2016 (3) TMI 599 - HC - Income Tax

Notice under section 226 (3) of the IT Act - attachment orders - Sick Industrial Companies (Special Provisions) Act, 1985 - Held that - In the light of the provisions of section 22 of SICA, permitting the attachment to continue, prima facie, would be contrary to the provisions thereof as the same would amount to distraint against the properties of the petitioner. Besides, continuance of the attachment would not serve any useful purpose inasmuch as the petitioner would not be able to operate its bank accounts and the revenue would not be able to make any recovery. This court is of the view that the interest of the revenue would best be served by directing the petitioner to file an undertaking to an effect that in case it ultimately does not succeed in the petition, it would deposit an amount equal to the amount standing as on date in the above two bank accounts of the petitioner. However, in the opinion of this court, at this stage, it is not permissible for the respondent-authorities to continue with the attachment of the bank accounts of the petitioner. In the aforesaid premises, by way of interim-relief, the impugned notices dated 27.01.2016 issued to the Branch Manager, ICICI Bank, Ahmedabad and the notice dated 28.01.2016 issued to the Branch Manager, Bank of India, Ahmedabad, under section 226 (3) of the Income-Tax Act, 1961, are hereby stayed till the final disposal of the petition. The petitioner, however, shall furnish an undertaking before this court to an effect that in case, it does not succeed in the petition, it shall abide by any order that may be passed by the court, including deposit of the amount equal to the amount standing in the above bank accounts of the petitioner.

Summary

Issues involved:
Challenge to notices under section 226(3) of the Income-Tax Act, 1961 regarding payment of arrears held by banks for the petitioner. Interpretation of provisions of Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) regarding coercive actions for recovery of outstanding dues. Consideration of interim relief and attachment of bank accounts to protect the interest of revenue and the petitioner.

Detailed Analysis:
The petitioner sought permission to delete the first respondent-Union of India, which was granted. The challenge in the petition was against notices issued to banks under section 226(3) of the Income-Tax Act, 1961, to pay the amount held for the petitioner as arrears. An order had directed no payment by the bank to the Department, but the petitioner was not allowed to operate the bank accounts.

The petitioner's counsel argued that being registered as a sick industrial company under SICA, no coercive action for recovery of dues should be taken. Reference was made to a previous court decision for interim relief in a similar case. The petitioner requested modification of the interim relief to operate bank accounts.

The respondent's counsel opposed, emphasizing the substantial amount due as income tax and the need to consider the revenue's interest. Reference was made to a Supreme Court decision regarding payment obligations of a sick company. Suggestions were made for maintaining a certain amount in bank accounts or continuing the attachment.

The petitioner's counsel argued against full disclosure of bank account details at this stage, agreeing to provide if required later. The court found the matter needing consideration and issued a rule. The court protected the petitioner from making payments but allowed the petitioner to furnish an undertaking for a possible deposit in case of an unfavorable outcome.

The court opined that continuing the attachment of bank accounts would be contrary to SICA provisions and not serve any purpose. It directed the petitioner to file an undertaking to deposit an amount equal to the current bank account balance if the petition failed. The impugned notices were stayed until the final disposal of the petition, with the petitioner required to provide the undertaking.

In conclusion, the court balanced the interests of the petitioner and the revenue, considering the legal provisions of SICA and the implications of the notices under the Income-Tax Act, 1961, while providing interim relief and guidance for future actions in the case.