ASSISTANT COMMISIONER OF INCOME TAX vs. A.K .MENON CUSTODIAN and ORS

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SPMA/41/1993HC BombayHCBM06000046199323 August 1993Author: HON'BLE SHRI JUSTICE S.N. VARIAVA4 pages
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What did the High Court hold?

The Special Court held that the respondents' submission of nil income was not acceptable at this prima facie stage, especially given the substantial share transactions and dividend income reported by the revenue. The Court found that the respondents' refusal to file any estimate, despite opportunities to inspect records and directions to have accounts prepared by Chartered Accountants, indicated an unwillingness to commit anything on oath or disclose their assets. The Court viewed this as an attempt to delay and avoid disclosure. Consequently, the Court found it preferable to release the amounts claimed by the Income Tax Department. The sum of Rs. 1,30,512/- was made payable subject to the appeal filed by the assessees, and the advance tax was also deemed payable as no estimate was filed. The Court directed the Income Tax Department to adjust dues from cash amounts lying with them and for the Custodian to pay the remaining dues from the respondents' accounts. The Applicant undertook to refund any amounts found not payable, with interest as directed by the Court. This decision was made to avoid prejudice to the respondents and potential penalties.

What were the facts?

The Assistant Commissioner of Income Tax (Applicant) filed an application before the Special Court seeking release of monies towards advance tax for Assessment Year 1993-1994, amounting to Rs. 51,71,229/-, and Rs. 1,30,512/- towards outstanding arrears. The respondents, Mr. A. K. Menon & Ors. (including Respondents 2 to 30), opposed this, primarily arguing that they had no business for the assessment year and thus nil tax liability. The Court had previously directed Respondents 2 to 30 to file an estimate of their income in Form 28A. Despite being given ample opportunity to inspect records and books seized or attached by authorities, these respondents failed to file any estimate, citing lack of accounts. The Court noted that a firm of Chartered Accountants was directed to prepare accounts for these respondents, which was opposed by most of them.

What were the issues?

1. Whether the Court should allow the release of monies towards advance tax and outstanding arrears for Assessment Year 1993-1994, despite the respondents' contention of nil business and nil liability, and their failure to file an income estimate, turning on the provisions of the Income Tax Act and the Special Court Act. Assessee's Contention: The respondents argued that they had no business for the Assessment Year 1993-1994, leading to a nil tax liability. They also contended that it was not possible to file an estimate as their accounts and books were seized or attached, and they lacked access to them. Revenue's Contention: The Applicant (Income Tax Department) submitted that the group had significant transactions in shares, including purchases worth Rs. 44.10 crores and sales worth Rs. 32.88 crores in the first quarter, resulting in an earning of Rs. 13.22 crores. They also noted that the group held shares worth approximately Rs. 600 crores and received Rs. 10 crores in dividends. The Applicant highlighted the respondents' persistent refusal to file any estimates, making it difficult to reject the claim. The Applicant also relied on Section 11(2) of the Special Court Act, which mandates payment of tax liabilities first.

Which sections of the Income-tax Act were involved?

Section 11(2)

AI-generated summary — verify with the full judgment below

• IN THE SPECIAL COURT (TRIAL OF OFFENCES RELATING TO TRANSACTIONS IN SECURITIES ) AT ·BOMBAY MISC. APPLICATION NO. 41 OF 1993 Assistant Commissioner of Income Tax, Central Circle - 31. Vs. Mr. A. K. Menon & Ors. Bala Subramaniam with Mr. A. S. Khan for Rajadhyaksha with Mr. G. R. Joshi i/b P. M. Mithi & Co. for Respondent No. 1. Mr. J. D. Mistry with Mr. Bharat Damodar i/b Kanga & Co. for Respondents 2 to 30 . ORAL ORDER CORAM: HON'BLE MR. JUSTICE S. N. VARIAVA. 24TH AUGUST 1993. [This Application is by the Income Department for release of monies towards advance tax for the Assessment Year 1993-1994. In the claim i& restricted to a sum of R~.51,71,229/- as per the list which is annexed at page 27 of Application. A claim is also made for a sum Rs.l,30,512/- towards outstanding arrears.j was opposed mainly on ground for this Assessment Year there has been no business therefore, there would nil liability. The Court therefore asked Respondents 2 to 30 to file on Affidavit an estimate in Form 28A

of the Income Tax Act. Mr. Mistry sought to contend that it is not possible to file an estimate as Respondents do not have the accounts and their books and assets are seized or attached. To obviate just such submissions, the Court had given these Respondents plenty of time and opportunity to inspect and take copies of all records books either with the Income Tax Authorities or the c. B. I. or the Custodian. In spite of a long time being given, these parties initially failed take inspection. I am informed that recently they have taken inspection. Yet these Respondents refuse file any estimate. It must also be mentioned the Custodian had taken out Applications inter alia praying that these Respondents disclose all their assets. In those Applications an Order is passed t~ directing that1 for all Respondents) accounts prepared by firm/firms Chartered Accountants. Order was passed in spite of serious opposition by all Respondents except Respondents 2, 3, 5, 9, 16 and 17. · It is clear. to that the reason why estimate was not filed before the Income Tax Authorities or before this Court, is because the Respondents or any of them, do not want to commit anything on oath or disclose all their assets. The idea appears to be to stay quiet and let the Income Tax Authorities or C. B.

I. or the Custodian discover whatever they can. The idea appears to be to wait and see what discovered then not disclose anything else. could not be permitted. ~he Court sees no difficulty in proper accounts being taken or prepared and/or estimates filed. This is purposely not done~ Under Income Act penalties might imposed. At this prima facie stage the submission that there would be nil income is not acceptable. As Bal Subramaniam points out in the first quarter itself this group had brought shares Rs.44.10 crores and sold shares Rs.32.88 crores. He submits that they had earned by way purchase and sale Rs.l3.22 crores. He submits that the group holds shares worth approximately Rs.6~00 crores and that they have received dividend Rs.lO crores. This coupled with the insistance of Respondents not to file any estimates makes it difficult to reject the claim of the In my view, it would be preferable at this stage to release the amounts. The sum of Rs.l,30,512/- payable subject to the Appeal filed by Assessees. As no estimate is filed, advance tax also payable. [Under Section 11(2) Special Court Act, tax liabilities have to be paid first. Also Mr. Bala Subramaniam makes a statement

that if it is ultimately found that the amounts or any part thereof are not payable, then to that extent the same will be refunded by the Applicants along with such rate of interest directs. It is clarified that the amounts are released, before finalisation accounts, only on basis of this statement. Thus no prejudice would be caused to these Respondents at the same time possible levy of penalty would avoided.J ~ccordingly Income Department allowed to adjust out of cash amounts each Respondents lying with it the dues respective So far as remaining dues out of sums Rs.l,30,512/- Rs.51,71,229/- claimed are concerned, the Custodian pay the same out of the respective account For this purpose Respondents' Bankers to issue Bankers' cheques per directions Custodian. ThiR Application stands disposed off.) .-ooo-. •

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