Facts

The Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 (‘the Act’) is a Special Act. The offences it deals with involve amounts of unusual magnitude procured by brokers from banks and financial institutions. Unfortunately, the proceedings before the Special Court, which was set up for a quick prosecution or adjudication of claims have been trapped in unusual legal  and interpretational difficulties generated by the casual drafting of the Act that leaves much to the skills and good sense of the courts.

The Special Court has observed that it has been functioning since June 1992. In respect of two notified parties, namely, the Harshad Mehta Group & Fairgrowth Financial Services Ltd., the time is approaching for distribution of their assets under section 11. In view of the different  possible  interpretations  of the provisions of section 11, the Special Court has raised certain questions of law. After hearing  all concerned parties, the Special Court has answered these questions in the impugned judgment, somewhat in the fashion of an Originating Summons. The custodian has raised certain additional questions which arise in interpreting and implementing section 11.

Issue

Whether the phrase ‘taxes’ as used in section 11 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 can only mean amounts due as and by way of taxes or whether it would also include penalties and interest, if any.

View

Tax, penalty and interest are different concepts under the Act. The definition of ‘tax’ under section 2(43) does not include penalty or interest. Similarly, under section 157, it is provided that when any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the Assessing Officer shall serve upon the assessee a notice of demand as prescribed. Provisions for imposition of penalty and interest are distinct from the provisions for imposition of tax. Learned Special Court Judge, after examining  various authorities   in paragraphs 51 to 70 of his Judgment, has come to the conclusion that neither penalty nor interest can be considered as tax under section 11(2)(a).

Held

Tax, penalty and interest are different concepts under the Income-tax Act. The definition of “tax” under section 2(43) of the Income-tax Act, 1961, does not include penalty or  interest. Neither penalty nor interest can be  considered as  tax under section 11(2)(a) of the Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992. (CA No. 5326 of 1995 dt. 13-05-1998)

Editorial: As per section 249(4)(a) of the Income-tax Act, 1961 the shall not be admitted unless the assessee has paid the tax due on the income returned by  him. Accordingly if interests have not been paid the appeal cannot be dismissed.

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