2015 (6) TMI 183 - HC - Income Tax

Recovery of tax due without issuing notice u/s 156 - Challenge to prohibitory orders and warrant of attachment of moveable property - whether any recovery proceedings can be initiated against the writ petitioner for the alleged income tax dues as claimed by the Revenue - carrying on business on behalf of the State of Telangana in respect of sale of Indian Made Liquor and Foreign Liquor - restraining the petitioner from selling the liquor stock, which is the property of State of Telangana Held that - By virtue of Section 68 read with Section 53 of Act, 2014, successor States of Andhra Pradesh and Telangana have acquired the assets and took over the liability in respect of the Companies and Corporations specified in the ninth schedule of Act, 2014. By virtue of sub-section (2) of Section 68 the assets, rights and liabilities of APBCL now stand apportioned between the State of Andhra Pradesh and State of Telangana in the manner as provided in Section 53 of Act, 2014. Section 53 provides subject to the agreement the aforesaid assets and liabilities of the Corporation, shall stand apportioned on the basis of population ratio. The petitioner has not acquired nor can acquire in view of above legal position any property from APBCL nor the liability thereof. The State of Telangana has acquired these assets and properties and liability of APBCL, being the recorded assessee proportionately. Therefore, it is absurd to contend that the writ petitioner is the successor in interest of APBCL. It does not appear from object clause of Memorandum of Association that it has acquired any rights, assets and properties of APBCL. Thus, the question of shouldering liability by the writ petitioner also does not arise. We are of the view that just because the petitioner paid tax dues on mistaken application of law, it cannot be precedent for recovery for the simple reason that illegal and wrongful action cannot be precedent, furthermore there cannot be estoppel as against provision of law. - actions taken by the Revenue against the writ petitioner are without jurisdiction and wholly illegal. In the event, State of Telangana does not pay the proportionate liability of the tax dues for the assessment year 2012-13 or previous thereto, if any, it would be open for the respondents to recover the same from the State of Telangana, since It is to share the proportionate liability along with assets of the erstwhile APBCL which was again a separate legal entity and an assessee. We are of the view that the writ petitioner cannot be equated with the Government in order to get Constitutional immunity from payment of taxes. - Decided in favour of appellant.

Summary

Issues Involved:
1. Legitimacy of prohibitory orders and warrant of attachment of moveable property.
2. Jurisdiction of the 2nd respondent to commence tax recovery proceedings.
3. Status of the petitioner as the successor in business of Andhra Pradesh Beverages Corporation Limited (APBCL).
4. Compliance with procedural requirements under the Income Tax Act, 1961.
5. Applicability of Constitutional immunity under Article 289(1) of the Constitution of India.

Issue-wise Detailed Analysis:

1. Legitimacy of Prohibitory Orders and Warrant of Attachment of Moveable Property:
The petitioner challenged the prohibitory orders and warrant of attachment issued on 28.02.2015, arguing that they were incorrectly based on the assumption that the petitioner is the successor in business of APBCL under the Andhra Pradesh Reorganization Act, 2014. The court found that the petitioner, incorporated on 30.05.2014, was not in existence during the relevant assessment year 2012-13 and thus could not be held liable for the tax dues of APBCL. The court concluded that the prohibitory orders and attachment were arbitrary, unlawful, and ultra vires the provisions of the Income Tax Act, 1961.

2. Jurisdiction of the 2nd Respondent to Commence Tax Recovery Proceedings:
The petitioner contended that the 2nd respondent lacked jurisdiction to initiate tax recovery proceedings as no notice of assessment or demand was served on the petitioner for the assessment year 2012-13. The court held that the recovery proceedings were invalid as they did not comply with Section 156 of the Income Tax Act, 1961, which mandates serving a notice of demand on the assessee. The court emphasized that the petitioner was not an assessee or deemed assessee in default, and thus the 2nd respondent had no jurisdiction to commence tax recovery proceedings.

3. Status of the Petitioner as the Successor in Business of APBCL:
The respondents argued that the petitioner was the successor in business of APBCL as per the Andhra Pradesh Reorganization Act, 2014, and thus liable for the tax dues. However, the court found that the petitioner, being a separate legal entity incorporated after the relevant assessment year, did not acquire any assets or liabilities from APBCL. The court clarified that the assets and liabilities of APBCL were apportioned between the successor states of Andhra Pradesh and Telangana, not the petitioner. Therefore, the petitioner could not be considered the successor in business of APBCL.

4. Compliance with Procedural Requirements under the Income Tax Act, 1961:
The petitioner argued that the prohibitory orders and attachment were issued without complying with procedural requirements, such as serving a notice of demand under Section 156 and a notice in Form ITCP No.1 under Rule 2 of the second schedule of the Income Tax Act, 1961. The court agreed, noting that no such notices were served on the petitioner. The court emphasized that compliance with these procedural requirements is mandatory for initiating tax recovery proceedings, and the failure to do so rendered the actions of the respondents illegal and without jurisdiction.

5. Applicability of Constitutional Immunity under Article 289(1) of the Constitution of India:
The petitioner claimed constitutional immunity from tax liability under Article 289(1) of the Constitution of India, arguing that it was an instrumentality of the State of Telangana. The court rejected this argument, stating that the petitioner, as a separate legal entity, could not be equated with the government to claim constitutional immunity. The court noted that the petitioner could not invoke Article 289(1) as it was not an extended arm of the State Government but a distinct corporate entity.

Conclusion:
The court concluded that the actions taken by the Revenue against the petitioner were without jurisdiction and wholly illegal. The court set aside and quashed the orders and notices issued against the petitioner, granting liberty to the respondent officials to recover the dues from the State of Telangana if not paid, following the issuance of notice under Section 226 of the Income Tax Act, 1961. Both writ petitions were allowed, and no costs were ordered.