2012 (8) TMI 543 - HC - Income Tax

Prohibitory order - Order prohibiting creditors to make payment Held that - Revenue was compelled to issue the impugned prohibitory order since there was a default on the part of the petitioner in complying with its agreed obligation to discharge the outstanding at the rate of Rs. 10 lakhs per month - petitioner directed to make payment

Summary

Issues:
Challenge to ten orders issued by Tax Recovery Officer under rule 26(1) of Second Schedule to Income-tax Act, 1961 restraining creditors from making payments due to arrears of tax amounting to Rs. 97 lakhs with interest. Assessment year 2007-08 demand pending, partial payments made, proceedings remitted back to Commissioner of Income-tax (Appeals). Petitioner agreed to pay outstanding demand in instalments, made partial payments, but faced prohibitory orders due to default. Petitioner sought stay of recovery proceedings citing partial payments made. Revenue issued prohibitory order due to petitioner's default in complying with agreed payment schedule.

Analysis:
The petitioner challenged ten orders issued by the Tax Recovery Officer under rule 26(1) of the Second Schedule to the Income-tax Act, 1961, which restrained creditors from making payments due to arrears of tax amounting to Rs. 97 lakhs with interest under section 220(2) of the Act. The petitioner had paid a significant portion of the tax liability for the assessment year 2007-08, with a balance outstanding. The Income-tax Appellate Tribunal remitted proceedings back to the Commissioner of Income-tax (Appeals) for fresh adjudication on the merits for the assessment year 2007-08, while proceedings for the assessment year 2008-09 were pending in appeal. The petitioner had agreed to pay the outstanding demand in instalments of Rs. 10 lakhs per month, and had made partial payments as per the schedule agreed upon.

The Deputy Commissioner of Income-tax had acknowledged the petitioner's readiness to pay in instalments and directed evidence of payment to be produced monthly. The petitioner made payments as per the agreed schedule, totaling Rs. 40 lakhs, but faced prohibitory orders due to default. The petitioner relied on the parameters for the grant of stay of recovery proceedings as outlined in a previous court judgment and argued that the partial payments made should prevent the issuance of garnishee notices to its customers, which would disrupt business operations. On the other hand, the Revenue contended that the prohibitory order was necessary due to the petitioner's default in complying with the agreed payment schedule.

Considering the pending assessments for the relevant years and the total payments made by the petitioner, the court found that justice would be served by staying the impugned orders on the condition that the petitioner continued to make monthly payments of Rs. 10 lakhs towards the outstanding tax liability for the assessment years 2007-08 and 2008-09. The court acknowledged the petitioner's efforts in making substantial payments and issued directions for further payments, conditional stays on prohibitory orders, consequences of default, and expedited disposal of appeals by the Commissioner (Appeals). The court disposed of the petitions with these directions, emphasizing the importance of timely payments to avoid further legal actions by the Revenue.