Income Tax Dept. Not Under The Obligation To Grant Additional Tax Concession As Per BIFR’s Order: Delhi High Court

The Delhi High Court has held that the income tax department is not under the obligation to grant additional tax concessions as per the order passed by the Board for Industrial and Financial Reconstruction (BIFR).

The bench of Justice Vibhu Bakhru and Justice Amit Mahajan has observed that the obligation to extend further concessions could not be imposed on the Central Government (Income Tax Department) without its consent. The Income Tax Department had not consented to extend any concession. And therefore, the BIFR’s order dated February 26, 2013, requiring the department to consider the grant of further concessions, cannot be interpreted as making it obligatory for the department to grant concessions.

The respondent company filed a reference before the BIFR under Section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985. The BIFR declared the company a sick industrial company within the meaning of Section 3(1)(o) of SICA and appointed the Central Bank of India as the operating agency to prepare a rehabilitation package for the company.

The Principal Director General of Income Tax (DGIT) has challenged the order passed by the BIFR. The BIFR modified the Rehabilitation Scheme, which was approved by the BIFR under Section 18(5) of the Sick Industrial Companies (Special Provisions) Act, 1985. The scheme was amended to the limited extent of including additional exemptions from payment of income tax under the Income Tax Act of 1961. The BIFR had directed the Income Tax Authorities to comply with its order within a period of 45 days.

The DGIT assailed the order, essentially, on two fronts.

Firstly, further concessions, as contemplated in the order dated February 26, 2013, could not be granted as the scheme had come to an end. According to the DGIT, no further concessions could be considered or granted without extending the term of the scheme.

Secondly, in terms of the order dated February 26, 2013, the scheme was modified to require the Income Tax Department to consider the grant of concessions as specified in the order, and there is no requirement to necessarily grant the same.

The respondent/company contended that since the remedy of an appeal against any revival scheme or an order of the BIFR under Section 25 of SICA is no longer available as a result of the legislative repeal of SICA, a challenge to the orders passed by the BIFR would not be maintainable in any other forum either.

The company submitted that, in terms of SICA, the BIFR would continue to have jurisdiction over a sick company, notwithstanding that its net worth has turned positive until it is de-registered. He submitted that the order dated February 26, 2013, had the effect of modifying the scheme, which continues to be binding, and that the DGIT’s understanding that the term of the scheme had come to an end is erroneous.

"We are also unable to accept that the DGIT is remediless against an order passed by the BIFR solely for the reason that SICA, which provided for an appeal against a rehabilitation scheme or any orders passed by the BIFR, stands repealed," the court said while rejecting the contention of the respondent.

The court noted that as per Section 5(1)(c) of the Repeal Act, the repeal of SICA would not affect any right, privilege, obligation, or liability acquired, accrued, or incurred under the repealed enactment or affect any order made by the Board for sanction of the schemes. Thus, the scheme sanctioned by the BIFR would continue to be binding and would not be affected by the repeal of SICA. However, it does not imply that any person aggrieved by the rehabilitation scheme or any subsisting orders of the BIFR is without any remedy at all.

The court has remarked that there is no statutory appellate remedy that does not preclude the court from exercising powers under Articles 226 and 227 of the Constitution of India. The recourse of this Court under Articles 226 and 227 of the Constitution of India is not precluded or proscribed where the relevant statutes do not provide a remedy of appeal.

The court held that it was the company’s stand before the BIFR that the additional concessions as proposed did not obligate the Income Tax Department to necessarily grant the same, and it retained the discretion to do so.

Case Title: DGIT Versus The Indian Plywood Mfg. Co.

Citation: 2023 LiveLaw (Del) 717

Date: 09.08.2023

Counsel For Petitioner: Shlok Chandra

Counsel For Respondent: Anunaya Mehta

Click Here To Read The Order