2004 (2) TMI 38 - HC - Income Tax

Recovery of tax - arrears of income tax for the past period for which the petitioner has already approached the BIFR - Consent from the BIFR for recovery of tax - held that arrears of taxes and the like dues from sick industrial companies that satisfy the conditions set out in section 22(1) of the SICA cannot be recovered by coercive process unless the said BIFR gives its consent thereto Thus, we grant interim relief restraining the respondent-authorities from acting upon the impugned notice, and also restraining the respondent authorities from enforcing any notice under section 226(3), without first obtaining consent of the BIFR as provided in section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985.

Summary

Issues: Interpretation of section 226(3) of the Income-tax Act, 1961; Protection under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985

In the judgment delivered by the High Court of Gujarat, the petitioner sought interim relief against the respondent authorities from enforcing a notice under section 226(3) of the Income-tax Act, 1961. The petitioner argued that the notice issued by the authorities had expired, and as a sick industrial company registered under the Sick Industrial Companies (Special Provisions) Act, 1985, they were entitled to protection under section 22 of the SICA. The petitioner emphasized that any purchase price received would be considered their property and protected under SICA. Additionally, reliance was placed on the Supreme Court's decision in Tata Davy Ltd. v. State of Orissa [1998] 93 Comp Cas 1; AIR 1998 SC 2928. On the other hand, the respondent authorities contended that the notice under section 226(3) of the Act would remain valid until all income-tax dues were settled to prevent repeated notices. They argued against the petitioner's unqualified protection claim under SICA, citing the Supreme Court's decision in Deputy CTO v. Corromandal Pharmaceuticals [1997] 89 Comp Cas 1; AIR 1997 SC 2027. The court refrained from expressing an opinion on the interpretation of section 226(3) but held that as a sick industrial company, the petitioner was entitled to protection under section 22 of SICA, preventing coercive recovery through the enforcement of the notice. The court distinguished the case of Corromandal Pharmaceuticals, stating that the protection under SICA applied to dues included in a sanctioned scheme. The court clarified that income tax liability on future income from the sale of goods would not arise until taxable income was earned, and the recovery sought was for past arrears. The court relied on previous Supreme Court decisions in Gram Panchayat v. Shree Vallabh Glass Works Limited, AIR 1990 SC 1017; [1991] 73 Comp Cas 169 and Tata Davy Ltd. [1998] 93 Comp Cas 1 (SC) to emphasize that recovery from sick industrial companies required consent from the BIFR. Consequently, the court granted interim relief, restraining the respondent authorities from enforcing the notice without obtaining consent from the BIFR as per section 22(1) of the SICA.