Govt. Of India (Deptt. Of Revenue) ... vs Appellate Authority For ...
2011 Latest Caselaw 4706 Del

*           IN THE HIGH COURT OF DELHI AT NEW DELHI


%                                         Date of decision: 23.09.2011


+                          WP(C) No. 7592/2009


GOVT. OF INDIA (DEPTT. OF REVENUE) & ANR.

                                                                ...PETITIONERS


                    Through:            Mr.Sanjeev Sabharwal, Senior
                                        Standing Counsel along with
                                        Mr.D.R.Jain, Advocate.

                        Versus


APPELLATE AUTHORITY FOR INDUSTRIAL AND FIANCIAL
RECONSTRUCTION & ORS.
                                  ..RESPONDENTS


                    Through:            Ms.Maneesha Dhir, Ms.Jayashree
                                        Shukla,    Ms.Preeti     Dalal,
                                        Ms.Mithu Jain and Mr.Abhirup
                                        Das Gupta, Advocates for R-3 &
                                        R-4.

CORAM:
HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
HON‟BLE MR. JUSTICE RAJIV SHAKDHER

1.      Whether the Reporters of local papers
        may be allowed to see the judgment?                             YES


_____________________________________________________________________________________
WPC No.7592/2009                                                         Page 1 of 29
 2.      To be referred to Reporter or not?                              YES


3.      Whether the judgment should be                                  YES
        reported in the Digest?


RAJIV SHAKDHER, J. (ORAL)

1. This writ petition has been filed impugning the orders

of the Board of Industrial and Financial Reconstruction

(„BIFR‟ for short) dated 01.03.2007 and that of the

Appellate Authority for Industrial & Financial

Reconstruction („AAIFR‟ for short) dated 23.06.2008.

2. The grievance of the petitioners very briefly is that a

provision has been made in the sanctioned scheme

whereby the reliefs and concessions have been sought

without the Draft Rehabilitation Scheme (in short DRS)

being served upon it. The relevant provision which

troubles the petitioner is as under:

" 14.3 From Central Govt.

a)..... .....

b) Department of Income Tax To exempt from provisions of Sections 41(1), 45, 72(3), 43-B, 80 read with Sections 139, 115JB and provisions of Chapter XVII of the Income Tax Act."

_____________________________________________________________________________________

3. The brief facts required to decide as to whether the

petitioners have a case or not are as follows:

4. Respondent no.3 i.e., Tedco Granites Ltd. (in short

TEDCO) which is the sick industrial company, is in the

business of manufacturing single super phosphate

(fertilizer). The plant for this purpose was set up in

1995. It appears that net worth of TEDCO got eroded,

and consequently, a reference was filed with the Board

for Industrial & Financial Reconstruction (in short BIFR).

TEDCO was declared a sick industrial company on

21.12.2005.

5. Pursuant to the said order of the BIFR, with the help of

the operating agency, a DRS was formulated. The DRS

was taken up for consideration by the BIFR on

04.12.2006. The said DRS which contained the

impugned paragraph i.e. para 14.3 (b), to which we

have made a reference hereinabove, was circulated to

the concerned authorities on 08.12.2006. The short

particulars of the DRS, in accordance with the

provisions of Section 18(3)(a) of the Sick Industrial

_____________________________________________________________________________________

Companies (Special Provisions) Act, 1985 (in short,

SICA) were also published in local newspapers, both in

English and in Hindi, on 29.12.2006. The public notice

called upon the concerned authorities to submit their

views and/or objections to the DRS on or before

19.02.2007.

6. There is no dispute before us that the exercise as

mandated under the provisions of SICA was undertaken

by the BIFR with the help of concerned authorities

which included secured and unsecured creditors

including various other authorities. The result of this

exercise was that a scheme was sanctioned by the

BIFR, on 01.03.2007.

7. Aggrieved by the provision contained in the sanctioned

scheme i.e. para 14.3(b), an appeal was preferred by

the petitioners with the Appellate Authority for

Industrial and Financial Reconstruction (in short AAIFR).

The AAIFR vide the impugned judgment dismissed the

appeal. In the impugned judgment, the AAIFR has

referred to the issue concerning the service of the DRS

_____________________________________________________________________________________

and consequent effect it resulted in having vis-à-vis the

provision contained in the DRS involving the

petitioners. AAIFR briefly concluded that service on the

Assessing Officer, Bilwara of the Income Tax

Department having not been disputed, the petitioners

consent to the provisions contained in the DRS

concerning the Income Tax Department would logically

follow, since objections if any, to the DRS as mandated

under section 19(2) of SICA were not filed within the

stipulated 60 days; being a case of deemed consent.

Before the AAIFR, TEDCO‟s stand was precisely this,

which is, once a party indicated under section 19(1) of

SICA is served with the DRS and objections are not filed

within the stipulated period of 60 days, the Scheme is

binding against such a party under section 19(2) of

SICA. Since the Income Tax Department was served

through the Assessing Officer and no objections were

filed within the stipulated period, the provisions of the

impugned paragraph were binding on the Income Tax

Department. The AAIFR vide the impugned judgment

accepted the stand of TEDCO and consequently _____________________________________________________________________________________

dismissed the appeal of the petitioners. We may, for

the sake of convenience, extract the relevant

paragraphs of the order of the AAIFR in that regard.

"...3. We have considered the submissions carefully and have perused the material on record. We find that the BIFR circulated the DRS by its order dated 04.12.2006. It appears from the list of parties attached to the order that originally there were 14 parties including the Assessing Officer, Ward No.3, Income Tax Office, Sastri Nagar, Bhilwara, Rajasthan (S.No.14) to whom the DRS was circulated. Three additions to this list have been made by hand which are as follows:

S.No.15 - Assistant Director, ESIC, Regional Office, New Delhi.

S.No.16 - Dte. Of Income Tax (Recovery), New Delhi.

S.No.17 - Secretary, CBDT, New Delhi

Even if we do not take into account the 3 names added to the list, it cannot be denied that S.No.14 i.e. the Assessing Officer, Ward No.3, Income Tax Office, Sastri Nagar, Bhilwara, Rajasthan was made a party to the proceedings and the DRS was circulated to him by the BIFR vide its order dated 04.12.2006. No averments have been made to the contrary by the ld. counsel for the appellant. However, the argument that has been advanced by the ld. Counsel for the appellant is that as per the CBDT Circular No.683 dated 8.6.1994, the Assessing Officer, Income Tax Office, Bhilwara has no locus standi in the scheme. The Income Tax Office,Bhilwara can only grant income tax _____________________________________________________________________________________

concessions which are permissible under the Income Tax Act, 1961 and cannot grant exemptions from the provisions of Income Tax Act which can only be granted by the CBDT.

Therefore, making the Assessing Officer, Bhilwara a party or even serving a copy of the DRS on him cannot be considered to be legal service of the DRS under provisions of Section 19(2) of SICA. Therefore, he argued that BIFR could not have sanctioned the scheme without the consent of the appellant.

4. We are unable to accept the above argument of the ld. counsel for the appellant. The Assessing Officer, Ward No.3, Income Tax Office, Sastri Nagar, Bhilwara, Rajasthan is a part of the Income Tax Department of the Government of India. Therefore, he was aware of the internal circular No.683 dated 8.6.1994 of the IT Department, about the nodality of the appellant‟s status for coordinating cases before AAIFR and BIFR. The Assessing Officer, Income Tax Office, Bhilwara, therefore, should have promptly sent a copy of the DRS to the appellant which is the nodal authority in this case, intimating about the date of hearing before the BIFR so that the appellant could have appeared before the BIFR on the date of hearing and could have filed its objections and suggestions. Alternatively, Assessing Officer, Income Tax Office, Bhilwara could have appeared before the BIFR and requested the BIFR to issue notice to the appellant as per Circular No.683 dated 8.61994 and sought more time for filing of objections by the appellant. The Assessing Officer, Income Tax Office, Bhilwara despite notice chose neither to intimate the appellant nor to appear before the BIFR requesting the BIFR to issue notice to _____________________________________________________________________________________

the appellant or even to seek more time for same purpose. In the circumstances, the argument of the ld. counsel for the appellant that circulation of DRS to the Assessing Officer, Ward No.3, Income Tax Office, Sastri Nagar, Bhilwara, Rajasthan cannot be construed as legal or regular under provisions of Section 19(2) of SICA does not carry any force. As already mentioned, the Assessing Officer, Income Tax, Bhilwara, if he did not have the authority to act in this case, should have intimated the concerned authorities i.e. the appellant to act within the stipulated time under Section 19(2) of SICA. In case more time was required, an extension of time for another 60 days could have been sought under 19(2) of SICA. Considering the above facts and circumstances, we are of the opinion that the circulation of DRS to the Assessing Officer, Ward No.3, Income Tax Office, Sastri Nagar, Bhilwara, Rajasthan is proper service of DRS as per 19(2) of SICA and does not vitiate the proceedings before the BIFR. Since no consent was received within the stipulated period from the appellant, it shall be deemed that consent has been given by the appellant under Section 19(2) of SICA."

8. Learned counsel for the petitioners before us have

assailed the said observations of the BIFR. Learned

counsel for the petitioners have contended that the

reasoning of the AAIFR that service on the Assessing

Office would suffice is contrary to the circular issued by

the Central Board of Direct Taxes (in short „CBDT‟)

_____________________________________________________________________________________

bearing no.683 dated 8.6.1994 (in short „the said

circular‟). It has been contended before us that the

said circular requires the service to be effected on the

Director General of Income Tax (Admn.), who is

mandated the task of co-ordinating issues concerning

the reliefs and concessions sought in the scheme

formulated for or on behalf of the sick industrial

companies. Learned counsel for the petitioners

submitted that no service whatsoever was effected on

the petitioners, in particular, on petitioner no.2 i.e.

Director General of Income Tax (Admn.). To buttress

his submissions, learned counsel for the petitioners

have shown us three documents which are appended

at pages 134, 205 and 226 of the paper book. Relying

on the first document appended at page 134, (which

contains a list of parties upon whom the sanctioned

scheme dated 01.03.2007 was served) it was

contended that the list contains names of 16

entities/persons. Petitioner no.2 i.e., Director General

of Income Tax (Admn.) appears at serial no.16. This

document, as per submission of learned counsel for the _____________________________________________________________________________________

petitioners, was received by petitioner no.2, while the

DRS which was supposedly dispatched to these

entities/parties whose names find mention in the list

appended at page 205 did not reach the petitioners,

even though at serial no.16 and 17 there is a reference

made to them. It was pointed out that names of

persons/entities from serial no.1 to 14 are typed, while

remaining three (3) entries have been made by hand.

The learned counsel submit that the extract of the

dispatch register of the BIFR would show that only the

assessing officer has been served, despite the fact that

the mailing list of the DRS appended at page 205

would show that there were other names entered

therein by hand, which included the names of the

petitioners.

9. Learned counsel for the petitioners further submits that

the stand of TEDCO that the service was effected on

petitioner no.2 is untenable as would be demonstrable

from the document appended at page 226 of the paper

book. The said document purportedly is a mailing list

which TEDCO appended to its reply filed before the _____________________________________________________________________________________

AAIFR. Annexure „A‟ being the mailing list of the DRS

contains the names of only 14 parties. The said

mailing list ends with reference to the Assessing Officer

of the Income Tax Deptt. There is no reference to the

petitioners. This mailing list produced by TEDCO

before AIIFR holds up in sharp contrast to the

information contained in the mailing list supplied to the

petitioners at the point in time, when they applied for a

copy of the DRS. The petitioners list (appended at

page 205) as noticed above shows names of three (3)

additional entities entered by hand. These three

additional entities being : (i). The Assistant Director,

ESIC Regional Office, Rajendra Bhawan, Rajendra

Place, New Delhi; (ii). Directorate of Income Tax

(Recovery), Department of Revenue, 6th Floor, Mayur

Bhawan, Connaught Circus, New Delhi-110001; and

(iii). The Secretary, C.B.D.T., Department of Revenue,

North Block, New Delhi-110001.

9.1 It is the contention of learned counsel for the

petitioners that there is apparent disconsonance in the two

_____________________________________________________________________________________

lists, that is, one appended at page 205 and the other which

is annexed at page 226.

10. In view of the aforesaid, learned counsel for the

petitioners submits that it is quite clear that there was in fact

no service effected on the petitioners. It is submitted that if

the said circular is taken into account, a valid service in law

would be one in which service is effected on petitioner no.2,

if not petitioner no.1. Learned counsel for the petitioners

submit that these facts were brought to the notice of the

AAIFR which has chosen to give a short shrift to the

submissions made on behalf of petitioners. As matter of

fact, learned counsel for the petitioners drew our attention to

another case involving a different sick industrial company,

namely, Director General of Income Tax Vs. M/s.

Shimoga Steels Ltd., in Appeal no.307/2007 vide judgment

dated 19.09.2008, wherein, an order was passed by the

same Bench three (3) months hence whereby, the AAIFR

accepted similar submissions made on behalf of the Income

Tax Department. AAIFR in the said case came to the

conclusion that no valid service was effected on the Income

Tax Department as the DRS had not been served on the _____________________________________________________________________________________

Director General of Income Tax (Admn.) It was submitted

that the AAIFR in that case proceeded to modify the clause in

the sanctioned scheme relating to the Income Tax

Department by inserting in the said provision in it, the words

„to consider‟; diluting thereby the mandatory direction of the

BIFR qua reliefs and concessions to be provided by it.

11. It is in these circumstances, learned counsel for the

petitioners state that the order of the AAIFR deserves to be

set aside and the matter be remanded to the BIFR. Apart

from above, there is also a submission made by learned

counsel for the petitioners which is that in any event no

reliefs and concessions can be given by the Income Tax

Department which are beyond or contrary to the provisions

of the Income Tax Act, 1961 (in short the I.T. Act). In this

regard, a reference has been made to the provisions of

Section 115JB clause (vii). Based on the said provision it is

urged, by the learned counsel that the reliefs and

concessions which may be made over to a sick industrial

company cannot be given beyond the date on which the net

worth of the sick industrial company turns positive. It is

therefore the submission of the learned counsel for the _____________________________________________________________________________________

petitioners that the issue of reliefs and concessions requires

reconsideration by the BIFR.

12. As against this, Ms. Dhir, who appears for TEDCO and

its Chairman (i.e., Respondent Nos.3 & 4) submits that the

scheme which was sanctioned on 01.03.2007 has been in

operation for nearly (four) 4 years. It is her contention that

as per the provisions of the sanctioned scheme funds to the

tune of nearly Rs.4 crores have been inducted into the sick

industrial company. Therefore, the submission of learned

counsel for Respondent Nos.3 & 4 was that any tinkering

with the sanctioned scheme at this stage, would cause great

difficulty for the sick industrial company. It was also

submission of learned counsel for Respondent Nos.3 & 4 that

while it was not disputed that there was no service effected

on petitioner no.2; service was most certainly effected on the

Assessing Officer.

12.1 This fact, according to learned counsel for Respondent

Nos.3 & 4 cannot be disputed by the petitioners. For this

purpose, learned counsel for Respondent Nos.3 & 4 referred

to the observations made by AAIFR in the impugned

judgment where the counsel for the petitioners accepted the _____________________________________________________________________________________

fact that the service had been effected on the assessing

officer. Learned counsel for Respondent Nos.3 & 4 also tried

to demonstrate that the change of stand by the petitioners

on this account has taken place only in this court. In this

regard, Ms. Dhir placed reliance on an inter-departmental

letter dated 26.11.2008, whereby purportedly explanation

was sought from the concerned Assessing Officer as to why

the DRS had not been forwarded to the concerned authority,

if it had been served upon him. Ms. Dhir submitted that in

reply vide letter date 02.12.2008 the assessing officer took

a rather curious stand that he never received the DRS, and

in that regard, had placed reliance on the Common Receipt

Register of the Financial Year 2006-07 maintained in the

General Ward of Income Tax Office, Bhilwara. It was Ms.

Dhir‟s endeavour to show that the stand now taken was

contrary to the stand taken before the AAIFR. A reference

was made also to the provisions of Section 27 of the General

Clauses Act, 1897 & Regulation 13 of the BIFR Regulations,

1987, to buttress her submission that the service on the

assessing officer would be deemed as having taken place,

after a reasonable period had elapsed from the date of _____________________________________________________________________________________

dispatch of the DRS. Besides this, Ms. Dhir also pointed that

the present writ petition impugning the judgment of the

AAIFR had been filed nearly eight (8) months after its

pronouncement; therefore, any reversal at this stage would

impact TEDCO quite severely. Finally, the Learned counsel

for Respondent Nos.3 & 4 submits that keeping in mind the

aforementioned submissions, the impugned orders ought to

be sustained.

13. In support of her submissions, learned counsel for

Respondent Nos.3 & 4 cited several judgments. These

being: i) Vadilal Dairy International Ltd. v. State of

Maharashtra ;(2011) 1 Comp L. J. 466 (Bom.); ii) Karnataka

State Financial Corporation v. AAIFR; I (2011) BC 203, iii)

Mewar Sugar Mills Ltd. v. Chairman, Central Board of Direct

Taxes; Manu/DE/02186/1998, iv) Kotak Mahindra Finance

Ltd. v. Mafatlal Industries Ltd; (2004) 122 Comp Case 231

(Bom.), v) Damodar Valley Corporation v. AAIFR; (2010) 156

Comp Case 137 (Delhi) and vi) VDCS Enterprises & Anr. v.

UOI & Ors.; 2005 (125) DLT 385.

14. We have heard learned counsel for the parties. In our

view, the only issue which arises for our consideration is _____________________________________________________________________________________

whether it could be said that that the petitioners are deemed

to have given their consent to the DRS, by virtue of Section

19(2) of SICA, in view of the fact they have not preferred

objections to the provisions concerning them within the

stipulated period of 60 days.

15. For us to decide this issue it would be important to

bear in mind both the provisions of Circular No.683 dated

08.06.1994 issued by the CBDT on which reliance has been

placed by the petitioners and the relevant provisions of

section 19 of SICA. The relevant portions of the Circular and

thereafter provision of Section 19 of SICA are extracted

hereinbelow :-

"487. Effect of order passed by Board for Industrial and Financial Reconstruction under scheme for rehabilitation of sick units on determination of losses

1. The Board had issued two circulars, Circular No. 523, dated October 5, 1988 (Annex I) and Circular No. 576, dated August 31, 1990 (Annex II) in connection with the procedure to be followed in respect of grant of consent by the Central Government in cases involving financial assistance to be given under Direct Tax Laws for rehabilitating sick industries under Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).

_____________________________________________________________________________________

2. While issuing the two circulars, the provisions of section 19(2) of SICA were not considered. According to section 19(2), all parties concerned with giving financial assistance for the rehabilitation scheme should give their consent.

3. The Board had withdrawn with immediate

vide its letter of even numbers dated 30-12- 1993. The said letter to AAIFR and BIFR clarified that each case of fiscal concession of financial assistance under Direct Tax Laws will now be considered in each individual case on merits for the purpose of consent as contemplated in section 19(2) of SICA, 1985 and consent or denial of consent will be conveyed to BIFR by the Central Government. The modal agency for coordination between the Board for Industrial and Financial Reconstruction (BIFR) and, Central Board of Direct Taxes and Appellate Authority for Industrial and Financial Reconstruction (AAIFR) and Central Board of Direct Taxes will be the Director General of Income-tax (Admn.), 7th Floor, Mayur Bhawan, New Delhi-110 001. Cases already decided in accordance with the Circular Nos. 523 and 576 were however, not required to be reopened.

Circular: No.683 dated 8-6-1994

19(1). Where the scheme relates to preventive, ameliorative, remedial and other measures with respect to any sick industrial company, the scheme may provide for financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices from the Central Government, a State Government, any scheduled bank or other bank, a public financial _____________________________________________________________________________________

institution or State level institution or any institution or other authority (any Government, bank, institution or other authority required by a scheme to provide for such financial assistance being hereafter in this section referred to as the person required by the scheme to provide financial assistance) to the sick industrial company.

19(2). Every scheme referred to in sub-section (1) shall be circulated to every person required by the scheme to provide financial assistance for his consent within a period of sixty days from the date of such circulation (or within such further period, not exceeding sixty days, as may be allowed by the Board, and if no consent is received within such period or further period, it shall be deemed that consent has been given). 19(3). Where in respect of any scheme the consent referred to in sub-section (2) is given by every person required by the scheme to provide financial assistance, the Board may, as soon as may be, sanction the scheme and on and from the date of such sanction the scheme shall be binding on all concerned.

(4). Where in respect of any scheme consent under sub-section (2) is not given by any person required by the scheme to provide financial assistance, the Board may adopt such other measures, including the winding up of the sick industrial company, as it may deem fit.

16. A perusal of para 3 of the circular would show that

CBDT vide its letter 30.12.1993 had withdrawn its earlier

circular bearing no.523 dated 05.10.1988 and circular

no.576 dated 31.08.1990. Evidently, the letter dated

30.12.1993 issued to the AAIFR and BIFR clarified that for

according financial assistance or giving financial

concessions, under Direct Tax Laws, each individual case _____________________________________________________________________________________

would be considered on merits and that consent, if any,

would be granted under Section 19(2) of SICA only

thereafter. The „consent or denial of consent ' would

be communicated to the AAIFR and/or BIFR by the Central

Government. The Nodal Agency for coordination between

BIFR and CBDT and between AAIFR and CBDT would be the

Director General of Income Tax (Admn.).

17. A reading of the circular thus would convey that the

decision on the aspect of reliefs or concessions to be granted

can only be communicated by the Central Government. On

behalf of the Central Government, it would be the CBDT

which would engage with, either the BIFR or the AAIFR,

depending on where the case of the sick industrial company

was pending; and as between the two authorities i.e., CBDT

and the BIFR or the AAIFR and the CBDT, the nodal agency

deputed to coordinate the aspect of grant of financial

concessions or financial assistance to be given to a sick

industrial company would be Director General of Income Tax

(Admn.). It cannot be disputed that this circular is in public

domain. As a matter of fact, learned counsel for the

petitioners quite correctly pointed out to us that this circular _____________________________________________________________________________________

is on the website of the Income Tax Department. That the

BIFR was perhaps aware of the fact that the CBDT would be

a proper and a necessary party for considering the reliefs

and concessions (which the DRS called upon the Income Tax

Department to consider) is evident from the list appended at

page 205 of the paper book (which is the list containing 17

names enclosed with DRS), where the reference to petitioner

nos.1 & 2 is at serial nos.16 & 17. Obviously, there was every

intention of the BIFR to serve the petitioners. Learned

counsel for Respondent Nos.3 & 4 has not disputed before us

that the extract from the Register of Dispatch of the BIFR

dated 11.12.2006, at serial no. 1307 reads as „Assistant

Officer, Bhilwara‟. We take it that the reference to the

Assistant Officer is to the Assessing Officer, who appears at

serial no.14, in the list of addressees, appended at page 205

of the paper book.

18. The fact remains that there is no proof of dispatch to

the petitioner nos.1 or 2, who are referred to at serial nos.16

and 17 in the list appended at page 205. As a matter of fact,

at serial no.1313, there is a reference to ESIC (illegible)

Delhi. Interestingly the Assistant Director, ESIC is referred _____________________________________________________________________________________

to at serial no.15, in the list appended at page 205 to the

paper book. Therefore, while ESIC was served, the fact

remains that neither petitioner no.2 i.e., Director General of

Income Tax (Admn.) nor the Secretary, CBDT, who are

shown at serial nos.16 and 17 respectively in the list

appended at page 205 of the paper book, are shown as in

the list of addressees in the dispatch register of the BIFR.

Therefore, there can be two possibilities, (as been put forth

by the petitioners) either the entries against serial nos. 16

and 17 in the list attached at page 205 of the paper book,

which is the list enclosed with DRS dated 04.12.2006, were

made subsequent to the dispatch or, that the said two

addressees i.e., petitioner no.2/Director General Income Tax

(Admn.) and Secretary, CBDT were inadvertently not served

by the BIFR.

19. In our view, this would be fatal insofar as the sick

industrial company is concerned as, party cannot be mulcted

with the consequence of a deemed consent unless service of

the DRS is effected on the designated authority in terms of

the circular dated 683 dated 08.06.1994.

_____________________________________________________________________________________

20. As to why service on the designated authority indicated

in the circular is crucial before one could say that the

sanctioned scheme would be binding on the Income Tax

Department, is quite apparent on a bare reading of the

provisions of section 19 of SICA.

20.1 A perusal of the provisions of section 19 of SICA would

show that where the Central Government is to provide

financial assistance in the form of reliefs and concessions its

consent, is mandatory. Where Central Government proposes

not to give its consent, it is required to file its objection

within sixty (60) days of the date of circulation of the DRS or

such further period not exceeding sixty (60) days, which the

BIFR may allow, failing which it shall be deemed that Central

Government has given its consent. The Central Government

is not defined in SICA. The Central Government being an

amorphous body has by virtue of the said circular appointed

a „nodal agency‟, in other words, an agent to act for and on

its behalf in matters concerning financial assistance and

concessions under the Direct Tax Laws. There is no

provision under the Income Tax Act for according such

consent. Therefore, the two statutes are required to be read _____________________________________________________________________________________

harmoniously in order to avoid a conflict. Harmonious

construction would have us hold that not only is the consent

mandatory, but that, it has to be of an authorized person

acting within the ambit of his authority. The limits of such an

authority vested in an agent would be defined by the

mandate of its principal, which in any event, cannot go

beyond the statute of which it is a creature where the statute

seeks to define the limit. A Division Bench of this court in

WP(C) No.6674/2001 titled as Government of India

(Department of Revenue) Vs. Appellate Authority For

Industrial and Financial Reconstruction and Ors. vide its

judgment dated 18.03.2002 has gone further by holding that

before consent is sought, the DRS should quantify the extent

of reliefs and concessions to be provided to a sick industrial

company. We respectfully reiterate the said view.

20.2 It is pertinent to note that the manner in which sub-

section (3) of section 19 of SICA is structured, it is quite

possible that BIFR may not sanction a scheme even after a

consent, deemed or otherwise, is obtained of entities

referred to in sub-section (1) of section 19. Where consent is

not given, BIFR has various options depending on the facts _____________________________________________________________________________________

and circumstances obtaining in a case including winding up

of a sick industrial company. [see Oman Inernational Bank

S.A.O.G. v. AAIFR, (2010) 157 CompCas 149 (Delhi)].

21. Since we have taken the aforesaid view, we are really

not called upon to consider the submission made by the

petitioners that the Assessing Officer was not served in the

matter. We may only note that this plea was taken, as noted

above, after an inter-departmental letter had been issued on

26.11.2008 calling upon the officer concerned to explain his

conduct. It is only thereafter that, once again, by way of an

inter-departmental communication, the petitioners were told

that there was no service effected on the assessing officer of

the DRS dated 04.12.2006. These letters dated 26.11.2008

and 02.12.2008 have been filed by the petitioners admittedly

for the first time with the writ petition; which is why there is

no reference to the said letters in the impugned judgment of

the AAIFR.

22. We may also note at this stage that the impugned

judgment which was passed nearly three (3) months prior to

the judgment of the AAIFR dated 19.09.2008, Shimoga Steels

Ltd. (supra) by the same Bench would not reflect on the _____________________________________________________________________________________

bench inasmuch as the order passed in Shimoga Steels

Ltd. though by the same Bench is latter in point of time. The

Bench in Shimoga Steels Ltd may have, after hearing learned

counsel for the parties, taken a view which was supportive of

the stand adopted by the Income Tax Department. It is quite

possible that the earlier view was not brought to the notice

of the bench. However, this aspect of the matter need not

detain us any further as we have already indicated that, in

our opinion, the only entity which could have engaged with

the BIFR was the Director General of Income Tax (Admn.)

and therefore service had to be effected accordingly. We

may only observe for the future that both the AAIFR and the

BIFR should keep this in vital aspect in mind while seeking

response to reliefs and concessions proposed to be given to

a sick industrial company under the Direct Tax Laws.

23. It is precisely for this reason that the judgments cited

by learned counsel for Respondent Nos.3 & 4 do not require

to be discussed as none of them deal with point in issue

raised before us.

24. We may only note that there is an observation in para

21(4) of the judgment of a Division Bench of this Court in the _____________________________________________________________________________________

case titled Mewar Sugar Mills Ltd. v. Chairman, Central Board

of Direct Taxes and Anr. to the effect that the DRS ought to

be circulated to the Director General of Income Tax (Admn.)

for seeking his consent under the Direct Tax Laws.

25. Before we conclude, we may notice the submission

made on behalf of the petitioners that by virtue of provisions

of clause (vii) of Section 115 JB (1), the sick industrial

company could not have got benefit beyond the assessment

year in which its net worth turned positive.

26. We may only observe that Section 115 JB(1) is a special

provision whereby under the Income Tax Act, zero tax

companies are taxed on the basis the book profits. In arriving

at the book profits of such companies, the provisions given in

explanation (1) of the aforementioned Sections are required

to be adhered to. The expression book profits as defined

means net profits as shown in the profit and loss account for

the relevant previous year prepared under Sub-Section (2) as

increased by the provisions contained in (a) to (i). There is

also a provision for reduction of the profits shown in the

profit and loss account by virtue of provisions contained in

explanation (1) of Section 115JB under clauses (i) to (viii). _____________________________________________________________________________________

Therefore, as to what would be impact of these provisions

will have to be considered by the BIFR, while dealing with

paragraph 14.3(b) of the sanctioned scheme. We do not

propose to comment on the same at this point in time as no

ground admittedly has been taken in the writ petition

pertaining to this aspect of the matter.

27. We may only note that it is not disputed on behalf of

the respondent that as on 31.03.2009, the net worth of the

sick industrial company turned positive. In these

circumstances, the best course, in our considered view,

keeping the interest of both parties in mind; would be to set

aside the impugned judgments of the AAIFR and the BIFR,

and remand the matter to the BIFR for the limited purpose of

re-considering the provisions of the impugned paragraph

14.3 (b) of the sanctioned scheme.

28. We order accordingly. For this purpose, the parties

along with their authorized representative shall appear

before the BIFR on 10.10.2011. The BIFR shall consider the

issue after hearing the submissions of both the sides and

pass an order within a period of six (6) weeks from the date

_____________________________________________________________________________________

of receipt of a copy of this order. A copy of this order be also

sent expeditiously to the BIFR and the AAIFR.

29. With the aforesaid observations, the writ petition stands disposed of.

SANJAY KISHAN KAUL, J.

SEPTEMBER 23, 2011                                      RAJIV SHAKDHER, J.
DM/yg

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