C.W.P. No. 2431 of 2009 (1) IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH C.W.P. No. 2431 of 2009 Date of Decision: 02.12.2011 AXIS Bank Ltd. ........Petitioner Versus The Commissioner of Income Tax, Ludhiana and another .......Respondents CORAM: HON'BLE MR. JUSTICE HEMANT GUPTA HON'BLE MR. JUSTICE G. S. SANDHAWALIA Present: Mr. A.M.Punchhi, Advocate, for the petitioner Mr. Rajesh Katoch, Advocate, for the respondents. HEMANT GUPTA, J.(Oral) Challenge in the present writ petition is to the threat of the respondents in selling the secured assets, land measuring 10 kanals, of M/s Sambhav Textile Limited, Ludhiana (for short “The Company”). The Company availed credit facilities from the petitioner and mortgaged land measuring 10 kanals situated at Village Khwajeke Tehsil and District Ludhiana to secure the loan advanced to it. Since the Company defaulted in making payments amounting to Rs.8,95,80,690.51 ps. as on 30.6.2006, the petitioner initiated the proceedings under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short `the Act'). The petitioner also served possession notice dated 9.2.2007 to the borrowers and to the general public before taking the possession of the properties. The petitioner took possession in terms of the said possession notice and put the property to sale during the pendency of the present writ petition. C.W.P. No. 2431 of 2009 (2) A perusal of the written statement shows that the property i.e. land and building of the factory was provisionally attached under Section 281-B of Income Tax Act, 1961 on 14.12.2007 with the prior approval of the Commissioner of Income Tax-III, Ludhiana. It was on the basis of said order, the revenue claimed a preferential right to realise its dues being crown debt. In the written statement it is pointed out that the assessment was completed under Section 144 of the Income-tax Act, 1961 for a total sum of Rs.2,45,67,820/- on account of difference in the net profit between the audited balance sheet filed with the Department and with the Registrar of the Companies and Rs.52,86,610/- on account of profit earned on unaccounted sales. The penalty proceedings were also initiated and finalised on 18.6.2008. It is asserted that department is well within its right to recover the income tax dues from the assessee as the dues of Government of India. Learned counsel for the petitioner relied upon judgment of Hon'ble Supreme Court in UTI Bank Ltd. v. The Deputy Commissioner of Central Excise, Chennai, (Writ Petition No. 39536 of 2005 decided on 20.12.2006), to contend that the secured creditor has a preferential rights as against the crown debt. The crown debt has priority only amongst unsecured creditors. Reference has also been made to the judgment of Hon'ble Supreme Court in Union of India and others v. SICOM Ltd. and another, (2009)2 Supreme Court Cases 121. Learned counsel for the respondents has relied upon Rule 93 of Schedule II of Income Tax Act, 1961, which contemplates that nothing in the said Schedule shall affect any provisions of the Act, where under the said Act, the tax is a first charge upon any asset. However, learned counsel for the respondents could not refer to any provision in the Income Tax Act, 1961 whereby the income-tax dues can be treated as the first charge on C.W.P. No. 2431 of 2009 (3) the assets of the assessee. Learned counsel for the respondents has also referred to the judgment of Hon'ble Supreme Court in Central Bank of India v. State of Kerala and others, (2009)4 SCC 94, wherein the provision of the Act; Kerala General Sales Tax Act, 1963 and that of the Recovery of Debts to the Banks and Financial Institutions Act, 1993 came up for consideration. In the Kerala Act, the dues of the sales tax were given priority. The question raised was the priority of debts under the State Act vis-a-vis the other statutes for the recovery of debts to the financial institutions. In the present case, there is no provision in the statute which gives preferential rights to the dues of the State under the Income Tax Act as a preferential right. A Single Bench of this Court, Union of India v. Punjab Financial Corporation decided, 2007(3) RCR (Civil) 520, while examining controversy in has held as under:- “……..Ratio that is available from various cases referred in this regard is that when a promise is made for recovering of taxes as land revenue, then it is not provision of providing for priority. Such a provision has to be made providing as precedence that it would have priority to claim a preference. Accordingly, the submission made by counsel for the petitioners-Union of India that it would have priority over the debts of the Financial Corporations on the basis of provisions of Section 11 of the Central Excise Act and Rule 230 (2) of the Central Excise Rules, cannot be accepted. The result of the above discussion is that the plea raised by the petitioners in regard to its priority of recovering excise dues or the other such like dues under the Excise Act cannot be up-held either on the applicability of doctrine of priority of Crown debts or that any such priority has been so created under any of the provisions of the Excise Act or Rules or the Customs Act. As a result, the writ petitions filed by the Union of India are dismissed. As a necessary consequence, the writ petitions filed by the Financial Corporations, and other such writ petitions, seeking quashing of the order of attachment etc. are allowed.” C.W.P. No. 2431 of 2009 (4) Later a Division Bench in Punjab State Industrial Development Corporation v. Union of India (C.W.P. No. 3875 of 2005 decided on 30.1.2007) followed the said judgment and concluded as under:- “For the reasons aforementioned, this petition succeeds. We declare that the PSIDC have a preferential right to recover its dues as it is a secured creditor having prior registered charge by virtue of mortgage and equitable mortgage over the moveable and immoveable assets of M/s Jay Enn Castings. The charge of the Central Excise Department is preferable only to unsecured creditors”. In view of the said fact, the petitioner as a secured creditor has preference over the dues of the Income Tax Department in respect of the secured assets. Therefore, the present writ petition is disposed of with the direction to the petitioner to remit any excess amount, after adjusting its dues, to the respondents being preferential creditor amongst unsecured creditors. (HEMANT GUPTA) JUDGE (G.S. SANDHAWALIA) 02.12.2011 JUDGE reena/ds