ASSISTANT COMMISSIONER OF INCOME TAXversusAK. MENON AND ORS.

           ASSISTANT COMMISSIONER OF INCOME TAX                                     A
                             v.
                    AK. MENON AND ORS.

                                JULY 18, 1995

            [A.M. AHMADI, CJ AND S.P. BHARUCHA, J.]                                 B

       Special Court (Trial of Offences Relating to Transactions in Securities)
Act, 1992: Section I I-Special Court-Jurisdiction of-Tax liability of a
notified person-Held: Special Court has no jun'sdiction to detemiine whether
the liability is bonafide reasonable, justified or enforceable-lt can only deter-   c
mine the pliorities in which claims upon the property under attachment shall
be paid.

      The Special Court (Trial of Offences Relating to Transactions in
Securities) Act was enacted in 1992 to provide for the establishment of a
Special Court for the trial of offences relating to transactions in securities      D
and for matters connected therewith or incidental thereto. The appellant·
Assistant Commissioner of Incometax sought release of a certain sum
being the tax liabilities of the respondents, who were the notified persons
under Act. The Special Court adjourned the matter holding that the
notified parties were entitled to try and show to court that the claim was          E
unreasonable and unjustified. Hence this appeal.

      Allowing the appeal, this Court

      HELD : 1. The Special Court has no jurisdiction to sit in appeal over
the assessment of the tax liability of a notified person by the authority or        F
tribunal or court authorised to perform that function by the statute under
which the tax is levied. The Special Court has, therefore, no jurisdiction
to determine whether or not any assessment of the tax liability of a notified
person by the appropriate authority is bona fide or reasonable or justified
or enforceable. [185-E]
                                                                                    G
       2. The order under appeal is set aside insofar as it requires the
appellant to· produce the records and permits the notified persons to
satisfy the Special Court that the claims made in regard to their tax
liability were not bonafide, or were unreasonable, unjustified or unenfor-
ceable. [185-F]
                                                                                    H
                                      181
    182                  SUPREME COURT REPORTS [1995] SUPP. 2 S.C.R.

A        S. V. Kondaskar v. V.M. Deshpande, AIR (1972) S.C. 878, distin-
    guished.

         CIVIL APPELLATE JURISDICTION                 Civil Appeal No. 6323
    (NT) of 1995.

B         From the Judgment and Order dated 21.3.95 of the Special Court
    (Trial of Offences Relating to Transactions in Securities) at Bombay in
    Misc. Application No. 107 of 1993.

          D.P. Gupta, Solicitor General, (Ms. A. Subhashini) for S.N. Terdol
    for the Appellant.
c
          Atul Setalvad, A.D.N. Rao and A. Sobba Rao for the Respondent
    No. 1.

         Jahangir DJ. Mistri, Kartik Desai and Ms. Lata Krishnamurthy for
D   the Respondents 2-14.

          The following Order of the Court was delivered :

          Special leave granted.

         This appeal is filed against an order of the Special Court appointed
E under the provisions of the Special Court (Trial of Offences Relating To
  Transactions in Securities) Act, 1992. The appellant, an Assistant Commis-
  sioner of Income Tax, sought release of the sum of Rs. 80,80,198.34, being
  the tax liabilities of the respondents, who are notified persons under the
  said Act, from the funds available with the Custodian appointed under. the
F provisions thereof. Learned counsel appearing for some of these notified
  persons submitted to the learned judge that he wished to show .that the
  demands. of the appellant were unreasonable and unjustified and, if satis-
  fied, he should not order release of the amounts claimed. Having heard
  counsel, the learned judge passed the impugned order. It said that while
  the Special Curt could not sit in appeal over orders of the tax authorities,
G it was entrusted with the task of distributing the funds in the manner laid
  down under section 11 of the said Act and the priorities laid down
  thereunder had to be observed. The priorities and objects of the said Act
  could and would -be defeated if the Special Court could not "go into the
  bonafides of a claim. In that case a party, like the Income Tax Department,
H may make a claim in an absurdly large amount." Whether a claim was
              ASSTI. COMMR. OF INCOME TAX v. AK. MENON                      183


•   'justified or enforceable can only be decided by looking into that claim". A
    Counsel for the notified parties was, therefore, "entitled to try and show to
    court that the claim is unreasonable and unjustified". The appellant's
    application was adjourned for the purpose, and he has appealed.

           The said Act was enacted to provide for the establishment of a
    Special Court for the trial of offences relating to transactions in securities B
    and for matters connected therewith or incidental thereto. The Act re-
    quires the appointment of a Custodian thereunder who is, inter alia,
    required to deal with the property of persons notified in such manner as
    the Special Court may direct. The Special Court has jurisdiction, under
    section 7 of the Act, exclusively to hear and decide prosecutions in respect C
    of offences under the said Act, that is to say, offences relating to transac-
    tions in securities after 1st April, 1991 and on or before 6th June, 1992. By
    reason of the amendment of the said Act and the inclusion of sections 9A
    and 9B, the Special Court is invested with civil jurisdiction in regard to
    such transactions. Section 11 is relevant for our purpose. Sub-section (1)
    states that the "Special Court may make such order as it may deem fit D
    directing the Custodian for the disposal of the property under attachment".
    Sub-section (2) states that "the following liabilities shall be paid or dis-
    charged in full, as far as may be, in the order as under:-

            (a) all revenues, taxes, cesses and rates due from the persons        E
            notified by the Custodian under sub-section (2) of Section 3 to the
            Central Government or any State Government or any local
            authority:

            (b)             xxx                   xxx                    xxx''
                                                                                  F
           It is clear that the Special Court has no power to sit in appeal over
    or overrule the orders of the tax authorities, the Income Tax Appellate
    Tribunal or the courts in regard to the tax liabilities of notified persons.
    The only power of the Special Court is to determine the priorities in which
    claims upon the property under attachment shall be paid. The claims
    relating to the tax liabilities of a notified person are, along with revenues, G
    cesses and rates entitled to be paid first in the order of priority and in full,
    as far as may be. In relation to a claim for payment of the tax liability of a
    notified person, the Special Court has, therefore, only the limited power to
    determine what, having regard to the funds available, can be paid: that is
    to say, whether the claim can be satisfied in full or only in part. If a H
    184                  SUPREME COURT REPORTS [1995] SUPP. 2 S.C.R.

A particular tax claim cannot at any time be paid in full, provision would have
    to be made for the balance, so far as may be, so that it is not jeopardized.

           Our attention was drawn by Mr. AM. Setalvad, learned counsel for
    the Custodian, to the judgment of this Court in S. V. Kondaskar v. V.M.
    Deshpande, AIR (1972) S.C. 878, and to the observation thereunder that
B   the "liquidation court would have full power to scrutinise the claim of the
    revenue after income-tax h(!.s been determined and its payment demanded
    from the liquidator. It would be open to the liquidation court then to
    decide how far under the law the amount of income-tax determined by the
    Department should be accepted as a lawful liability on the funds of the
c   company in liquidati"n. At that stage the winding up court can fully
    safeguard the interests of the company and its creditors under the Act".
    The question that this Court had to decide in the case was whether it was
    necessary for the income-tax officer to obtain the leave of the liquidation
    court when he wanted to re-assess the company in liquidation for escaped
D   income in respect of past years. This Court said:

            "The.Income-tax Act is, in our opinion, a complete code and it is
            particularly so with respect to the assessment and re-assessment
            of income-tax with which alone we are concerned in the present
            case. The fact that after the amount of tax payable by an assessee
E           has been determined or quantified its realisation from a company
            in liquidation is governed by the Act because the income-tax
            payable also being a debt has to rank pari passu with other debts
            due from the company does not mean that the assessment proceed-
            ings for computing the amount of tax must be held to be such other
F           legal proceedings as can only be started or continued with the leave
            of the liquidation court under Section 446 of the Act. The liqui-
            dation court, in our opinion, cannot perform the functions of the
            Income-tax Officers while assessing the amount of tax payable by
            the assessees even if the assessee be the company which is being
            wound up by the Court. The orders made by the Income-tax
G           Officer in the course .of assessment or re-assessment proceedings
            are subject to appeal to the higher hierarchy under Income-tax
            Act. There are also provisions for reference to the High Court and
            for appeals from the decisions of the High Court to the Supreme
            Court and then there are provisions for revision by the Commis-
H           sioner of Income-tax. It would lead to anomalous consequences if
               ASSTT. COMMR. OF INCOME TAX v. AK. MENON                       185

             the winding up court were to be held empowered to transfer the A
             assessment proceedings to itself and assess the company to in-
             come-tax.

             xxx                      xxx                            xxx

             "The language of S.446 must be so construed as to eliminate such       B
             startling consequences as investing the winding up court with the
             powers of an Income-tax Officer conferred on him by the Income-
             tax Officer ~onferred on him by the Income-tax Act, because in
             our view the legislature could not have intended such a result".

    It is after these observations that the court made the observation to which     C
    Mr. Satalvad drew our attention. It is perfectly clear, in the circumstances,
    that this observation referred only to the obligation of the liquidation court
    to decide, having regard to the fact that the income-tax payable by the
    company in liquidation had to rank pari passu with other debts due by it,
    how far the amount determined could be paid while still safeguarding the D
    interests of the other creditors of the company in liquidation. We are of
    the view, therefore, that this judgment does not assist us in upholding the
    view taken by the Special Court.

          The Special Court has no jurisdiction to sit in appeal over the
    assessment of the tax liability of a notified person by the authority or        E
    tribunal or court authorised to perform that function by the statute under
    which the tax is levied. The Special Court has, therefore, no jurisdiction to
    determine whether or not any assessment of the tax liability of a notified
    person by the appropriate authority is bona fide or reasonable or justified
    or enforceable.
                                                                                    F
           The appeal is allowed. The order under appeal is set aside insofar
    as it requires the appellant to produce the records and permits the notified
    persons to satisfy the Special Court that the claims made in regard to their
    tax liability were not bonafide, or were unreasonable, unjustified or un-en-
    forceable.                                                                   G
           There shall be no order as to costs.

    G.N.                                                        Appeal allowed.



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