NADIAD MERCANTILE CO-OPERATIVEBANK LTD V. TAX RECOVERY OFFICER INCOME TAX DEPARTMENT

SCA/16026/2005

AI Insights

The case involves Nadiad Mercantile Co-operative Bank Ltd., which was under liquidation, contesting a notice issued by the Tax Recovery Officer, Income Tax Department, for recovery of tax dues from its accounts. The bank, represented by its liquidator, argued that the notice was invalid as it was issued without the permission of the Registrar of Cooperative Societies and after the bank had already been liquidated. The Income Tax Department contended that the bank had not cooperated in the recovery proceedings and had previously made payments towards the tax dues of respondent no.4, which were appropriated by the IT Department. The court found that the notice was improperly issued against the bank, which was not liable for the tax dues of respondent no.4, and thus quashed the notice.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 753712 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 23-12-2014
• Assessment Year: misc
• Laws Referred To: Article 226 of the Constitution of India, Gujarat Cooperative Societies Act, 1961, Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K M PARIKH; B S PATEL
• Assessee Lawyers: H M PARIKH
• Keywords: Assessee in default; Cooperative Bank; Income tax recovery; Liquidation
• Section: 226(3)

Judgement Text

"C/SCA/16026/2005 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 16026 of 2005 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ NADIAD MERCANTILE CO-OPERATIVEBANK LTD....Petitioner(s) Versus TAX RECOVERY OFFICER INCOME TAX DEPARTMENT & 3....Respondent(s) ================================================================ Appearance: MR HM PARIKH, ADVOCATE for the Petitioner(s) No. 1 GOVERNMENT PLEADER for the Respondent(s) No. 3 MR BS PATEL, ADVOCATE for the Respondent(s) No. 4 MR KM PARIKH, ADVOCATE for the Respondent(s) No. 1 NOTICE SERVED BY DS for the Respondent(s) No. 2 ================================================================ Page 1 of 9 C/SCA/16026/2005 JUDGMENT CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 23/12/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. This petition has been filed under Article 226 of the Constitution of India with the prayer to quash and set aside the Notice dated 25.07.2005 issued by respondent no.1 to respondent no.2 and to pass appropriate orders or directions to respondent nos.1 & 2 restraining them from taking any punitive action against the petitioner in pursuance of the impugned Notice. 2. Briefly stated, the facts are that the petitioner herein is the Liquidator of the petitioner appointed by respondent no.3. The petitioner is registered under the provisions of the Gujarat Cooperative Societies Act, 1961. Due to financial crisis, the petitioner was not able to survive and suffered liquidity crisis. On 15.09.2004 the Reserve Bank of India cancelled the Licence of the petitioner and therefore, respondent no.3 passed the order dated 16.09.2004 directing liquidation of the petitioner-Bank and appointed a Liquidator. Page 2 of 9 C/SCA/16026/2005 JUDGMENT 3. Respondent no.1 addressed letter dated 15.07.2005 to the petitioner, along with Notice of even date u/s.226(3) of the Income Tax Act, 1961, calling upon the petitioner to pay a total sum of Rs.30.993 Lacs from the Fixed Deposits of the firms of respondent no.4 herein towards total outstanding dues of respondent no.1-Department totalling Rs.41,98,120/- of respondent no.4. The petitioner replied to the said Notice vide reply dated 20.07.2005. Thereafter, respondent no.1 issued the impugned Notice dated 25.07.2005 to respondent no.2 to make payment of the aforesaid amount of Rs.33.993 lacs from the Account of the Liquidator on the ground that the petitioner is deemed to be an assessee in default in respect of the amount outstanding against respondent no.4. Being aggrieved by the aforesaid action of the respondents, the present petition has been preferred. 4. Mr. HM Parikh learned counsel appearing for the petitioner submitted that the impugned Notice at Annexure-A is bad in the eyes of law inasmuch as respondent no.1 has not obtained permission of respondent no.3-Registrar for taking action against the petitioner-Bank, which is under liquidation. It is submitted that respondent no.1 has joined hands with the original assessee- respondent no.4 herein since the petitioner is in Page 3 of 9 C/SCA/16026/2005 JUDGMENT liquidator and by taking shelter under the provisions of Section 226(3) of the Income Tax Act, 1961, they have started recovering the amounts from the Bank though the Bank was not able to make the payment. 4.1 Learned counsel Mr. Parikh further submitted that the present Notice u/s.226(3) of the I.T. Act has been issued after passing of the order of liquidation in respect of the petitioner-Bank. In fact, insofar as the alleged income tax dues of respondent no.4 are concerned, at no point of time, any Notice u/s.226(3) of the I.T. Act was ever issued previously. Hence, the impugned Notice issued by respondent no.1 is bad in law and deserves to be quashed and set aside. 4.2 Learned counsel Mr. Parikh submitted that respondent no.4 is having business and several movable as well as immovable properties. The respondent no.1 can very well recover the dues by disposing off the properties of respondent no.4. However, no action has been taken by respondent no.1 against respondent no.4 since both respondents no.1 and 4 are hand-in-glove with each other. Learned counsel, therefore, prayed that the impugned Notice deserves to be quashed and set aside. Page 4 of 9 C/SCA/16026/2005 JUDGMENT 5. Mr. KM Parikh learned Standing Counsel appearing for the Revenue submitted that despite constant pursuance for making the payment of demand raised by the I.T. Department, the petitioner did not co-operate in its recovery proceedings and therefore, respondent no.1 issued the impugned Notice u/s.226(3) to respondent no.2 since on enquiry it was learnt that the petitioner had a separate account operating in respondent no.2-Bank. 5.1 Mr. Parikh further submitted that the petitioner-Bank became an assessee in default in view of the provisions of Section 226(3) and therefore, it was mandatory on the part of the petitioner-Bank to pay the arrears of demand of the assessee to the I.T. Department. It was submitted that even after the payments made by the petitioner-Bank on 25.03.2005 and 19.11.2012, the current outstanding tax demand in arrears as on 31.03.2013 is Rs.43,85,806/-, which is to be recovered by the I.T. Department from respondent no.4 and his group of companies. He, therefore, submitted that suitable orders may be passed protecting the interest of the I.T. Department since respondent no.4 is still in arrears of tax demand. 6. Mr. B.S. Patel learned counsel appearing for Page 5 of 9 C/SCA/16026/2005 JUDGMENT respondent no.4 submitted that the first Notice u/s.226(3) was received by the Bank in the year 2002, the petitioner-Bank is deemed to be assessee in default under the provisions of Section 226(10) of the Act. Therefore, respondent no.4 is not liable to pay to the I.T. Department. However, the petitioner-Bank did not make the payment on the ground that respondent no.4 & his group companies have no right on the deposits, as the petitioner-Bank had received the Notice u/s.226(3) and in view of the provisions of Section 226(10), respondent no.4 stood discharged to the extent of the amount shown in the Notice u/s.226(3) of the Act. He, therefore, submitted that the present petition deserves to be dismissed. 7. We have heard learned counsel for both the sides and perused the material on record. On 31.08.2006 the following order was passed by the coordinate Bench of this Court; “The case of the petitioner, who is the liquidator, is that after winding up of the petitioner Co-operative Bank, no legal proceedings can be initiated against it, without prior permission of the Registrar, Co-operative Societies, including recovery of the outstanding tax. The counsel for the revenue department is directed to take appropriate steps under the provisions of the Gujarat Co-operative Societies Act, 1961. Page 6 of 9 C/SCA/16026/2005 JUDGMENT On the other hand, the case of the Revenue Department is that there is outstanding amount of Rs.41 lacs from the respondent No.4 and the respondent No.4 has several fixed deposits with the petitioner-bank which comes to Rs.31 lacs and if we include the interest on the said fixed deposits, it comes to Rs.40 lacs. In view of that, we restrict the attachment to the tune of Rs.40 lacs only and the attachment made under Section 226(3) of the Income tax shall remain in operation upto the amount of Rs.40 lacs and for the balance amount the liquidator can operate the account of the bank. Put up on 06.11.2006.” 8. Respondent no.1 has filed further affidavit in reply wherein, it has been averred that the petitioner-Bank has paid an amount of Rs.58,54,700/- to the IT Department on 25.03.2005 towards the outstanding tax dues of respondent no.4. The petitioner-Bank has further paid an amount of Rs.58,37,991/- to the IT Department on 19.11.2012 towards the outstanding tax dues of respondent no.4. Admittedly, the amount paid by the petitioner-Bank (in liquidation) to the IT Department were not belonging to the petitioner- Bank but, it belonged to respondent no.4, who was the depositor of the Bank. The said amounts have been appropriated by the IT Department towards the outstanding tax demand due and payable by Page 7 of 9 C/SCA/16026/2005 JUDGMENT respondent no.4. From the above set of facts, it is evident that the petitioner-Bank has already released proportionate amount deposited by respondent no.4 in favour of the IT Department. 9. As per the further affidavit filed by respondent no.1, respondent no.4 is still in arrears of tax demand to the tune of Rs.43,85,806/- as on 31.03.2013. If that be so, then the same is to be recovered from respondent no.4 and not from the petitioner-Bank. Hence, the impugned Notice deserves to be quashed and set aside. 10. For the foregoing reasons, the petition is allowed. The impugned Notice dated 25.07.2005 issued by respondent no.1 to respondent no.2 is quashed and set aside. It is, however, clarified that if any tax demand is due and payable by respondent no.4 herein, it shall be open to the IT Department to initiate necessary proceedings for recovering the same from the personal properties of respondent no.4. With the above clarification, the petiion stands disposed of. (K.S.JHAVERI, J.) Page 8 of 9 C/SCA/16026/2005 JUDGMENT (K.J.THAKER, J) Pravin/* Page 9 of 9 "