The questions were raised while hearing the application of the Fairgrowth Financial Services Ltd (FFSL) concerning distribution of assets to its creditors.
Even if the secured creditor is not entitled to stand outside the distributor under section 11 of the Act, whether the securedcreditor is entitled to his dues including interest on a priority under section 11(2)(b) of the Special Court Act and if so, up to what extentThe first question was raised by the FFSL's counsel, Sashi K Nair. According to him, the company has paid around Rs 40 crore (including interest and penalties) to the income-tax department while the principal amount was only around Rs 20 crore. "The department should return the interest and penalty amount to FFSL in the view of the recent Supreme Court judgment which decided the pertinent questions of law," he said.
The Supreme Court judgement in the matter of Harshad S Mehta and Custodian had answered more than six questions including the three questions raised by Justice Variava.
All these questions including new ones raised on July 13 will be answered by Justice Variava in the next hearing scheduled for July 17.
The question, which was added on Monday, was whether priority given to banks and financial institutions (under the Special Court Act) would cover-i) liabilities arising out of transactions during the period 1.4.1991 to 6.6.92; or ii) liabilities arising out of transactions during the period 1.4.91 to 6.6.92 or iii) all liabilities to banks and institutions. The Supreme Court bench - consisting of Sujata V Manohar, SP Kurdukar, DP Wadhwa in its order in May, 1998 - has said that Justice Variava will decide the tax liability of the creditors.
While stating that the interest and penalty are not covered under the Secial Court Act, the bench had left it to the discretion of the special court to decide whether such claims for penalty and interest should be paid out of any surplus funds in the hands of the custodian.
Taxmen to approach apex court
The income-tax department plans to approach the Supreme Court for seeking clarification on how to compute the tax liability for the period 1.4.91 to 6.6.92. As per the Special Court Act, all the liabilities of the securities scam will fall under the statutory period of 1.4.91 to 6.6.92.
"The departmentcomputes the tax liability for the whole fiscal and not a part of the year, hence it will become difficult to break the liability for a part of the year," said the department's Beni Chatterjee.
It also wants to know whether the interest and penalty collected from the notified parties can be adjusted against their liabities for assessement years extending beyond the notification period.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
