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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: (i) whether the rehabilitation scheme sanctioned under the Sick Industrial Companies (Special Provisions) Act, 1985 could validly provide waiver and reduction of income-tax interest despite the mandatory interest provisions of the Income-tax Act, 1961; (ii) whether the Income-tax Department could rely on section 119 of the Income-tax Act, 1961 and its administrative circulars to invalidate the scheme approved by the BIFR.
Issue (i): whether the rehabilitation scheme sanctioned under the Sick Industrial Companies (Special Provisions) Act, 1985 could validly provide waiver and reduction of income-tax interest despite the mandatory interest provisions of the Income-tax Act, 1961.
Analysis: The scheme was framed in proceedings under the special rehabilitation law and expressly dealt with statutory liabilities, including interest on tax dues. Section 32 of the Sick Industrial Companies (Special Provisions) Act, 1985 gives overriding effect to the Act, its rules and schemes over inconsistent provisions of other laws, subject only to the express exceptions stated in that section. The Court applied the settled principle of harmonious construction and the rule that a prior special statute prevails over a later general statute where inconsistency exists. On that basis, the Court held that the BIFR was competent, while framing a rehabilitation scheme, to grant limited relief in respect of income-tax interest as part of the restructuring package.
Conclusion: The waiver and reduction of income-tax interest contained in the sanctioned rehabilitation scheme were held to be within jurisdiction and legally effective.
Issue (ii): whether the Income-tax Department could rely on section 119 of the Income-tax Act, 1961 and its administrative circulars to invalidate the scheme approved by the BIFR.
Analysis: Section 119 regulates administrative directions within the income-tax hierarchy and cannot override a statutory rehabilitation scheme framed under the special enactment. The Court also noted that the department had earlier participated in the rehabilitation process, had sought protection for its dues, and the scheme had been acted upon by the income-tax authorities and given effect to in subsequent proceedings. In these circumstances, the non-compliance argument based on internal departmental procedure did not justify unsettling the sanctioned scheme.
Conclusion: The challenge founded on section 119 and departmental circulars was rejected.
Final Conclusion: The sanctioned rehabilitation scheme under the special statute prevailed over the contrary departmental objection, and the interference by the appellate authority was unsustainable.
Ratio Decidendi: A rehabilitation scheme validly sanctioned under a special statute having an overriding non obstante clause can prevail over inconsistent income-tax provisions, and internal administrative instructions under the Income-tax Act cannot defeat such a scheme.
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