2015 (12) TMI 1771 - HC - Income Tax

Recovery of tax dues - income tax demand of ₹ 1468.64 crores - attachment of stock stocks of beer, foreign liquor (FL), and Indian made foreign liquor (foreign liquor), lying in the various godowns of APBCL. - Companies, which manufacture and supply beer, foreign liquor and Indian made foreign liquor to APBCL, invoked the jurisdiction of this court, under article 226 of the Constitution of India, contending that the stocks lying in the godowns of APBCL (which were attached by the Income-tax Department) belonged to them ; and any delay in the sale of the attached stock of beer would result in wastage of the entire stock. - The sale of the attached property (beer, foreign liquor and Indian made foreign liquor), in terms of the interim orders passed by this court, yielded ₹ 489.07 crores. Under the guise of deducting manufacturing expenses, and incidental expenses for delivery, almost the entire sale proceeds of ₹ 489.07 crores has been handed over by APBCL to the petitioners and the Government of A.P, leaving a paltry sum of ₹ 3.44 lakhs (rupees three lakhs forty-four thousand only) as the balance remaining in the separate account being maintained in terms of the interim orders passed by the Division Bench. - These acts of subterfuge has rendered the attachment order, passed by the Tax Recovery Officer, redundant for, even if the writ petitions were to be dismissed later, the Income-tax Department would be left only with ₹ 3.44 lakhs Whether an interlocutory order, which travels beyond even the main relief sought for in these writ petitions and, in effect, results in the writ petitions being allowed, without even a counter-affidavit being filed by the respondent-Income-tax Department, can be passed at the stage of admission of the writ petitions? Held that - Power to grant ad interim ex parte orders should be exercised with great circumspection - Ordinarily ad interim orders, which have the effect of granting the main relief itself, should not be passed - Interim orders should not be passed for the mere asking. Are the parameters for grant of, and in continuing, the interim orders, fulfilled in the present cases? - Held that - Courts have to strike a balance between two extreme positions, on the one hand whether the writ petition would itself become infructuous if interim order is refused, and the enormity of losses and hardships which may be suffered by others if an interim order is granted, particularly having regard to the fact that, in such an event, the losses sustained by the affected parties thereby may not be possible to be redeemed - Before an interim order is passed, the court must consider the question as regards existence of a prima facie case, balance of convenience, and whether the Writ petitioners would suffer irreparable injury, if the interim relief sought for is refused. Has a prima facie case been made out in the present batch of writ petitions? - Held that - As the writ petitions have already been admitted, it must, necessarily, be presumed that the petitioners have made out a prima facie case. The fact, however, remains that a strong prima facie case, of a standard much higher than just a prima facie case, must be made out for an interim order to be passed, which would amount to granting the final relief in the writ petition. We are afraid that the petitioners have not made out a strong prima facie case for the grant of such relief. Does the balance of convenience lie in favour of the petitioners, and would they suffer irreparable injury if the interim orders are vacated? - Held that - Considerations of balance of convenience, and irreparable injury, forcefully tilting the balance totally in favour of the petitioners, would alone justify granting a final relief by way of an interim order. While the balance of convenience may be in favour of retaining the sale proceeds in a separate account, and the amount therein to be paid to the person held entitled thereto on the writ petitions being finally heard and decided, it is certainly not in favour of the petitioners being paid the entire sale proceeds even without an adjudication of their claim that they continue to retain title over the goods even after its delivery to APBCL - As the petitioners could have been paid these amounts later also, there were no compelling circumstances, for APBCL not to retain the sale proceeds in a separate bank account, otherwise than on account of the interim orders passed by this court earlier. The interim orders, to the extent it permitted the manufacturing expenses and incidental expenses for delivery, to be adjusted from the sale proceeds must be, and is hereby, vacated. As a substantial part of the sale proceeds have already been paid by APBCL to the petitioners and the Government of Andhra Pradesh, what orders can this court pass consequent upon the interim orders, passed earlier, being vacated in part ? An order of stay, granted pending disposal of a writ petition or other proceeding, comes to an end with the dismissal of the substantive proceeding. It is the duty of the court, in such a case, to put the parties in the same position they would have been but for the interim order of the court, applying the doctrine of restitution. The jurisdiction to make restitution is inherent in every court, and should be exercised whenever justice of the case demands. The petitioners herein and the Government of Andhra Pradesh shall forthwith and, in any event, on or before January 20, 2016, redeposit the amounts received by them from APBCL on the sale of the stocks (beer, foreign liquor and Indian made foreign liquor) attached by the Income-tax Department. Such redeposit would ensure that the entire sale proceeds (i.e., ₹ 489.07 crores less the TDS of ₹ 4.81 crores) remain in the separate account directed to be maintained by this court. The interests of the petitioners, the Income-tax Department, and the Government of Andhra Pradesh would be secured thereby as, after the writ petitions are finally heard and decided, these amounts can be paid to those entitled thereto. - The amount lying in the separate account, after redeposit of the amounts as directed hereinabove, shall be invested by the APBCL in short- term cumulative fixed deposits, and proof thereof shall be furnished to the Income-tax Department latest by January 26, 2016. The amounts invested in fixed deposits shall be subject to the result of the writ petition. Petition disposed off.

Summary

Issues Involved:
1. Legality of passing an interlocutory order that effectively grants the main relief sought in writ petitions at the admission stage.
2. Validity of the tax assessment and recovery proceedings initiated by the Income-tax Department against APBCL.
3. Ownership and attachment of stocks lying in APBCL's godowns.
4. Appropriateness of deductions made by APBCL from the sale proceeds of attached stocks.
5. Compliance with interim orders and the necessity to vacate or continue such orders.

Detailed Analysis:

I. Legality of Passing an Interlocutory Order:
The primary issue was whether an interlocutory order, which grants the main relief sought in the writ petitions and effectively allows the writ petitions at the admission stage, can be passed without a counter-affidavit from the respondent-Income-tax Department. The court emphasized that such orders should be exercised with great circumspection and should not result in granting the main relief at an interlocutory stage. The court noted that the interim orders granted earlier went beyond the main relief sought in the writ petitions, which is not ordinarily permissible.

II. Validity of Tax Assessment and Recovery Proceedings:
The court examined the assessment order passed by the Deputy Commissioner of Income-tax for the assessment year 2012-13, which levied a tax of Rs. 1468.64 crores on APBCL. The assessment was based on disallowance of deductions claimed by APBCL towards various fees paid to the Government of Andhra Pradesh. APBCL's appeals against these orders were pending, and the court noted that APBCL had not challenged the orders rejecting their stay applications. Consequently, recovery proceedings were initiated, including the attachment of APBCL's bank accounts and stocks.

III. Ownership and Attachment of Stocks:
The manufacturers of beer, foreign liquor, and Indian made foreign liquor contended that the attached stocks belonged to them and not to APBCL. They argued that the title over these goods had not passed to APBCL, making the attachment by the Income-tax Department invalid. The court observed that the petitioners had obtained relief through interim orders, which allowed the sale of attached stocks and the appropriation of sale proceeds, without an adjudication on the ownership of the goods. The court highlighted that the question of title should be adjudicated either by the Tax Recovery Officer or through civil suits.

IV. Appropriateness of Deductions from Sale Proceeds:
APBCL deducted various amounts from the sale proceeds of the attached stocks, including value added tax, privilege fees, and other levies, leaving only Rs. 3.44 lakhs in the separate account. The court found that these deductions were made under the guise of incidental expenses permitted by the interim orders, but they effectively circumvented the attachment order, leaving the Income-tax Department with a negligible amount to recover against the tax dues. The court noted that such deductions were not justified and violated the interim orders.

V. Compliance with Interim Orders:
The court examined whether the interim orders should be vacated or made absolute. It was noted that the interim orders had allowed the petitioners and the Government of Andhra Pradesh to receive substantial amounts from the sale proceeds, which went beyond the main relief sought in the writ petitions. The court emphasized that interim orders should not grant final relief and should be based on considerations of prima facie case, balance of convenience, and irreparable injury. The court found that the petitioners had not made out a strong prima facie case and that the balance of convenience and irreparable injury did not favor them.

Conclusion:
The court vacated the interim orders to the extent that they permitted deductions from the sale proceeds and directed the petitioners and the Government of Andhra Pradesh to redeposit the amounts received from APBCL. The sale proceeds were to be kept in a separate account and invested in short-term fixed deposits, subject to the final adjudication of the writ petitions. The court emphasized the importance of restoring status quo ante to ensure that the interests of all parties, including the Income-tax Department, were protected.