TWINSTAR HOLDINGS LIMITED Vs. ANAND KEDIA DEPUTY COMMISSIONER

JUDGEMENT

(1.) BY this writ petition under Article 226 of the Constitution, the petitioner seeks to challenge, inter alia, notices dated 14th July, 2002, 15th July, 2002 and 15th July, 2002 being Exhibit-J. 1 to Exhibit-J. 3 issued under section 226 (5) read with the Third Schedule to the Income tax Act, 1961 under which the Deputy Commissioner of Income tax-respondent No. 1, has prohibited M/s. Twinstar Holdings Limited-petitioners from receiving shares mentioned in the impugned notices. By the said notices, the Depository Participant is also restrained from delivering the impugned shares to any person (s ). FACTS:

(2.) PETITIONER-TWINSTAR Holdings Limited is a Mauritius based company, being Overseas Corporate Body, registered under the Mauritius Companies Act, 1984. Petitioner was the holder of 100% shares of three Investment Companies viz. Pravin Navin Investment and Trading Company (hereinafter referred to as "p. N. I. T. "); Dwarkaprasad Anilkumar Investment Private Limited (hereinafter referred to as "d. A. I. L. ") and Sterilite Copper Rolling Mills Private Limited (hereinafter referred to as S. C. R. M. ). All the three Investment Companies were Indian Companies. They have come under voluntary winding up. The petitioner-company was incorporated on 12th January, 1993 under Mauritius Companies Act, 1984 in Mauritius with the object of holding shares. The shares of the petitioner-company were held by Non-Resident Indians in the following ratio: Dwarkaprasad Agarwal 50% agnivesh Agarwal 50% the company was designated as Overseas Corporate Body (hereinafter referred to as "o. C. B. " ). Petitioner acquired shares of above said Investment Companies between 1993 to 1999. On June 30, 1999 the petitioner was the holder of 100% stake in the three Investment Companies. These three Investment Companies, in turn, were holding shares in two Indian Companies viz. Sterilite Industries (India) Limited (briefly known as "s. I. I. L. ") and Madras Aluminium Company Limited (briefly known as "m. A. L. C. O. " ). The share holding of the three Investment Companies in S. I. I. L. and M. A. L. C. O. is chartered out in para 4 of the petition. According to the petitioner, the shares of S. I. I. L. and M. A. L. C. O. were held by the three Investment Companies, not as stock-in-trade, but as investment. The shares of S. I. I. L. and M. A. L. C. O. were shown as investment in the accounts for the year ending 31st March, 1998 corresponding to assessment year 1998-99. The Agarwal brothers, being promoters of various companies, held a substantial part of share holding in S. I. I. L. and M. A. L. C. O. through the said three Investment Companies. With a view to borrow funds from International Market on security of shares of S. I. I. L. and M. A. L. C. O. , it was decided to liquidate the three Investment Companies and to consolidate the share holding in S. I. I. L. and M. A. L. C. O. in the petitioner-company. On 17th April, 1999, a board meeting of the three Investment Companies was held. It was proposed to wind up the Investment Companies and appoint liquidators. On 29th April, 1999, the proposal of the boards of the three Investment Companies received the assent of the share holders in the extraordinary general meetings. A liquidator was accordingly appointed. On appointment, the liquidator made applications to respondent Nos. 1, 2 and 3 herein, being Deputy Commissioner of Income tax, Range-III (1), Range- III (2) and Range III (3), Mumbai. Accordingly, N. O. C. was obtained under section 178 from the said three respondents on 15th June, 1999, 26th May, 1999 and 14th June, 1999 in case of P. N. I. T. , D. A. I. L. and S. C. R. M. respectively. On 17th June, 1999, an application was made to the Reserve Bank of India (R. B. I.) by the petitioner-company for approval of transmission of shares of S. I. I. L. and M. A. L. C. O. on fully repatriable basis upon liquidation of the Investment Companies. On 30th November 1999, R. B. I. granted conditional approval for transmission of shares on fully repatriable basis in favour of the petitioners. However, on 29th January, 2000 and 13th March, 2000, R. B. I. advised the petitioner that extent of repatriability of the shares had to be ultimately decided by Foreign Investment Promotion Board and, therefore, R. B. I. should be approached only after obtaining approval from Foreign Investment Promotion Board. On 16th May, 2000, petitioner received the approval from Foreign Investment Promotion Board, approving transmission of shares of S. I. I. L. and M. A. L. C. O. , hitherto held by the Investment Companies on fully repatriable basis. Accordingly, R. B. I. gave its final approval on 16th February, 2001. Pursuant to the above, the petitioner-company was registered as a beneficiary of the said shares held by Deutsche Bank, Mumbai Branch as Depository Participant (hereinafter referred to, for the sake of brevity, as "d. P. " ).

(3.) ON 8th December, 1999, a search was carried out at Offices/factories of S. I. I. L. , including the three Investment Companies. Pursuant to the search, respondents Nos. 1 to 3 herein passed three separate block assessment orders of the said Investment Companies viz. order dated 30th January, 2002 in respect of P. N. I. T. , order dated 31st December, 2001 for D. A. I. L. and order dated 31st December, 2001 in respect of S. C. R. M. The block period for which assessment was made was for the financial year 1989-90 upto 1998-99 and for the period 1st April, 1989 upto 8th December, 1999. For P. N. I. T. , the assessed income has been found to be Rs. 238 crores; for D. A. I. L. , the assessed income has been found to be Rs. 53 crores and for S. C. R. M. , the assessed income is found to be Rs. 37 crores. In all, the total assessed income of the three Investment Companies during the block period is found to be Rs. 328 crores for which a total tax demand outstanding is Rs. 222. 70 crores. In the assessment orders, additions were made by the Assessing Officer on the ground that conversion of stock-in-trade into investments by the three Investment Companies was sham and consequently, transmission of shares of S. I. I. L. and M. A. L. C. O. to the petitioners has been charged to tax in the hands of the three Investment Companies at the market value of the shares. Pursuant to the block assessment orders, referred to above, notice under section 156 in respect of total demand of Rs. 222. 70 crores has been raised on the three Investment Companies. These notices of demand are dated 30th January, 2002 for P. N. I. T. , 31st December, 2001 for D. A. I. L. and 31st December, 2001 for S. C. R. M. The liquidators of the three Investment Companies have filed appeals against the block assessment orders before the C. I. T. (appeals ). They are pending even today. By stay applications dated 5th March, 2002, 7th February, 2002 and 7th February, 2002 addressed by the liquidators of the three Investment Companies, stay was sought from respondents Nos. 1 to 3 under section 220 (6) of the Income-tax Act pending hearing and final disposal of the appeal by C. I. T. (appeals ). The applications remained undisposed. Therefore, the liquidators moved, on the Administrative Side, C. I. T. III, being respondent No. 4 to the petition, for stay in March 2002. According to the petitioners, without any prior intimation, hearing or correspondence, respondents Nos. 1 to 3 issued impugned notices on 14th July, 2002 for P. N. I. T. , 15th July, 2002 for D. A. I. L. and 15th July, 2002 for S. C. R. M. to D. P. stating that the three Investment Companies have failed to pay the tax arrears due from them and prohibiting the petitioner-company and the D. P. from receiving/delivering shares to any person whomsoever. To complete the chronology of events on 15th July, 2002, respondent No. 1 passed orders under section 179 of the Income-tax Act against two ex-directors of P. N. I. T. holding them liable for payment of tax arrears of P. N. I. T. , inter alia, on the ground that the assets of P. N. I. T. have been transmitted to the petitioner and that P. N. I. T. had no assets so as to enable the department to recover the tax arrears. Under the above circumstances, this petition has been filed, seeking to challenge the impugned notices dated 14th July, 2002, 15th July, 2002 and 15th July, 2002 in respect of P. N. I. T. , D. A. I. L. and S. C. R. M. respectively under section 226 (5) read with the Third Schedule to the Income-tax Act.