THE DEPUTY COMMISSIONER OF INCOME TAX vs. SANTOSH ABHAY NAROTTAM LEGAL HEIR OF ABHAY NAROTTAM (SINCE DECEASED)

CORAM: N.J.JAMADAR, J. JUDGE, SPECIAL COURT

I have heard Mr Chatterjee, Senior Advocate for the Applicant and Mr. Gandhar Raikar, learned Counsel for the Custodian – Respondent No.2. 8. Under the Act, the attached assets of the notiied party are to be utilized for discharge of the liabilities of the notiied party in the manner ordained by sub- Section (2) of Section 11 of the Act. All revenues, taxes and rates due from the SSP 3/6 notiied persons to the Government or any local authority command irst priority. This priority in payment for taxes under clause (a) of sub-Section (2) of Section 11 has been interpreted to mean the liability to pay the principal taxes for the ‘priority period’ only. Penalty and interest etc., on unpaid taxes fall in clause (c). The expression “taxes due” refers to taxes as inally assessed, as enunciated by the Supreme Court in the case of Harshad Shantilal Mehta V/s. Custodian and Ors.1

In the case at hand, there is material to indicate that as against the aggregate principal income tax demand of Rs.199,38,96,650/-, the Custodian pursuant to the orders of the Court has released an amount of Rs.77,15,19,522/- to the Income Tax Department on furnishing an undertaking. The outstanding demand towards the principal taxes for the priority period is far in excess of the assets to the credit of the attached accounts of the notiied party. There is no material to show that the liability to pay the principal tax for the priority period has been either contested or the assessment orders are stayed.

Mr. Raikar, learned Counsel for the Custodian, would urge that the prayer seeking release of the amount is pre-mature as the stage of inal distribution has yet not arrived. Attention of the Court was invited to an order passed by this Court in Misc. Application No.15 of 2022 dated 21 April 2023 wherein I had declined to release the amount in favour of Income Tax Department on ad-hoc basis, holding that the 1 (1998) 5 SCC 1 SSP 4/6 exercise of inal distribution of the assets of the notiied party towards the discharge of the liabilities under Section 11 of the Act was warranted.

It would be suice to note that the facts in the said case were materially distinct. This Court had noted that the notiied party therein had been insisting upon the Income Tax Department to give efect to the orders passed by this Court and the Supreme Court in the matter of determination of the tax liability. Thus, it was held that the question as to whether a situation of ascertaining the correctness of the assessment orders for the reasons indicated by the Supreme Court in paragraph 35 in the case of Harshad Mehta (supra) had arisen, warranted consideration. That is not the case at hand.

Having regard to the quantum of assets to the credit of the attached accounts of the notiied party, in the case at hand, and the huge outstanding principal tax demand for the priority period, in my view, a sum of Rs.1.50 Crores can be ordered to be released in favour of the Income Tax Department – Applicant subject to furnishing an undertaking to bring back the said amount along with interest at such rate as may be directed by this Court.

Hence, the Application stands partly allowed in terms of prayer clauses (a) and (b) of the Custodian Report No.11 of 2023. 14. The Custodian Report No.11 of 2023 is, thus, made absolute in terms of prayer clauses (a) and (b). SSP 5/6

The amount of Rs.1.50 Crores be released to the Income Tax Department - Applicant upon the Income Tax Department furnishing an undertaking to bring back the aforesaid amount along with interest at such rate as may be directed by this Court.

The Misc. Application as well as Custodian Report No.11 of 2023