2017 (8) TMI 865 - HC - Indian Laws

Court quashes tax demand notices during BIFR proceedings, emphasizes SICA provisions.

M/s Electrotherm (India) Ltd. Versus Union of India (Deleted) & 1

The court quashed demand notices for unpaid tax dues issued to a sick industrial company during proceedings before BIFR. Emphasizing the importance of ... Proceedings before BIFR - sick industrial company - recover the petitioner's pending dues directly from the petitioner's bank account - Held that:- Consequent to a company being a sick industrial company under section 3(1)(o) of the Act, all proceedings for execution, distress or the like against any of the property of a sick company would automatically be suspended and could not be taken without the consent of the Board. It was held that in such a case, gram panchayat could not have recovered the property tax and other amount of dues from the company by initiating coercive proceedings under section 129 of the Bombay Village Panchayats Act, 1959, without the consent of the Board. The fact that the impugned demand notices seek to coercively recover the petitioner's pending dues directly from the petitioner's bank account is not possible to be disputed. The fact that no consent of the BIFR was obtained by the department when they carried out such steps is not in dispute. That being the position, we cannot upheld the action of the department. If at all the department would have to move the BIFR for appropriate order or reliefs, either permitting recovery or taking into account the dues of the department at the time of preparation of the scheme in case of the petitioner company. Our findings and observations are based on the premise that the proceedings before the BIFR are still pending. If however, it is found that the same have been disposed of, it would be open for the department to proceed further in accordance with law. Issues:Challenge to demand notices for unpaid tax dues through bank accounts - Interpretation of section 226(3) of the Income Tax Act, 1961 - Applicability of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) - Coercive recovery of tax dues during pendency of proceedings before BIFR.Analysis:The petitioner contested demand notices issued by the Deputy Commissioner of Income Tax to recover unpaid tax dues through bank accounts. The petitioner, a sick industrial company under SICA, argued that coercive recovery during proceedings before BIFR was impermissible. For the assessment years 2010-11 and 2011-12, the petitioner challenged orders of assessment and raised appeals against income assessments and demand notices. The petitioner sought to restrain coercive recoveries through Misc. Civil Application No.431 of 2015 due to ongoing proceedings before BIFR.The petitioner relied on section 22 of SICA, emphasizing the suspension of legal proceedings during BIFR proceedings. The department disputed the petitioner's claim, stating that mere pendency of BIFR proceedings did not prevent tax recovery. The court acknowledged the petitioner's registration with BIFR and the pending proceedings. Section 22 of SICA prohibits legal actions against sick companies without BIFR consent. Referring to Gram Panchayat v. Shree Vallabh Glass Works Limited, the court held that coercive recovery without BIFR consent was impermissible. The court emphasized the need for departmental action in accordance with BIFR directives if proceedings were ongoing.Consequently, the court quashed the impugned demand notices dated 27.01.2016 and 28.01.2016, emphasizing the importance of BIFR proceedings in determining the legality of tax recoveries. The judgment was based on the premise of pending BIFR proceedings, allowing the department to proceed lawfully post-BIFR conclusion. The petition was disposed of in favor of the petitioner, highlighting the necessity of complying with SICA provisions during tax recovery actions.