AI Drafter 
TaxTMI 
TaxTMI 
2011 (9) TMI 1087
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.... respondent Income-tax Department, by way of attachment of assets covered by Section 13(2) notice, for priority over the petitioner for realization of income-tax dues, is contrary to law and thus illegal; B. Be pleased to issue a writ of mandamus or any other appropriate writ, order or declaration directing the first respondent, income-tax department to allow the petitioner to exercise its rights under the SARFAESI Act and the rules made thereunder unhampered without any regard for the attachment orders passed by it for realization of income-tax dues of the second respondent company; C. Pending admission and final hearing of the present petition, be pleased to stay the operation and implementation of the impugned attachment of the assets covered by Section 13(2) notice ordered by the first respondent, income-tax department; D. Be pleased to grant such other and further relief/s as may be deemed fit in the in the interest of justice;" 2. The facts giving rise to this petition can be summarized as under:- 2.1 Petitioner - Asset Reconstruction Company (India) Ltd. (hereinafter referred to as "ARCIL" for short) is a company incorporated under the Companies Act, 1956 and ....
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....009 under Section 13(2) of the SARFAESI Act. Thereafter, petitioner, in exercise of powers under Section 13(4) of the SARFAESI Act, read with Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002, took possession of the secured assets of the borrower company and advertised the possession notice in Economic Times (English edition) and Financial Express (Gujarati edition) on April 10, 2010, thereby informing second respondent and the public in general that the petitioner ARCIL has taken over the possession of the properties described in the notice. 2.6 At that stage, a major development took place. 1st respondent i.e. Income Tax Department, vide letter dated 8.11.2010, informed the petitioner that the assets of the second respondent company is under attachment of the Income Tax Department. Further, the Department also informed that the outstanding in the case of the company as per the record is to the tune of Rs. 36.33 crores excluding interest, under Section 220, Clause 2 of the Income Tax Act, 1961 for the Assessment Years 1993-94 to 1996-97. It appears that Department also informed that they already filed an affidavit of proof of debt before the Off....
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.... recovery of tax. Section 222 of the Act, which provides for Certificate to Tax Recovery Officer, reads as under:- "222. (1) When an assessee is in default or is deemed to be in default in making a payment of tax, the Tax Recovery Officer may draw up under his signature a statement in the prescribed form specifying the amount of arrears due from the assessee (such statement being hereafter in this Chapter and in the Second Schedule referred to as "certificate") and shall proceed to recover from such assessee the amount specified in the certificate by one or more of the modes mentioned below, in accordance with the rules laid down in the Second Schedule - (a) Attachment and sale of the assessee's movable property; (b) Attachment and sale of the assessee's immovable property; (c) Arrest of the assessee and his detention in prison; (d) Appointing a receiver for the management of the assessee's movable and immovable properties. Explanation: For the purpose of this subsection, the assessee's movable or immovable property shall include any property which has been transferred, directly or indirectly on or af....
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....irst charge. They provide only for the machinery for realization of income-tax dues. 4.6 He submitted that the position of law has been made very clear by catena of Supreme Court judgments as well as this High Court judgments holding that it is only when there is a specific provision in the statute conferring first charge over the property, crown debt is entitled to have priority over the claim of secured creditors. In absence of any such provision, secured debt would prevail over the crown debt. He placed reliance on the following case laws:- 1. (2009) 4 SCC 94 - Bank of India Vs. State of Kerala and ors. 2. (2009) 2 SCC 121 - Union of India Vs. SICOM Ltd. and anr. 3. 2011 (2) GLR 18 - Kotak Mahindra Bank Ltd., Mumbai Vs. District Panchayat, Baroda and anr. 4. 2010 (2) GLH 525 - Baroda City Cooperative Bank Ltd. Vs. State of Gujarat and ors. 5. Recent decision of this Court in SCA No. 13196 of 2008 in the case of Recovery Officer Vs. Bank of India and ors. 4.7 He further submitted that being a secured creditor, ARCIL is also entitled to have priority over the dues of the Income Tax Department under the Companies Act, 1956 more partic....
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....-turn assigned their debts in favour of the petitioner ARCIL during pendency of the proceedings under the Income Tax Act, 1961, is void as against any claim in respect of income-tax and other sum payable by respondent No.2 company in favour of respondent No.1 Department. This contention has been the main trump card for respondent No.1 Income Tax Department. 6. In rejoinder, learned counsel for the petitioner submitted that the equitable mortgage dated 17.9.1997 created by the borrower in favour of the lender financial institutions like ICICI, Central Bank of India, UTI Bank and Bank of India is not a void transfer in terms of Section 281 of the Income Tax Act, 1981 for two reasons - namely that application of Section 281 is not at all pleaded by the Income Tax Department and an issue which is not pleaded cannot be allowed to be raised at the stage of oral argument, and secondly; Section 281 defence cannot be raised by the Income Tax Department as a collateral challenge in a petition filed by a third party (in this case ARCIL). To this effect, reliance was placed on the decision of the Supreme Court in the case of Tax Recovery Officer-II, Sadar, Nagpur Vs. Gangadhar V....
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....ving considered various contentions raised by all the parties, we shall now proceed to examine the case on merits as to whether petitioner ARCIL is entitled to any relief as prayed for in the petition or not. 10. Before we deal with the main contention as regards Section 281 of the Income Tax Act, which is the only contention probably needs to be dealt with, we may reiterate the position of law so far as priority of dues of the Government is concerned over the debts of the Banks, which have been secured by the borrower by creating mortgage. The question relating to priority of dues of the Government fell for consideration before the Supreme Court and other High Courts from time to time. Taking into consideration the different decisions of the Supreme Court, a Division Bench of this Court in the case of Baroda City Co-operative Bank Limited Vs. State of Gujarat, reported in 2010 (3) GLR 2132 : 2010 (2) GLH 525, held as under:- "16. From the judgments referred to above, it will be evident that ­ (a) The arrears of tax due to the State can claim priority over the unsecured debt. (b) If first charge by way of priority is not claimed under the statute, the sa....
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....ecured debt. 35. The same very issue also fell for consideration before a Division Bench of this Court in the case of Kotak Mahindra Bank vs. District Magistrate, reported in 2011 (1) GLR 18. In the said case, the proceeding under the Central Excise Act, 1944 was initiated on 24.2.1987 and 26.2.1991 when Rule 173Q(2) and Rule 211 of the Central Excise Rules, 1944 were in vogue. At the time the first order of confiscation was passed, the authority had jurisdiction under Rule 173Q(2) to confiscate the land, building, plant, machinery, etc.. The said order was set aside and remitted for de nova decision. The final order was passed on 25.2.2006, by this time both Rule 173Q(2) and Rule 211 stood omitted. Having noticed the different provisions of the Central Excise Act, 1944, Central Excise Rules, 1944 and the Central Excise Rules, 2001 including Rule 28 of the Central Excise Rules, 2001 which related to the property to be vested in the Central Government on confiscation, and different decisions of the High Courts and Supreme Court, this Court held that Excise and Customs department of the Central Government cannot claim any priority over the secured deb....
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....of the stock-in-trade of the business of the assessee." 13. Similar issue fell for consideration before the Madhya Pradesh High Court in the case of State of Madhya Pradesh vs. Abhaykumar reported in (1992) 86 Sales Tax Cases 88, wherein almost similar provision i.e. Sec.33-A of the Madhya Pradesh General Sales Tax Act, 1958 fell for consideration. The Indore Bench of the Madhya Pradesh High Court held that the transfer was for a valuable consideration and it was without notice of the pendency of the proceeding under the Sales-tax Act, and therefore, the transfer falls under the exception created by the proviso to Section 33-A of the said Act. Similar was the view expressed by a Division Bench of the Madhya Pradesh High Court (Gwalior Bench) in the case of Pooranchand Ved Prakash v. The State of Madhya Pradesh reported in (1973) XXXI Sales Tax Cases 170. 14. Sec.281 of the Income Tax Act also fell for consideration before the Division Bench of this Court in the case of Tax Recovery Officer v. Industrial Financial Corporation of India in Special Civil Application No. 3786 of 2010 with another case wherein by judgment dated 22nd June 2011, this Court taking into considera....
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....on, must plea and prove such facts by evidence which must appear from the counter affidavit. If the facts are not pleaded or the evidence in support of such facts is not annexed to the counter, the Court will not entertain the point. In this context, it would be expedient to rely upon a judgment of the Hon'ble Supreme Court in the case of Bharat Singh Vs. State of Haryana, reported in AIR 1988 SC 2181, wherein the Hon'ble Supreme Court in paragraph 13 held as under:- "In our opinion, when a point which is ostensibly a point of law is required to be substantiated by facts, the party raising the point, if he is the writ petitioner, must plead and prove such facts by evidence which must appear from the writ petition and if he is the respondent, from the counteraffidavit. If the facts are not pleaded or the evidence in support of such facts is not annexed to the writ petition or to the counter, affidavit, as the case may be, the court will not entertain the point. In this context, it will not be out of place to point out that in this regard ther....
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....of Section 281 and submit that the charge of transfer be declared as void? We have come across a ruling of the Supreme Court in the case of Tax Recovery Officer-II, Sadar, Nagpur Vs. Gangadhar Vishwanath Ranade, reported in AIR 1999 SC 427, where the Supreme Court considered Section 281 of the Income Tax Act and examined the issue as to whether a Tax Recovery Officer can declare any transfer made by the assessee in favour of a third party as void. The Supreme Court held in paragraphs 7, 8 and 9 as under:- "7. The question which is now required to be answered is whether in a proceeding under Rule 11 of the Second Schedule to the Income-tax Act, the Tax Recovery Officer can declare a transfer as void under Section 281. Section 281, as it stood at the relevant time provided as follows:-- "Section 281: Where, during the pendency of any proceeding under this Act, any assessee creates a charge on or parts with the possession by way of sale, mortgage, exchange or any other mode of transfer whatsoever, of any of his assets in favour of any other person with the intention to defraud the revenue, such charge or transfer shall be void as against any claim in resp....