GROWMORE LEASING AND INVESTMENTS LIMITED vs. THE ASSISTANT COMMISSIONER OF INCOME TAX

The Assistant Commissioner of ] Income Tax, ] Central Circle 4(1), 19 th Floor, ] Air India Building, Nariman Point, ] Mumbai – 400 021. ]

The Custodian, ] Office of the Custodian, ] 10 th Floor, Nariman Bhavan, ] Nariman Point, Mumbai – 400 021. ] …. Respondents ALONG WITH MISCELLANEOUS APPLICATION NO.40 OF 2017 M/s. Growmore Leasing and Investments Ltd., ] Having its office at 32, Madhuli, ] Dr. Annie Besant Road, Worli, ] Mumbai – 400 018. ] .… Applicant Versus

The applicants have contended that the Special Court Act has overriding effect and shall prevail notwithstanding anything inconsistent in any other law or any order or decree of the court, tribunal or other authority. Section 13 does not speak of any exceptions. It has a non obstante provision, which must prevail over other provisions of law. It is, therefore, contended by Mr. Mehta on behalf of the applicants that the Special Court Act has the power to override provisions of the Income Tax Act, wherever there is a conflict. Mr. Mehta submitted that the possibility of such a conflict was considered by the Special Court as far back as on 2 nd July 1993, when in Miscellaneous Application No.107 of 1993, the Special Court observed that the Central Government and the Income Tax Department must resolve the conflict arising out of the fact that under Section 11 of the Special Court Act, the Income Tax Department has first priority, but the ultimate distribution of the properties cannot be made without permission of the Special Court and the court cannot distribute the property unless a person is proved not guilty and the court has a complete picture of the assets before it. In the meantime, the Income Tax Department was vigorously pursuing recovery of 4/21 the amounts assessed. The court had then observed that the Government of India may consider restraining the Income Tax Department from levying interest and penalties on notified parties at that stage. Mr. Mehta contended that the law in this respect has been laid down in Miscellaneous Application No.107 of 1993 vide order dated 20 th February 1995. Respondent No.2-the Custodian had filed an appeal before the Supreme Court challenging the aforesaid decision and the Supreme Court had, vide order dated 26 th August 1996 passed in Civil Appeal Nos.5147, 5225, 5325, 5326 and 6880 of 1995, ordered release of Rs.193.71 crores to respondent No.1-Income Tax Department. This order came to be passed on the basis of a statement tendered by the Attorney General on behalf of the Union of India and counsel for the Custodian. The court, after hearing the concerned parties, including the State Bank of India, the Standard Chartered Bank and the notified party (Harshad S. Mehta), directed that the amounts specified in column (3) of Annexure-I handed over to the court should be paid over by the Custodian to the Income Tax Department till hearing of these appeals. The order further specified that the payment would be subject to the condition that the Secretary (Revenue) in the Ministry of Finance files an undertaking that the Union of India would, within four weeks, of being called upon to do so by the Supreme Court or by the Special Court, bring back the monies or part thereof, along with the interest at a rate not less than 18% p.a., as the Supreme Court or the Special Court may direct, from the date of receipt 5/21 until the date of return thereof. The order was passed without prejudice to the rights and contentions of the parties. The amounts claimed in these applications are those specified in column (3) of Annexure-1. Mr. Mehta submitted that, pursuant to the order of the Supreme Court dated 26 th August 1996, an affidavit-of-undertaking dated 3 rd April 2000 has been filed, which is annexed as 'Exhibit-D' to the application.

Mr. Mehta submitted that, in accordance with the aforesaid order of the Supreme Court, a total sum of Rs.58,68,00,000/- was paid to the Income Tax Department on behalf of the applicant in Miscellaneous Application No.39 of 2017. Similarly, in the case of the applicant in Miscellaneous Application No.40 of 2017, a sum of Rs.4,09,00,000/- has been paid on or about 13 th November 1996. I may observe here that the payment of these amounts has not been disputed.

Mr. Mehta submitted that, in its order dated 20 th February 1995, the Special Court has already observed that the demands for tax for the assessment year 1991-92 would not qualify for distribution under Section 11(2)(a) of the TORTS Act, 1992. Even though an appeal was pending against the said order and no stay was operating, the Income Tax Department had sought release of Rs.33.60 crores on ad-hoc basis. Although the amount sought would only fall due under Section 11(2)(c) of the TORTS Act, that is on the basis that the Tax 6/21 Department could not claim priority, but only as a residual amount, if any, due.

Relying on the Judgment in the case of Harshad S. Mehta (supra), Mr.Mehta relied upon the observations made in paragraph No.39 of that Judgment, which requires the Special Court to examine the claim of the Income Tax Department for the taxes due under Section 11(2)(a) of the TORTS Act in the light of the Judgment and decide whether any amount paid to the Income Tax Department under interim orders requires to be returned and shall pass an appropriate order in the light of the undertaking. Mr. Mehta, therefore, submitted that the demands of the Revenue for the assessment year 1991-92 would not qualify for payment under Section 11(2)(a) and, therefore, the Custodian and the Income Tax Department were required to come to the court and offer refund. For 19 years, this has not been done by the Revenue or the Custodian. Mr.Mehta, therefore, submitted that the applicants have been denied the benefits of these amounts. That several of the assessments are unsustainable and the amounts paid over by the applicants are now required to be refunded, along with the interest @ 24% p.a., as contemplated by the Supreme Court, Mr. Mehta submitted that the demands are illegal. They are not final demands. However, monies are released to the Income Tax Department. They are not brought back and therefore, great prejudice has been caused to the notified parties. However, despite this position, these monies have been directed to be paid over. Mr.Mehta submitted that the diverse amounts have been released, 7/21 pursuant to the orders of this court and those of the Supreme Court. However, these amounts are now repayable, pursuant to the order dated 13 th February 2002 passed in Civil Appeal No.7572 of 1999. Relying upon the said order of the Supreme Court, Mr. Mehta submitted that the Revenue is liable to refund the excess tax received by it through T.D.S. Perusal of the order reveals that the persons making payments to notified parties were eligible for Tax Deduction at Source (T.D.S.), even though the payments are made after 6 th June 1992, when the window period closed and the tax deducted would be paid to the Income Tax Department by the payer or the Custodian, as the case may be. The Income Tax Department was also entitled to appropriate the amounts of T.D.S. received only towards the tax liability for the window period (1 st April 1991 to 6 th June 1992) and is liable to refund the balance or excess amount, if any, along with interest, as provided under Section 244(1). The Income Tax Department was required to periodically furnish to the Custodian the statements of account. In this respect, Mr. Mehta submitted that despite these directions, no such statements of account have been provided.

Mr. Mehta then submitted that respondent No.1 is in breach of the directions of the court and the Custodian has supported the Revenue without examining the applicable law and payments have been made to the Revenue in violation of the aforesaid Judgment. The Income Tax Department has not been 8/21 refunding amounts, although substantial relief has been granted to the applicants. Mr.Mehta has relied upon a chart, which is annexed as 'Exhibit-J' to the application, in which he has relied upon computation of the income tax refund and interest thereon, which, according to him, was due as on 30 th June 2014. He submitted that at all stages, the applicants had opposed the demand on the ground that the demands were illegal and that once the payment is made, Revenue will then litigate and deny refund, which will lead to great prejudice to the interest of the notified parties. However, it is stated that the grievance made on all these grounds has been held against him. He relies upon a copy of an order dated 3 rd October 2003 passed in Miscellaneous Application No.272 of 2003 in this behalf. He further submitted that the Revenue is holding excessive T.D.S. collected by it; yet, the amounts are not being refunded by it. He relies upon the order dated 27 th April 2017 passed by the Supreme Court in Civil Appeal No.6326 of 2010, in which an interim order has been passed directing Mr. Mehta to handover copies of 91 refund orders passed by the Income Tax Appellate Tribunal, which were not complied with by the Revenue and which directed re-assessment of the income on the basis of the Books of Accounts and this is yet to be done. It is on this basis that the Revenue has finally conceded to pay back a sum of Rs.192,54,00,000/- to the applicants. This, however, does not include the sum of Rs.33,60,09,778/-, which is now sought in this application. 9/21

Although necessary details were furnished to the Revenue on 1 st May 2017, the applicants state that verification is yet to be completed by the Revenue. He further submitted that, by order dated 2 nd May 2017, the Revenue was directed to refund the amount to the Custodian, along with interest @ 18% p.a., within 12 weeks from the date of the order, but this has not been complied with. Mr. Mehta has submitted that, under Section 240 of the Income Tax Act, the Revenue was bound to return the money on its own. It was the duty of the Assessment Officer to do so. However, even after fresh assessment, which was completed on 29 th December 2006, credit for the sum of Rs.33,60,00,000/- has not been given and the amount has not been refunded. According to Mr. Mehta, the Revenue has been incorrectly claiming that Rs.65,61,95,842/- is payable by the applicants for the assessment year 1991-92. He, therefore, submits that this assessment is incorrect and that the amount is liable to be refunded with interest by virtue of the undertaking. Mr. Mehta has submitted that it was the duty of the Custodian also to ensure that the amounts are collected, since he is required to ensure that the assets of the notified persons are secured; especially since these assets are said to be attached. There is no vesting of the property of the notified persons in the Custodian, unlike in the case of insolvents. Apart from the duties cast upon him by the Special Court Act, the Custodian is required to deal with the attached properties in the manner that the Special Court directs. He is also empowered to cancel contracts that have been fraudulently entered into or 10/21 defeating the purpose of the Special Court Act and he is then liable to act in accordance with the directions and, therefore, he was bound to take such steps, as are required in law, to collect the amounts due.

Mr. Mehta relies upon a note forming Exhibit-H to the application in Mehta’s case, the Supreme Court had clearly observed that the Special Court shall examine the claims of the Income Tax Authorities in respect of the taxes due under Section 11(2)(a) and decide whether any amount requires to be returned. He, therefore, submits that the appropriate orders be passed directing the Revenue.

In response, Mr. Benny Chatterjee, learned Senior Counsel appearing on behalf of the 1 st respondent, has relied upon the contents of the affidavit-in- reply dated 7 th September 2017 filed by one Pankaj Mehta, Deputy Commissioner of Income Tax, Central Circle-4(3). He submits that the amounts released by the Special Court and the Supreme Court, which are, no doubt, (1995) 5 SCC 200 11/21 subject to those undertakings, that Mr. Mehta has referred to and relied upon; however, according to Mr. Chatterjee, the current application is barred by the law of limitation, even assuming that any amount was refundable. Mr. Chatterjee submitted that the Supreme Court had directed release of money for the non-statutory period vide an order dated 26 contended that the assessment orders for the assessment year 1991-92 were passed under Section 144, r/w. Section 147 of the Income Tax Act and the 12/21 Income Tax Appellate Tribunal had set aside those orders and restored the matter to the file of the Assessing Officer for de novo assessment and after giving full hearing to the assessee, the assessment orders were successfully carried the matters in appeal and orders giving effect to the orders passed in appeal had already been issued. However, having preferred an appeal to the Income Tax Appellate Tribunal, the said Tribunal has set aside the orders of the CIT (Appeals) and restored the matters for fresh consideration by the CIT (Appeals) and that no refund has been so determined.

Mr. Chatterjee further submits that the CIT Appeals are pending before the Income Tax Appellate Tribunal for disposal and in the present case, there is no conflict about the provisions of the Income Tax Act, 1961 and the TORTS Act. That wherever monies are due, refunds could be made, but this is a case where refund would constitute gross violation of the Income Tax Act. The Income Tax Department, it is contended, ought not to be directed to issue only refunds since that will amount to an interim distribution and cannot be treated as final, since the Revenue Authorities will be entitled to exhaust all possible challenges. It is a matter of record that the applicant has challenged the orders passed by the Revenue Authorities and those challenges, which are pending, will be dealt with in accordance with the provisions of the law. Mr. Chatterjee submitted that the issues that are now pending before the Income Tax Authority need not engage the attention of this court as well, since the Special Court cannot enter upon the 13/21 determination of the liability of tax and this is a well settled principle, which has appeal over the assessment of taxes. There is no question of re-opening of tax assessment by the Special Court. In that light, it was contended that there is no merit in the contentions of the applicant. Mr. Chatterjee submitted that in the affidavit of the Deputy Commissioner of Income Tax, all these aspects have been thoroughly analyzed and have been gone into. The applicant, it was submitted, was already in appeal before the CIT (Appeals) or the Income Tax Appellate Tribunal and no purpose is served by approaching this court, which cannot determine the tax assessment. That the entire attempt of the applicant is to (1998) 5 SCC 1 14/21 challenge the order passed by the Revenue Authorities and in that view of the matter, no refund could be ordered. Mr. Chatterjee, however, conceded that credit for TDS will be given but that could be done wherever the applicant is entitled to TDS credit being given. Mr. Chatterjee disputed the interest rate that has been claimed, which he submitted was without any basis. He relied upon the contents of the affidavit of Deputy Commissioner of Income Tax, Central Circle- 4(3), Mumbai, dated 7 th September 2017 in this respect.

The applicant has since relied upon an affidavit-in-rejoinder dated 13 th October 2017, in which Mr. Mehta highlighted the fact that the Custodian has deliberately acting in the interest of the Revenue, which is evident from the fact that the Custodian has not supported these applications; despite large amounts have to be recovered from the Income Tax Department, all of which would obviously for the credit of the Notified Parties of the account of the Custodian. The Revenue Authorities have misrepresented facts to the Supreme Court and sought release of Rs.33.60 crores for demand of Assessment Year 1991-1992, though it did not fall under any priority under Section 11(2)(a) of the TORTS Act. He submitted that the denial of refund due to the applicant results from failure / reluctance to act upon the provisions of the Income Tax Act; particularly Sections 240 and 244(1)(A) of the Income Tax Act, which would apply to the facts of this case. These were the large amounts due and refundable 15/21 to the applicant for several years, but the orders giving effect were deliberately not being passed and as a consequence, refund orders were not being processed. This, he submitted, was in violation of Sections 240 and 244(1)(A) of the Income Tax Act.

According to Mr. Mehta, the earliest claim for refund would be from 14 th October, 1996. The first claim for refund arose in 1996 and has been falling due thereafter. Interest has also not been paid on these amounts. Mr. Mehta contended that the interest claim is not evident immediately because orders giving effect have not been issued and this has deliberately been withheld by the Assessing Officer. Despite having called upon the Assessing Officer to issue the order in September 2017, no steps have been taken. According to Mr. Mehta, the revenue regime is indulging in tax terrorism. Although the Central Government is said to have directed expeditious issuance of refund orders wherever due and also enhanced the rate of interest to be offered, the Government has also directed Assessing Officer not to treat assessee as adversaries. However, in the instant case, that is precisely what is being done. Mr. Mehta submitted that the Revenue Authorities are behaved in high handed manner/pattern. In Civil Appeal No.6326 of 2010, Supreme Court was pleased to direct the Revenue to refund Rs.192.54 crores with interest @ 18% p.a. However, only because the Custodian and Revenue had not acted in time, as a 16/21 result, the objects of the TORTS Act were defeated and the distribution is being delayed. He submitted that Revenue had defaulted in complying with the orders of the Supreme Court in Civil Appeal No.6326 of 2010 and, in fact, had underpaid a sum of Rs.453.84 crores. That some of the notified parties have now filed interim applications. Mr. Mehta has alleged that Revenue's approach is malafide and displays the animus against Harshad S. Mehta and his family members and the entities controlled by them. It is submitted that there is no occasion to behave in this fashion. He relies upon the contents of the letter dated 25 th July 2017 and 2 nd August 2017, calling upon the Revenue to disclose the the computation and break-up of the refund amount of Rs.329.71 crores made on 25 th July 2017 in compliance with the directions of the Supreme Court. This break-up he submitted was not being furnished by the Income Tax Department to the applicant-Custodian. I have seen no reason for not providing the break- up of refund of amount by the Income Tax Authorities to the Custodian and the notified parties. Mr. Mehta alleged contempt by the Revenue Authorities of the Judgment of the Supreme Court. Mr. Mehta proceeded to deny the contentions of the Revenue in his affidavit-in-rejoinder, but essentially reiterating his very claim in the applications. He also submitted that in case of three entities, which were de-notified, i.e. Priti N. Aggarwal, Naresh Kumar Aggarwal and Brisk Capital Market Services Limited, the Revenue waived interest and penalties on those entities; not only did they waived interest and penalty, they also refunded 17/21 the amount. A particular reference to the Revenue's contention that Miscellaneous Petition No.2 of 2017 being pending, the present applications need not be decided is not a tenable one and there is no need to link the two applications. He reiterated that the original assessment was done on 30 th March 1994 as a best judgment assessments. At the relevant time, the books were not ready and taking full advantage of this situation, unjustified additions were made.

Mr. Mehta further submitted that the amount of Rs.33.60 crores, which is now sought, could have been made part of the earlier orders passed by the Supreme Court, but were not and it was the duty of the Custodian to take up these issues with the Revenue Authorities. The Supreme Court has vide order dated 2 nd May 2017 and 8 th May 2017 passed in Civil Appeal No.6326 of 2010 issued appropriate directions to the Revenue Authorities to give effect to the orders of the Income Tax Appellate Tribunal and directed assessment of income on the basis of the Books of Accounts and that direction would cover the case of the applicant in the present applications. However, despite passage of time, Revenue has not complied. The applicant, therefore, seeks appropriate directions.

I have heard learned counsel for the parties at length. The Supreme Court in Civil Appeal No.6326 of 2010, after hearing parties, directed the Income Tax 18/21 Authorities to pay a sum of Rs.192.54 crores to the Custodian, with interest @ 18% p.a. and further directed that, in 90 orders already passed by the ITAT, the Revenue to re-frame the assessment, by taking into account evidence of Books of Accounts, in twelve weeks. The Custodian was also directed to take steps to recover the assets of the applicant. I am not concerned in this application with the rest of the directions directing the Custodian to disburse the amount to the Banks in question. However, this application is dated 17 th May 2017. The order in the civil appeal was passed also in May, 2017. Mr. Mehta has not offered any explanation as to why the relief sought herein was not agitated in Supreme Court in that civil appeal.

It is seen that the applicant – Growmore Leasing and Investment and was not party to the various appeals before the Income Tax Authority, which led to the civil appeal being filed. The applicant in the above applications has described the amounts of Rs.33,60,09,778/- and Rs.4,09,00,000/- as being released by the Hon'ble Supreme Court under order dated 26 th August 1996 passed in Civil Appeal No.5326 of 1995 with Civil Appeal No.5147 of 1995 for the assessment year 1991-92 and therefore refundable, as not falling under Section 11(2)(A), and that the Revenue has not given full credit to the tax deducted at source. These are the aspects which cannot be agitated before the Special Court. As correctly pointed out by Mr. Chatterjee, in paragraph No.34 in the case of Harshad S. Mehta (supra), the Supreme Court has clearly held that 19/21 the Special Court cannot sit in an appeal over assessment of taxes and there is no question of reopening any assessment before this court and the tax liability of a notified party would have to be determined by the machinery in accordance with the relevant tax laws.

As a part of Mr. Mehta's submission, he has contended that the Revenue was incorrectly claiming that the sum of Rs.65,61,95,842/- was payable for the Assessment Year 1991-92. He submitted that the assessment was not correct and that the amount was liable to be refundable by virtue of the undertaking. This aspect cannot be gone into by this court, since clearly this is pertaining to the assessment of tax and in the light of what Mr. Chatterjee has submitted in the affidavit-in-reply, the relief sought in these applications directing the Income Tax Authorities to pay the amounts claimed through the Custodian with interest, cannot be directed by this court. The fact that the Custodian was empowered to take the steps to recover the amounts due and examine materials on the basis of the assessment of tax done does not mean that the Custodian can direct the Revenue Authorities to make payments, which is still a matter of contest. The amounts claimed in these applications are not admitted as due and payable by the Revenue. If the amounts had been admitted, the Custodian could have been directed to collect these amounts; however, such is not the case at hand. The claims of the Revenue cannot be assessed by this court, nor can such assessments be challenged in this court. Section 11 of the TORTS Act deals with 20/21 the discharge of liabilities by empowering this court to direct the Custodian for disposal of the properties under attachment and liability of the Revenue is to be discharged on priority under Section 11(2)(a). The factual aspects that needs to be gone into in the present applications cannot be agitated before this court. Merely because the provisions of the TORTS Act have overriding effect, the Special Court is not clothed with the powers to assess the liability of the taxes. The only power the court has been conferred with and as set out in the case of Harshad S. Mehta (supra) is that of scaling down the demand in a fit case. These applications do not fall within that bracket.

Having come to that conclusion, I am of the view that no relief can be granted in these miscellaneous applications in terms of the order of the Supreme Court. The applicant will have to wait till for completion of due process and it is always open for the applicant to agitate its case before the Income Tax Authorities under the Income Tax Act. In that view of the matter, these applications cannot succeed. I accordingly pass the following order :- (i) Both the miscellaneous applications are dismissed. (ii) No costs. [A.K. MENON, J.] 21/21