TMI Blog2008 (12) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to be released in terms of the decrees which are obtained by the banks and the non-release of the said amount would amount to miscarriage of justice. - However, the fact that decrees have been obtained by the banks in respect of the certain dues of Harshad S. Mehta could not be disputed by the Income Tax Department. It also could not be disputed by the Income Tax Department that the amounts for which decrees have been obtained by the banks have become final and binding. Appellant (revenue) is justified while contending that if the banks have a right, title or interest in the attached property on the date of the notification under Section 3 of the Act for which decrees have been obtained and if the banks are claiming that the said amount has wrongly been included in the income of the notified party for the statutory period, then the banks are required to show the nexus between the said decreed amount and the amount which is included in the income of the notified party for the statutory period. Since this is a case of finding of facts and issues, matter remitted back to special court to decide the issues after giving an opportunity to the parties to place all the relevant doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties, only if, permitted by this Court. 3. The issue which is particularly sought to be raised by the appellant, Income Tax Department by filing the present appeal is whether the Special Court constituted under the aforesaid Act was right in scaling down the priority tax demand by delving into the merits of the assessment orders and by deciding the matter as an appellate authority which directions according to the appellant are in violation of the decision of this Court in the case of Harshad S. Mehta v. Custodian Ors. [(1998) 5 SCC 1]. 4. The subject matter of the present appeal relates to the security scam of Harshad S. Mehta and the period relevant to the assessment years 1992-1993 and 1993-1994. The Assessing Officer completed the assessment proceedings for both the aforesaid years in respect of Harshad S. Mehta after gathering information from many sources and after giving an opportunity to the assessee to furnish details/explanations on the same. The Income Tax Officer passed an assessment order assessing the income for the assessment year 1992-1993 at Rs. 2014 crores and for the assessment year 1993-1994 at Rs.1396 crores. The assessment orders were chall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt seeking for direction to scale down the priority demand on the ground that there was gross miscarriage of justice in making an order of assessment in the case of the notified party, namely, Harshad Mehta. In the said applications reference was also made to the decrees on admission passed in favour of the banks against Harshad S. Mehta which according to the banks have become final and binding. Relying on the said decrees it was contended on behalf of the banks that passing of decrees prove that the concerned money which are assessed as income in the hands of Harshad S. Mehta as his income was, in fact, money belonging to the banks and therefore there is a miscarriage of justice as the Income Tax Department has considered the said amount/sum to be the income of Harshad Mehta. It was also submitted that miscarriage of justice also crept in, in respect of, additions on account of oversold securities, unexplained stock and unexplained deposits in banks etc. The aforesaid applications were heard by the Special Court wherein the Income Tax Department refuted the aforesaid submissions that there has been any miscarriage of justice in making the order of assessment in the case of Harsh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eletion of the name of respondent No. 7, namely, State Bank of Saurashtra from array of parties as the said bank was acquired by respondent No. 1, State Bank of India under Notification No. G.S.R. 589 (E) dated 13.08.2008. In view of the aforesaid position, both the applications which were filed for deletion of the name of respondent No. 7 in the appeals are allowed. Ordered accordingly. 12. Mr. G.E. Vahanvati, the Solicitor General of India appearing for the Income Tax Department submitted that the order of the Special Court is perverse as the Special Court while scaling down the figures of Rs. 1688 crores, with respect to the decreed amount in favour of the banks, has failed to even consider the fact that whether or not the said amounts which have been decreed in favour of the bank were actually included in the income of the assessee/notified person for the Statutory period. It was further submitted that unless it was demonstrated and established by the banks that there is a nexus between the amounts which have been decreed in their favour and the amount which has been included in the income of the assessee/notified person for the statutory period, the said amount cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 13. On the other hand, Mr. K.K. Venugopal, the learned senior counsel appearing for the respondent No. 9, SCB supported the judgment and order of the Special Court. Negating the abovesaid claims of the appellant, it was submitted by the learned senior counsel that the decrees in the favour of the banks were with respect to siphoning of funds from the bank and not on account of the oversold securities. As per the learned senior counsel the assessing officer has placed reliance on Annexure - M2 as comprising a list containing such oversold securities and accordingly added the amount into the income of Harshad Mehta. It was further submitted that the department, merely on the fact that the assessing officer has credited an amount of Rs. 601.22 crores in favour of SBI while arriving at the figure of 1080 crores, has come to the conclusion that the decrees for the entire amount of Rs. 1688 crores are on account of over sold securities, which is ex-facie wrong and misconceived and thus the entire contention that there is an duplication is fanciful. In support to the said submission it was submitted that a bare perusal of the said Annexure M-2, which is neither a trading account nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any tax assessment before the Special Court as the same has to be determined under the mechanism provided under the relevant tax law, but that it is within the authority and jurisdiction of the Special Court to decide as to how much of the liability would and could be discharged out of the funds in the hands of the Custodian and that in coming to the said decision it will also be within the authority and jurisdiction of the Special Court to direct for making payment either in full or in part. It was further submitted that for this purpose the Special Court can examine whether there is any fraud, collusion or miscarriage of justice in assessment proceedings and that since in the present case the revenue has raised a fanciful claim of an alleged income of the assessee, to the tune of Rs. 3400 crores, on the basis of "Best Judgment" assessment without disclosing material thereof there has been miscarriage of justice. The learned counsel in support of their contention placed reliance on the observations made by this Court in paragraph 35 of the abovementioned decision of this Court in Harshad S. Mehta v. Custodian Ors. (Supra) wherein it was held that where the assessment is base ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of the notification. (4) The property attached under sub-section (3) shall be dealt with by the Custodian in such manner as the Special Court may direct. (5) The Custodian may take assistance of any person while exercising his powers or for discharging his duties under this section and Sec. 4." The Special Court has jurisdiction, under Section 7 of the Act, exclusively to hear and decide prosecutions in respect of offences under the said Act, that is to say, offences relating to transactions in securities after 1-4-1991 and on or before 6-6-1992. By reason of the amendment of the said Act and the inclusion of Sections 9-A and 9-B, the Special Court is invested with civil jurisdiction in regard to such transactions. Section 11 of the Act provides the manner in which the liabilities are required to be discharged. The said section reads as under: "Section 11. Discharge of liabilities. -- (1) Notwithstanding anything contained in the Code and any other law for the time being in force, the Special Court may make such order as it may deem fit directing the Custodian for the disposal of the property under attachment. (2) The following liabilities shall be paid or discha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, this Court held that before the Special Court proceeds to make an order under Section 11 (1), the said court must be fully satisfied that the property which is attached and is being disposed of is the property belonging to the notified person. If any person other than the notified person has any share, or any right, title or interest in the attached property on the date of notification under Section 3 of the Act that right of a third party cannot be extinguished. After having held thus this Court proceeds to observe as follows in paragraph 13: "13. The directions, therefore, for disposal under Section 11(1) can be given only after the Special Court has satisfied itself that the property under attachment is the property which belongs to the notified person. The directions for disposal can only be in respect of the right, title and interest of the notified person in the attached property. If, therefore, any application is filed before the Special Court by a third party claiming the property so attached and/or for releasing the right, title and interest of a third party in the property from attachment, the Special Court will have to decide the application before proceeding un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Special Court Act, inter alia, is as far as practicable, to safeguard the funds to which the banks and financial institutions may be entitled, and to ensure that these funds are not done away with, there are provisions for attachment, ascertainment of claims and distribution of funds. However, before the liabilities of a notified per-son to banks and financial institutions can be discharged, Section 11(2)(a) requires the tax liability of the notified person to be paid. In this context the tax liability can properly be construed as tax liability of the notified person arising out of transactions in securities during the "statutory period" of 1-4-1991 to 6-6-1992. If, for example, any income tax is required to be paid in connection with the income accruing to a notified per-son in respect of transactions in security during the "statutory period", that liability will have to be paid before the funds are made available to the banks and financial institutions. Similarly, in respect of any property which is attached, if any rates or taxes are payable for the "statutory period" those rates and taxes will have to be paid before the proceeds of the property are distributed to banks and fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be examined by the Special Court. 35. But the Special Court can decide how much of that liability will be discharged out of the funds in the hands of the Custodian. This is because the tax liability of a notified person having priority under Section 11(2)(a) is only tax liability pertaining to the "statutory period". Secondly payment in full may or may not be made by the Special Court depending upon various circumstances. The Special Court can, for this purpose, examine whether there is any fraud, collusion or miscarriage of justice in assessment proceedings. The assessee who is before the Special Court, is a person liable to be charged with an offence relating to transactions in securities. He may not, in these circumstances, explain transactions before the Income Tax authorities, in case his position is prejudicially affected in defending criminal charges. Then, on account of his property being attached, he may not be in a position to deposit the tax assessed or file appeals or further proceedings under the relevant tax law which he could have otherwise done. Where the assessment is based on proper material and pertains to the "statutory period", the Special Court may not reduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson are, along with revenues, cesses and rates entitled, for the statutory period, to be paid first in the order of priority and in full, as far as may be, depending upon various circumstances. (iii) The 'taxes due' refer to 'taxes as finally assessed'. The tax liability can properly be construed as tax liability of the notified person arising out of transactions in securities during the "statutory period" of 1-4-1991 to 6-6-1992. (iv) The priority, however, which is given under Section 11(2)(a) to such tax liability only covers such liability for the period 1-4-1991 to 6-6-1992. Every kind of tax liability of the notified person for any other period is not covered by Section 11(2)(a), although the liability may continue to be the liability of the notified person. Such tax liability may be discharged either under the directions of the Special Court under Section 11(2)(c) or the taxing authority may recover the same from any subsequently acquired property of a notified person or in any other manner from the notified person in accordance with law. (v) The Special Court can decide how much of the tax liability will be discharged out of the funds in the hands of the Custodia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that if any amount is found due and payable by the banks towards amount advanced by it as loan to Mr. Harshad Mehta, in that event the right of the bank to the extent of the said amount, must be held to be the existing right of the bank on the property which is attached. It also cannot be ignored that the said amount could not have been assessed in the hands of Harshad S. Mehta as his income, for the banks continued to have an existing right on the aforesaid amount which is required to be released in terms of the decrees which are obtained by the banks and the non-release of the said amount would amount to miscarriage of justice. However, the fact that decrees have been obtained by the banks in respect of the certain dues of Harshad S. Mehta could not be disputed by the Income Tax Department. It also could not be disputed by the Income Tax Department that the amounts for which decrees have been obtained by the banks have become final and binding. But then, it was submitted that the taxes due have been ascertained and arrived at in terms of the provisions of the Act and that the banks have failed to establish by producing the relevant documents on record that the said amount, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are raised in the present appeal a finding on the said issues and questions would be mandatory and the same cannot be dispensed with under any circumstances. It was submitted by the learned senior counsel appearing for the respondents that at this point the matter should not be remanded back to the Special Court for a finding on the said issues and questions and the said finding should also be given by this Court. We considered the said submission. But we find that it would not be possible for us to give any finding on such disputed questions of fact without the same having been looked into by the Special Court after giving opportunity to the parties to file all relevant documents and papers in support of their contention relating to the aforesaid two issues. Even otherwise, neither the decrees in favour of the banks nor the documents with respect to the suits filed by the banks which indicate the claims of the banks in the suits have been placed before us. Therefore we are not in a position to give any conclusive finding at this stage. 28. In the absence of the relevant documents neither would it be possible nor would it be appropriate for us to give a finding on the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said amount is upheld and will not be disturbed. 32. It is needless to say that the orders of disbursement made during the pendency of the disputes between the parties cannot be said to be final and the same will have to be interim in nature and would finally get settled and take shape on the determination of the final liability after final adjudication of the disputes by the appropriate forums. 33. In the light of the aforesaid observations and directions and till a decision is taken with regard to the aforesaid issues which are remanded back to the Special Court we direct that the said amount which was directed to be deposited by the Income Tax Department with the Custodian may not be refunded. We therefore set aside the directions of the Special Court, except to the extent mentioned in para 31 and remit the entire matter and claims of the parties to be decided afresh in terms of the observations made in this order. We also make it clear that none of the observations made in this order would be construed as any observations made by this Court on the merit of the claims. We request the Special Court to decide the aforesaid issues as expeditiously as possible preferably ..... X X X X Extracts X X X X X X X X Extracts X X X X
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