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DIRECTOR GENERAL OF INCOME TAX (ADMN.) AND ANR. Versus M/s. GTC INDUSTRIES LTD. AND ANR.

2016 (5) TMI 771 - SUPREME COURT OF INDIA

Rehabilitation Scheme - attachment of movable or immovable assets of the company - whether the Company was not entitled to get the period of rehabilitation scheme extended? - Held that:- Sanctioned Scheme (SS-02) has outlived its life which came to an end on 31st March, 2011. the Revenue is, thus, entitled to recover its dues. We are not deciding this issue in the present appeal and permit the parties to approach the Board seeking clarification as to what was meant by the words 'to consider' i.e .....

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any nature are to be entertained by the Board including the application for modification filed by the Company and pending before the Board.

The Income Tax Department shall be entitled to take steps for attachment of the properties of the Company, including Ville Parle land as per the provisions of the Income Tax Act and shall be entitled to sell the same. If there are any secured creditors in respect of these properties, such attachment and sale shall be subject to the rights of those .....

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e Land, MOU was entered into by the Company with them. However, once it is found that such an agreement was in violation of the Scheme, the arrangement with the aforesaid interveners entered into by the Company loses its legal force and no right would accrue to these interveners on the basis of the said agreements. We, thus, dismiss the plea raised by the intervener. - CIVIL APPEAL NO. 5038 OF 2016, (ARISING OUT OF SLP (C) NO. 26747 OF 2012) - Dated:- 12-5-2016 - A.K. SIKRI AND R. K. AGRAWAL, JJ .....

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97 as its net worth had eroded. As per the requirements of Section 15 of The Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as the 'SICA'), it filed reference before the Board of Industrial and Financial Reconstruction (hereinafter referred to as the 'Board') which was admitted and registered as Case No.17/1997. The Board conducted enquiry into the working of Company to determine whether it had become a sick industrial company and in the process .....

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ated 14.01.2000. In this DRS, following income tax reliefs were proposed: (a) To exempt from the applicability of the provisions of Section 41(1) of the Income Tax Act, 1961 and to allow carry forward of unabsorbed losses and allowances beyond eight years. (b) To lift attachment order imposed by Income Tax Department against immovable and movable properties including Debtors and Bank Accounts. Thereafter, not to attach any property including movable properties of the company during the rehabilit .....

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e appellant against the DRS on 23.03.2001. During hearing dated 29.03.2001, the representative of the appellant stated that the appellant had no objection if the reliefs and concessions sought were not directed to be given but kept for the consideration of the Income Tax Department. 3) The Scheme of reconstruction/rehabilitation which was submitted by the OA, after consultation with all the stakeholders and creditors as per the requirement of law, was approved and sanctioned by the Board (herein .....

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) of the Income Tax Act, 1961 and to allow carry forward of Unabsorbed Losses and allowances beyond eight years. (b) To consider waiving interest and penalty, if any, imposed and not to levy such interest and penalties during the rehabilitation period. (c) To consider exempting GTC from Capital Gain on sale of surplus land and/or sale of industrial sheds proposed for development on surplus land at Marol and/or sale of any other surplus assets. (d) To consider exempting GTC from TDS against payme .....

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out prior consent of BIFR. The recovery proceedings against demands raised by Income Tax Department against disputed liabilities shall remain suspended and refunds due to company, if any, would not be adjusted against such demands. 4) The said relief was not envisaged under the head reliefs and concessions asked from CBDT in Para 9(Q) and such direction was given under the head General Terms and Conditions, without consent of the appellants required under Section 19(2) of SICA. Further, in Para .....

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ability statement, the projected sales comprised of cigarettes only, and that as per the projected fund flow statement, there was to be no decrease in the fixed assets. It was further laid down in para 10(f) under the head 'General Terms and Conditions' that the company would not undertake any major modernization/diversification program/ capital expenditure except normal capital expenditure during the period of implementation of the rehabilitation scheme without specific prior permission .....

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the Board, the Revenue could not and did not resort to any action by way of attachment of movable or immovable assets of the company. 6) The cut-off date in the Scheme was 31.12.1998 and the rehabilitation period of eight years was prescribed therein. However, later on the cut-off date in the Scheme was changed from 31.12.1998 to 31.03.2003 by the Board and the eight years period provided for rehabilitation was to be reckoned from 31.03.2003. In this way, the Scheme was to lapse on 31.03.2011. .....

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ved that in the event of crystallization of the disputed demand of the Revenue and in case of shortfall of funds thereof for repayment by the company, company/promoters would bring the requisite amount of interest free unsecured loan and/or would raise the necessary fund by way of disposal of the company's surplus assets as envisaged in paragraph S of the SS-02. It also directed that the company would settle/pay the income tax dues, if any, which would become payable after sanction/implement .....

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s seized to be a sick industrial undertaking within the meaning of Section 3(1)(O) of SICA and discharged the company from the purview of SICA. Operative part of the direction in the said order read as under: (i) The SBI is hereby relieved from the responsibility as the MA. (ii) The unimplemented provision(s) of the SS-02 for the unexpired period of the Scheme and also the unimplemented provisions of the subsequent order(s) issued by the Board in this regard, if any, would continue to be impleme .....

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e demand thereof was sent to the Company for payment and it was also mentioned that coercive action may be taken to recover the said amount. Such a demand was made on the premise that the net-worth of the company had turned positive and it has ceased to be a sick company. Therefore, having lost the status of a sick company, it was not entitled to the protection under provisions of SICA. 10) Within few days of this demand, the Revenue found from the reports in print media that the company had sol .....

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tion of ₹ 542.70 crores out of which the assessee Company had already received advance consideration of ₹ 60 crores at the time of signing the MOU. Further, the company had also entered into an agreement for development of assessee's land at Hyderabad for construction of Ashoka Golden Mall and Multiplex. The company had not passed on the possession of Vile Parle as development agreement was not signed. Thus, the company had, by this time, converted almost all the immovable proper .....

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g No. 200/2010 before the Board seeking stay of any coercive action proposed to be taken by the Revenue. This application was contested by the Revenue, inter alia, on the ground that since the company had been discharged from SICA vide order dated 29.06.2007, the Board had no jurisdiction left over implementation of the Scheme and the company could no longer enjoy protection under Section 22(1) of SICA. On this application, order dated 09.04.2010 was passed by the Board directing the Revenue not .....

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ding to the Revenue, despite the aforesaid order, the Company invited online forward auction for the land situated in Marol Industrial Area which forced the Revenue to file MA No.448/2010 before the Appellate Authority on 24.08.2010. In this application, the Appellate Authority passed the order suspending the proposed online e-auction. The appeal was ultimately decided by the Appellate Authority on 31.01.2011. With other connected appeals, inter alia, ordering that Income Tax Department could no .....

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ny. The Company had written few letters to the Central Excise Authorities, in the year 2010, stating that their manufacturing operation has become unviable because of fixed overheads and consequently a decision was taken to restructure business by entering into reality business. The company also had filed Misc. Application No. 114/2011 with a prayer to extend the duration of rehabilitation period (originally fixed for eight years) by another one year. Due to the delay caused in implementation of .....

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e not applicable and, therefore, any major modification by way of extension of time, was not permissible. 14) Against the aforesaid order of the Board, the Company filed an appeal before the Appellate Authority. This appeal was, however, dismissed by the Appellate Authority vide orders dated 29/30.06.2011 holding that the Company was not entitled to get the period of rehabilitation scheme extended. It specifically affirmed the finding of the Board that the Company had violated the sanctioned sch .....

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ted regarding the violation of clause 10(f)(b) of the Sanctioned Scheme by the Company entering into an agreement for transfer/development of their property at Ville Parle. According to the Chairman, as per para 9(5)(b) of the sanctioned Scheme, there was a provision for sale or development of any other surplus asset and the plea of the Company regarding extension of time needed a detailed enquiry by the Board. Notwithstanding these observations of the Chairman, who was the dissenting member, ma .....

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tition was, however, dismissed as 'withdrawn' on 05.07.2011 and the High Court gave two months' time for the clearance of the manufactured stock of goods and payment of excise duty on those goods. The order was silent about income tax dues. The reason for which withdrawal was sought is contained in the following portion of the said order of the High Court. We have heard learned counsel for the parties. Learned senior counsel for the petitioner, on instructions, states that he would l .....

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Appellate Authority restraining the Revenue from taking coercive action against the Company for recovery of its dues on the ground that unimplemented provision of the Sanctioned Rehabilitation Scheme for the unexpired period of the Scheme was still under implementation. This reason was no more in existence in view of the aforesaid orders passed by the Board as well as Appellate Authority refusing to give extension to the Company in respect of the sanctioned Scheme. The purport and effect of thos .....

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move the Board for lifting of the bar under Section 22 of SICA. It is a very brief order and the entire reasoning on which the said order is based can be found in the following discussion by the High Court. The violation alleged by the petitioners is broadly that respondent no. 1 has been indulging in sale of assets without defraying the income tax liabilities in consonance with paragraph 9S(b) of the sanctioned scheme. It is the learned counsel's say that the Department had not taken, in pa .....

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impugned orders cannot be faulted, which are, predicated on the factual position at that stage of time. If the grievance is, as is now sought to be urged before us; the appropriate remedy for the petitioner is to move the BIFR for lifting of the bar under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 by articulating before the said forum the factum of alleged violation of the sanctioned scheme. 19) What follows from the above is that the High Court was convinced by .....

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the facts and events noted above, this premise and assumptions are clearly erroneous and contrary to record. 20) In the first instance, it is to be seen that the Scheme had already expired on 31.03.2011. Application for extension of the Scheme was filed before the Board which was dismissed. The reason given by the Company seeking extension was that the implementation of the Scheme was delayed because of the coercive tactics which the Revenue had adopted against the Company. This claim was found .....

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tage that the Company has approached the Board, after withdrawal of its Writ Petition No. 4614 of 2011 on the ground that while withdrawing this petition the High Court had permitted the Company to seek recourse to the Board in view of the observations of the majority opinion of the Appellate Authority. Even this is erroneous. 22) The Appellate Authority dismissed the appeal on merits. In the course of discussion on various aspects and arguments that were raised before the Appellate Authority, t .....

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sures of SS-02, which included rehabilitation measures for the Mumbai unit, it was obligatory on the part of the Company to seek and obtain the prior permission of the Board to close the Mumbai unit, shift its plant and machinery to the Vadodara and engage in reality business. Thus, while rejecting the argument of the Company that there was no violation of the Scheme in dismantling the Ville Parle Unit and selling its land and building, the Appellate Authority took the view that it had altered t .....

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s, as required. By these remarks the Appellate Authority only pointed out the breach committed by the company in not taking prior permission and nowhere permitted the company to resort to the same even now as that opportunity was already lost. 23) It is the aforesaid remarks, advantage whereof was taken by the Company when orders dated 5th July, 2011 were passed in Writ Petition No. 4614 of 2011. Though, the petition was withdrawn, the counsel for the Company made the statement that the Company .....

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this juncture. The filing of such application by the Company before the Board seeking modification is, therefore, totally untenable move on the part of the Company. Such an application is not maintainable in law. 24) When the matter is considered in this hue, keeping in mind the aforesaid backdrop, the impugned order passed by the High Court in the writ petition that was preferred by the Revenue, is manifestly wrong and unsustainable. For the reasons stated above, we are of the view that the San .....

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d under the directions of this Court. It was also agreed that the said sale may be carried out by the monitoring agency, i.e., Canara Bank. The learned senior counsel, however, vehemently questioned the amount claimed by the Revenue in this behalf as it was submitted that the demand of ₹ 761.35 crores on account of income tax dues as made by the Revenue was not correct. On this aspect both the sides made their detailed submissions. 27) By affidavit dated 02.05.2016 filed by Ms. Anita Sinha .....

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re reduced at an amount of ₹ 52.53 crores by April, 2012 itself. It was submitted that in the reply filed by the Revenue to I.A. 6 of 2014 filed by the Company, the latest position of tax demand and status of appeals was mentioned. The Revenue had stated the outstanding of ₹ 635.96 crores (principal amount of tax and penalty ₹ 164.96 crores + interest upto June, 2015 @ 471.01 crores). Referring to the details in the said chart, as per which the demand was calculated by the Reve .....

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included and only that amount which was payable as per the order of CIT (Appeal), is included. 30) Another important submission, which needs consideration, advanced by Mr. Sundaram, learned senior counsel appearing for the Company was that in the Scheme which was approved by the Board, Income Tax Department had agreed to waive interest and penalty and, therefore, it was not permissible for the Department to include the interest and penalty. The particular clause in the Scheme as sanctioned by th .....

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mandatory and not merely recommendatory. Reference was made to the judgment of Delhi High Court in Union of India v. CIMMCO Ltd. & Ors., bearing W.P.(C) No. 626 of 2014 and that of Madras High Court in Commissioner Income Tax-I, Chennai v. M/s. Tube Investments of India Ltd.-I, Chennai, bearing Tax Case (Appeal) Nos. 519 and 521 of 2005. 32) We are not deciding this issue in the present appeal and permit the parties to approach the Board seeking clarification as to what was meant by the word .....

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