DY. COMMISSIONER OF INCOME TAX versus STATE BANK OF INDIA AND ORS.

Citation: [2008] 16 S.C.R. 1146 · Decided: 03-12-2008 · Supreme Court of India · Bench: TARUN CHATTERJEE · Disposal: Disposed off

Judgment (excerpt)

[2008) 16 S.C.R. 1146 
·A 
DY. COMMISSIONER OF INCOME TAX 
\I. 
STATE BANK OF INDIA AND ORS: 
(Civil Appeal No. 32945 of 2007 etc.) 
B 
DECEMBER 03, 2008 
[TARUN CHATiERJEE AND DR. MUKUNDAKAM 
SHARMA, JJ.] 
Special Court (Trial of Offences relating to transactions 
c in Securities) Act, 1992 - s.11(2)(a) and (b) - Discharge of 
tax liabilities under - Of notified person - Priority claim of 
Revenue . -- Creditor Banks seeking scaling down the claim 
of Revenue - ·Allowed by Special Court - On appeal, plea of 
Banks that the amount for which decree was passed in their 
p favour against the notified person prior to issuance of 
Notification uls.3 could not have been assessed as the 
income of the notified person without showing nexus between 
_., 
the decreed amount and the amount included in income for 
statutory period - Duplication of amount in the order of scaling 
E down also disputed - Held: Priority in payment of tax liability 
is only for statutory period and not beyond that - Question of 
nexus required to be decided - Issue of nexus and issue of 
duplication, since not decided by Special Court, the matter 
is remitted to Special Court for finding on these issues - If 
F nexus is found, the amount shall be disbursed to the Banks. 
Income Tax Officer passed assessment order in 
,,. 
respect of the assessment years 1992-93 and 1993-94 at 
Rs.2014 crores and Rs.1396 crores respectively in 
respect of person notified u/s. 3 of Special Court (Trial of 
G Offences Relating to Transactions in Securities) Act, 1992. 
CIT (Appeals) confirmed the assessment order. The • 
appeals against the order are pending with Income Tax 
Appellate Tribunal. In terms of s.11 (2) (a) of the Act, 
Income Tax Department was having first right on 
H 
1146 
• 
) 
DY. COMMISSIONER OF INCOME TAX v. STATE BANK 1147 
OF INDIA AND ORS. 
appropriation of assets of the notified persons. The 
A 
1 custodian released a sum of Rs.686.22 crores to the 
Department,· pursuant to various orders-passed by 
Special Court confirmed by Supreme Court. 
In Harshad S. Mehta vs Custodian & Ors. (1998) 5 SCC 
B 
1, this Court held that priority could be restricted to the 
tax component of the demand for priority period relevant 
1 to Assessment Years 1992-1993 and 1993-1994; tnat 
Special Court could not sit in appeal over the order of tax 
assessment, but 1n case of any fraud, collusion or 
miscarriage of justice in assessment proceedings where 
C 
tax assessed is disproportionately high in relation to 
funds available, Special Court could scale down the tax 
liability to be paid in priority. 
Respondent-Banks filed applications before Special 
D 
Court seeking direction to scale down the priority 
demand of the appellate-Department on the ground that 
there was gross miscarriage of justice in making an order 
of assessment in the case of the notified person. They 
contended that decree passed in their· favour against the 
E 
notified person, proved that the money in question which 
was assessed as income of the notified person was, in 
fact, money of the Banks and hence could not have been 
assessed as income of the notified person; that 
miscarriage of justice also crept iri, in r~spect of, 
F 
additions on account of oversold securities, unexplained 
stock and unexplained deposits in Banks etc. Special 
Court accepting the plea of the Banl<s, scaled down the 
priority demand. It directed the appellant-Department to 
refund Rs.546.22 crores out of the already received G 
amount of Rs.686.22 crores to the custodian, because in 
view of the plea of the Banks, the tax liability of ttle 
notified person was only Rs.140 crores. It further oirected 
the custodian to disburse the available amount to tfle 
Banks in respect of the principal amount against their 
H 
SUPREME 'COURT REPORTS 
. 
\ 
(2008] 16 S.C.R. 
A decrees. Hence, the present appeals. 
. -. · 
The question for CQO$ideration J;>efore this Court was 
whether the Special Court w~~ ri~~t in scaling down the 
priority tax demand by delving intg th~ merits of the 
\ 
8 assessment orders and by deciding th~ m~tter ~s an 
appellate authority which directions according tg the 
appellant were in violation of the decision of the CQurt in 
Harshad Mehta's case. Revenue contended inter alia that 
' 
there was duplication of two amounts which were scaled 
C down, as both the amounts were with rn~pe~t ~<? the 
oversold securities and were one and the same~ . 
. Disposing of the appeals, and remitting the matter to 

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