Judgment:
ORDER
M.S. Shah, J.
Heard Mr. S.N. Soparkar, learned counsel for the petitioner, and Mr. D.D. Vyas, learned standing counsel for the respondent-authorities on the question of interim relief.
2. Mr. Soparkar, learned counsel for the petitioner, has submitted that in view of the provisions of section 226(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act), which are analogous to the provisions of section 46(5A) of the Income Tax Act, 1922, and the decision of the Apex Court in ITO & Anr. v. Budha Pictures : [1967]65ITR620(SC) the notice issued by the respondent-authorities on 20-10-2000 (Annex. A), got exhausted and the said notice cannot now be acted upon to prevent the purchasers of the goods to be manufactured by the petitioner from paying the sale price thereof to the petitioner. It is further submitted that in any view of the matter, the petitioner-company is registered as a sick industrial company under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as SICA), as per communication dated 27-11-2003 (Annex, B). Therefore, in view of the provisions of section 22 of the SICA, the respondent authorities cannot take any action or proceeding in the nature of execution, distress or the like against any of the properties of the petitioner-company.
It is submitted that the purchase price which the petitioner-company would receive from Madura Coats Ltd. or from any other-purchasers would be a property of the petitioner-company and would, therefore, qualify for protection under section 22 of the SICA.
Strong reliance has also been placed on the decision of the Honble Supreme Court in Tata Davy Ltd. v. State of Orissa & Ors. : (1997)IILLJ989SC .
It is also submitted by Mr. Soparkar that an amount of rupees six lakhs and odd is payable by M/s. Madura Coats Ltd. to the petitioner as per the invoices between 7th and 18-12-2003, as mentioned in the letter dated 18-12-2003 from the petitioner to Madura Coats Ltd. and the petitioner is entitled to get the said amount from Madura Coats Ltd.
It is, therefore, prayed that interim relief as prayed for may be granted and the respondents may be restrained from enforcing the impugned notice under section 226(3) of the Act (Annex. A) and from acting upon the impugned order dated 16-1-2004, (Annex. F). Mr. Soparkar submits that if protection as prayed for is not granted, Madura Coats Ltd. would not like to continue business with the petitioner and the petitioner will never be able to make any recovery. If it is allowed to make recovery, it, will be able to give employment to about 400 people.
3. On the other hand, Mr. D.D. Vyas, learned counsel for the respondent-authorities, has submitted that the notice dated 20-10-2000 (Annex. A), under section 226(3) of the Act would enure till any income-tax dues remain outstanding from the petitioner to the department, otherwise heavy. burden would be cast on the department in issuing notice after notice for every transaction and the department may not be able to enforce any such notice on the, ground that the payment was already made before the issuance of the notice or that there would be no dues from the third party to the petitioner as on the date of receiving the notice under section 226(3) of the Act.
As regards the protection claimed by the petitioner under section 22 of the SICA is concerned, Mr. Vyas has submitted that the petitioner is not entitled to get any unqualified protection. Strong reliance has been placed on the decision of the Apex Court in Dy. CTO & Ors. v. Corromandal Pharmaceuticals & Ors. : [1997]2SCR1026 and particularly on the observations in paras 10, 11 and 13 of the said decision.
4. Having heard the learned counsel for the parties on the question of interim relief, we do not express any opinion on the contention revolving round the interpretation of section 226(3) of the Act. However, in our view, since the petitioner is registered as a sick industrial company on 27-11-2003, the petitioner would be entitled to get protection under section 22 of the SICA. The enforcement of any notice under section 226(3) of the Act would, prima facie, amount to coercive recovery.
5. As regards reliance placed by Mr. Vyas on the decision in Corromandal Pharmaceuticals (supra), that was a case where the sick company was recovering sales-tax from the purchasers of its goods and the Honble Supreme Court observed that although section 22 of the SICA has wide import, it will be reasonable to hold that the bar or embargo envisaged therein can apply only to such of those dues reckoned or included in sanctioned scheme. Amounts like sales-tax, etc., which the sick industrial company is enabled to collect after the date of the sanctioned scheme legitimately belonging to the revenue, cannot be and could not have been intended to be covered within section 22 of the Act.
When a sick company recovers sales-tax from the purchasers of its goods, it is really Collecting sales-tax on behalf of the State and, therefore, it cannot be permitted to recover sales-tax from the purchasers and refuse to hand over the same to the revenue. As far as income-tax liability is concerned, when the petitioner would be selling its goods to a third party, the purchase price being recovered from the purchasers would not be on behalf of the Income Tax authorities. Since the petitioner is registered as a sick company by BIFR, it is not very likely that the petitioner would be required to pay income-tax on the purchase price to be recovered from the purchasers of its goods. Income-tax is a tax on income and it is only after the petitioner would earn taxable income which would be computed in accordance with the provisions of the Income Tax Act that it would be liable to pay tax. Hence, the question of liability under the Income Tax Act on future income would not arise at this stage. The recovery presently sought to be made by the department is of arrears of income-tax for the past period for which the petitioner has already approached the BIFR. Under the circumstances, protection under section 22 of the SICA would be available to the petitioner in respect of the arrears of income-tax.
In Gram Panchayat v. Shree Vallabh Glass Works Ltd. AIR 1990 SC 101, and in Tata Davy Ltd. (supra), the Honble Supreme Court has held that arrears of taxes and the like dues from sick industrial companies that satisfy the conditions set out in section 22(1) of the SICA cannot be recovered by coercive process unless the said BIFR gives its consent thereto. That is what the respondents can do in the instant case also, i.e., the respondents can obtain consent from the BIFR for recovery that it proposes to make.
6. In view of the above discussion, we grant interim relief restraining the respondent-authorities from acting upon the impugned notice dated 20-10-2000 (Annex. A) and also restraining the respondent-authorities from enforcing any notice under section 226(3) of the Income Tax Act, 1961, without first obtaining consent of the BIFR as provided in section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985.