Case: Director General of Income Tax (Admn.) &amp; Another Vs. M/s. GTC Industries Ltd. &amp; Another

2. Respondent No. 1 (hereinafter referred to as the Company), namely, M/s GTC Industries Ltd. became sick Company sometime in the year 1997 as its net worth had eroded. As per the requirements of Section 15 of The Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as the SICA), it filed reference before the Board of Industrial and Financial Reconstruction (hereinafter referred to as the Board) which was admitted and registered as Case No.17/1997. The Board conducted enquiry into the working of Company to determine whether it had become a sick industrial company and in the process appointed the Managing Director, State Bank of India (MA) (RCB), Mumbai as the Operating Agency (OA) to enquire into and make a report with respect to certain matters which was specified in the orders passed by the Board in this behalf. The Board, on the completion of the enquiry, satisfied itself that Company had become a sick industrial company. A Draft Rehabilitation Scheme (DRS) was prepared by the OA which was submitted to the Board and the Board circulated the said Scheme vide its order dated 14.01.2000. In this DRS, following income tax reliefs were proposed:(a) To exempt from the applicability of the provisions of Section 41(1) of the Income Tax Act, 1961 and to allow carry forward of unabsorbed losses and allowances beyond eight years.(b) To lift attachment order imposed by Income Tax Department against immovable and movable properties including Debtors and Bank Accounts. Thereafter, not to attach any property including movable properties of the company during the rehabilitation period.(c) To grant stay against demand raised by Department but are in dispute before various appellate authorities/Courts.(d) To waive interest and penalty, if any, imposed and not to levy such interest and penalties during the rehabilitation period.(e) To exempt GTC from Capital Gain on sale of surplus land and/or sale of industrial sheds proposed for development on surplus land at Marol.(f) To exempt from TDS against payments to be received by the company.Objection was filed by the appellant against the DRS on 23.03.2001. During hearing dated 29.03.2001, the representative of the appellant stated that the appellant had no objection if the reliefs and concessions sought were not directed to be given but kept for the consideration of the Income Tax Department.3. The Scheme of reconstruction/rehabilitation which was submitted by the OA, after consultation with all the stakeholders and creditors as per the requirement of law, was approved and sanctioned by the Board (hereinafter referred to as thevide order dated 16.02.2002. It may be mentioned here that after the DRS was circulated and before it could be sanctioned, the income tax demand of Rs. 366 crores was intimated by the Income Tax Department (appellant herein) to OA on 01.08.2001. While sanctioning the Scheme on 16.12.2002, the following income tax reliefs were kept in the Scheme:"(a) To consider exemption from the applicability of the provisions of Sections 41(1), 115JB,and 72(3) of the Income Tax Act, 1961 and to allow carry forward of Unabsorbed Losses and allowances beyond eight years.(b) To consider waiving interest and penalty, if any, imposed and not to levy such interest and penalties during the rehabilitation period.(c) To consider exempting GTC from Capital Gain on sale of surplus land and/or sale of industrial sheds proposed for development on surplus land at Marol and/or sale of any other surplus assets.(d) To consider exempting GTC from TDS against payments to be received by the company."Besides this, under the head General Terms and Conditions in Para 10(k) of the Rehabilitation Scheme, the Board directed with regard to the income tax dues as under:"10(k): The Income Tax Department would lift the attachment orders imposed by them against immovable and movable properties of GTC including debtors and bank accounts and thereafter not to attach any property including movable properties of the company during the rehabilitation period without prior consent of BIFR. The recovery proceedings against demands raised by Income Tax Department against disputed liabilities shall remain suspended and refunds due to company, if any, would not be adjusted against such demands."4. The said relief was not envisaged under the head reliefs and concessions asked from CBDT in Para 9(Q) and such direction was given under the head General Terms and Conditions, without consent of the appellants required under Section 19(2) of SICA. Further, in Para 6(t) of the Sanctioned Rehabilitation Schemethe Board referred to the assumptions of the projected profitability Statement at Annexure II of theThe assumptions of profitability, to be considered part of the Sanctioned Scheme, included inter alia the following:(i) The sales would comprise of own manufacture of cigarettes and cigarettes purchased from convertors.(ii) That thecapacity utilization would be in the range of 54% to 75%.Further, as per the projected profitability statement, the projected sales comprised of cigarettes only, and that as per the projected fund flow statement, there was to be no decrease in the fixed assets. It was further laid down in para 10(f) under the head General Terms and Conditions that "the company would not undertake any major modernization/diversification program/ capital expenditure except normal capital expenditure during the period of implementation of the rehabilitation scheme without specific prior permission of the MA/BIFR."Besides this, Board further directed the Promoters in para 9 (S)(b) of the Sanctioned Rehabilitation Scheme "to meet any shortfall in the cash flow projections or any contingency not conceived in the Scheme. In this regard, promoters may raise moneys by way of development of industrial estate and sale thereof of surplus land available at Marol, Mumbai or sale/development of any other surplus assets."

Court's reasoning:
In our considered view, the impugned orders cannot be faulted, which are, predicated on the factual position at that stage of time. If the grievance is, as is now sought to be urged before us; the appropriate remedy for the petitioner is to move the BIFR for lifting of the bar under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 by articulating before the said forum the factum of alleged violation of the sanctioned scheme.19.What follows from the above is that the High Court was convinced by the reason that the question as to whether the Company had indulged in sale of assets unauthorisedly and in violation of para 9(5)(b) which is yet to be taken by the Board.The High Court also proceeded on a palpably wrong presumption that the sanctioned Scheme was still under operation and, therefore, bar under Section 22 of the SICA applied. For this reason, it directed that the only remedy left for the Revenue was to approach the Board for lifting of the bar under Section 22 of the SICA. From the facts and events noted above, this premise and assumptions are clearly erroneous and contrary to record.20. In the first instance, it is to be seen that the Scheme had already expired on 31.03.2011. Application for extension of the Scheme was filed before the Board which was dismissed. The reason given by the Company seeking extension was that the implementation of the Scheme was delayed because of the coercive tactics which the Revenue had adopted against the Company. This claim was found to be hollow and incorrect. The Appellate Authority had upheld this order of the Board, albeit by a majority of 2:1. Thus, no Scheme was in operation. Another significant aspect which is to be kept in mind is that way back in the year 2007, the net worth of the Company had turned positive and it was no more a sick Company. Thus, the Revenue had right to recover arrears of income tax after 2007 and in any case after 31.03.2011 when the Scheme expired.21. It may be pertinent to mention at this stage that the Company has approached the Board, after withdrawal of its Writ Petition No. 4614 of 2011 on the ground that while withdrawing this petition the High Court had permitted the Company to seek recourse to the Board in view of the observations of the majority opinion of the Appellate Authority. Even this is erroneous.22. The Appellate Authority dismissed the appeal on merits. In the course of discussion on various aspects and arguments that were raised before the Appellate Authority, the Appellate Authority noted that the Company had taken steps to close a unit which was rehabilitated under the Sanctioned Scheme and to sell the property thereof without obtaining the prior approval of the Board. It further observed that when those steps were taken, jurisdiction of the Board over the Company continued under Section 18(9) and Section 18(12) of SICA. In the opinion of the Appellate Authority, since the Company had availed itself of and was continuously availing the beneficial measures ofwhich included rehabilitation measures for the Mumbai unit, it was obligatory on the part of the Company to seek and obtain the prior permission of the Board to close the Mumbai unit, shift its plant and machinery to the Vadodara and engage in reality business. Thus, while rejecting the argument of the Company that there was no violation of the Scheme in dismantling the Ville Parle Unit and selling its land and building, the Appellate Authority took the view that it had altered the essential ingredients of theas a result of which that Scheme stood mutilated and, therefore, seeking extension of such Scheme was untenable. While discussing this aspect, the Appellate Authority, repelling the argument, also remarked as under:"12. The only option available to the company was to seek modification of the scheme under Section 18(5) of SICA which had to be considered through appropriate procedure prescribed under SICA for seeking fresh commitments from the concerned parties, as required."By these remarks the Appellate Authority only pointed out the breach committed by the company in not taking prior permission and nowhere permitted the company to resort to the same even now as that opportunity was already lost.23. It is the aforesaid remarks, advantage whereof was taken by the Company when orders dated 5th July, 2011 were passed in Writ Petition No. 4614 of 2011. Though, the petition was withdrawn, the counsel for the Company made the statement that the Company would like to pursue the course suggested by the majority view of the Appellate Authority in its order dated 29th June, 2001 for seeking modification of the Scheme by approaching the Board. No such suggestion or permission at all was given. It is stated at the cost of repetition that the aforesaid observations were made while dealing with the particular argument of the Company. That did not mean that the aforesaid observations gave the Company any liberty to approach the Board even at this juncture. The filing of such application by the Company before the Board seeking modification is, therefore, totally untenable move on the part of the Company. Such an application is not maintainable in law.24. When the matter is considered in this hue, keeping in mind the aforesaid backdrop, the impugned order passed by the High Court in the writ petition that was preferred by the Revenue, is manifestly wrong and unsustainable. For the reasons stated above, we are of the view that the Sanctioned Schemehas outlived its life which came to an end on 31st March, 2011. the Revenue is, thus, entitled to recover its dues.We may mention at this stage that during the course of arguments, learned senior counsel appearing for the Company stated that the Company was ready to settle the dues of the Revenue and for this purpose it was agreeable for the sale of its Ville Parle land under the directions of this Court. It was also agreed that the said sale may be carried out by the monitoring agency, i.e., Canara Bank. The learned senior counsel, however, vehemently questioned the amount claimed by the Revenue in this behalf as it was submitted that the demand of Rs. 761.35 crores on account of income tax dues as made by the Revenue was not correct. On this aspect both the sides made their detailedThis is the revised figure given on 02.05.2016. As pointed out above, in the special leave petition filed by the Revenue, a demand for sum of Rs. 761.35 crores was made.29. On the other hand, it is the say of the Company that the demands were reduced at an amount of Rs. 52.53 crores by April, 2012 itself. It was submitted that in the reply filed by the Revenue to I.A. 6 of 2014 filed by the Company, the latest position of tax demand and status of appeals was mentioned. The Revenue had stated the outstanding of Rs. 635.96 crores (principal amount of tax and penalty Rs. 164.96 crores + interest upto June, 2015 @ 471.01 crores). Referring to the details in the said chart, as per which the demand was calculated by the Revenue in respect of different Assessment Years, an endeavour was made by the learned senior counsel for the Company to show that even those demands were included where the Company had succeeded and the appeals filed by the Department were pending before the Income Tax Appellate Tribunal. It was, however, clarified by Mr. Maninder Singh, learned ASG appearing for the Revenue that no doubt appeals have been filed by the Revenue which are pending before the ITAT, but the disputed amount has not been included and only that amount which was payable as per the order of CIT (Appeal), is included.30. Another important submission, which needs consideration, advanced by Mr. Sundaram, learned senior counsel appearing for the Company was that in the Scheme which was approved by the Board, Income Tax Department had agreed to waive interest and penalty and, therefore, it was not permissible for the Department to include the interest and penalty.It was argued that the words to consider are to be treated as mandate. It was submitted that the expression to consider in similar Schemes approved by the Board has been interpreted by various Division Benches of High Courts to mean that the relief granted is mandatory and not merely recommendatory. Reference was made to the judgment of Delhi High Court in Union of India v. CIMMCO Ltd.Ors., bearing W.P.(C) No. 626 of 2014 and that of Madras High Court in Commissioner IncomeChennai v. M/s. Tube Investments of IndiaChennai, bearing Tax Case (Appeal) Nos. 519 and 521 of 2005.32. We are not deciding this issue in the present appeal and permit the parties to approach the Board seeking clarification as to what was meant by the words to consider i.e., whether the Board meant that it was mandatory on the part of the Revenue to waive the interest and penalty or it was only recommendatory and, therefore, it was upto to the Department to agree or not to agree to the said request. The jurisdiction of the Board, whenever such application is filed, would be limited to the aforesaid aspect alone and the Board shall decide the issue within the period of two months. Otherwise, we make it clear that as the Scheme has lapsed no further proceedings of any nature are to be entertained by the Board including the application for modification filed by the Company and pending before the Board.33. The Income Tax Department shall be entitled to take steps for attachment of the properties of the Company, including Ville Parle land as per the provisions of the Income Tax Act and shall be entitled to sell the same. If there are any secured creditors in respect of these properties, such attachment and sale shall be subject to the rights of those creditors. Out of the proceeds, the Principal amount of tax due to the Income Tax Department and even the admitted excise dues shall be paid to the Revenue. Insofar as payment of interest and penalty is concerned, that would be dependent upon the decision which the Board would give.