TaxTMI 
TaxTMI 
TaxTMI 
2016 (12) TMI 356
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....tile machinery manufacture, became sick in 2001, and its case was referred to the BIFR as Case No.225 of 2001. On 19.09.2003, the scheme for revival of the Petitioner was sanctioned by BIFR. The BIFR appointed Indian Bank as monitoring agency to monitor the progress of implementation of the sanctioned Scheme. In terms of the viability projected in the sanctioned scheme of 2003, the net-worth of the company was expected to turn positive by 2005-06 and its accumulated losses were expected to be eliminated during 2006. These projections remained unfulfilled, however, and there was a sharp decrease in the company's net-worth due to which it could not generate the necessary internal accruals. The Petitioner contends that this was inasmuch as it could not take any positive steps for the sale of its assets, as contemplated in the scheme of 2003; and it could also not reach an amicable settlement with the Employees' Union in respect of BIFR's package and the terms of voluntary retirement; it could also not dispose of its surplus assets and generate the requisite amount of funds for effective revival. The BIFR, therefore, reviewed and modified the rehabilitation scheme by an order p....
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....f the said order of the Joint Director dated 29.11.2012. Since the return of income for the AY 2010-11 was due by 15.10.2010, the Petitioner, pending the receipt of the order of the DIT (Recovery) filed its return of income for the AY 2010-11 on 22.09.2010 without subjecting the capital gains to tax based on the sanctioned scheme, recommending the relief of capital gains tax as well as the sanctioned scheme. The assessment order passed in the Petitioner's case for the A.Y. 2010-11 dated 08.02.2013 did not include the capital gain arising from transfer of the assets. It was, therefore, not necessary for the Petitioner Company to get the benefit of exemption from the capital gains tax. This was brought to the notice of this Court on behalf of the DIT (Recovery) and accordingly, the Petitioner's said Writ Petition No.4367/2013 was disposed of as infructuous, as it was not necessary to consider the request for grant of exemption on capital gains arising from the transfer of assets under the scheme. The order of this Court, disposing of the writ petition is as follows: "It is stated that the Assessing Officer accepted the Petitioner's contention. The learned counsel for Pe....
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....that regard, a hearing will also be afforded to the Petitioner before the decision is taken." 5. The Income Tax authorities issued notice to the petitioner and after considering the materials furnished to them as well as the submissions made in this context, rejected the request vis-à-vis capital gains exemption, through the impugned order of 19.04.2016. The said impugned order reads as follows: "7. In compliance with the direction of Hon'ble High Court, the Directorate sent a letter dated 02-03-2016 giving opportunity to the company to file documents/ submissions either in writing and/or in person, The company filed its replies vide letters dated 26-02-2016, 04-03-2016, 07-03-2016 (letter dated 07-03-2016 was filed by the company's representative in person on 09-03-2016) and 10-03-2016 enclosing therewith, copies of the comparative statements of projected and actual balance sheets, details of income, surplus cash, returns filed etc. Company has also stated that its actual performance for the period F.Y.. 2008-09 to F.Y. 2012-13 is much lower (actual sales/ other income/ cash accruals less than 50% of the projected figures) than the projections shown in the sancti....
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.... be against public interest to grant such exemption of tax liability. Accordingly, relief relating to Capital Gain tax has not been granted to the company." 6. The petitioner contends and its senior Counsel, Mr. S. Ganesh, argues that the fact that the Petitioner Company's net-worth has become positive only indicates that its total assets are in excess of its liabilities. The Deputy Director, however, completely failed to appreciate that even though there was a small excess of assets over liabilities, nevertheless, there was a huge amount of accumulated losses of Rs. 1,773,79 lakhs as on 31.03.2010, which had not been made good; and this fact by itself warranted and required the grant of exemption from capital gains tax to the Petitioner. Mr. Ganesh further argues that the impugned order does not consider the financial and liquidity strain, which the Petitioner Company would be subjected to, if the Petitioner was compelled to pay the amount of capital gains tax. It is submitted that, having regard to the fact that this is the third round of litigation, no purpose whatsoever would be served in merely setting aside the impugned order and remanding the matter for fresh consider....
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....d the financial position of the Petitioner Company showed enough strength and capacity to absorb the Capital Gain Tax liability, the relief on account thereof was not allowed. The figures of Income, surplus cash and current assets as culled out from the Audited Accounts for the F. Y. 2013-14 and 2014-15 obtained from the Assessing Officer reinforced this conclusion. It is argued that on going through the returns of income and Audited Accounts of the petitioner company for the F.Y. 2011-12 onwards, it was found that the petitioner company was earning huge profits and was out of sickness. As such, there was no need to grant any tax exemption to the petitioner company. Therefore, the respondent department, in compliance of this court's order dated 15.02.2016, passed the fresh impugned order dated 19.04.2016 holding that as the petitioner company was earning huge profits, it should be able to pay the tax liability arising on capital gain income and that, therefore, it was not entitled to any tax exemptions reliefs. 9. Section 32 of the Sick Industrial Companies (Special Provisions) Act, 1985 [hereafter "the Act" which provides for the rehabilitation of sick companies under orders of t....
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....e audited and adopted were not furnished by the company but were obtained by the field authorities. The order notes further that these figures show that the company has huge surplus funds and flow. The petitioner urged in this regard that even though facially the funds flow appears to be convertible and profits are on the rise, yet, having regard to the preference share liability, if the capital gains tax is insisted, not only the profitability would be wiped-out but the company might become sick. The petitioner also has placed on record the annual report for 2014-15 in support of its argument that it has large component of liability, i.e. claims for refund of security deposit and further liability of Rs. 8.5 crores towards the 6% cumulative redeemable preference shares. Section 32 of the Act confers primacy upon the orders of BIFR. In the present case, the BIFR directed income authorities to consider granting relief on two aspects - carry forward business losses and their absorption having regard to projected profits in terms of the modified rehabilitation scheme. That relief has concededly been granted; it is a substantial one to the extent of Rs. 14.09 crores. The question, ther....