2019 (8) TMI 850 - HC - Income Tax

Attachment of property by Income Tax Department - immovable properties already been securitised - department rights of realisation is subject to such securitisation - HELD THAT - As decided in Indian Overseas Bank 2016 (12) TMI 373 - MADRAS HIGH COURT this has no difficulty in accepting the submission made by learned Revenue Counsel that it is clear that order of Hon'ble Full Bench does not place any fetters on the rights of the Income Tax Department to attach a property which has already been securitised if the Income Tax Department chooses to attach a property which is already securitised. Post attachment, anything that is realized from the attachment by Income Tax Department is subject to such securitisation and the creditor thereunder. In the instant case, the third respondent, which according to the writ petitioner company is the creditor, who has secruitised the immovable properties, has not even chosen to come before this Court to assert its rights and say that it has securitised immovable properties which are subject matter of provisional attachment. Therefore, the question as to whether the immovable properties, which are subject matter of provisional attachment qua impugned orders have already been securitised with third respondent Bank as the creditor, itself is not clear and even if that be so, the question of apportioning the monies realized from the attached properties, if such a scenario unfurls need to be gone into only at that stage. The issue as to the date of securitisation and as to whether it is appropriate to pass impugned orders are the determinants which may govern this apportionment aspect. However, it is not necessary to go into these aspects in this order. Suffice to say that it is clear that there are no fetters on the powers of the Income Tax Department with regard to original attachment. As this is the last point that has been canvassed, this Court finds no infirmity, more so at the instance of a writ petitioner company qua the impugned orders. Therefore, this Court considers that this is not a fit case for interfering with impugned orders.

Summary

Issues Involved:
1. Locus standi of the petitioner.
2. Legality of Income Tax Department's attachment of securitized properties.
3. Rights of secured creditors versus government dues.

Issue-wise Detailed Analysis:

1. Locus Standi of the Petitioner:
The primary issue was whether the petitioner, a private limited company (JSR Infra Developers Pvt. Ltd.), had the standing to challenge the provisional attachment orders issued by the Income Tax Department on properties belonging to an individual director (J. Sekhar). The court observed that the properties in question were owned by J. Sekhar, a director of the petitioner company, and the petitioner company itself was a separate juristic entity. The court noted, "a company is a juristic person and this juristic person is independent of the natural persons/individuals, who are Directors on the Board of the said company." Therefore, the petitioner company did not have the locus standi to challenge the attachment orders as the properties belonged to an individual director and not the company itself.

2. Legality of Income Tax Department's Attachment of Securitized Properties:
The court examined whether the Income Tax Department could attach properties that had already been securitized. The petitioner argued that the properties were mortgaged to the Indian Overseas Bank, and thus, the Income Tax Department's attachment was not valid. The court referred to the Full Bench judgment in AIR 2017 Mad 67 (FB), which clarified that "the rights of a secured creditor to realise secured debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority." However, the court also noted that the Full Bench judgment did not prohibit the Income Tax Department from attaching securitized properties, but any realization from such attachment would be subject to the rights of the secured creditor.

3. Rights of Secured Creditors versus Government Dues:
The court acknowledged the precedence of secured creditors' rights over government dues, as per Section 31B of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016. The court stated, "attachment by Income Tax Department will be subject to securitisation if properties which have already been securitised are attached." However, since the Indian Overseas Bank, the alleged secured creditor, did not appear before the court to assert its rights, the court found no merit in the petitioner's challenge. The court concluded that the Income Tax Department's attachment was valid and that the petitioner company failed to establish a sufficient basis to contest the attachment orders.

Conclusion:
The court dismissed all the writ petitions, stating that they were "bereft of merits." The court held that the petitioner company did not have the standing to challenge the attachment orders and that the Income Tax Department's attachment of securitized properties was legally permissible. The court also preserved the rights of the individual director, J. Sekhar, to challenge the attachment orders in the future. The judgment emphasized the principle that a company's legal identity is distinct from that of its directors and underscored the priority of secured creditors' rights over government dues.