2016 (6) TMI 291 - HC - Income Tax

Grant of waiver of interest and/or penalty - company in liquidation - whether for the purpose of grant the Official Assignee should approach only the Central Board of Direct Taxes or whether the Official Assignee can get appropriate orders under Section 7 of the Presidency Towns Insolvency Act, 1909 or not? - Held that - If the ultimate payment to the Department actually depends upon the extent of funds available in the coffers of the Official Liquidator or the Official Assignee, it is unthinkable that the Official Assignee should be driven to the necessity of approaching the Authority for the waiver of the interest and to allow him to come up before the Insolvency Court in case he suffers an order. Hence, we are of the considered view that the question of waiver could also be considered by the Insolvency Court itself. In case where surplus funds are available, the Company Court distributes such surplus funds to the promoters. Similarly, the Insolvency Court distributes surplus funds to the insolvent or his or her legal heirs. But at that time, the Company Court can as well say that these surplus funds should be paid only towards discharge of the liability on account of interest and/or penalty. With that leverage in mind, we are of the considered view that this question of waiver can be decided by the Insolvency Court itself without driving the Official Assignee to go before the Central Board of Direct Taxes depending upon the amounts of funds available with the Official Assignee. As a matter of fact, in the case on hand, the insolvent herself took out an application before the Insolvency Court for a direction to the Official Assignee to set apart capital gains tax. By an order passed by one us (VRSJ) on 28.4.2011, the Official Assignee was directed to set apart 20% of the sale proceeds. Hence, Section 178(4) has been complied with by the Official Assignee and that is the end of Section 178 and nothing more. Thus the original side appeals are allowed, the order of the learned Judge is modified to the effect that the Official Assignee need not go before the Central Board of Direct Taxes praying for waiver of interest. The Insolvency Court itself can consider the question of waiver of interest in terms of the power conferred under Section 7 and in the light of the provisions of the Income Tax Act, together with the quantum of funds available and the distribution already made

Summary

Issues:
1. Whether the Official Assignee should approach only the Central Board of Direct Taxes for waiver of interest and penalty or can seek orders under Section 7 of the Presidency Towns Insolvency Act.
2. Interpretation of Section 7 of the Act 3 of 1909 regarding the power of the Insolvency Court to decide questions arising in insolvency cases.
3. Analysis of the conflicting powers between the Insolvency Court and the Central Board of Direct Taxes in granting waivers and making decisions regarding tax liabilities in insolvency cases.

Issue 1:
The Official Assignee contended that the Insolvency Court itself has the jurisdiction to grant waivers without the need to approach the Central Board of Direct Taxes. The question was whether the Official Assignee should seek waiver only from the Central Board of Direct Taxes under the Income Tax Act or if the Insolvency Court could grant waivers under Section 7 of the Presidency Towns Insolvency Act.

Analysis:
The Court examined the powers of the Insolvency Court under Section 7 of the Act 3 of 1909. Section 7 provides the Court with full power to decide questions of priorities and other related matters arising in insolvency cases. The Court found that the Insolvency Court could decide questions of law or fact deemed necessary for complete justice or property distribution in insolvency cases. The Official Assignee's argument that the Insolvency Court could grant waivers without involving the Central Board of Direct Taxes was considered.

Issue 2:
Interpretation of Section 7 of the Act 3 of 1909 and its implications on the powers of the Insolvency Court to decide questions arising in insolvency cases.

Analysis:
The Court analyzed Section 7 of the Act 3 of 1909, which empowers the Insolvency Court to decide all questions arising in insolvency cases. It was observed that the Insolvency Court has the authority to decide questions of priorities, law, or fact necessary for complete justice or property distribution in insolvency cases. The Court examined the scope and limitations of the powers conferred upon the Insolvency Court by Section 7.

Issue 3:
Determining the conflicting powers between the Insolvency Court and the Central Board of Direct Taxes in granting waivers and deciding tax liabilities in insolvency cases.

Analysis:
The Court delved into the conflicting powers between the Insolvency Court and the Central Board of Direct Taxes in granting waivers and making decisions regarding tax liabilities in insolvency cases. It was established that while the Central Board of Direct Taxes could decide on waivers, the Insolvency Court could also consider waiver requests based on funds availability and previous distributions. The Court clarified that the Insolvency Court could decide on waivers without the Official Assignee approaching the Central Board of Direct Taxes, citing a Supreme Court decision for support.

In conclusion, the judgment allowed the appeals, modifying the order to enable the Insolvency Court to consider waiver of interest without the Official Assignee needing to approach the Central Board of Direct Taxes. The decision was based on the powers vested in the Insolvency Court under Section 7 of the Presidency Towns Insolvency Act and the provisions of the Income Tax Act, taking into account funds availability and previous distributions.