9911796707
TMI Blog2014 (5) TMI 859X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of establishing an integrated project comprising golf course, convention centre-cum-exhibition complex, residential and commercial complexes, hotels, etc. This was done pursuant to a collaboration agreement entered into between the two parties on 19 August 2003 in furtherance of an MoU between APIIC and Emaar-Dubai entered into in November 2002.The petitioner in this case, Emaar MGF Land Ltd. ("EMGF"), engaged in the business of construction/land development for industrial projects and residential townships, entered into a development agreement on 03-11-2006 with the fourth respondent, EHTPL, for the development 258.36 acres of land owned by EHTPL. Subsequently, on 25-07-2007, the earlier agreement of November 2006 was cancelled and a new development agreement-cum-GPA was entered into between EHTPL and EMGF, with an addendum dated 23- 7-2008. EMGF was to receive consideration of 75% of the gross revenue derived from sale of buildings constructed on EHTPL's land and 25% was to remain EHTPL's share. The second respondent is the Tax Recovery Officer, Delhi ("TRO, Delhi"), having jurisdiction to recover the tax demand due from the petitioner; the third respondent is the admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax arrears of Rs.1,15,68,00,000/- were due and payable from EHTPL. 5. EMGF, in its response to TRO, Delhi (Annexure P-11) stated that EHTPL could not be considered as having any right to recovery of sale proceeds against it since it had incurred more expenses than the amount it had collected. The same was conveyed to EHTPL as well by a letter dated 15-01-2014, and liability was sought to be refuted on the ground of pendency of litigation on the validity of the development agreement. 6. The TRO, Hyderabad, nevertheless, by notice dated 23-01- 2014 required EMGF to pay an amount of Rs. 30 crore. The authorised representative of EMGF went to TRO, Hyderabad and objected to this demand by refilling the letter dated 15-01-2014; the same was rejected by the TRO, Hyderabad and EMGF was directed to make payment of Rs. 30 crore by 07-02-2014 failing which it would be liable to coercive measures. EMGF then filed an affidavit on 11-02-2014 under Section 226(3)(vi) disputing the existence of a liability towards EHTPL before the TRO in Hyderabad and Delhi (first and second respondents). 7. EMGF, then moved this Court in an earlier proceeding under Article 226 of the Constitution (W.P(C) No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuting Court under Order XXI, Rule 46C of the Civil Procedure Code where the judgment debtor's indebtedness, if disputed during execution proceedings, must be tried by the executing court per Rule 46C, under the Income Tax Act, when a third-partynoticee disputes indebtedness to the assessee-in-default, the AO has no jurisdiction to proceed further against this third party. Learned senior counsel also relied on the Supreme Court's ruling in Surinder Nath Kapoor v. Union of India: AIR 1988 SC 1777, where it was observed as follows: "15. The object of serving a notice under clause (3)(vi) of section 226 is to give the garnishee an opportunity to admit or deny his liability for the amount mentioned in the notice. Under clause (i) of section 226(3), if the garnishee objects to the notice by a statement on oath that the sum demanded or any part thereof is not due to the assessee, then the garnishee will not be required to pay any such sum or part thereof, as the case may be." 10. On facts, is argued that since the project has been stalled in the litigation and no collections have been made from it, no money could be said to be owed to EHTPL. This assertion is based on the argument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as much on the consent of external agencies like the Government of A.P. 12. The learned Counsel for the Revenue, on the other hand, argues in favour of the TRO's order, stating that money was owed from EMGF to EHTPL on an annual basis under the agreement, and that this debt is even admitted by EMGF in its books of account. The litigation, it is argued, can only possibly affect the future liability of EMGF to EHTPL, and not the debts presently due and payable to EHTPL. 13. The question that arises for determination by this Court is whether the TRO's, in its attempt to discern whether there is an apparent falsity in EMGF's affidavit objecting to the alleged liability to EHTPL, has actually adjudicated on the question of a disputed debt, thus exceeding his jurisdiction. 14. There can be no question of the TRO adjudicating on the question of a disputed debt if there is ,in existence, an enforceable debt between the parties. This Court notes EMGF's ledger account details as enclosed with the notice of the TRO to EMGF dated 23-01-2014 (pages 159-165). The entries against the dates 30th April to 31st October, 2012 indicate that EMGF admits a liability to EHTPL, each month, as part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xxxxx (vi) Where a person to whom a notice under this subsection is sent objects to it by a statement on oath that the sum demanded or any part thereof is not due to the assessee or that he does not hold any money for or on account of the assessee, then nothing contained in this sub-section shall be deemed to require such person to pay any such sum or part thereof, as the case may be, but if it is discovered that such statement was false in any material particular, such person shall be personally liable to the Assessing Officer or Tax Recovery Officer to the extent of his own liability to the assessee on the date of the notice, or to the extent of the assessee's liability for any sum due under this Act, whichever is less." 16. The decision of this Court in AAA Portfolios (supra), does not come to the aid of the petitioners since in that case, the question before the court was whether any money was held on behalf of, or on the account of the assessee company, by the bank, by the terms of the escrow agreement in question. In other words, the existence of the debt itself was in question. The background of the dispute in that case was a share purchase transaction in relation to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y or holds any money on account of the assessee, the Assessing Officer would not have any jurisdiction to proceed further against the third party. This is also abundantly clear from the language of clause (vi) of Section 226(3) of the Act." 18. The Court noted in that decision, that when liability itself is disputed by the third party, Section 226(3) was no source of power to the AO to adjudicate on that question. The only latitude permitted to the AO, once the affidavit is filed, is to facially satisfy himself or herself that the assertion made is not false. This latitude or flexibility is evident from the words "but if it is discovered that such statement was false in any material particular, such person shall be personally liable to the Assessing Officer or Tax Recovery Officer to the extent of his own liability to the assessee on the date of the notice, or to the extent of the assessee's liability for any sum due under this Act, whichever is less..." in Section 226(3)(vi) itself. It thus merely empowers the AO to discover falsity in the objections filed by the garnishee, in cases where it is an admitted or an indisputable debt. 19. What then is the true nature of the pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djust against prospective losses on the ground that it has spent more than it has collected thus leading to the possibility of it being unable to recover its expenses should the agreement be cancelled, also does not find favour with this Court, for two reasons, first, the submission seeks to negate an existing and indisputable debt and second, the TRO has found that in fact, EMGF has collected more than it has spent. 22. This Court also notes that there is no challenge to the existence of the debt itself since it is nobody's case that the agreement stands cancelled. The petitioner EMGF merely claims that the agreement is likely to be cancelled or annulled as a consequence of the pending litigation between the parties. This submission does not find favour with this Court as the potential or possible cancellation of an existing debt, depending on the outcome of on-going litigation is too distant a contingency to make the dues unenforceable. With any agreement, there are several contingencies that can come to fruition in the future, to affect an existing debt. Within the realm of the law of contracts, the ramifications of any such contingency are itself several and diverse, and not o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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