TMI Blog2016 (12) TMI 356X X X X Extracts X X X X X X X X Extracts X X X X ..... ch occasion. Having regard to these peculiar facts, a direction is issued to the respondents not to charge interest or penalty on the capital gains tax amounts in the circumstances of the case for the duration that the matter remained pending in these proceedings and all prior proceedings. The writ petition is allowed in terms of the directions in the preceding paragraph even while upholding the liability to pay capital gains tax. - W. P. (C) 5036/2016 - - - Dated:- 5-12-2016 - S. Ravindra Bhat And Deepa Sharma, JJ. For the Petitioner : Sh. S. Ganesh, Sr. Advocate with Ms. Suruchii Aggarwal, Advocates For the Respondents : Sh. D.R. Jain, Sr. Standing Counsel ORDER Mr. Justice S. Ravindra Bhat 1. The issue that arises in the present Writ Petition is whether the benefit of exemption from Capital Gains Tax can be denied to an undertaking sought to be revived by the Board for Industrial and Financial Reconstruction (BIFR), by giving unwarranted importance and weightage to the fact that the Petitioner's net worth has turned positive without considering that the Company's carried-over losses as on 31.03.2015 amounts to ₹ 887.23 lakhs and the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany from capital gains tax on sale of the assets, the said Clause has not been included in MS09. The Bench therefore directed that a new para as para 10.7 be inserted in MS09 to read as under: Para 10.7 Directorate of Income Tax (RECOVERY) (1) To consider to grant extension of time for set off the carry forward losses upto 31-03-2013 as against 31-03-2009. (2) To consider to exempt the company from Capital gains tax on sale of assets 3. This order was made after hearing the advocate appearing for the DIT (Recovery). The petitioner highlights that the DIT (Recovery) had no grievance against the said direction of the BIFR dated 09.11.2009 and, therefore, did not prefer any appeal against the said direction, but allowed the same to become final. The DIT (Recovery), therefore, clearly accepted the position that if the facts and circumstances warranted, the Petitioner company would be entitled to exemption from capital gains tax in respect of assets transferred by it and such exemption should be granted to it. Further to the direction of BIFR, the Joint Director of Income Tax (Recovery) passed an order dated 29.11.2012 rejecting the request for exemption from capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Appellate Authority for Industrial and Financial Reconstruction ('AAIFR'). That order requires the Income Tax Department to accept or reject the plea for grant of a concession or relief in terms of the Scheme presented before the BIFR. The AAIFR observed that the Department should have only considered the proposed concession and taken its own decision. That order does not by any means suggest that when there are actual figures available at the time of the decision to be taken by the Department, reliance can be placed on the projections of the Petitioner which were submitted at the time of submission of the scheme before the BIFR. In any event, it does not support the plea of the Revenue that the difference between the actuals and the projected figures should be absorbed by the Petitioner. 3. Consequently, while setting aside the order dated 29thNovember 2012 W.P(C) No. 1568/2015 passed by the Directorate of Income Tax ('DIT') Recovery, the Court requires the DIT (Recovery) to once again consider the proposed scheme and the question of entitlement of the Petitioner to concession as sought for by the Petitioner. A fresh decision based on the actual figur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BIFR by the company. It is therefore clear that company's stand seeking relief on the ground of achievement of poor results by it by mars: than 50% of the projected figures is not tenable legally as well astechnically. It is a settled principal that one cannot be given benefit of one's own default. 9.2 It is further noted that the coin actual figures i.e. upto F.Y. 2014-15, financials for which have, been audited adopted and income tax returns filed, were not furnished by the company and were obtained from the field authorities. A perusal of it these shows that the company is running very well in all respects, operational as Well as financial. As on 31.02.2015,company is having huge surplus cash/fund flow, Company has also failed to show/wove that any tax has been levied/leviable on it in respect of said capital gain. Still, however, tax on capital gain, if at all leviable, is much below the surplus cash available with the company, payment of which is not going to affect it adversely as even after payment of such tax, company will be left with substantial surplus funds available with it. 9.3 Thus, the legal/actual/factual position shows that the company cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sanctioned scheme in view of the capital gains tax waiver contemplated. The capital gains tax liability of ₹ 331.68 lakhs would substantially imperil the financial health of the petitioner and push it into an uncontrollable spiral of indebtedness from which it would lapse into sickness. It is argued that the BIFR scheme did not envision the denial of capital gains tax waiver or exemption; that was integral to the modified scheme. In fact, the assets sold (for which capital gains tax liabilities arose) were for the satisfaction of the company s other liabilities and to place it in the direction of financial recovery. The denial of the requested exemption is neither in the interests of the company, nor for that matter, in the interests of the revenue, because the alternative, i.e payment would result in bankrupting the company, deprivation of employment and deprivation of future revenues that would accrue as taxes. 8. It is argued on behalf of the revenue that the profitability of the company has been steadily on the rise; it is submitted, in this context that the total income reported (before setting-off unabsorbed depreciation and losses) was: ₹ 92,47,346 for 2013-14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss to the tune of ₹ 19.58 crores relating to AY 1998-99 to 2011-12. The projected profit of the assessment year in the rehabilitation period, i.e. AY 2009-10 to 2013-14 amounted to ₹ 29.34 crores. The respondent revenue permitted stay of brought forward business losses against the projected profit for 8 years and allowed set-off of balance forward business losses of ₹ 5.48 crores, i.e. ₹ 19.58 crores (-) ₹ 14.09 crores of AY 2009-10 and 2011-12 within the normal period of three years. The order of the Joint Director of Income Tax, however, denied the relief in respect of capital gains tax on the ground that it could be set-off of against unabsorbed depreciation so that the respondent s fear of unviability in the event of outgoing of tax could be addressed. 10. This Court s order of 15.02.2016 directed the Director of Income Tax to consider the proposed claim and the question of petitioner s entitlement to concession on the basis of the actual submission figures submitted by it. The income tax authorities were at liberty to elicit all necessary fresh figures and documents in this regard. The impugned order is premised on the opinion that the actua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... litation reveal a different story, i.e. that the company has funds and that there was less than half the projected profits for a certain period having regard to the modified scheme. Now, as far as the later aspect is concerned, the income tax authority s view cannot be faulted. It is based upon objective assessment of materials on record. As to the other aspect, i.e. that the company is in possession of funds and as of late, shown profitability, the Court has in the previous part of its judgment noted that profitability has indeed been on the increase. In these circumstances, the question is whether rejection of request for exemption from payment of central government taxes (of ₹ 3.31 crores), is justified or an arbitrary one. There is no denial of the fact that the company has shown profitability. Its liability to redeem the preference shares is in the future. In the circumstances, the possibility of its incurring losses in the event of payment of capital gains tax cannot be ruled out. That such losses might arise could also be within the normal course of any normal business enterprise s functioning. In the circumstances, the view of the respondents that exemption from payme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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