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WPC No.7592/2009 HIGH COURT OF DELHI
Date of Decision: 23.09.2011 WP(C) No. 7592/2009
GOVT. OF INDIA (DEPTT. OF REVENUE) & ANR.
…PETITIONERS
Through: Mr.Sanjeev Sabharwal, Senior Standing Counsel along with
Mr.D.R.Jain, Advocate.
RECONSTRUCTION & ORS.
..RESPONDENTS
Through: Ms.Maneesha Dhir, Ms.Jayashree Shukla, Ms.Preeti Dalal, Ms.Mithu Jain and Mr.Abhirup
Das Gupta, Advocates for R-3 & R-4.
HON‟BLE MR. JUSTICE RAJIV SHAKDHER
JUDGMENT
1. Whether the Reporters of local papers may be allowed to see the judgment? YES 2011:DHC:4959-DB
2. To be referred to Reporter or not? YES
3. Whether the judgment should be YES reported in the Digest? RAJIV SHAKDHER, J. (ORAL)
1. This writ petition has been filed impugning the orders of the Board of Industrial and Financial Reconstruction („BIFR‟ for short) dated 01.03.2007 and that of the Appellate Authority for Industrial & Financial Reconstruction („AAIFR‟ for short) dated 23.06.2008.
2. The grievance of the petitioners very briefly is that a provision has been made in the sanctioned scheme whereby the reliefs and concessions have been sought without the Draft Rehabilitation Scheme (in short DRS) being served upon it. The relevant provision which troubles the petitioner is as under: “ 14.[3] From Central Govt. a)….. ….. b) Department of Income Tax To exempt from provisions of Sections 41(1), 45, 72(3), 43-B, 80 read with Sections 139, 115JB and provisions of Chapter XVII of the Income Tax Act.”
3. The brief facts required to decide as to whether the petitioners have a case or not are as follows:
4. Respondent no.3 i.e., Tedco Granites Ltd. (in short TEDCO) which is the sick industrial company, is in the business of manufacturing single super phosphate (fertilizer). The plant for this purpose was set up in
1995. It appears that net worth of TEDCO got eroded, and consequently, a reference was filed with the Board for Industrial & Financial Reconstruction (in short BIFR). TEDCO was declared a sick industrial company on 21.12.2005.
5. Pursuant to the said order of the BIFR, with the help of the operating agency, a DRS was formulated. The DRS was taken up for consideration by the BIFR on 04.12.2006. The said DRS which contained the impugned paragraph i.e. para 14.[3] (b), to which we have made a reference hereinabove, was circulated to the concerned authorities on 08.12.2006. The short particulars of the DRS, in accordance with the provisions of Section 18(3)(a) of the Sick Industrial Companies (Special Provisions) Act, 1985 (in short, SICA) were also published in local newspapers, both in English and in Hindi, on 29.12.2006. The public notice called upon the concerned authorities to submit their views and/or objections to the DRS on or before 19.02.2007.
6. There is no dispute before us that the exercise as mandated under the provisions of SICA was undertaken by the BIFR with the help of concerned authorities which included secured and unsecured creditors including various other authorities. The result of this exercise was that a scheme was sanctioned by the BIFR, on 01.03.2007.
7. Aggrieved by the provision contained in the sanctioned scheme i.e. para 14.3(b), an appeal was preferred by the petitioners with the Appellate Authority for Industrial and Financial Reconstruction (in short AAIFR). The AAIFR vide the impugned judgment dismissed the appeal. In the impugned judgment, the AAIFR has referred to the issue concerning the service of the DRS and consequent effect it resulted in having vis-à-vis the provision contained in the DRS involving the petitioners.
AAIFR briefly concluded that service on the Assessing Officer, Bilwara of the Income Tax Department having not been disputed, the petitioners consent to the provisions contained in the DRS concerning the Income Tax Department would logically follow, since objections if any, to the DRS as mandated under section 19(2) of SICA were not filed within the stipulated 60 days; being a case of deemed consent. Before the AAIFR, TEDCO‟s stand was precisely this, which is, once a party indicated under section 19(1) of SICA is served with the DRS and objections are not filed within the stipulated period of 60 days, the Scheme is binding against such a party under section 19(2) of SICA. Since the Income Tax Department was served through the Assessing Officer and no objections were filed within the stipulated period, the provisions of the impugned paragraph were binding on the Income Tax Department. The AAIFR vide the impugned judgment accepted the stand of TEDCO and consequently dismissed the appeal of the petitioners. We may, for the sake of convenience, extract the relevant paragraphs of the order of the AAIFR in that regard. “…3. We have considered the submissions carefully and have perused the material on record. We find that the BIFR circulated the DRS by its order dated 04.12.2006. It appears from the list of parties attached to the order that originally there were 14 parties including the Assessing Officer, Ward No.3, Income Tax Office, Sastri Nagar, Bhilwara, Rajasthan (S.No.14) to whom the DRS was circulated. Three additions to this list have been made by hand which are as follows: S.No.15 – Assistant Director, ESIC, Regional Office, New Delhi. S.No.16 – Dte. Of Income Tax (Recovery), New Delhi. S.No.17 – Secretary, CBDT, New Delhi Even if we do not take into account the 3 names added to the list, it cannot be denied that S.No.14 i.e. the Assessing Officer, Ward No.3, Income Tax Office, Sastri Nagar, Bhilwara, Rajasthan was made a party to the proceedings and the DRS was circulated to him by the BIFR vide its order dated 04.12.2006. No averments have been made to the contrary by the ld. counsel for the appellant. However, the argument that has been advanced by the ld. Counsel for the appellant is that as per the CBDT Circular No.683 dated 8.6.1994, the Assessing Officer, Income Tax Office, Bhilwara has no locus standi in the scheme. The Income Tax Office,Bhilwara can only grant income tax concessions which are permissible under the Income Tax Act, 1961 and cannot grant exemptions from the provisions of Income Tax Act which can only be granted by the CBDT. Therefore, making the Assessing Officer, Bhilwara a party or even serving a copy of the DRS on him cannot be considered to be legal service of the DRS under provisions of Section 19(2) of SICA. Therefore, he argued that BIFR could not have sanctioned the scheme without the consent of the appellant.
4. We are unable to accept the above argument of the ld. counsel for the appellant. The Assessing Officer, Ward No.3, Income Tax Office, Sastri Nagar, Bhilwara, Rajasthan is a part of the Income Tax Department of the Government of India. Therefore, he was aware of the internal circular No.683 dated 8.6.1994 of the IT Department, about the nodality of the appellant‟s status for coordinating cases before AAIFR and BIFR. The Assessing Officer, Income Tax Office, Bhilwara, therefore, should have promptly sent a copy of the DRS to the appellant which is the nodal authority in this case, intimating about the date of hearing before the BIFR so that the appellant could have appeared before the BIFR on the date of hearing and could have filed its objections and suggestions. Alternatively, Assessing Officer, Income Tax Office, Bhilwara could have appeared before the BIFR and requested the BIFR to issue notice to the appellant as per Circular No.683 dated 8.61994 and sought more time for filing of objections by the appellant. The Assessing Officer, Income Tax Office, Bhilwara despite notice chose neither to intimate the appellant nor to appear before the BIFR requesting the BIFR to issue notice to the appellant or even to seek more time for same purpose. In the circumstances, the argument of the ld. counsel for the appellant that circulation of DRS to the Assessing Officer, Ward No.3, Income Tax Office, Sastri Nagar, Bhilwara, Rajasthan cannot be construed as legal or regular under provisions of Section 19(2) of SICA does not carry any force. As already mentioned, the Assessing Officer, Income Tax, Bhilwara, if he did not have the authority to act in this case, should have intimated the concerned authorities i.e. the appellant to act within the stipulated time under Section 19(2) of SICA. In case more time was required, an extension of time for another 60 days could have been sought under 19(2) of SICA. Considering the above facts and circumstances, we are of the opinion that the circulation of DRS to the Assessing Officer, Ward No.3, Income Tax Office, Sastri Nagar, Bhilwara, Rajasthan is proper service of DRS as per 19(2) of SICA and does not vitiate the proceedings before the BIFR. Since no consent was received within the stipulated period from the appellant, it shall be deemed that consent has been given by the appellant under Section 19(2) of SICA.”
8. Learned counsel for the petitioners before us have assailed the said observations of the BIFR. Learned counsel for the petitioners have contended that the reasoning of the AAIFR that service on the Assessing Office would suffice is contrary to the circular issued by the Central Board of Direct Taxes (in short „CBDT‟) bearing no.683 dated 8.6.1994 (in short „the said circular‟). It has been contended before us that the said circular requires the service to be effected on the Director General of Income Tax (Admn.), who is mandated the task of co-ordinating issues concerning the reliefs and concessions sought in the scheme formulated for or on behalf of the sick industrial companies. Learned counsel for the petitioners submitted that no service whatsoever was effected on the petitioners, in particular, on petitioner no.2 i.e. Director General of Income Tax (Admn.). To buttress his submissions, learned counsel for the petitioners have shown us three documents which are appended at pages 134, 205 and 226 of the paper book. Relying on the first document appended at page 134, (which contains a list of parties upon whom the sanctioned scheme dated 01.03.2007 was served) it was contended that the list contains names of 16 entities/persons. Petitioner no.2 i.e., Director General of Income Tax (Admn.) appears at
┌──────────────────────────────────────────────────────────────────┐ │ serial no.14, in the list of addressees, appended at page 205 │ │ of the paper book. │ ├──────────────────────────────────────────────────────────────────┤ │ 18. The fact remains that there is no proof of dispatch to │ └──────────────────────────────────────────────────────────────────┘
9.[1] It is the contention of learned counsel for the petitioners that there is apparent disconsonance in the two lists, that is, one appended at page 205 and the other which is annexed at page 226.
10. In view of the aforesaid, learned counsel for the petitioners submits that it is quite clear that there was in fact no service effected on the petitioners. It is submitted that if the said circular is taken into account, a valid service in law would be one in which service is effected on petitioner no.2, if not petitioner no.1. Learned counsel for the petitioners submit that these facts were brought to the notice of the AAIFR which has chosen to give a short shrift to the submissions made on behalf of petitioners. As matter of fact, learned counsel for the petitioners drew our attention to another case involving a different sick industrial company, namely, Director General of Income Tax Vs. M/s. Shimoga Steels Ltd., in Appeal no.307/2007 vide judgment dated 19.09.2008, wherein, an order was passed by the same Bench three (3) months hence whereby, the AAIFR accepted similar submissions made on behalf of the Income Tax Department.
AAIFR in the said case came to the conclusion that no valid service was effected on the Income Tax Department as the DRS had not been served on the Director General of Income Tax (Admn.) It was submitted that the AAIFR in that case proceeded to modify the clause in the sanctioned scheme relating to the Income Tax Department by inserting in the said provision in it, the words „to consider‟; diluting thereby the mandatory direction of the BIFR qua reliefs and concessions to be provided by it.
11. It is in these circumstances, learned counsel for the petitioners state that the order of the AAIFR deserves to be set aside and the matter be remanded to the BIFR. Apart from above, there is also a submission made by learned counsel for the petitioners which is that in any event no reliefs and concessions can be given by the Income Tax Department which are beyond or contrary to the provisions of the Income Tax Act, 1961 (in short the I.T. Act). In this regard, a reference has been made to the provisions of Section 115JB clause (vii). Based on the said provision it is urged, by the learned counsel that the reliefs and concessions which may be made over to a sick industrial company cannot be given beyond the date on which the net worth of the sick industrial company turns positive. It is therefore the submission of the learned counsel for the petitioners that the issue of reliefs and concessions requires reconsideration by the BIFR.
12. As against this, Ms. Dhir, who appears for TEDCO and its Chairman (i.e., Respondent Nos.[3] & 4) submits that the scheme which was sanctioned on 01.03.2007 has been in operation for nearly (four) 4 years. It is her contention that as per the provisions of the sanctioned scheme funds to the tune of nearly Rs.[4] crores have been inducted into the sick industrial company. Therefore, the submission of learned counsel for Respondent Nos.[3] & 4 was that any tinkering with the sanctioned scheme at this stage, would cause great difficulty for the sick industrial company. It was also submission of learned counsel for Respondent Nos.[3] & 4 that while it was not disputed that there was no service effected on petitioner no.2; service was most certainly effected on the Assessing Officer. 12.[1] This fact, according to learned counsel for Respondent Nos.[3] & 4 cannot be disputed by the petitioners. For this purpose, learned counsel for Respondent Nos.[3] & 4 referred to the observations made by AAIFR in the impugned judgment where the counsel for the petitioners accepted the fact that the service had been effected on the assessing officer. Learned counsel for Respondent Nos.[3] & 4 also tried to demonstrate that the change of stand by the petitioners on this account has taken place only in this court. In this regard, Ms. Dhir placed reliance on an inter-departmental letter dated 26.11.2008, whereby purportedly explanation was sought from the concerned Assessing Officer as to why the DRS had not been forwarded to the concerned authority, if it had been served upon him. Ms. Dhir submitted that in reply vide letter date 02.12.2008 the assessing officer took a rather curious stand that he never received the DRS, and in that regard, had placed reliance on the Common Receipt Register of the Financial Year 2006-07 maintained in the General Ward of Income Tax Office, Bhilwara. It was Ms. Dhir‟s endeavour to show that the stand now taken was contrary to the stand taken before the AAIFR. A reference was made also to the provisions of Section 27 of the General Clauses Act, 1897 & Regulation 13 of the BIFR Regulations, 1987, to buttress her submission that the service on the assessing officer would be deemed as having taken place, after a reasonable period had elapsed from the date of dispatch of the DRS. Besides this, Ms. Dhir also pointed that the present writ petition impugning the judgment of the AAIFR had been filed nearly eight (8) months after its pronouncement; therefore, any reversal at this stage would impact TEDCO quite severely. Finally, the Learned counsel for Respondent Nos.[3] & 4 submits that keeping in mind the aforementioned submissions, the impugned orders ought to be sustained.
13. In support of her submissions, learned counsel for Respondent Nos.[3] & 4 cited several judgments. These being: i) Vadilal Dairy International Ltd. v. State of Maharashtra;(2011) 1 Comp L. J. 466 (Bom.); ii) Karnataka State Financial Corporation v. AAIFR; I (2011) BC 203, iii) Mewar Sugar Mills Ltd. v. Chairman, Central Board of Direct Taxes; Manu/DE/02186/1998, iv) Kotak Mahindra Finance Ltd. v. Mafatlal Industries Ltd; (2004) 122 Comp Case 231 (Bom.), v) Damodar Valley Corporation v. AAIFR; (2010) 156 Comp Case 137 (Delhi) and vi) VDCS Enterprises & Anr. v. UOI & Ors.; 2005 (125) DLT 385.
14. We have heard learned counsel for the parties. In our view, the only issue which arises for our consideration is whether it could be said that that the petitioners are deemed to have given their consent to the DRS, by virtue of Section 19(2) of SICA, in view of the fact they have not preferred objections to the provisions concerning them within the stipulated period of 60 days.
15. For us to decide this issue it would be important to bear in mind both the provisions of Circular No.683 dated 08.06.1994 issued by the CBDT on which reliance has been placed by the petitioners and the relevant provisions of section 19 of SICA. The relevant portions of the Circular and thereafter provision of Section 19 of SICA are extracted hereinbelow:-