TMI Blog2001 (3) TMI 1011X X X X Extracts X X X X X X X X Extracts X X X X ..... credit for the payments made by the assessee, a sum of Rs. 43,65,82,270 is outstanding as of now in respect of which the stay is prayed for. 3. The assessee s appeal before the Tribunal against the assessment was filed on 19-2-2001 and the same is pending disposal. 4. After making the assessment, the income-tax authorities sought to recover the tax, which at that time amounted to about Rs. 98 crores. The assessee filed a stay application before the CIT, Mumbai City-I, which was disposed of by him by order dated 31-10-2000. It was therein recorded that on 18-8-2000 the assessee s representative had agreed that if the appeal before the CIT(A) pending then was not decided within a period of two months hence, the entire demand will be paid in equal instalments during the remaining period by the end of March 2001. It is further recorded that the assessee again approached the CIT by application dated 24-10-2000 and also appeared on 31-10-2000 and requested that the entire demand be kept in abeyance till the disposal of the appeal before the CIT(A). It had been pointed out by the assessee that the appeal was being adjourned at the instance of either the Assessing Officer or the CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter also it was prayed that the demand be kept in abeyance till the disposal of the appeal before the Tribunal or at least till the disposal by the Tribunal of the stay application. 9. It appears that the assessee also had a few meetings with the Assessing Officer as well as the CIT with regard to the stay applications. The assessee would also appear to have filed another stay application with the Assessing Officer on 27-2-2001. On 28-2-2001, the Assessing Officer wrote to the assessee informing it of his inability to grant any stay. He also observed that he has seen the accounts of the assessee relating to the accounting years relevant to the assessment years 1997-98 to 1999-2000, the reserves and surplus and revenues. He pointed out that the assessee had not come up with any worthwhile proposal to clear the arrears to show its sincerity and commitment to pay the tax, which has been confirmed in first appeal. He therefore rejected the application. 10. It has been stated on behalf of the assessee before us that the above letter was received by the assessee on the same day, i.e., 28-2-2001 at 4.45 P.M. 11. On the next day, i.e., 1st March, 2001, the Assessing Officer issued or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y rate a highly arguable case which requires examination and deep consideration by the Tribunal. 13. Mr. Dastur also submitted that enforcement of the demand through harsh measures such as garnishee orders under section 226(3) affected the day-to-day functioning of the MSEB (the assessee), that the amounts sought to be recovered from the banks represented application monies pending allotment of bonds, that these monies strictly speaking have not become due to the assessee, that the assessee is a state government undertaking owning huge assets throughout the state and the interests of Revenue are certainly not going to be prejudiced, that it is a public utility undertaking dealing with the public at large and any harsh measures such as garnishee orders are likely to adversely affect its credibility in the public eye and that its financial position as indicated by recent press reports was dismal and therefore it was imperative that there should be a stay of the recovery proceedings till the disposal of the appeal or at least as an interim measure there should be a stay of the enforcement of the garnishee orders which have been issued to the banks on 1-3-2001. Mr. Dastur in particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case (supra) and by the Tribunal in RPG Enterprise s case (supra). 14. So far as the garnishee orders are concerned, Mr. Dastur contended on the basis of the judgment of the Supreme Court in Kesoram Industries Cotton Mills Ltd. v. CWT [1966] 59 ITR 767 at 779 that the monies in the bank have not become due to the assessee within the meaning of section 226(3), that the banks merely "owed" those monies to the assessee and therefore the orders suffered from a fundamental infirmity. He also submitted that the rules of natural justice require that an opportunity ought to be given to the assessee to object to the garnishee orders before they are sought to be enforced which has not been done in the present case. He cited the judgment of the Delhi High Court in the case of Oil Natural Gas Corpn. Ltd. v. Union of India [2000] 246 ITR 211 at 215 in this behalf. 15. On the basis of the aforesaid arguments Mr. Dastur strongly urged that stay should be granted. 16. In a spirited defence of the action of the income-tax authorities, Mr. Tralshawala, CIT (DR) appearing for the Department, pointed out that the assessment was done in February 2000 and that sufficient time had been given t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee- Board, particularly its seeking stay after having agreed before the CIT to make payments in instalments even if the appeal before the CIT(A) is not disposed of within two months. He pointed out that motive of the assessee at every stage was to buy time, which should be deprecated. He also contended at one stage of his arguments that the assessee rushed to the Hon ble High Court to obtain stay in December 2000 and therefore it should have followed the same course this time also. He was at pains to point out that the Hon ble High Court had allowed sufficient time for the payment of the taxes, that the Assessing Officer was well within his powers to have initiated coercive steps for recovering the dues the moment the time granted had expired (i.e., on 28-2-2001) and that the assessee cannot complain even where the action of the Assessing Officer is in deference to the order of the Hon ble High Court. Mr. Tralshawala highlighted these facts to show that the assessee was never serious in clearing the arrears of tax and was always trying to buy time at every stage. He strongly protested against such tactics and submitted that they should not be encouraged. 18. Just before the argum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised by the High Court that the assessee should be given time when its stay application is pending disposal, that it should also be given an opportunity to protest against the garnishee orders before recovery is made and that the action of the departmental authorities in the present case was contrary to these principles. 20. Mr. Dastur very strongly protested against the recovery of the tax by enforcing the garnishee orders during the pendency of the stay application of which the authorities were fully aware and a day prior to the date on which the stay application was to be heard by the Tribunal. He pointed out that the tax has been recovered on 1-3-2001 as confirmed by the ld. CIT(DR) in the course of his arguments. He termed this action as wholly arbitrary and calculated to render the power of the Tribunal infructuous or nugatory. He submitted that it was contrary to the law laid down in Mahindra Mahindra Ltd. s case (supra) by the Hon ble High Court and in RPG Enterprise s case (supra) by the Mumbai Bench of the Tribunal (supra). He therefore prayed that the status quo ante should be restored and directions be issued by the Tribunal for refund of the amount recovered, as wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exercised. These have been laid down both in Mahindra Mahindra Ltd. s case (supra) and RPG Enterprise s case (supra) by the Hon ble Bombay High Court and the Tribunal respectively. [The reason for such a principle is that when a judicial forum or appellate authority, empowered to adjudicate upon the justification for the prayer for stay, is in seisin of the matter, if would indicate lack of faith in the judicial process on the part of the authority empowered to recover the tax through coercive measures if he proceeds to do so without waiting for the orders of the higher forum]. The fundamental principle is that the rule of law should govern all administrative actions and where the action complained against is coloured by illegality, irrationality or procedural impropriety, judicial review can strike down such administrative action (see Lord Diplock s observations in Council of Civil Services Union v. Minister for Civil Services [1984] 3 All ER 935. Though the action in question before us cannot be termed illegal, as we have already noted, it has touches of irrationality and certainly smacks of procedural impropriety. The noble lawlord added the test of "proportionality" but als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erriding considerations on grounds of public interest, the court would be justified in refusing relief though the doctrine is found applicable to the case and the applicant has been put to hardship on account of breach of the doctrine Union of India v. Hindustan Development Corpn. AIR 1994 SC 980. Following this principle, courts in India have refused to give relief even in cases where the doctrine was applicable, on the ground that the security of the State was involved or that the doctrine cannot override legislative power or that public interest required that no relief be given to the complainant. 22. We have before us a case where despite the clear dictum of the Hon ble High Court of Bombay in Mahindra Mahindra Ltd. s case (supra) that the tax should not be recovered through coercive measures when even the time-limit for filing an appeal has not expired or during the pendency of the stay application before the court/tribunal competent to adjudicate upon the same, the Assessing Officer has recovered the tax contrary thereto. This is therefore a case where the doctrine of legitimate expectation should be applied and the action of the Assessing Officer struck down. The Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his orders was a wholly independent ground which influenced the decision. In our opinion, a proper and fair reading of the Tribunal s order makes it clear that even if there had been no back-dating by the Assessing Officer, that would not have made any difference to the ultimate decision of the Tribunal. Therefore, notwithstanding that there is no back-dating of the orders passed by the Assessing Officer in the case before us, the ratio laid down in RPG Enterprise s case (supra) is still applicable. 24. It is also a little disturbing to note that until we queried Mr. Tralshawala, the CIT(DR), towards the close of his arguments, we were not apprised of the fact that the tax had been collected the earlier day. The assessee also did not appear to be aware of the fact since nothing was mentioned by Mr. Dastur in the course of his arguments. However, in fairness to Mr. Tralshawala, we must say that he was also not aware of this until the officers present on behalf of his clients brought it to his notice in response to our query. 25. We are also satisfied that on merits the assessee would appear to have an arguable case and the contentions raised by Mr. Dastur in this behalf merit s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore hold that the departmental authorities were not justified in recovering the amount, in respect of which stay has been prayed for, by enforcing the orders issued under section 226(3) against the bankers. As held by the Tribunal under similar circumstances in the case of RPG Enterprises (supra) and for the same reasons given in the said order, we direct as follows : (i)The Assessing Officer shall refund the amount of Rs. 43,65,82,270 collected under section 226(3) within a period of two weeks from the date of service of this order; (ii)The recovery of the aforesaid amount is stayed till the disposal of the appeal before the Tribunal on condition that the assessee furnishes security to the satisfaction of the Assessing Officer within the same time limit as stated above; (iii)That the appeal shall be posted for hearing on 2nd April, 2001, the date suggested by Mr. Dastur for the assessee and that the assessee shall not request for any adjournment on that date. The Registry to serve this order on both the parties forthwith along with the notice posting the appeal for hearing as directed above. 27. The stay application is allowed in the above terms. - - TaxTMI - TMITax ..... 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