1998 (10) TMI 46 - HC - Income Tax

Issues Involved:
1. Liability of the petitioner for arrears of income-tax of Anglo-French Textiles Limited.
2. Applicability of Section 281 of the Income-tax Act.
3. Applicability of Section 170 of the Income-tax Act.
4. Effect of the non-obstante clause in Section 23 of the Acquisition Act.
5. Determination of whether the petitioner is a successor or transferee of Anglo-French Textiles Limited.

Issue-wise Detailed Analysis:

1. Liability of the petitioner for arrears of income-tax of Anglo-French Textiles Limited:
The petitioner, Pondicherry Textile Corporation Limited, sought a writ of prohibition to prevent the respondents from taking steps to recover income-tax arrears of Anglo-French Textiles Limited for the period before December 24, 1985. The court noted that the Anglo-French Textiles Limited was acquired by the Government of Pondicherry under the Anglo-French Textiles Limited (Acquisition and Transfer of Textile Undertaking) Act, 1986. Section 5 of the Act specifically states that liabilities of the owner of the textile undertaking prior to the appointed day (December 24, 1985) remain enforceable against the original owner and not against the Government or the Corporation.

2. Applicability of Section 281 of the Income-tax Act:
The respondents argued that the petitioner was a transferee under Section 281 of the Income-tax Act, which deals with transfers intended to defraud revenue. The court held that Section 281 aims to protect the revenue from fraudulent acts by assessees, not to guard against legislative actions. The court found it absurd to suggest that legislative bodies should seek permission from the Assessing Officer before enacting laws for compulsory acquisition. Therefore, the notice issued under Section 281 was deemed unsustainable.

3. Applicability of Section 170 of the Income-tax Act:
The court examined whether the petitioner could be considered a successor under Section 170, which deals with succession to business otherwise than on death. It was determined that the compulsory acquisition by the state did not constitute a succession to the business of Anglo-French Textiles Limited. The petitioner received the assets from the Government, not directly from the company, and therefore could not be considered a successor for the purposes of Section 170.

4. Effect of the non-obstante clause in Section 23 of the Acquisition Act:
Section 23 of the Acquisition Act states that the Act overrides all other enactments. However, the court clarified that the Acquisition Act, enacted by the Pondicherry State Legislature, cannot override or amend the Income-tax Act, a subject on which only Parliament can legislate. Therefore, the non-obstante clause in the Acquisition Act does not affect the provisions of the Income-tax Act.

5. Determination of whether the petitioner is a successor or transferee of Anglo-French Textiles Limited:
The court referenced several Supreme Court cases to determine the meaning of "transfer" and "succession." It concluded that the petitioner did not acquire the business of Anglo-French Textiles Limited through a transfer but received the assets from the Government. The appointed day under the Acquisition Act could not be considered the date of succession. Consequently, the petitioner could not be treated as a successor for the purposes of Section 170.

Conclusion:
The court declared that the petitioner is not liable for the payment of arrears of income-tax or any related penalties for the period prior to December 24, 1985, as these liabilities pertain to Anglo-French Textiles Limited. There was no order as to costs.

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