By TIOL News Service

HYDERABAD, OCT 26, 2017: THE issue before the Bench is - Whether when the entire sum deposited in assessee's current account is seized and nothing left in the hand of the assessee to pay the Revenue under the PMGKY Scheme, the surplus fund can be released to the assessee after keeping the RBI bonds with it and its interest would not be harmed. And the HC verdict is YES.

Facts of the case

The Assessee-company is a producer of feature films in Telugu and Tamil languages. According to the Assessee, it deposited a sum aggregating to Rs.40 Crores during the period from 23-12-2016 to 27-12-2016 into their current account with Canara Bank, after the GoI notified the demonetisation of certain currencies. Thereafter, searches were conducted at various places in Chennai and Hyderabad and a sworn statement was recorded from the Director of Assessee-company. Thereafter, a sum of Rs.22.99 Crores was ordered to be seized followed by an order for seizure of another amount of Rs.13.98 Crores, both of which were lying in the current account of the Assessee.

After more than 50 days of the seizure of the aforesaid amounts, the Assessee gave a sworn statement expressing willingness to disclose an amount of Rs.20 Crores under the scheme known as PMGKY Scheme. Actually the said scheme was introduced under the Taxation Laws (Second Amendment) Act, 2016 mandated two conditions to be satisfied before a declaration in Form-I could be accepted from a person willing to come under the scheme. Those conditions were (i) payment of 30% of the income disclosed under the Act towards tax, payment of 10% of the undisclosed income as penalty and payment of 33% of the tax towards surcharge and (ii) the deposit of 25% of the declared income in RBI Bonds. But, since the entire amount available to the credit of the Assessee in their current account, totalling to Rs.36.97 Crores had been seized by the Revenue and also taken away by them, the Assessee was left with no funds to make payment u/s 199D, 199E and 199F.

Having heard the parties, the HC held that,

++ the amount taken away from the current account of the assessee was Rs.36.98 Crores. Out of the said amount, a sum of Rs.20 Crores has been disclosed under the PMGKY Scheme. If the declaration filed by the assessee u/s 199C is accepted by the department, the department will have to do two things, viz., (a) to release the amount of Rs.5 Crores; and (b) to allow the assessee to encash the amount of Rs.5 Crores invested in RBI bonds u/s 199F. In other words if the declaration under PMGKY Scheme is accepted by the department, the assessee will get release of Rs.5 Crores;

++ if the declaration under PMGKY Scheme is rejected. Even in such a case, the assessee may lose, may be about 70% of the total amount seized. Still the assessee will get back 30%. Though according to the assessee the department will be left with a surplus of Rs.16.97 Crores, even after the release of Rs.5 Crores, the case of the department is that they left only with a sum of Rs.5 Crores after releasing a sum of Rs.5 Crores, after adjusting the amount payable under all heads for all these years. Therefore, we are of the considered view that the release of Rs.5 Crores will not hamper either any investigation or further proceedings on the part of the department;

++ there is also one more aspect. If the declaration under PMGKY Scheme is accepted by the department, the assessee will not only get immediate release of Rs.5 Crores, but will get RBI bonds encashable after four years to the total value of Rs.5 Crores together with interest. The amount lying in RBI bonds, if allowed to be retained as security for any eventuality, till the conclusion of all the proceedings, the departments interest will be more safeguarded, even if they release the amount of Rs.5 Crores.

++ therefore, the writ petition is disposed of directing the department to release an amount of Rs.5 Crores to the assessee within two weeks. The amount of Rs.5 Crores lying in RBI bonds, shall be kept by the department as security for the release of the amount hereby ordered, until the conclusion of any proceedings pending or to be initiated by the department. If the declaration under PMGKY Scheme is finally accepted, the RBI bonds may also be released to the assessee, provided no other dues are found payable by the assessee.

(See 2017-TIOL-2240-HC-AP-IT)