UTI Mutual Fund vs. ITO (Bombay High Court)

DATE: (Date of pronouncement)
DATE: March 22, 2012 (Date of publication)

Click here to download the judgement (uti_mutual_fund_stay_recovery.pdf)

S. 220(6): Guidelines laid down on how stay applications should be dealt with

The assessee, a mutual fund, was a beneficiary of a trust named India Corporate Loan Securitisation Trust which was set up for securitising a loan of Rs.300 crores by issue of Pass Through Certificates (PTCs). The assessee had subscribed to the PTCs and its beneficial interest was proportionate to the PTCs subscribed. The Trust received interest of Rs.21.49 crores in respect of a loan and distributed the income to its beneficiaries in their respective shares. The AO passed an assessment order on the trust in the capacity of an AOP. Though a stay application was filed, the AO, without disposing of the stay application, demanded that 50% of the demand be paid. He also directed the assessee to pay Rs. 9.63 crores on the ground that it was a member of the AOP (Trust) and was jointly and severally liable in respect of the demand against the AOP. The assessee filed a stay application which was disposed of by the AO on 9.3.2012 (received by the assessee on 13.3.2012). On 12.3.2012, the AO attached the assessee’s bank account u/s 226(3). The assessee filed a Writ Petition pointing out that the action had been in pursuance of the CBDT Chairman’s letter dated 7.2.2012 promising postings commensurate with tax recovery. HELD by the High Court:

The Revenue has made an unfortunate and hasty attempt to make a recovery of the demand without enabling the assessee to take reasonable recourse to the remedies available in law. The assessee filed a stay application before the AO on 7.3.2012 and moved the CIT on 9.3.2012. Before service of the order rejecting the stay application, the assessee’s bank account was attached on 12.3.2012. Administrative directions for fulfilling recovery targets for the collection of revenue should not be at the expense of foreclosing remedies which are available to assessees for challenging the correctness of a demand. The sanctity of the rule of law must be preserved. The remedies which are legitimately open in law to an assessee to challenge a demand cannot be allowed to be foreclosed by a hasty recourse to coercive powers. AOs & appellate authorities perform quasi-judicial functions under the Act. Applications for stay require judicial consideration. Rejecting such applications without hearing the assessee, considering submissions and indicating at least brief reasons is impermissible. In KEC International 251 ITR 158 guidelines regard to the manner in which applications for stay should be disposed of have been laid down. Unfortunately these guidelines are now being breached by the Revenue. In Coca Cola India 285 ITR 419 the conduct of the Revenue was deprecated. In attaching bank accounts even before communicating the order passed The following guidelines should be borne in mind for effecting recovery:

1. No recovery of tax should be made pending

(a) Expiry of the time limit for filing an appeal;

(b) Disposal of a stay application, if any, moved by the assessee and for a reasonable period thereafter to enable the assessee to move a higher forum, if so advised. Coercive steps may, however, be adopted where the authority has reason to believe that the assessee may defeat the demand, in which case brief reasons may be indicated.

2. The stay application, if any, moved by the assessee should be disposed of after hearing the assessee and bearing in mind the guidelines in KEC International;

3. If the Assessing Officer has taken a view contrary to what has been held in the preceding previous years without there being a material change in facts or law, that is a relevant consideration in deciding the application for stay;

4. When a bank account has been attached, before withdrawing the amount, reasonable prior notice should be furnished to the assessee to enable the assessee to make a representation or seek recourse to a remedy in law;

5. In exercising the powers of stay, the ITO should not act as a mere tax gatherer but as a quasi judicial authority vested with the public duty of protecting the interest of the Revenue while at the same time balancing the need to mitigate hardship to the assessee. Though the AO has made an assessment, he must objectively decide the application for stay considering that an appeal lies against his order : the matter must be considered from all its facets, balancing the interest of the assessee with the protection of the Revenue.

2 comments on “UTI Mutual Fund vs. ITO (Bombay High Court)
  1. vswami says:

    The reported case brings to ‘dark’ focus the adminstrative instructions, which by any standard are consideredc in legal circles as highhanded and prima facie unethical. The AO’s action in pursuance thereof is in blatant violation of all known principles/canons of ‘law’; also in negation of the overiding principles of natural justice, which is supposed to be the guiuding factor, weighted on the well known concept of ‘balance of convenience’.

    Despite the provocation, the HC can only be regarded to have taken rather a lenient view of the episode. Such developments go to betray the hollowness of the public pronouncements repeatedly made by the FM himself, so also by the concerned others, in recent times, to the effect that the Revenue would look upon the honest taxpayers as friends, not as foes.

  2. nilesh chawda says:

    The heavy cost of litigation in terms of money, man hours [ more particularly of legal consultants, judiciary ] can’t be ignored.
    what @ the trauma and agony undergone by the assessee. individual just can’t face it and many times after filing appeal goes for buying peace of mind in the mid – way since it adversely affect their day to day functioning at great length. many meritorious appeals r facing this fate.
    An area in which collective efforts more particularly by organiZations like BCA, WIRC, CITC, ITAT BAR ASSO can help a lot

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