Heavy Engineering Corporation Limited, Ranchi vs Board for Industrial and Financial Reconstruction and Others

R.K. Merathia

Heard the parties finally.

This civil miscellaneous petition has been filed for modification/ clarification of the order dated 13/11/2009, disposing off the Company Petition No. 5 of 2004 with Writ Petition (Civil) No. 4513 of 2004.

The relevant portion of the revival package of M/s Heavy Engineering Corporation Limited, Ranchi (HEC for short) approved by the Government of India, Ministry of Industries & Public Enterprises, Department of Heavy Industry, PE.V Section dated 18/09/2008, reads as follows:

I am directed to state that the Government has approved the proposal of revival for HEC, which envisages Infusion of funds & reliefs and concessions as under:

....

(v) To allow HEC/Department of Heavy Industry to approach High Court and the Central Board of Direct Taxes for waiver of capital gains tax in the case.

The said revival package was part of I.A. No. 1701/ 2009, filed by HEC and I.A. No. 1809/2009, filed by the Central Government. The revival package of the State Government was part of Affidavit, filed on behalf of the State of Jharkhand on 02/06/2009. The said company petition and the writ petition were disposed of by order dated 13/11/2009, paragraph 13 of which reads as follows:

The prayers made in I.A. No. 1701 of 2009 filed by HEC, I.A. No. 1809 of 2009 filed by the Central Government and Affidavit filed on 2.6.2009 by the State of Jharkhand are allowed. The winding up proceeding being C.P. No. 5 of 2004 with W.P. (C) No. 4513 of 2004 are disposed off in terms of these I. As., affidavits and the revival packages. HEC is now free from winding up proceeding. The Central Government, the State Government and the HEC and other concerned parties are directed to act in terms of Revival Packages.

Let us hope and wish that past is not repeated and HEC, the nation''s pride and mother of industries fulfills its object of serving the Nation.

The HEC moved Central Board of Direct Taxes (CBDT for short) for waiver of capital gains taxes in terms of the said revival package of the Central Government but such prayer was rejected by letter dated 27/12/2010, the concluding portion of which reads as follows:

In the light of the above facts, I have been directed to intimate you that your representation has been considered by CBDT in terms of Income Tax Act, 1961 as the relief sought is not in terms of any scheme approved by BIFR under SICA. The revival package approved by the cabinet can not be treated as scheme sanctioned under SICA. The total impact of capital gains tax has been estimated at Rs. 323.21 crores in your representation. It has been claimed that the company has negative net worth and even after expected profit for the financial year 2009-10, the company would still be left with accumulated losses of Rs. 488.12 crores (provisionally). In terms of the Income Tax Act, there is no power to grant waiver from taxation under restructuring or rehabilitation plan unless it is approved by BIFR under SICA. Negative net worth or any claim or accumulated losses are not recognized as grounds in the Income Tax Act for allowing relief from tax due on capital gains.

I have further been directed to intimate you that your representation to exempt the company from capital gain tax is, therefore, rejected.

Thereafter, the HEC moved BIFR but such petition was dismissed by order dated 07/10/2010, concluding paragraphs of which reads as follows:

The Bench observed that the Bench cannot issue any direction to CBDT or any other concerned as neither reference of the company is pending with the Board nor the Hon''ble Jharkhand High Court has remanded back the case to BIFR with any direction, and DIT (R) vide letter dated 06.10.2010 has also submitted the same view and stated that reliefs sought by the company are not part of the Sanctioned Scheme, and cannot be subject matter of the present Misc. application.

Having considered the submission made, material of record, and based on fact the Bench dismissed the Misc. application No. 569/BC/2010 dated 29.09.2010, filed by the company M/s Heave Engineering Corporation Ltd. (HECL), accordingly.

It is submitted by Mr. Rajiv Ranjan that the HEC made the prayer for waiver of capital gains taxes in terms of the said revival package of the Central Government dated 18/09/2008, which was approved by this Court in the said company petition and which was disposed of in terms of the said revival package. It was not necessary to move BIFR and HEC was justified in approaching the CBDT directly for waiver of capital gains taxes and the CBDT was required to consider such prayer and take a decision. Therefore, it is prayed that the order dated 13/11/2009 be clarified to the extent that CBDT can consider the prayer of HEC for waiver of capital gains taxes.

On the other hand, Mr. Deepak Roshan, learned counsel appearing for the Income Tax Department, referring to its counter affidavit submitted that in the Scheme, submitted by HEC on 30/12/2005, no income tax relief was claimed. The High Court approved the said Scheme without any income tax relief. Moreover, only if the restructuring Scheme is sanctioned u/s 18 of SICA and under provisions of Section 19 read with Section 2 of SICA, such prayer of HEC could be considered.

In reply, Mr. Rajiv Ranjan, submitted that the demand of capital gains taxes is on the amounts waived/concessions granted by the Central/ State Government for revival of the company and, therefore, there was no occasion to pray for waiver of capital gains taxes in the revival package originally prayed for. Only after some concessions were granted and demands were waived under such revival scheme, the Income Tax Department raised the demand of capital gains taxes on such amounts and that is why, the Central Government in its revival package allowed HEC/ Department of Heavy Industry to approach High Court and the CBDT for waiver of capital gains taxes. He further submitted that after the order dated 13/11/2009 was passed, the provisions of SICA Act are not relevant. Moreover, the company petition was disposed of in terms of the revival package of the Central Government dated 18/09/2008, interalia allowing HEC/Department of Heavy Industry to approach High Court and CBDT for waiver of capital gains taxes and, therefore, the CBDT is competent to consider such prayer of HEC.

I find force in the submissions of Mr. Rajiv Ranjan. It appears that there was no occasion for HEC to claim waiver of capital gains taxes in the Scheme submitted by it on 30/12/2005 in this Court in the said company petition. In the said company petition revival scheme was sanctioned by the Central Government on 18/09/2008. Pursuant thereto, the company petition was disposed of. It is clear that in the said revival package in para (v) HEC/Department of Heavy Industry was allowed to approach the High Court and the CBDT for waiver of capital gains taxes. It appears that the liability of the capital gains taxes is based on the concessions granted and amounts waived in the revival package of the Central/State Government.

In these circumstances, I am inclined to clarify the order dated 13/11/2009 to the following extent. The HEC/Department of Heavy Industry can approach the Central Board of Direct Taxes (CBDT) for waiver of capital gains taxes within four weeks from today. The CBDT will not ask for approval of BIFR. It will consider such request of HEC and will take a decision thereon in accordance with law after giving opportunity of hearing to the parties.

With these observations and directions, this civil miscellaneous petition stands disposed of.