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TMI Blog1998 (10) TMI 512X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the value of all the remissions, concessions and reliefs given under the rehabilitation scheme. 3. The scheme unfortunately did not run as envisaged during the years 1990-91 and 1991-92. However, in the year 1992-93 the company made profit of Rs. 157 lakhs. The petitioner company and the operating agency proposed one time settlement of dues to the financial institutions which was accepted by the latter. A few events occurring thereafter are not of relevance for the purpose of this petition. Suffice it to state that on 7.5.95, BIFR sanctioned a revised scheme which included the following clauses amongst others : "5.4 Central Government i) For seeking exemption under provisions of Section 41(1) of the Income-tax Act, 1961 in respect of the value of all the remissions, concessions and reliefs given under the rehabilitation scheme, the company would be required to approach an appropriate authority." xxxx xxxx xxxx xxxx 5.5 Promoters i) xxx xxxx xxxx xxxx ii) xxx xxxx xxxx xxxx iii) xxx xxxx xxxx xxxx iv) xxx xxxx xxxx xxxx v) Financial implications arising out of non-availability of exemption under Section 41(1) of the Income-tax Act, 1961 would be borne by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 5.10.1988 provided, inter alia, as under : "The Central Board of Direct Taxes have been advised that if a scheme is sanctioned in pursuance of Section 17(3) of the Act, it will have an overriding effect over the provisions of the Income- tax Act by virtue of Section 32 of the Act. 3. Consequently, if the BIFR sanctions a scheme under Section 17(3) of the Act specifically excluding or limiting the application of sections 41(1), 79 and 115J or of any one or more of these sections of the Income-tax Act, 1961 in respect of assessment years which are also specified then the Assessing officer will have to take due cognizance of this order and give effect to the same. Such a situation may arise in the case of a sick industrial company which has debited its account in respect of its interest liability in a particular assessment year. Subsequently, if in a scheme sanctioned by the BIFR, banks are directed to either waive or reduce the interest liability, this remission will become chargeable to tax under Section 41(1) of the Income-tax Act in the year of reduction or waiver by the banks. It is possible that for speedier rehabilitation, the BIFR in its scheme provides that section 41( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes to preventive, ameliorative, remedial and other measures with respect to any sick industrial company, the scheme may provide for financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices from the Central Govt, a State Govt, any scheduled bank or other bank, a public financial institution or State level institution or any institution or other authority ( any Government, bank, institution or other authority required by a scheme to provide for such financial assistance being hereafter in this section referred to as the person required by the scheme to provide financial assistance) to the sick industrial company. (2) Every scheme referred to in sub-section (1) shall be circulated to every person required by the scheme to provide financial assistance for his consent within a period of sixty days from the date of such circulation. (3) Where in respect of any scheme the consent referred to in sub-section (2) is given by every person required by the scheme to provide financial assistance, the Board may, as soon as may be, sanction the scheme and on and from the date of such sanction the scheme shall be binding on all concerned. (4) Where in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsider a prayer for exempting any one from the operation of Sec.41(1) of the Income-tax Act, 1961. 11. Section 41(1) of the Income-tax Act, 1961 provides as under :- 41 (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee ( hereinafter referred to as the first-mentioned person) and subsequently during any previous year, (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever any amount in respect of such loss of expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business of profession and accordingly chargeable to income tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x have applied their mind to the financial condition and resources of the petitioner company and then arrived at a finding assigning reasons for forming the opinion adverse to the petitioner. This Court cannot in exercise of writ jurisdiction interfere with such opinion formed by the CBDT and the Director of Income-tax. 13. Two issues arise for decision : (1) In so far as applicability of Section 41(1) of Income-tax Act, 1961 is concerned read in co-relation with the provisions of SICA whether S.19 or Section 32 of SICA would apply ? (2) Whether the CBDT was justified in issuing circular No. 683 dated 8.6.94 to AAIFR and BIFR communicating that a scheme framed under section 19 of SICA should have consent of the Director- General of Income-tax (Admn) which consent may be given or denied depending on the facts of each case? 14. The learned counsel for the petitioner has submitted that Section 41 of the Income-tax Act is a general provision of law governing liability of certain profits to tax. SICA is a special legislation governing the sick industrial units. As the preamble to SICA states it is an Act to make in the public interest, special provisions with a view to securing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce or support, pecuniary or otherwise, granted to indigent persons, Deliverance from oppression, wrong or injustice. In this sense it is used as a general designation of the assistance, redress, or benefit which a complainant seeks at the hands of a court, particularly in equity. It may be thus used of such remedies as specific performance, injunction, or the reformation or rescission of a contract. 15.2 'Concession' is defined as : Concession. A grant, ordinarily applied to the grant of specific privileges by a government; e.g. French and Spanish grants in Louisiana. A voluntary grant, or a yielding to a claim or demand ( e.g. when each side in a labour dispute reduces its demands to effect a settlement). A rebate or abatement ( e.g. reduced rent for first year as inducement to lease property). 15.3 The learned counsel submitted that excluding the operation of Section 41 of the Income-tax Act does not amount to giving a relief or concession by the Central Govt to a sick industrial unit and therefore, there is no occasion for any scheme under Section 19 being circulated to the Central Govt for the purpose of excluding the operation of Section 41 of the In-come-tax Act nor could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Act. If the Central Govt is restrained from taxing the petitioner under Section 41 to the extent of the amount obtained or the value of benefit accruing to it under the scheme then to the extent of the restraint the Central Govt would be sacrificing its revenue. Thus, excluding the operation of or exempting from Section 41 of the Income-tax Act qua the petitioner would be covered by the phrase 'sacrifices from the Central Govt.' Once this view is taken, the consequence which follows is that the question as to excluding the operation of Section 41 of the Income-tax Act is rendered a subject for the consideration of the Board under Section 19 of the SICA. 18. The Board for Industrial and Financial Reconstruction established under Section 4 of the SICA consists of experts in the field. As subsection (3) of Section 4 provides the Chairman and other members of the Board are the persons of ability, integrity and standing who have special knowledge of, and professional experience of not less than 15 years in science, technology, economics, banking industry, law relating to labour matters, industrial finance, industrial management, industrial reconstruction administration, invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the provisions of Section 41 of the Income-tax Act cannot be given a complete go bye solely by reference to Section 32 of the SICA merely because the petitioner happens to be a sick unit unless a provision in that regard has been made and incorporated in the scheme. 21. To sum up: (1) The non obstinate clause contained in sub-section (1) of Section.32 of SICA does not give the SICA a blanket overriding effect on all other laws; the overriding effect is given to the provisions of SICA, rules or schemes made thereunder only to the extent of inconsistency therewith contained in any other law excepting a few exceptions enumerated therein. (2) Exempting from and suspending the operation of the provisions contained in Section 41 of the Income-tax Act, 1961 as regards a sick industry amounts to 'sacrifice from the Central Govt.'- the expression as used in Section 19(1) of SICA. (3) It is for the BIFR to form an opinion while framing a scheme of rehabilitation for a sick industry whether an exemption from operation of S 41 of the Income-tax Act, 1961 is required to be engrafted in the scheme so as to secure the object of rehabilitation and if so then to what extent. If the BIFR may f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25. Though we are holding clauses 5.4 and 5.5(v) of the scheme dated 15.5.95 falling foul of Section 19 of SICA, the entire scheme need not be struck down for this deficiency alone. In our opinion, the deficiency can be removed by striking down clauses 5.4 and 5.5(V) only of the scheme and directing reconsideration by BIFR of the petitioner's prayer for exempting it from the operation of Section 41 of the Income-tax Act and finalising such prayer in accordance with Section 19 of the Act and consistently with the observations made hereinabove. This will also satisfy the requirement of CBDT circular No. 683 dated 8.6.94. Rest of the scheme shall remain valid and binding on the parties. 26. The petition is partly allowed. Clauses 5.4 and 5.5(V) of the scheme dated 15.5.95 are struck down and set aside. The BIFR shall consider the petitioner's prayer for exempting the petitioner's unit from the operation of Section 41 of the Income-tax Act, 1961, forming its own opinion thereon, incorporating the same in the scheme in place of the present clauses 5.4 and 5.5(V) and circulate the same in accordance with Section 19(2) of SICA and then sanction the same. The petition stands disposed of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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