KERALA STATE BEVERAGES (MANUFACTORING AND MARKETING) CORPORATION LIMITED vs. PRINCIPAL COMMISSIONER OF INCOME TAX

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WP(C)/41006/2018HC KeralaKLHC01095035201819 December 2018Author: HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU5 pages
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What did the High Court hold?

The Court held that the Ext.P6 order referred to the Ext.P7 office memorandum as the source of power for imposing a stay on a pre-condition. Upon reviewing Ext.P7, the Court found it to be an office memorandum applicable to appeals pending before the Commissioner of Income Tax (Appeals), not the ITAT. Therefore, the PCIT could not take recourse to Ext.P7. The Court noted that the Department could not bring to its notice any statutory power enjoyed by the PCIT to stay proceedings with or without a pre-condition. However, acknowledging the petitioner's plea that the appeal would become infructuous without a stay, the Court, under Article 226 of the Constitution, granted a stay of all further proceedings until the Tribunal decides the appeal. This stay was made conditional upon the petitioner remitting 20% of the disputed tax amount, which was calculated as Rs. 86,01,19,994, within two months.

What were the facts?

The petitioner, Kerala State Beverages (Manufacturing and Marketing) Corporation Limited, had its assessment completed under Section 143(3) of the Income Tax Act. Subsequently, the Department initiated proceedings under Section 263. The petitioner filed an appeal along with a stay petition before the Income Tax Appellate Tribunal (ITAT). Anticipating coercive steps, the petitioner filed an application for stay (Ext.P5). The Principal Commissioner of Income Tax (PCIT), the first respondent, passed an order (Ext.P6) imposing a pre-condition of depositing 20% of the disputed tax to stay coercive proceedings until the appellate authority considered the stay application. The petitioner assailed this Ext.P6 order by filing the present writ petition.

What were the issues?

1. Whether the Principal Commissioner of Income Tax (PCIT) had the power to impose a pre-condition of depositing 20% of the disputed tax for granting a stay on coercive proceedings, based on the Ext.P7 office memorandum, when the appeal was pending before the Income Tax Appellate Tribunal (ITAT)? (Question of law and fact, concerning the scope of Section 263 and the applicability of the office memorandum). Assessee's Contention: The petitioner argued that the Ext.P7 office memorandum applies only to appeals pending before the Commissioner of Income Tax (Appeals) and not before the ITAT. Furthermore, the petitioner contended that the PCIT had no power to pass an order like Ext.P6, as it lacked statutory backing. The petitioner argued that an order without statutory backing cannot affect an individual. Revenue's Contention: The revenue contended that the Ext.P7 office memorandum eminently applies to the situation and that the PCIT has inherent power to pass an order in the nature of Ext.P6.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 263

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU WEDNESDAY,THE 19TH DAY OF DECEMBER 2018 / 28TH AGRAHAYANA, 1940 WP(C).No. 41006 of 2018 PETITIONER: KERALA STATE BEVERAGES (MANUFACTORING AND MARKETING) CORPORATION LIMITED SASTHAKRIPA OFFICE COMPLEX, P.B.NO.2263 SASTHAMANGALAM, THIRUVANANTHAPURAM - 695 010 REPRESENTED BY ITS COMPANY SECRETARY JOHN JOSEPH BY ADVS. SRI.ANIL D. NAIR SMT. ARYA ANIL SMT. NILOOFAR O. NIZAM SRI.R.SREEJITH RESPONDENTS: 1 PRINCIPAL COMMISSIONER OF INCOME TAX 4TH FLOOR, AAYAKAR BHAVAN, KOWDIAR THIRUVANANTHAPURAM - 695 003. 2 INCOME TAX APPELLATE TRIBUNAL COCHIN BEACH - 695 001. SRI. CHRISTOPHER ABRAHAM, SC THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 19.12.2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C).No. 41006 of 2018 2

JUDGMENT The petitioner had its assessment completed under Section 143(3) of the Income Tax Act. Thereafter, the Department initiated proceedings under Section 263 of the Act. Objecting to the Department's invoking Section 263 of the Act, the petitioner filed an appeal along with a stay petition, before the 2nd respondent. As the matter stood posted to 10.01.2019, the petitioner apprehended coercive steps from the authorities and so applied for stay of the proceedings, through the Ext.P5. 2. Responding to the petitioner's Ext.P5 application, the 1st respondent passed the Ext.P6 order. Through that order the authority imposed a pre-condition of the petitioner's depositing 20% of the disputed tax to have the coercive proceedings stayed until the appellate authority could consider the Ext.P5. Assailing the Ext.P6 the petitioner has filed this writ petition.

3.

Sri Anil D Nair, the petitioner's counsel, submits that the 1st respondent has passed the Ext.P6 order supposedly exercising his power under the Ext.P7 office memorandum. According to him, the Ext.P7 applies to appeals pending before the Commissioner of Income Tax (Appeals), but not those before the Tribunal. He has also submitted that, in the first place, the petitioner's Ext.P5 representation is of no consequence, because the 1st respondent has no power to pass an order like the Ext.P6. Thus Sri Nair concludes that once an order lacks a source of power, merely the applicant is inviting that order does not alter the position. In other words, no order without any statutory backing can affect an individual.

4.

Sri Abraham, the learned Standing Counsel for the Department, strenuously contends that the Ext.P7 eminently applies. He also contends that the 1st respondent has inherent power to pass an order in the nature of the Ext.P6. 5. Heard Sri Anil D Nair, the learned counsel for the petitioner, Sri Abraham, the learned Standing Counsel for the Government of India (Taxes).

6.

Indeed, the Ext.P6 order refers to the Ext.P7 office memorandum as the 1st respondent's source of power to order a stay on a pre-condition. On going through the Ext.P7, I reckon that that is an office memorandum that applies to the appeals pending before the CAT (Appeals).

7.

So the 1st respondent cannot take recourse to the Ext.P7. Then essentially, he should have been conferred the power under the provisions of the statute, to stay proceeds with or without any pre-condition. The Department could not bring to my notice any such power being enjoyed by the 1st respondent.

8.

That said, the petitioner's counsel, however pleads that unless the coercive recovery proceedings are stayed, the appeal now pending before the Tribunal will become infructuous. According to him, he has recited Ext.P6 order only on the premise that the authority lacks the power, though the order may have been passed at the very petitioner's behest. According to him, this Court under Article 226 of the Constitution may pass a conditional order as does the first respondent in Ext.P6. 9. Under these circumstances, there shall be a stay of all further proceedings until the Tribunal decides the petitioner's appeal, subject to the condition that the petitioner remits 20% of 430,05,99,970, that is 86,01,19,994, in two months from today. With the above observations, I dispose of the Writ Petition. DAMA SESHADRI NAIDU JUDGE

Appendix — schedule of exhibits
APPENDIX PETITIONER'S EXHIBITS: EXHIBIT P1 TRUE COPY OF THE ORDER OF THE RESPONDENT U/S.263 OF THE ACT DATED 25/09/2018. EXHIBIT P2 TRUE COPY OF THE APPEAL FILED BEFORE THE 2ND RESPONDENT. EXHIBIT P3 TRUE COPY OF STAY PETITION FILED BEFORE THE 2ND RESPONDENT. EXHIBIT P4 TRUE COPY OF THE POSTING NOTICE DATED 10/01/2019. EXHIBIT P5 TRUE COPY OF APPLICATION UNDER SECTION 220(6) FILED BEFORE THE 1ST RESPONDENT. EXHIBIT P6 TRUE COPY OF THE ORDER OF THE 1ST RESPONDENT DATED 6/12/2018. EXHIBIT P7 TRUE COPY OF THE OFFICE MEMORANDUM DATED 31/7/2017 BEARING NO.F.404/72/93-ITCC. RESPONDENTS' EXHIBITS NIL // TRUE COPY // P.A. TO JUDGE SD

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