2011 (9) TMI 1166 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the orders of the Board of Industrial and Financial Reconstruction (BIFR) and the Appellate Authority for Industrial & Financial Reconstruction (AAIFR).
2. Service of the Draft Rehabilitation Scheme (DRS) to the appropriate authority.
3. Consent under Section 19(2) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).
4. Compliance with the Central Board of Direct Taxes (CBDT) Circular No. 683 dated 08.06.1994.
5. Impact of Section 115JB of the Income Tax Act, 1961 on the reliefs and concessions granted to the sick industrial company.

Issue-wise Detailed Analysis:

1. Validity of the Orders of BIFR and AAIFR:
The petitioners challenged the orders of the BIFR dated 01.03.2007 and the AAIFR dated 23.06.2008. The petitioners contended that the sanctioned scheme included reliefs and concessions without proper service of the DRS. The AAIFR dismissed the appeal, concluding that the service on the Assessing Officer was sufficient and that the petitioners' consent was deemed given under Section 19(2) of SICA since no objections were filed within the stipulated 60 days.

2. Service of the Draft Rehabilitation Scheme (DRS) to the Appropriate Authority:
The petitioners argued that the DRS was not served on the Director General of Income Tax (Admn.), as required by CBDT Circular No. 683 dated 08.06.1994. The AAIFR held that service on the Assessing Officer sufficed, but the petitioners contended that the Assessing Officer had no locus standi to grant exemptions under the Income Tax Act, which could only be granted by the CBDT. The court found no proof of dispatch to the Director General of Income Tax (Admn.) or the Secretary, CBDT, as required by the circular.

3. Consent under Section 19(2) of SICA:
Section 19(2) of SICA mandates that the scheme should be circulated to every person required to provide financial assistance for their consent within 60 days. If no consent is received, it is deemed given. The court noted that the BIFR did not serve the DRS on the designated authority as per the CBDT circular, making the deemed consent invalid. The court emphasized the necessity of serving the designated authority to bind the Income Tax Department to the scheme.

4. Compliance with CBDT Circular No. 683 dated 08.06.1994:
The circular designates the Director General of Income Tax (Admn.) as the nodal agency for coordinating with the BIFR and AAIFR regarding financial concessions under Direct Tax Laws. The court found that the BIFR failed to serve the DRS on the designated authority, violating the circular. The court held that the circular's requirements must be followed to ensure valid consent under Section 19(2) of SICA.

5. Impact of Section 115JB of the Income Tax Act, 1961:
The petitioners argued that reliefs and concessions under Section 115JB could not extend beyond the assessment year when the company's net worth turned positive. The court noted that this issue must be considered by the BIFR when reviewing paragraph 14.3(b) of the sanctioned scheme. The court did not comment on this aspect as no specific ground was raised in the writ petition.

Conclusion:
The court set aside the impugned judgments of the BIFR and AAIFR and remanded the matter to the BIFR for reconsideration of paragraph 14.3(b) of the sanctioned scheme. The court directed the parties to appear before the BIFR and ordered the BIFR to pass an order within six weeks. The writ petition was disposed of with these observations.