2017 (12) TMI 675 - HC - Income Tax

Notice under Section 226 (3) - second respondent is due and payable of the income tax and certain monies of the second respondent were lying with the hands of the petitioner/Bank - Held that - As per recent amendment to Securitisation And Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (SARFAESI Act) viz., Section 20 E, and Section 31 B of the Recovery of Debts and Bankruptcy and Financial Interest Act (RD & BFI Act), the secured creditor shall have precedence over all dues, over the Central and the State Government. Also the petitioner, being a secured creditor, is entitled to exercise their rights under Section 35 of the SARFAESI Act, and the question of issuing notice under Section 226 (3) of the Income Tax Act does not arise. See case of Assistant Commissioner (CT) Anna Salai-III Assessment Circle Vs. The Indian Overseas Bank 2016 (12) TMI 373 - MADRAS HIGH COURT Thus as there is no dispute to the fact that the petitioner is a secured creditor, and in such circumstances, they have precedence over all the dues, payable to the Central Government and the State Government. The impugned notice cannot be enforced against the petitioner/Bank, and it is held to be not sustainable in law. - Decided against revenue

Summary

Issues:
Challenge to notice for recovery of income tax by State Bank of India based on priority of secured creditor over government dues.

Analysis:
1. The petitioner, State Bank of India, challenged a notice by the first respondent for recovery of income tax from the second respondent for assessment years 2005-06 to 2013-14. The petitioner contended that as a secured creditor, they have precedence over government dues due to recent amendments in the SARFAESI Act and RD & BFI Act. The petitioner cited relevant case laws to support their argument.

2. The first respondent argued that the notice was a garnishee notice, not an attachment notice. They referred to a decision of the Constitution Bench of the Supreme Court and stated that the notice was issued in accordance with the Income Tax Act, 1961.

3. The court considered the arguments and referred to a Full Bench decision in a previous case involving the Indian Overseas Bank. The Full Bench held that secured creditors have priority over government dues, including taxes, as per the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016. The court highlighted the relevant portions of the Full Bench judgment to support its decision.

4. The court acknowledged that the petitioner is a secured creditor and, based on the Full Bench decision and the recent amendment, ruled that the impugned notice could not be enforced against the petitioner. The court allowed the writ petition, set aside the notice, and closed the connected Writ Miscellaneous Petition without costs.