Supreme Court has held that the Special Court cannot decide as to whether any tax liability : 6 : determined by the tax authorities is bonafide or reasonable. Therefore, during the pendency of the appeal whether the demand deserves to be stayed is a question to be dealt with by the tax authorities and not by the Special Court. 9. Thus, it is clear that the Special Court cannot sit in appeal or overrule the orders of the tax authorities. It has only to determine the priorities in which claims upon the property under attachment shall be paid. Though the petitioner’s appeal against the assessment order is pending, the taxes due from him would constitute an ascertained liability and the same can be enforced subject to stay if found reasonable by the tax authorities. 10. The limited question involved here is whether the demand can be stayed during the pendency of the petitioner’s appeal filed challenging the assessment order, the petitioner being a notified person under the Special Central Act. We see no fetters on the power of the CIT to stay the demand if a case is made out in view of the crystalised legal position stated by us hereinabove. At the same time, the proposed auction of the said flat pursuant to the orders of the Special Court cannot be stayed because, apart : 7 : from tax liabilities there are other dues recoverable from the petitioners by other authorities. In these circumstances, it is not possible for us to stay proceedings pending in the Special Court. 11. In view of the above, we are of the opinion that the impugned orders dated 19-6-08 and 17-11-08 will have to be set aside and are set aside accordingly. We direct the CIT to consider the application of the petitioner for stay denovo in accordance with law. We, however, make it clear that we have not expressed any opinion on the merits of the application. Needless to say that so far as judgments of the Special Court dated 21-7-2004 and 3-12-2008 to which our attention was drawn are concerned, the Custodian appointed under the Special Court Act will be free to proceed pursuant thereto in accordance with law. We further make it clear that we have not stayed auction of the said flat if it is ordered by the Special Court in connection with other liabilities of the petitioner. 12. The writ petition is disposed of. : 8 : (Judge) (Judge)