2016 (11) TMI 1754 - HC - Income Tax

Apportionment of tax liability - Apportionment of assets and liabilities between Uttar Pradesh and Uttaranchal Forest Corporations - State of Uttarakhand created its own Forest Development Corporation - treatment to interest accrued on the FDR of the AOP(Trust) - Asset specific liability of the erstwhile Corporation shall pass on to the Successor Corporation of the Successor State to which the asset has been allocated or not? - Registration was granted to the respondent corporation as AOP(Trust) on 17.12.2012 and the tax which has been charged has not been exempted, and income tax department is still levying tax on respondent corporation treating it as assessee HELD THAT - The fact is under no dispute that the money has been kept in the reserve fund of the U.P. Forest Corporation. This fact is also under no dispute that when two States were carved out from the parent State, the successor State of Uttarakhand created its own Forest Development Corporation which became functional from 01.04.2001. Apportionment of the assets of the statutory corporations, therefore, became imminent. The successor States tried to made an attempt to settle their dispute relating to their Forest Corporations by mutual agreement, but when they failed to settle the same through mutual agreement, Central Government stepped in and issued a Notification on 13.02.2004 to the effect that reserve and surplus as reflected in the balance sheet of the erstwhile corporation for the year ending 31.03.2001, will be apportioned between the successor corporations of Uttar Pradesh and Uttaranchal in the ratio of 46 54. On the representation of the Government of Uttar Pradesh, the Government of India, vide order dated 28.07.2004 clarified that the MHA order dated 13.02.2004 does not warrant any change / modification. It also directed that the division of liabilities of the erstwhile Uttar Pradesh Forest Corporation is since sub-judice, therefore, the order of the Court will have overriding effect on the orders of MHA and therefore, status quo will have to be maintained until the Court pronounces orders in such matter. Sufficient water has flown in river Ganges since then. This writ petition itself was filed in the year 2007. Before that, another writ petition was filed in the year 2000, a reference of which has been given in Para 2 of this judgment. The Court cannot permit the status quo to be maintained for all times to come. Stalemate has to be broken. The assets are to be apportioned between the successor corporations of Uttar Pradesh and Uttaranchal in the ratio of 46 54 as per order of MHA. As per the balance sheet of the Uttar Pradesh Forest Corporation, a sum of Rs. 425.11 crores was shown as reserved, as on 31.03.2001 and, therefore, according to the Central Government Notification, the petitioner corporation is entitled to 54% of the same. So far as the liability, as projected by the respondent corporation, is concerned, this Court is of the view that there is no tax liability as such in the light of exemption granted to the U.P. Forest Corporation under Section 12AA of the Income Tax Act on its being registered as AOP(Trust). The money which is projected to be the liability part on behalf of the U.P. Forest Corporation is interest accrued on the FDRs and therefore cannot be said to be a liability on the respondent corporation. Writ Court is not expected to go into the calculation, but in the instant case, since the arithmetic is quite simple that as per MHA Notification the reserve and surplus as reflected in the balance sheet of the erstwhile Forest Corporation for the year ending 31.03.2001 will be apportioned between the successor corporations of Uttar Pradesh and Uttaranchal in the ratio of 46 54, therefore, the respondent corporation should be made to pay (as per calculation) a sum of Rs. 229.55 crores without further loss of time. Writ petition, succeeds.

Summary

Issues Involved:
1. Apportionment of assets and liabilities between Uttar Pradesh and Uttaranchal Forest Corporations.
2. Tax liabilities of the erstwhile Uttar Pradesh Forest Corporation.
3. Implementation of Government Orders and Central Government Notifications.

Summary:

1. Apportionment of Assets and Liabilities:
The petitioner corporation sought a writ of mandamus commanding the U.P. Forest Corporation to release 54% of the total money along with interest as per the Government Order dated 13.02.2004 and the order dated 11.07.2005 passed by the Court in Writ Petition no. 248 of 2000 (M/B). The Division Bench of this Court had restrained the Managing Director, Forest Corporation, Uttar Pradesh from withdrawing any amount deposited against the name of Uttar Pradesh Forest Corporation kept in the reserved fund. The assets and liabilities of the existing body corporate as on the appointed day are to be divided between the State of U.P. and State of Uttaranchal in the ratio of 46:54. The Central Government's Notification dated 13.02.2004 and subsequent order dated 28.07.2004 provided that the reserve and surplus as reflected in the balance sheet of the erstwhile corporation for the year ended 31.03.2001 will be apportioned between the successor corporations of Uttar Pradesh and Uttaranchal in the ratio of 46:54.

2. Tax Liabilities:
The respondent corporation argued that the Central Government directed status quo regarding sub-judice liabilities of the erstwhile Uttar Pradesh Forest Corporation, and the liability of income tax and sales tax cannot be shifted. The U.P. Forest Corporation was still the 'assessee' and both the present-day Forest Corporations were not the successor Corporations as per the taxation laws. However, the Income Tax Appellate Tribunal granted exemption to the U.P. Forest Corporation u/s 12AA of the Income Tax Act, 1961, which was affirmed by the Hon'ble Allahabad High Court and the Hon'ble Supreme Court. Consequently, the income of the AOP (Trust) is exempted from income tax liability, and only the interest accrued on the FDR of the AOP (Trust) is assessable to tax.

3. Implementation of Government Orders:
The Central Government's Notification dated 13.02.2004 and the subsequent order dated 28.07.2004 were issued to apportion the assets and liabilities of the erstwhile Uttar Pradesh Forest Corporation. The Court noted that the reserve and surplus as reflected in the balance sheet of the erstwhile corporation for the year ended 31.03.2001, amounting to Rs. 425.11 crores, should be apportioned in the ratio of 46:54. The petitioner corporation is entitled to 54% of the same, amounting to Rs. 229.55 crores. The respondent corporation's assertion of tax liability was negated by the Court, and it was directed to release the apportioned amount to the petitioner corporation without further delay.

Conclusion:
The writ petition was allowed, and the respondent corporation was directed to release a sum of Rs. 229.55 crores in favor of the petitioner corporation within six months, failing which the respondent corporation would be liable to pay corresponding interests earned by it from time to time, as per RBI guidelines, to the petitioner corporation from the date of filing of the writ petition.