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2014 Supreme(Bom) 745
High Court of Judicature at Bombay
S.J. VAZIFDAR & B.P. COLABAWALLA, JJ.
M/s. Nerka Chemicals Private Limited
Versus
The Union of India through the Secretary, Ministry of Finance & Others
Writ Petition No. 11911 of 2013
Decided on: 25-03-2014
For the Petitioner:Percy Pardiwalla, Senior Counsel with Jas Sanghavi i/b PDS Legal, Advocates.
For the Respondents:R3, Vimal Gupta, Senior Counsel with Padma Divakar, Advocate.
The main legal point established in the judgment is the importance of considering the balance of convenience and irreparable injury in granting a stay of recovery under the Income Tax Act.
Headnote:
Income Tax - Stay of Recovery - Sections 56(1), 28(iv), 2(18)(b) - The judgment discusses the application for a stay of recovery of disputed tax under sections 56(1) and 28(iv) of the Income Tax Act, 1961. The court granted the stay on certain conditions to protect the revenue, considering the exceptional facts of the case. The court emphasized the importance of balance of convenience and the question of irreparable injury in granting the stay.
Fact of the Case:
The petitioner, a subsidiary of DHPL, received shares from the Shroff group without consideration. The tax authority assessed the value of the shares and demanded tax. The petitioner filed an appeal and sought a stay of recovery, which was initially denied.
Finding of the Court:
The court found that the petitioner had a strong prima facie case and was supported by an order of the Income Tax Appellate Tribunal. The court emphasized the irreparable harm and injury the petitioner would suffer if the recovery was not stayed. The court granted the stay on certain conditions to protect the revenue.
Issues: The issues included the nature of the transfer of shares, the consideration for the transfer, and the applicability of sections 56(1) and 28(iv) of the Income Tax Act.
Ratio Decidendi: The court considered the prima facie case, the order of the Income Tax Appellate Tribunal, and the balance of convenience and irreparable injury in granting the stay of recovery.
Final Decision: The court granted the stay of recovery on certain conditions to protect the revenue, emphasizing the irreparable harm and injury the petitioner would suffer if the recovery was not stayed.
S.J. Vazifdar, J.
1. Respondent Nos.2 to 6 are the Chief Commissioner of Income Tax, the Commissioner of Income Tax, the Additional Commissioner of Income Tax, the Assistant Commissioner of Income Tax and the Commissioner of Income Tax (Appeals). The petitioner has sought a writ of certiorari to quash and set aside an order dated 10.12.2013 passed by respondent No.6–CIT (A), a writ of prohibition restraining the respondents from taking any coercive steps to recover the disputed tax and a writ of mandamus directing CIT (A)/respondent No.6 to expeditiously dispose of the appeal filed by the petitioner against the assessment order passed by respondent No.2.
2(A). The case in a nutshell is this. The petitioner is a wholly owned subsidiary of Demuric Holdings Private Limited (DHPL). All the shares of DHPL are held by various members of the Shroff family and enterprises of the Shroff group (hereinafter collectively referred to as the “Shroff group”). The members of the Shroff group have a substantial shareholding in United Phosphorous Ltd. (UPL) and Uniforce Enterprises Ltd (UEL) which are listed on the recognized stock exchanges. The Shroff group transferred all their shares in UPL and UEL to the petitioner by way of a gift. The respondents concede that no consideration was paid for the transfers but contend that the value of the shares - about Rs.1400.crores - is liable to be brought to tax under section 56(1) or in the alternative under section 28 (iv) of the Income Tax Act, 1961.
(B). We have granted the petitioner's application for a stay of recovery on certain conditions which protect the revenue in view of the exceptional facts of this case. The following factors, not by themselves, but taken together persuade us to grant the stay on certain conditions. Firstly, the petitioner has made out a strong prima-facie case on principle. Secondly, the petitioner's case is covered in its favour by an order of the Tribunal. Thirdly, and most important in the peculiar facts of this case, if the recovery is not stayed, the petitioner will suffer not merely grave, but irreparable harm and injury. As a result of the transfer, the petitioner's holding in UPL increased from 1.59% to 21.25% and in UEL from 1.44% to 43.88%. If the stay is not granted, this substantial holding in the two companies would be sold to recover the tax demand. A holding of such a large percentage of shares in a company is itself a right of immense value. If the petitioner ultimately succeeds, it would be extremely difficult and probably impossible for the petitioner to regain the shareholding in the two companies to this extent. Fourthly, the balance of convenience is strongly in favour of the petitioner, as the interest of the revenue is totally safeguarded by the order, we intend passing.
3. The relevant facts giving rise to the present writ petition are as follows:-
(a) For the purposes of restructuring the group organization, in the AY 2010-2011, the Shroff group transferred their shareholding in UPL and UEL to the petitioner by way of a gift. As a result of the transfers, the petitioner's shareholding in UPL rose from 5.1% to 21.35% and in UEL from 1.44% to 43.88%.
(b) The petitioner filed its return of income under section 139 for the assessment year (AY) 2010-2011 on 22.09.2010. The petitioner filed a revised return on 28.03.2012, declaring an income of Rs.1,54,41,530/-. The case was selected for scrutiny.
(c) Respondent No.5–Asstt.CIT passed an assessment order under section 143(3) on the basis of the original return filed on 22.09.2010 and without taking into consideration the revised return filed on 28.03.2012. Respondent No.5 inter-alia taxed, under the head “income from other sources”, a sum of Rs.1464,54,53,232/- (Rs.1,464.54 Crores approx) representing the market value of 8,73,01,770 shares of UPL and 1,08,11,620 shares of UEL transferred by the Shroff group to the petitioner by way of a gift.
On 09.04.2013, the petitioner filed an appeal before r
