1995 (7) TMI 282 - SC - Companies Law

Whether it was necessary for the ITO to obtain the leave of the liquidation court when he wanted to reassess the company in liquidation for escaped income in respect of past years? Held that - Appeal allowed. The Special Court has no jurisdiction to sit in appeal over the assessment of the tax liability of a notified person by the authority or Tribunal or Court authorised to perform that function by the statute under which the tax is levied. The Special Court has, therefore, no jurisdiction to determine whether or not any assessment of the tax liability of a notified person by the appropriate authority is bona fide or reasonable or justified or enforceable.

Summary

Issues:
Special Court's jurisdiction over tax liabilities of notified persons.

Analysis:
The judgment pertains to an appeal filed against an order of the Special Court appointed under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992. The appellant, an Assistant Commissioner, sought the release of tax liabilities of notified persons from funds held by the Custodian appointed under the Act. The Special Court's role is to distribute funds as per priorities set under the Act, ensuring that claims are paid in the specified order. The Court clarified that it cannot sit in appeal over tax authorities' decisions but can only determine the priority of claims to be paid from attached property.

The Act establishes a Special Court for trying offences related to securities transactions and empowers the Custodian to manage the property of notified persons. The Special Court has exclusive jurisdiction to hear prosecutions under the Act and civil jurisdiction concerning transactions in securities. Section 11 of the Act allows the Special Court to order the Custodian for property disposal. The Court emphasized that the Special Court's power is limited to determining the payment priority of claims against attached property, including tax liabilities.

Referring to a previous judgment, the Court highlighted that the Special Court cannot question the assessment of tax liabilities by competent authorities. It reiterated that the Special Court lacks jurisdiction to decide the reasonableness, justification, or enforceability of tax assessments. The judgment emphasized that the Special Court's role is restricted to determining the extent to which tax claims can be satisfied based on available funds, without interfering in the assessment process conducted by tax authorities.

In conclusion, the appeal was allowed, setting aside the Special Court's order requiring the appellant to produce records and permitting notified persons to challenge the legitimacy of tax liability claims. The judgment clarified the Special Court's limited jurisdiction in determining payment priorities and underscored its inability to review tax assessments or claims for reasonableness. The decision highlighted the importance of upholding statutory provisions and respecting the authority of tax assessment bodies in determining tax liabilities.