Case Law Details
Ruchi Infrastructure Ltd. Vs State of Gujarat (Gujarat High Court)
Mr. Tushar Hemani, the learned counsel appearing for the writ applicant submits that the stay application has also been filed way back in the July, 2020. However, according to Mr. Hemani, no orders have been passed on the stay application. In the meantime, the order came to be passed on 05.10.2020 attaching the current bank account of the writ applicant maintained with the Bank of Baroda, under Section 44 of the VAT Act. Prima facie, it appears that the issue raised has been answered by the eCoordinate Bench of this Court in the case of Automark Industries (I) Ltd. Vs. State of Gujarat [2015] 64 Taxmann.com 104 (Gujarat).
Any action to recover taxes adopting coercive means is not permissible till the petitioner’s application for stay under Section 220(6) of the Act is disposed of.
Therefore, the action of the Assessing Officer in attaching the petitioners’ bank accounts under Section 226(3) of the Act as well as subsequent withdrawal of the attached amounts from the bank accounts is without jurisdiction and bad in law. The petitioners have a statutory right to its stay application being heard and disposed of before the Revenue can adopt any coercive proceedings on the basis of the Notice of demand under Section 156 of the Act issued to the assessee. This action on the part of the Assessing Officer, if permitted, would lead Section 220(6) of the Act becoming redundant.
The attachment of the Current Account No. 053211001532 held with the Dena Bank (now merged with the Bank of Baroda) is ordered to be lifted. The writ applicant is permitted to operate the said Bank Account. The appeal preferred by the writ applicant against the assessment order shall be heard and decided on its own merits.
It is pointed out by the learned senior counsel that the stay application preferred by the writ applicant is pending as on date before the Appellate Authority. Till the stay application is not decided and appropriate order is not passed, no coercive steps shall be taken towards the recovery of the tax pursuant to the order of assessment.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs;
“(A) quash and set aside the impugned assessment order dated 24.03.020 passed by the adjudicating authority (copy annexed herewith and marked hereto as Annexure-”A”);
(B) pending admission, hearing and final disposal of this petition, stay the implementation and operation of the impugned assessment order dated 24.03.2020 passed by the adjudicating authority (copy annexed herewith and marked hereto as Annexure “A”);
(C) pending admission, hearing and final disposal of this petition, direct the Respondents herein not to take any coercive steps towards recovery of demand raised pursuant to passing of the impugned assessment order darted 24.03.2020 (copy annexed herewith and marked as Annexure-”C”);
(D) pending admission, hearing and final disposal of this petition, direct the Respondents not to lift the bank attachment imposed on Current Account No.053211001532 held with Dena Bank (now merged with Bank of Baroda0 and permit the Petitioner to use the said bank account;
(E) any other and further relief deemed just and proper be granted in the interest of justice;
(F) to provide for the cost of this petition.”
2. On 11.01.2021, this Court passed the following order;
“1. We have heard Mr. Tushar Hemani, the learned Sr. Counsel assisted by Ms. Vaibhavi K. Parikh, the learned counsel for the writ applicant and Mr. Trupesh Kathiriya, the learned AGP for the State Respondents.
2. The short point falling for our consideration is, whether the Assessing Authority can issue a notice of demand and pass an order under Section 44 of the Gujarat Value Added Tax Act, 2003 (for short “the VAT Act”) attaching the bank account of the assessee in a case in which the assessee has filed an appeal together with a stay application against an order of assessment ?
3. In the case on hand, somewhat similar has occurred. It appears that against the order of assessment passed by the Assessing Authority, the writ applicant has filed an appeal before the First Appellate Authority.
4. Mr. Tushar Hemani, the learned counsel appearing for the writ applicant submits that the stay application has also been filed way back in the July, 2020. However, according to Mr. Hemani, no orders have been passed on the stay application. In the meantime, the order came to be passed on 05.10.2020 attaching the current bank account of the writ applicant maintained with the Bank of Baroda, under Section 44 of the VAT Act. Prima facie, it appears that the issue raised has been answered by the eCoordinate Bench of this Court in the case of Automark Industries (I) Ltd. Vs. State of Gujarat [2015] 64 Taxmann.com 104 (Gujarat).
5. We could have disposed of this writ application today itself having regard to the settled position of law, however, Mr. Kathiriya, the learned AGP makes a request that he may be granted some time to seek appropriate instructions in the matter.
6. Let Notice for final disposal be issued to the respondents, returnable on 13.01.2021. Having regard to the settled position of law, the respondents would be well advised if they deem fit to revoke the attachment in the meantime. On the returnable date, notify the matter on top of the Board. It is clarified that no amount shall be appropriated from the current bank account of the writ applicant to the State Treasury.”
3. We have heard Mr. Tushar Hemani, the learned senior counsel assisted by Ms. Vaibhavi Parikh, the learned counsel appearing for the writ applicant and Mr. Trupesh Kathiriya, the learned AGP appearing for the State-respondents.
4. The order passed by this Court dated 11.01.2021, referred to above, is self-explanatory. Mr. Kathiriya, the learned AGP, with his usual fairness, would submit that he has gone through the entire matter and the issue raised in this writ application is no longer res integra in view of the decision rendered by a Coordinate Bench of this Court in the case of Automark Industries Ltd. vs. State of Gujarat, (2015) 64 taxmann.com 104 (Gujarat). On the same point, there is a direct decision of the Bombay High Court also in the case of UTI Mutual Fund vs. Income-Tax Officer, reported in (2012) 19 taxmann.com 250 (Bom.). Hon’ble Justice Dr. D.Y. Chandrachud (as His Lordship then was), speaking for the Bench, held as under;
“9. At the present stage, it would be necessary for the Court to clarify that the issue in these proceedings is confined to whether the Revenue should be permitted to enforce the demand of Rs.9.63 crores and to take coercive steps under Section 226(3) in the form of a garnishee notice which has been issued to the bankers of the petitioner. The Court is not called upon to adjudicate at this stage on the merits of the rival contentions. From the record before the Court however it now emerges as an admitted position that the demand against the Trust is sought to be enforced against the petitioner on the basis of the provisions of Section 177(3). The Petitioner has not been independently assessed and the issue which falls for determination is whether the petitioner has made out a substantial prima facie case to seek protection against coercive proceedings at this stage pending an appeal filed by the Trust against the assessment made in respect of the Trust. Sub-section (3) of Section 177 provides that where a business which has been carried on by an association of persons has been discontinued, every person who was at the time of such discontinuance or dissolution a member of the association of persons, shall be jointly and severally liable for the amount of tax, penalty or other sum payable and all the provisions of the Act, so far as may be, shall apply to any such assessment or imposition of penalty, or other sum. Prima facie, the submission of the petitioner that the Trust itself cannot be regarded as being an association of persons finds support from a judgment of a Division Bench of this Court in Commissioner of Income Tax Vs. Marsons Beneficiary Trust.1 The Division Bench of this Court in that case held that the beneficiaries of a trust cannot be construed as having set up the trust nor had they authorised the trustees to carry on business. The beneficiaries who are named in the trust as recipients of the income of the trust cannot be considered as an association of persons. Therefore, ruled the Division Bench, the trustees also cannot take on the character of an association of persons. The judgment of the Division Bench was followed subsequently by another Division Bench of this Court in L.R. Patel Family Trust v. Income Tax Officer2. We are indicating the nature of the controversy 1. (1991) 188 ITR 224 2. (2003) 262 ITR 520 making it expressly clear that we are not rendering any conclusive determination of the Court on the merits of the issue which will arise in the appeal which has been filed by the trust and which, the Court is informed, is pending before the Commissioner (Appeals). The second submission which has been urged on behalf of the petitioner, based on the provisions of Section 61, is equally a matter which would require careful consideration at the appellate stage. As we have noted earlier, the submission of the petitioner is that under Section 61, all income arising to a person by virtue of a revocable transfer of assets is chargeable to income tax as the income of the transferor. Under Section 63(a)(i) a transfer is deemed to be revocable if it contains any provision for the re-transfer directly or indirectly of the whole or any part of the income or assets to the transferor. The submission of the petitioner is that if at all, an assessment could have only been made in the hands of the petitioner as the transferor of a revocable trust, in which event the income would be exempt under Section 10(23D). Whether the submission should be accepted is again a matter which would have to be determined in the course of the appellate proceedings arising from the order of assessment. The petitioner has intervened before the appellate authority. In our view, the Revenue has made an unfortunate and hasty attempt to make a recovery of the demand which has been imposed on the trust pursuant to the order of assessment, against the petitioner without enabling the petitioner to take reasonable recourse to the remedies available in law. As we have noted earlier, the petitioner received the letter of demand dated 29 February 2012 on 7 March 2012. On the very same day, the petitioner moved an application for stay before the Assessing Officer. The next day, 8 March 2012, was a public holiday. The petitioner moved the CIT on 9 March 2012 with a request for intervention in the matter. The petitioner received a communication recording that the application had been disposed of, only on 13 March 2012. In the mean time a garnishee notice dated 12 March 2012 was addressed to the bankers of the petitioner calling upon them to deposit an amount of Rs.26.70 crores. Administrative directions for fulfilling recovery targets for the collection of revenue should not be at the expense of foreclosing remedies which are available to assessees for challenging the correctness of a demand. The sanctity of the rule of law must be preserved. The remedies which are legitimately open in law to an assessee to challenge a demand cannot be allowed to be foreclosed by a hasty recourse to coercive powers. Assessing Officers and appellate authorities perform quasi-judicial functions under the Act. Applications for stay require judicial consideration. Rejecting such applications without hearing the assessee, considering submissions and indicating at least brief reasons is impermissible. The judgment of the Division Bench of this Court in KEC International Ltd. Vs. B.R. Balakrishnan3, lays down guidelines in regard to the manner in which applications for stay should be disposed of. The parameters which were laid down by the Division Bench presided over by Hon’ble Mr. Justice S.H.Kapadia (as the Learned Chief Justice of India then was) are as follows:
“(a) While considering the stay application, the authority concerned will at least briefly set out the case of the assessee.
(b) In cases where the assessed income under the impugned order far exceeds returned income, the authority will consider whether the assessee has made out a case for unconditional stay. If not, whether looking to the questions involved in appeal, a part of the amount should be ordered to be deposited for which purpose, some short prima facie reasons could be given by the authority in its order.
(c) In cases where the assessee relies upon financial difficulties, the authority concerned can briefly indicate whether the assessee is financially sound and viable to deposit the amount if the authority wants the assessee to so deposit.
(d) The authority concerned will also examine whether the time to prefer an appeal has expired. Generally, coercive measures may not be adopted during the period provided by the statute to go in appeal. However, if the authority concerned comes to the conclusion that the assessee is likely to defeat the demand, it may take recourse to coercive action for which brief reasons may be indicated in the order.
(e) We clarify that if the authority concerned complies with the above parameters while passing orders on the stay application, then the authorities on the administrative side of the Department like respondent No.2 herein need not once again give reasoned order.
The above parameters are not exhaustive. They are only recommendatory in nature.”
Unfortunately these guidelines are now being breached by the Revenue. In a subsequent decision in Coca Cola India P. Ltd. Vs. Addl. CIT4, another Division Bench of this Court, while deprecating the conduct of the Revenue in ignoring the parameters laid down in KEC International Ltd. in disposing of stay applications also noted that the practice of attaching bank accounts even before communicating the order passed on the stay application was high handed. The Court expressed the hope that the Revenue shall ensure that such instances do not occur in future. The caution which was addressed by the Division Bench in Coca Cola India has again not been followed. In N. Rajan Nair v. ITO5, the Kerala High Court observed thus:
“In exercising his power, the Income-tax Officer should not act as a mere tax gatherer but as a quasi judicial authority vested with the power of mitigating hardships to the assessee.”
These are, we may say so with respect, sage observations which must be borne in mind by the assessing authorities. Consistent with the parameters which were laid down by the Division Bench in KEC International and the observations in the judgment in Coca Cola, we direct that the following guidelines should be borne in mind for effecting recovery:
1. No recovery of tax should be made pending
(a) Expiry of the time limit for filing an appeal;
(b) Disposal of a stay application, if any, moved by the assessee and for a reasonable period thereafter to enable the assessee to move a higher forum, if so advised. Coercive steps may, however, be adopted where the authority has reason to believe that the assessee may defeat the demand, in which case brief reasons may be indicated.
2. The stay application, if any, moved by the assessee should be disposed of after hearing the assessee and bearing in mind the guidelines in KEC International
3. If the Assessing Officer has taken a view contrary to what has been held in the preceding previous years without there being a material change in facts or law, that is a relevant consideration in deciding the application for stay;
4. When a bank account has been attached, before withdrawing the amount, reasonable prior notice should be furnished to the assessee to enable the assessee to make a representation or seek recourse to a remedy in law;
5. In exercising the powers of stay, the Income Tax Officer should not act as a mere tax gatherer but as a quasi judicial authority vested with the public duty of protecting the interest of the Revenue while at the same time balancing the need to mitigate hardship to the assessee. Though the assessing officer has made an assessment, he must objectively decide the application for stay considering that an appeal lies against his order : the matter must be considered from all its facets, balancing the interest of the assessee with the protection of the Revenue.
10. In view of the aforesaid discussion, we are of the view that the assessee in the present case has a serious issue to urge as regards the legitimacy of the demand which has been raised by the impugned notice dated 29 February 2012, including in regard to the applicability of Section 177(3) of the Income Tax Act, 1961 on which the demand has been founded. The assessee has intervened in the appeal filed by the trust before the Commissioner (Appeals). We direct that pending the disposal of the appeal and for a period of six weeks thereafter, the Revenue shall not take any coercive steps against the petitioner for enforcing the demand as contained in the communication dated 29 February 2012. The Revenue shall also refrain from taking any coercive steps or from enforcing the notice issued by the Assessing Officer on 12 March 2012 under Section 226(3). The Attachment, if any, that has been levied shall stand lifted.”
5. We may also refer to one another decision of the Bombay High Court in the case of Khandelwal Laboratories (P.) Ltd. vs. Deputy Commissioner of Income Tax, Mumbai, (2016) 68 taxmann.com 171 (Bombay). In this judgment, we find reference of UTI Mutual Fund (supra). We quote the relevant observations;
“6.The Scheme of the Act provides that on passing of an assessment order under Section 143(3) of the Act, any sum is payable as tax, penalty or fine, then the Revenue would issues a notice of demand under Section 156 of the Act. Section 220 of the Act provides that within a period of 30 days from the date of the service of the demand notice under Section 156 of the Act, the assessee concerned has to make necessary payment to the person and place mentioned in the Notice of demand. In case, the assessee fails to make the payment in terms of the notice of demand, he would be considered to be an assessee in default, enabling the Revenue to adopt coercive measures for recovery of the amount due. However, Section 220(6) of the Act provides that where an assessee has filed an appeal against the assessment order to the Commissioner of Income Tax (Appeals) then, an assessee is entitled to file an application to the Assessing Officer to treat the assessee as not being an assessee in default, consequent to the notice under Section 156 of the Act, till such time as its appeal filed before the Commissioner of Income Tax (Appeals) is disposed of. This right to file an application under Section 220(6) of the Act is a statutory right available to an assessee, if he chooses to so exercise.
7. In this case, the petitioners’ application for stay dated 14th April 2015 under Section 220(6) is still pending disposal before the Assessing Officer. This is so as the order dated 20th August, 2015 as reproduced hereinabove of the Assessing Officer has only dealt with the petitioners’ Rectification Application and not with the petitioners’ Application for Stay. Although, Mr. Malhotra learned Counsel for the Revenue submits that the third paragraph in that order calling upon the petitioners to pay the entire demand within five days, is a communication rejecting the stay application filed by the petitioner. We do not read it as such. In any case, it has been repeatedly held by this Court beginning with KEC International Ltd.v.B.R. Balakrishnan[2001] 251 ITR 158/119 Taxman 974 (Bom.)and also later decision in UTI Mutual Fund(supra), that the stay application must give some prima facie reasons in the context of the submission for stay made by the petitioner while disposing it. The order dated 20th August, 2015 is bereft of any consideration of the petitioners’ primary contention that the issue arising in its appeal before the CIT (Appeals) is concluded in its favour by virtue of Tribunal’s order for Assessment Year 2000-01 in the petitioners’ own case. Thus, according to us, the application for stay filed on 14th April, 2015 filed jointly with the Rectification Application is not yet been disposed of by the Assessing Officer. The order dated 20th August, 2015 has only disposed of the petitioners’ Rectification Application.
8.Thus, any action to recover taxes adopting coercive means is not permissible till the petitioner’s application for stay under Section 220(6) of the Act is disposed of.
9.Therefore, the action of the Assessing Officer in attaching the petitioners’ bank accounts under Section 226(3) of the Act as well as subsequent withdrawal of the attached amounts from the bank accounts is without jurisdiction and bad in law. The petitioners have a statutory right to its stay application being heard and disposed of before the Revenue can adopt any coercive proceedings on the basis of the Notice of demand under Section 156 of the Act issued to the assessee. This action on the part of the Assessing Officer, if permitted, would lead Section 220(6) of the Act becoming redundant.
10. In the above view, the notice under Section 226(3) of the Act issued by the Assessing Officer to the petitioner bankers are set aside. Further, the Assessing Officer is directed to deposit the amount of Rs.7,59,185/-in HDFC Bank, Fort, Mumbai and Rs.34,265/- in State Bank of India, Byculla, Mumbai within a period of one week from today. The Assessing Officer to dispose of the petitioners’ pending stay application in accordance with law.”
6. In view of the aforesaid, this petition succeeds in part. The attachment of the Current Account No. 053211001532 held with the Dena Bank (now merged with the Bank of Baroda) is ordered to be lifted. The writ applicant is permitted to operate the said Bank Account. The appeal preferred by the writ applicant against the assessment order shall be heard and decided on its own merits.
7. It is pointed out by the learned senior counsel that the stay application preferred by the writ applicant is pending as on date before the Appellate Authority. Till the stay application is not decided and appropriate order is not passed, no coercive steps shall be taken towards the recovery of the tax pursuant to the order of assessment.
8. With the above, this writ application stands disposed of.
