1995 (7) TMI 1 - SC - Income Tax

Special Court has no jurisdiction to sit in appeal over the assessment of the tax liability of a notified person by the authority or Tribunal or court authorised to perform that function by the statute under which the tax is levied. The Special Court has, therefore, no jurisdiction to determine whether or not any assessment of the tax liability of a notified person by the appropriate authority is bona fide or reasonable or justified or enforceable.

Summary

Issues:
1. Jurisdiction of the Special Court to determine tax liabilities of notified persons.
2. Power of the Special Court to sit in appeal over tax authorities' orders.
3. Interpretation of Section 11 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992.

Detailed Analysis:

1. The judgment deals with the jurisdiction of the Special Court in determining the tax liabilities of notified persons. The appellant, an Assistant Commissioner of Income-tax, sought the release of tax liabilities of notified persons from funds with the custodian appointed under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992. The Special Court, under Section 11 of the Act, has the authority to decide the priorities in which claims upon the property under attachment shall be paid. It does not have the power to sit in appeal over or overrule tax authorities' orders regarding tax liabilities of notified persons.

2. The Special Court does not have the jurisdiction to determine the reasonableness, justification, or enforceability of tax assessments made by the appropriate tax authorities. It cannot question the bona fides of tax claims or assess the validity of tax liabilities determined by the Income-tax Appellate Tribunal or other authorized bodies. The court clarified that its role is limited to deciding the order of priority for payment of claims against the property under attachment.

3. The judgment also interprets Section 11 of the Act, which empowers the Special Court to make orders directing the custodian for the disposal of the property under attachment. The section specifies the order in which liabilities, including taxes due from notified persons, should be paid or discharged. The court emphasized that the Special Court's role is to ensure that claims, including tax liabilities, are paid in the order of priority and in full, as far as possible, based on the available funds. The court referred to a previous judgment to highlight that the Special Court's function is not to reassess tax liabilities but to safeguard the interests of all creditors involved.

In conclusion, the Supreme Court allowed the appeal, setting aside the order that required the appellant to produce records and permitted notified persons to challenge the claims made regarding their tax liabilities. The judgment reaffirmed the limited jurisdiction of the Special Court in determining the payment priorities of claims against attached property without delving into the assessment or validity of tax liabilities established by competent tax authorities.