2019 (6) TMI 672 - HC - Income Tax

Attachment orders - Transfer/refund/repatriate the entire amount from the account of the Respondent to the respective accounts of the Petitioners - encasement of FDs of the Petitioners and transferred to the PD Account of the Respondent which does not carry any interest - delaying the proceedings u/s 153-A - HELD THAT - The principles laid down by the Hon'ble Supreme Court in the case of KCC Software 2008 (1) TMI 12 - SUPREME COURT apply to the facts of this case. We are respectfully bound by the said judgment. In our view, the judgment of the Patna High Court in the case of Smt. Bimla Singh 1997 (4) TMI 46 - PATNA HIGH COURT also assists the case of the Petitioners. We accordingly direct the Respondents to invest the amount realised from those FDs and transferred to the PD Account of the Respondent No.2, in a fixed deposit of a Nationalized bank initially for a period of one year and for like period after obtaining further orders from this Court. The statement made by the learned counsel for the Petitioners that the Petitioners would invoke the provisions of Section 245-C after the proceedings are initiated u/s 153-A is accepted. It is made clear that if it is found that the amount encashed by the Respondents from the FDs are more than the tax liability of the Petitioners, the right of the Petitioners would be in accordance with the provisions of law including the provisions under the Income Tax Act, 1961. The amount shall be transferred to the fixed deposit within two weeks from the date of communication of this order. The amount which is directed to be invested by the Respondents in a fixed deposit, such fixed deposit shall be in the name of the concerned Respondent and shall not be encashed without leave of this Court.

Summary

Issues:
Petition seeking mandamus for transfer of funds, legality of encashment of FDs by tax authorities, application of principles from previous judgments, delay in Settlement Commission proceedings, rights of petitioners regarding interest on encashed amount.

Analysis:
The petitioners sought a writ of mandamus to direct the respondents to transfer a substantial amount from the account of one respondent to the petitioners' respective accounts. The respondents had issued a notice under the Income Tax Act, conducted a search at the petitioner's premises, and attached documents and cash. Subsequently, a significant sum was transferred from the petitioners' fixed deposits to the account of another respondent, which was contested in the petition. The petitioners argued that this action was against legal principles established by previous court judgments.

The petitioners' counsel referred to judgments from the Patna High Court and the Supreme Court to support their argument that the conversion of assets to cash and transfer to another account was impermissible. They highlighted the need for the encashed amount to be invested in interest-bearing fixed deposits to protect the petitioners' rights in case of a favorable outcome in pending proceedings. The delay in Settlement Commission proceedings was also raised, emphasizing the potential loss of interest earnings due to the encashment.

The respondents contended that the actions taken were valid and legal under the Income Tax Act, asserting that the encashment and transfer were compliant with the relevant provisions. However, the court, citing the Supreme Court judgment, found that the principles laid down in the case applied to the present situation. The court directed the respondents to invest the encashed amount in a fixed deposit for a specified period, ensuring the petitioners' rights were protected.

The court acknowledged the petitioners' intention to invoke specific provisions of the Income Tax Act after the initiation of proceedings, clarifying that any excess amount encashed would be handled according to the law. The court ordered the transfer of the amount to a fixed deposit within a specified timeframe, with strict conditions on its encashment. The writ petition was disposed of accordingly, with no costs awarded to either party.

In conclusion, the judgment addressed the legality of the encashment of fixed deposits, the application of legal principles from previous judgments, the protection of the petitioners' rights regarding interest earnings, and the procedural aspects related to the Settlement Commission proceedings. The court's decision aimed to balance the interests of both parties while ensuring compliance with the law and established legal principles.