Rehabilitation scheme tax exemption must follow statutory consent procedure; blanket override cannot bypass scheme-making requirements.

Exemption from income-tax liability sought for a sick industrial company's rehabilitation scheme must be treated as part of the scheme-making process under the Sick Industrial Companies (Special Provisions) Act, 1985, because it involves a Central Government fiscal sacrifice. Section 32 gives overriding effect only to the extent of inconsistency and does not dispense with the consent procedure under Section 19. The Board was therefore required to formulate and circulate the exemption proposal within the draft scheme for consent, rather than leaving it to a separate approach to income-tax authorities. Clauses making relief dependent on separate consent were held invalid and were removed, with the exemption issue remitted for reconsideration under the statutory rehabilitation procedure.

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Issues: (i) Whether exemption from the operation of Section 41(1) of the Income-tax Act, 1961 in a rehabilitation scheme for a sick industrial company is to be treated as a matter falling within Section 19 of the Sick Industrial Companies (Special Provisions) Act, 1985 and not as one automatically overridden by Section 32 thereof. (ii) Whether the Board for Industrial and Financial Reconstruction could validly finalise the scheme by leaving the question of such exemption to be considered separately by the income-tax authorities instead of incorporating its own proposal and circulating the draft scheme for consent under Section 19(2).

Issue (i): Exemption from tax liability under Section 41(1) in favour of a sick unit amounts to a sacrifice by the Central Government and therefore falls within the scheme-making power under Section 19 of the 1985 Act. Section 32 gives overriding effect only to the extent of inconsistency between the rehabilitation scheme and other laws, and does not dispense with the procedure under Section 19 where the scheme itself seeks such fiscal relief.

Conclusion: The question of exemption from Section 41(1) had to be dealt with under Section 19 of the 1985 Act, subject to the statutory procedure, and not by invoking Section 32 as a blanket override.

Issue (ii): The Board was required to formulate its own proposal on the exemption, include it in the draft rehabilitation scheme, and circulate the scheme to the concerned authority for consent under Section 19(2). Leaving the matter to a separate representation before the income-tax department, after sanctioning the scheme with clauses making relief contingent on such separate consent, was inconsistent with the statutory framework.

Conclusion: The impugned clauses in the sanctioned scheme were invalid and had to be set aside, with reconsideration of the exemption question by the Board in accordance with Section 19.

Final Conclusion: The challenge succeeded in part. The scheme was not struck down in entirety, but the clauses dealing with income-tax exemption were removed and the matter was sent back for fresh consideration under the rehabilitation procedure prescribed by the 1985 Act.

Ratio Decidendi: A tax exemption sought as part of rehabilitation of a sick industrial company is a form of financial sacrifice by the Central Government that must be built into the scheme and processed under Section 19 of the Sick Industrial Companies (Special Provisions) Act, 1985; Section 32 overrides other laws only to the extent of inconsistency and does not permit bypassing the statutory consent procedure.

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